



COURT OF APPEAL FOR ONTARIO

CITATION: Deslaurier Custom Cabinets Inc. v. 1728106 Ontario
    Inc.,

2017 ONCA 293

DATE: 20170412

DOCKET: C59429

Cronk, Pepall and Miller JJ.A.

BETWEEN

Deslaurier Custom Cabinets Inc.

Respondent (Plaintiff)

and

1728106 Ontario Inc.
and John Faught Steel Inc.

Appellant (Defendants)

D.H. Rogers, Q.C. and Rebecca Moore, for the appellant

Matthew J. Halpin, for the respondent

Heard: In Writing

On remand from the order of the Supreme Court of Canada,
    dated October 21, 2016.

By the Court:

I.        Background

[1]

On October 1, 2014, Deslaurier Custom Cabinets Inc. (the Tenant)
    obtained summary judgment in the Superior Court of Justice against 1728106
    Ontario Inc. (the Landlord) for recovery of its losses arising from a fire at
    premises leased by it from the Landlord under a commercial lease dated November
    28, 2007 (the Lease):
Deslaurier Custom Cabinets Inc. v. 1728106 Ontario
    Inc. and John Faught Steel Inc.
, 2014 ONSC 5148 and 2014 ONSC 5533.   The
    fire occasioned significant damage to the Landlords building and the Tenants
    property and business.

[2]

The Landlord appealed.  On April 4, 2016, this court allowed the appeal,
    set aside the summary judgment and dismissed the Tenants action against the
    Landlord:
Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc
., 2016
    ONCA 246, 399 D.L.R. (4th) 575.  Costs of the appeal were awarded to the
    Landlord:
Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc
., 2016
    ONCA 436.
[1]


[3]

The appeal hearing involved the following issues, described at para. 24
    of the Appeal Decision:

(1)

What
    standard of review applied to the motions judges decision?

(2)

Did
    the motions judge err in her interpretation of the Lease:

a)

by failing to hold that the Tenant had contractually assumed the risk of
    any damage to its property and business arising from fire?

b)

by relying on extrinsic evidence concerning the Landlords leases with
    other tenants in the building to aid in her interpretation of the Lease?

c)

by failing to hold that the Tenants claim was barred as a result of its
    failure to add the Landlord as an additional insured on its property damage
    insurance policy?

[4]

As set out in the Appeal Decision, this court held as follows concerning
    these issues:

(1)

the
    motions judge made several legal errors involving extricable questions of law
    in her interpretation

of the Lease.
    Consequently, appellate review of her decision was governed by the standard of correctness;

(2)

the
    motions judge erred in her interpretation of the Lease:

a)

by failing to hold that the Tenant had contractually assumed the risk of
    any damage to its property and business arising from fire at the leased
    premises;

b)

by admitting extrinsic evidence of the Landlords leases with other
    tenants in the absence of evidence establishing that the existence and contents
    of the other tenants leases formed part of the factual matrix of the Lease and
    in the face of some evidence to the contrary; and

c)

by ruling that the Tenants admitted breach of its contractual
    obligation to add the Landlord as an additional insured to its property damage
    insurance policy did not bar its subrogated claim against the Landlord for
    losses to the Tenants property arising from the fire.

[5]

On June 3, 2016, the Tenant sought leave to appeal to the Supreme Court
    of Canada.

[6]

On September 15, 2016, while the Tenants leave application was pending,
    the Supreme Court released its decision in
Ledcor Construction Ltd. v.
    Northbridge Indemnity Insurance Co.
, 2016 SCC 37, [2016] 2 S.C.R. 23.

[7]

The Supreme Court did not grant or deny leave to appeal.  Instead, on
    October 21, 2016, it directed that the case forming the basis of the
    application for leave to appeal be remanded to this court, pursuant to s.
    43(1.1) of the
Supreme Court Act
, R.S.C., 1985, c. S-26, for
    disposition in accordance with
Ledcor
 (the Remand Order).

[8]

Section 43 (1.1) provides:

Notwithstanding subsection (1), the Court may, in its discretion,
    remand the whole or any part of the case to the court appealed from or the
    court of original jurisdiction and order any further proceedings that would be
    just in the circumstances.

[9]

After the Remand Order, this court requested and received submissions
    from the parties on three issues: (a) the meaning and effect of the Remand Order;
    (b) the appropriate disposition in light of
Ledcor
; and (c) whether
    oral submissions should be received, at the request of the parties.  No request
    for a further oral hearing was made.  Accordingly, the remand case proceeded on
    the basis of the parties written submissions.

[10]

These reasons will explain why we remain of the view that the motions
    judges interpretation of the Lease is subject to appellate review on the standard
    of correctness and why, on application of that standard, we affirm our previous
    decision.

II.       Meaning and Effect of
    Remand Order

[11]

The Landlord argues that the Remand Order directs this court to revisit
    only those matters addressed in
Ledcor
, that it is not open to this
    court to reconsider other matters, and that the only issue to be determined is the
    standard of review applicable to the motions judges interpretation of the
    Lease in light of
Ledcor
.

[12]

The Tenants submissions do not expressly address the nature and scope
    of a remand case under s. 43(1.1) of the
Supreme Court Act
.  That
    said, the thrust of the Tenants argument is that the Remand Order requires
    this court to consider afresh the merits of the issues addressed in the Appeal
    Decision in light of
Ledcor
s holdings on the appropriate standard of
    review for contractual interpretation.  According to the Tenant,
Ledcor
dictates that the standard of palpable and overriding error applies to
    appellate review of the motions judges interpretation of the Lease, the
    application of which yields a different result.

[13]

Several provincial appellate courts have recently undertaken remand
    reviews:
Canada (Procureur gé
né
ral) c.

Syndicat
    canadien de la fonction publique, section locale 675
, 2016 QCCA 163, D.T.E.
    2016T-121, leave to appeal refused, [2016] C.S.C.R. No. 117, at para. 3;
British
    Columbia (Ministry of Forests) v. Teal Cedar Products Ltd.
, 2015 BCCA 263,
    70 B.C.L.R. (5th) 318, leave to appeal granted, [2015] S.C.C.A. No. 363, appeal
    heard and reserved November 1, 2016, at para. 2;
R. v. Polches
, 2008
    NBCA 1, 325 N.B.R. (2d) 262, leave to appeal refused, 349 N.B.R. (2d) 399
    (note), at para. 18.  See also this courts decision in
Sankar v. Bell
    Mobility Inc.
, 2017 ONCA 295, released concurrently with these reasons.

[14]

Having considered the terms of the Remand Order, the parties
    submissions and the available authorities, it is our view that the remand in
    this case is not at large.  Rather, it requires this court to reconsider its previous
    decision in light of the Supreme Courts authoritative pronouncements in
Ledcor
on issues that may have affected our disposition of the appeal.  This court
    should not revisit questions that
Ledcor
does not touch upon.  If the
    application of
Ledcor
mandates a different disposition, this court
    should alter its earlier decision in light of the teachings of
Ledcor
. 
    If it does not, this court should affirm its earlier decision.

[15]

Based on these guiding principles, there are two issues now before this
    court.  First, does
Ledcor
mandate the application of a different
    standard of appellate review in respect of the motions judges interpretation
    of the Lease, namely, the palpable and overriding standard?  Second, if the
    appropriate standard is that of palpable and overriding error, does the
    application of that deferential standard require this court to alter the Appeal
    Decision?

III.       Appropriate
    Disposition in Light of
Ledcor

(1)

Standard of Review Discussion in Appeal Decision

[16]

The Appeal Decision addressed the standard of review applicable to the
    motions judges interpretation of the Lease by reference to the Supreme Court
    of Canadas decision in
Sattva Capital Corp. v. Creston Moly Corp.
, 2014
    SCC 53, [2014] 2 S.C.R. 633.

[17]

In the Appeal Decision, this court quoted the
Sattva
courts
    holding, at para. 50, that contractual interpretation typically involves issues
    of mixed fact and law, as it is an exercise in which the principles of
    contractual interpretation are applied to the words of the written contract,
    considered in light of the factual matrix.  As a result, this court stated at
    para. 25, the interpretation of a negotiated contract is generally subject to a
    deferential standard of review.

[18]

The Appeal Decision also recognized two exceptions to this general standard
    of review rule regarding contractual interpretation.

[19]

First,
Sattva
holds, at para. 53, that in rare cases the
    correctness standard of review will apply to questions of contractual
    interpretation where it is possible to identify an extricable question of law
    from within what was initially characterized as a question of mixed fact and
    law (citation omitted).  Justice Rothstein, writing for the Supreme Court, explained
    in
Sattva
, at para. 53, that extricable questions of law include
    legal errors involving the application of an incorrect principle, the failure
    to consider a required element of a legal test, or the failure to consider a
    relevant factor (citation omitted).

[20]

Second, at the time of the Appeal Decision, the jurisprudence of some
    provincial appellate courts, including this courts decision in
MacDonald
    v. Chicago Title Insurance Company of Canada
, 2015 ONCA 842, 127 O.R. (3d)
    663, leave to appeal refused, [2016] S.C.C.A. No. 39, recognized an exception
    to the
Sattva
general standard of review rule for the interpretation
    of standard form contracts.  These authorities had held that, for standard form
    contracts, the correctness standard applies.

[21]

In
Ledcor
, the Supreme Court held that the correctness standard
    does generally apply to the interpretation of standard form contracts as the
    factual matrix or surrounding circumstances are usually not engaged in the
    interpretation exercise.  See
Sankar
, at para. 11.

[22]

The Lease in this case is not a standard form contract but, rather, was
    negotiated by the parties.  In the first instance, therefore, the palpable and
    overriding error standard of review applied to the motions judges
    interpretation of the Lease.

[23]

However, in the Appeal Decision, this court held that the motions
    judges interpretation of the Lease was tainted by several legal errors
    involving extricable questions of law.  Consequently, applying
Sattva
standard of review principles, the correctness standard was engaged.  The court
    stated, at para. 31 of the Appeal Decision:

[T]he motions judge erred in law by failing to apply binding
    appellate authority regarding contractual allocation of risk.  She also erred
    in law by failing to assign meaning to all the contested terms of the Lease and
    by adopting a construction of the Lease that fails to accord with the governing
    principles of contractual interpretation.  As these errors involve extricable
    questions of law within the meaning of
Sattva
, the correctness standard
    of review applies.

(2)

Ledcor
Decision

[24]

Ledcor
involved the interpretation of an exclusion clause and
    an exception to that exclusion in a common form of builders all-risk property
    insurance.  The exclusion clause, a standard form provision, denied coverage
    for the cost of making good faulty workmanship.  As an exception to that
    exclusion, coverage applied for physical damage that result[ed] from the
    faulty workmanship:
Ledcor
, at para. 1.

[25]

The Supreme Court considered two issues in
Ledcor
, described at
    paras. 16-18.  First, what standard of appellate review applies to a trial
    judges interpretation of a standard form insurance contract? Second, what
    interpretation should be given to the faulty workmanship exclusion clause and
    the resulting damage exception to that exclusion contained in builders risk
    insurance policies?

[26]

The trial judge in
Ledcor
had found the insurers to be liable
    under the relevant all-risk insurance policy, a standard form contract.  The
    Court of Appeal of Alberta had held that standard form contracts are subject to
    appellate review on the correctness standard, and reversed the trial decision. 
    The Supreme Court concluded that, in certain circumstances, standard form contracts
    are reviewable on the standard of correctness.  However, the majority of that
    court disagreed with the Court of Appeal of Albertas interpretation of the policy
    and restored the trial judges decision.

[27]

Justice Wagner, writing for the majority of the Supreme Court, began his
    analysis of the standard of review applicable to a standard form insurance
    contract by indicating, at para. 20, that the appeals then before the Court
    afforded an opportunity to clarify how
Sattva
applies to the
    interpretation of standard form contracts, sometimes called contracts of
    adhesion.  He went on to state the majoritys core holding on standard of
    review, at para. 24, in these terms:

I would recognize an exception to
    this courts holding in
Sattva
that contractual interpretation is a
    question of mixed fact and law subject to deferential review on appeal.  In my
    view, where an appeal involves the interpretation of a standard form contract,
    the interpretation at issue is of precedential value, and there is no
    meaningful factual matrix that is specific to the parties to assist the
    interpretation process, this interpretation is better characterized as a
    question of law subject to correctness review.

See also, to the same effect, the majoritys comments
    at paras. 4, 34 and 46.

[28]

Ledcor
thus identifies an exception to the general rule
    established by
Sattva
for contractual interpretation by holding that
    the proper interpretation of a contract is a question of law subject to appellate
    review on the standard of correctness where three criteria are satisfied:

(1)

the
    appeal involves the interpretation of a standard form contract;

(2)

the
    interpretation at issue is of precedential value; and

(3)

there
    is no meaningful factual matrix that is specific to the parties to assist the
    interpretation process.

[29]

Where these three criteria are not met,
Ledcor
confirms that the
    interpretation of even standard form contracts may involve issues of mixed fact
    and law reviewable on the deferential standard of palpable and overriding
    error.  Justice Wagner put it this way, at para. 48:

Depending on the circumstances, however, the interpretation of
    a standard form contract may be a question of mixed fact and law, subject to
    deferential review on appeal.  For instance, deference will be warranted if the
    factual matrix of a standard form contract that is specific to the particular
    parties assists in the interpretation.  Deference will also be warranted if the
    parties negotiated and modified what was initially a standard form contract,
    because the interpretation will likely be of little or no precedential value. 
    There may be other cases where deferential review remains appropriate.

[30]

The
Ledcor
court distinguished
Sattva
on a factual
    basis noting, at para. 25, that
Sattva
involved a complex commercial
    agreement concluded by sophisticated parties, and not a standard form
    contract.  As a result,
Sattva
did not address the unique issues that
    standard form contracts raise.  In contrast,
Ledcor
was specifically
    concerned with the standard of review for standard form contracts.  And it is
    in respect of only standard form contracts that the exception for correctness
    review accepted in
Ledcor
may apply.

[31]

The
Ledcor
courts recognition of the correctness standard for
    appellate review of the interpretation of standard form contracts was also grounded
    in its conclusion that the reasons provided in
Sattva
for holding that
    contractual interpretation is a question of mixed fact and law subject to
    deferential appellate review are less compelling in the context of standard
    form contracts:
Ledcor
, at para. 26.  As the majority explained, at
    para. 32, for standard form contracts, the surrounding circumstances generally
    play less of a role in the interpretation process.  Moreover, where they are
    relevant, they tend not to be specific to the particular parties.  Consequently,
    the importance of the factual matrix in contractual interpretation carries less
    weight in cases involving standard form contracts.

[32]

Further, the interpretation of standard form contracts often has
    significant precedential import.  A review of standard form contracts on the
    standard of correctness therefore fosters the ability of appellate courts to
    fulfill their functions, including their mandate of ensuring consistency in the
    law:
Ledcor
, at paras. 33-45.

[33]

Of critical importance, nothing in
Ledcor
deviates from the
    holding in
Sattva
that the correctness standard of review applies to
    extricable questions of law arising within what is initially characterized as a
    question of mixed fact and law.

[34]

To the contrary,
Ledcor
affirms, at para. 21,
Sattvas
holding that the correctness standard still applies to the rare extricable
    questions of law that arise in the interpretation process.  The majority in
Ledcor
noted that this is consistent with the jurisprudence on the standard of review
    for questions of mixed fact and law and elaborated, at para. 36:

For questions of mixed fact and law, the correctness standard
    applies to extricable errors of law (such as the application of an incorrect
    principle) because, again, a review on the standard of correctness is necessary
    to allow appellate courts to fulfill their role.  However, where it is
    difficult to extricate the legal questions from the factual, appellate courts
    defer on questions of mixed fact and law.  [Citations omitted.]

[35]

Accordingly,
Ledcor
directs that 
Sattva
should not be
    read as holding that contractual interpretation is always a question of mixed
    fact and law, and always owed deference on appeal:
Ledcor
, at para.
    46.

[36]

Justice Cromwell, in his separate reasons in
Ledcor
, agreed.  He
    stated, at para. 112:

It is important to remember that
Housen
did not hold
    that all applications of a legal standard to the facts should

be

reviewed

for palpable and overriding error.  As I
    have discussed,
Housen
recognized that sometimes the analysis will
    turn on an extricable pure question of law.
Sattva
adopted this
    holding.  Rothstein J. in
Sattva
acknowledged, echoing
Housen
,
    that it may sometimes be possible to identify an extricable question of law
    such as the application of incorrect principles, the failure to consider a required
    element of a legal test, or the failure to consider a relevant factor.  I
    therefore agree with Wagner J. that 
Sattva
should not be read as
    holding that contractual interpretation is always a question of mixed fact and
    law: para. 46.
Sattva
was explicit on this point: para. 53.

[37]

The application of the correctness standard of review for an extricable
    question of law within what is initially characterized as a question of mixed
    fact and law therefore accords with both
Sattva
and
Ledcor
.

[38]

Ledcor
also affirms other critical
Sattva
holdings.  In
Sattva
, at para. 47, the Court emphasized the significance of the
    surrounding circumstances or factual matrix of a contract to the
    determination of the parties intent and the scope of their understanding.  The
    Court held, at para. 58, that the relevant surrounding circumstances consist
    only of objective evidence of the background facts at the time of the execution
    of the contract  that is, knowledge that was or reasonably ought to have been
    within the knowledge of both parties at or before the date of contracting
    (citation omitted).

[39]

Thus, under
Sattva
, the scope of the factual matrix is
    temporally limited to evidence of facts known to the contracting parties
    contemporaneously with the execution of the contract:
Shewchuk v.
    Blackmont Capital Inc.
, 2016 ONCA 912, at para. 41.  Further, while the
    surrounding circumstances will be considered in interpreting the terms of a
    contract, they must never be allowed to overwhelm the words of that agreement
    and the interpretation of a written contractual provision must always be
    grounded in the text and read in light of the entire contract (citations
    omitted):
Sattva
, at para. 57.

[40]

Nothing in
Ledcor
diminishes these important principles.

[41]

To summarize,
Ledcor
instructs that:

(1)

as
Sattva
holds, contractual interpretation is generally a question of
    mixed fact and law subject to appellate review on the deferential standard of
    palpable and overriding error;

(2)

as
Sattva
also holds, the correctness standard of review applies to
    extricable questions of law arising within what was initially characterized as
    a question of mixed fact and law;

(3)

as
    an exception to the general
Sattva
standard of review rule for
    contractual interpretation, the correctness standard applies where an appeal involves
    the interpretation of a standard form contract, the interpretation at issue is
    of precedential value, and there is no meaningful factual matrix that is
    specific to the parties to assist the interpretation process; and

(4)

as
Sattva
further holds, the factual matrix or surrounding circumstances
    of a contract remain an important consideration in the contractual
    interpretation exercise. The factual matrix, however, is temporally limited to
    objective evidence of the background facts at the time of contract formation,
    namely, knowledge that was or reasonably ought to have been known to both
    parties at or before the time of contracting.

(3)

Discussion

[42]

This courts key holdings in the Appeal Decision are set out at paragraph
    4 of these reasons.  For convenience, we repeat them here:

(1)   the
    motions judge made several legal errors involving extricable questions of law
    in her interpretation of the Lease.  Consequently, in accordance with
Sattva
,
    appellate review of her decision was governed by the standard of correctness;

(2)   the
    motions judge erred in her interpretation of the Lease:

a) by
    failing to hold that the Tenant had contractually assumed the risk of any
    damage to its property and business arising from fire at the leased premises;

b) by
    admitting extrinsic evidence of the Landlords leases with other tenants in the
    absence of evidence establishing that the existence and contents of the other
    tenants leases formed part of the factual matrix of the Lease and in the face
    of some evidence to the contrary; and

c) by ruling
    that the Tenants admitted breach of its contractual obligation to add the
    Landlord as an additional insured to its property damage insurance policy did
    not bar its subrogated claim against the Landlord for losses to the Tenants
    property arising from the fire.

[43]

The Tenant takes aim, on various grounds, at each of these holdings.  It
    contends that this courts identification of extricable questions of law in the
    motions judges interpretation of the Lease, as well as its consideration of
    the motions judges admission of extrinsic evidence to aid in the
    interpretation of the Lease, are inconsistent with
Ledcor
.  As a
    result, says the Tenant, this court should restore the judgment below in favour
    of the Tenant and remit the matter to the Superior Court of Justice for a
    determination of the balance of the issues in the action relating to damages.

[44]

We will consider the Tenants arguments in turn.

(a)

Extricable Questions of Law

[45]

The Tenant submits that, with the exception of the motions judges
    rulings on the admissibility of external evidence concerning the Landlords
    leases with other tenants and the availability of subrogated claims against
    additional insureds, each of the legal errors attributed to the motions judge in
    the Appeal Decision relate to the way in which she applied correctly identified
    legal principles to the unique factual circumstances before her.  Accordingly,
    the Tenant says, the questions of contractual interpretation that arose on
    appeal are questions of mixed fact and law subject to appellate review on the
    deferential standard of palpable and overriding error.

[46]

We disagree.

[47]

To begin, this courts application of the correctness standard of review
    to the motions judges interpretation of the Lease was grounded in the nature
    of the legal errors made by the motions judge.  Neither party argued at the
    appeal hearing, and this court did not hold, that the Lease is a standard form
    contract.  Nor is such an argument now advanced by the parties.  In particular,
    the Tenant accepts, indeed it emphasizes, that the Lease is a negotiated
    contract.

[48]

The exception for correctness review recognized in
Ledcor
for
    standard form contracts therefore has no application in this case.  The
    correctness standard applies to the motions judges interpretation of the Lease
    only if the Landlord has demonstrated an extricable question of law within what
    is otherwise initially characterized as a question of mixed fact and law.

[49]

On the authority of both
Sattva
and
Ledcor
, there is
    no doubt that, as a starting point, the interpretation of the Lease involves a question
    of mixed fact and law subject to deferential appellate review.  This
    characterization of contractual interpretation,
Sattva
instructs,
    recognizes that the goal of the contractual interpretation process is to
    ascertain the objective intentions of the parties, an exercise that is
    inherently fact specific, and that this weighs in favour of deference to
    first instance decision-makers on points of contractual interpretation:
Sattva
,
    at paras. 55 and 52.

[50]

But that does not end the matter. Where it is possible to identify an
    extricable question of law from within what was initially characterized as a
    question of mixed fact and law, both
Sattva
and
Ledcor
hold
    that the correctness standard of review applies.  Specifically, while
Sattva
warns that courts should be cautious in identifying extricable questions of law
    in contract disputes, it also confirms that certain types of legal questions,
    those that are readily extricable from the factual, trigger the correctness
    standard of review:
Sattva
, at paras. 54-55.  The
Ledcor
court agreed:
Ledcor
, at para. 36; see also
Housen v. Nikolaisen
,
    2002 SCC 33, [2002] 2 S.C.R. 235, at para. 36.

[51]

The heart of the problem is that the distinction between a question of
    law, which may be subject to correctness review, and a question of mixed fact
    and law, subject to review on the palpable and overriding standard, is
    difficult to draw.  As the majority in
Ledcor
stated, at para. 41,
    There is no bright-line distinction between questions of law and those of
    mixed fact and law.  See also
Housen
, at para. 28.

[52]

Both
Sattva
and
Ledcor
provide guidance on this
    issue.  The
Sattva
court, for example, at para. 51, cited
Canada (Director
    of Investigation and Research) v. Southam Inc.
, [1997] 1 S.C.R. 748 for
    the proposition that the degree of generality (or precedential value) [is]
    the key difference between a question of law and a question of mixed fact and
    law.
Southam
holds, at para. 37:

[A]s the level of generality of the
    challenged proposition approaches utter particularity, the matter approaches
    pure application, and hence draws nigh to being an unqualified question of
    mixed law and fact
Of course, it is not easy to say precisely where
    the line should be drawn; though in most cases it should be sufficiently clear
    whether the dispute is over a general proposition that might qualify as a
    principle of law or over a very particular set of circumstances that is not apt
    to be of much interest to judges and lawyers in the future.  [Emphasis added.]

[53]

Ledcor
, quoting
Sattva
and
Southam
, also
    endorses this proposition.  The Supreme Court stated in
Ledcor
, at
    para. 42:

Contractual interpretation is often the pure application of contractual
    interpretation principles to a unique set of circumstances.  In such cases, the
    interpretation is not of much interest to judges and lawyers in the future
    because of its utter particularity.  These questions of contractual
    interpretation are appropriately classified as questions of mixed fact and law,
    as the Court explained in
Sattva
.

[54]

The
Ledcor
court also noted, at para. 41, that:

The definition of questions of law  questions about what the
    correct legal test is (
Southam
, at para. 35)  does not preclude
    classifying some questions of contractual interpretation as questions of law.

[55]

Sattva
and
Ledcor
also instruct that certain legal errors
    constitute extricable questions of law for standard of review purposes.  These
    include: the application of an incorrect principle; the failure to consider a
    required element of a legal test; the failure to consider a relevant factor;
    the substantive requirements for the formation of a valid contract (
Sattv
a,
    at para. 53, quoting
King v. Operating Engineers Training Institute of
    Manitoba Inc.
, 2011 MBCA 80, 270 Man. R. (2d) 63, at para. 21); and the
    content of a given legal principle of contractual interpretation (
Ledcor
,
    at para. 33).

[56]

Notably, neither
Sattva
nor
Ledcor
provide an
    exhaustive list of the legal errors that may constitute extricable questions
    of law.  In both decisions, the Supreme Court provides examples of those
    questions of law that may trigger review on the correctness standard.

[57]

It also bears emphasis that the difficulty of identifying extricable
    questions of law in contractual interpretation disputes does not relieve a
    reviewing court from the necessity of properly characterizing the nature of the
    interpretation questions at issue.  Indeed, in contract disputes, the proper
    characterization of the proposed grounds of appeal is critical:
Sattva
,
    at para. 54.  Extricable questions of law must be addressed by a reviewing
    court when they arise.

[58]

In this case, having carefully considered the teachings of
Sattva
and
Ledcor
, we remain of the view that the motions judges
    interpretation of the Lease is tainted by legal errors involving extricable
    questions of law subject to review on the correctness standard.  Recall that
    the Appeal Decision, at para. 31, identified the following legal errors by the
    motions judge:

(1)

the
    failure to apply binding appellate authority regarding contractual allocation
    of risk;

(2)

the
    failure to assign meaning to all the contested terms of the Lease; and

(3)

the
    adoption of a construction of the Lease that fails to accord with the governing
    principles of contractual interpretation.

[59]

We have no difficulty in characterizing the first error as an extricable
    question of law.  This error involves the motions judges failure to consider
    the binding decisions of this court in
Madison Developments Ltd. v. Plan
    Electric Co.
(1997), 152 D.L.R. (4th) 653 (Ont. C.A.), leave to appeal
    refused, [1997] S.C.C.A. No. 659, and its progeny regarding contractual
    allocation of risk in a landlord and tenant relationship for losses arising
    from specified insured perils, including those occasioned by fire damage, and
    to factor the principles enunciated in those cases into her interpretation of
    the Lease: Appeal Decision, at paras. 32-36 and 40.

[60]

The Tenant argues that this error merely involves the motions judges
    application of governing legal principles to the particular facts before her
    and, hence, that it is properly characterized as a question of mixed fact and
    law.  In support of this argument, the Tenant points to passages from the
    Appeal Decision in which this court indicated that the motions judge erred in
    her assessment of risk allocation under the Lease by failing to apply the
    principles from
Madison Developments
and its progeny, and from those
    cases referred to in the Appeal Decision as the Trilogy, as well as the
    governing principles of contractual interpretation, in her interpretation
    analysis: see for example, Appeal Decision, at paras. 40 and 41.

[61]

We do not accept this argument.

[62]

We acknowledge that, on one reading, the passages from the Appeal
    Decision cited by the Tenant may be taken as suggesting that the legal errors
    attributed to the motions judge involve only the application of accepted legal
    principles to the construction of the Lease, a contract specific to the parties.

[63]

But this reading casts too narrow an interpretation on this courts
    holdings in the Appeal Decision.  While the language employed in the passages
    relied on by the Tenant could have been crafted with greater precision, read as
    a whole, it is clear from the Appeal Decision that the first legal error
    identified by this court was the motions judges failure to appreciate and take
    proper account of relevant precedent authorities, including binding authority,
    concerning contractual risk allocation.  For this reason, the introductory
    language of para. 40 of the Appeal Decision refers more broadly to the
    governing law regarding contractual allocation of risk.

[64]

The Tenants argument assumes that the motions judge correctly
    identified the legal authorities and principles regarding contractual
    allocation of risk that governed her interpretation of the contested provisions
    of the Lease and that she simply erred in her application of them to the specific
    facts of this case.  This is incorrect.

[65]

The motions judges first legal error was the failure to appreciate and
    take proper account of precedent authorities relevant to the interpretation
    process.  In our view, the question of what legal principles govern the
    interpretation of contractual risk allocation provisions is a question of law
    attracting the correctness standard of review.  Paragraph 41 of the Appeal
    Decision reads in part:

While the motions judge referred to the principles enunciated
    by the Supreme Court in the Trilogy (although she made no mention of
Madison
    Developments
), at no point in her reasons did she actually apply the
    Trilogy and
Madison Developments
to the interpretation of the Tenants
    Insurance Covenants.

[66]

This is not an error in the manner of application of properly
    identified, relevant legal principles.  In effect, the motions judge
    misdirected herself from the outset of the interpretation process by failing to
    identify and employ relevant legal authorities and principles in her
    interpretation of the risk allocation provisions of the Lease: Appeal Decision,
    at paras. 42-43.  On our reading of
Sattva
and
Ledcor
, this
    is a legal error involving an extricable question of law subject to correctness
    appellate review.

[67]

We are mindful that, where the matter at issue is of limited
    precedential value and approaches utter particularity,
Ledcor
and
Sattva
hold that it draws close to characterization as a question of mixed fact and
    law.  But where, as here, the legal error at issue involves the failure to
    properly identify and employ the governing authorities and applicable
    principles regarding contractual allocation of risk, the matter transcends the
    interests of the parties and implicates the broader principle that disputes,
    including contract disputes, will be resolved according to law.

[68]

As we see it, it cannot be said that such an error is of utter
    particularity to the parties, or that it is devoid of future interest to
    judges and lawyers.  The goals of certainty, clarity and consistency in the law
    dictate that missteps in the identification of controlling legal principles be
    characterized as questions of law subject to correctness review.  In
Housen
,
    for example, the Supreme Court held, at para. 9, that one of the underlying
    reasons for employing a correctness standard of review to matters of law is
    that the principle of universality requires appellate courts to ensure that
    the same legal rules are applied in similar situations.  This principle
    transcends the particularity of individual, fact-based disputes.

[69]

This conclusion accords with the principle that even where a first
    instance decision-maker correctly identifies the relevant legal test, if he or
    she fails to actually consider an element of the test, this will constitute an
    error of law.  As the majority of the Supreme Court notes in
Housen
,
    at para. 27, citing
Southam
, at para. 39:

[I]f a decision-maker says that the correct test requires him
    or her to consider A, B, C, and D, but in fact the decision-maker considers
    only A, B, and C, then the outcome is as if he or she had applied a law that
    required consideration of only A, B, and C.  If the correct test requires him
    or her to consider D as well, then the decision-maker has in effect applied the
    wrong law, and so has made an error of law.

[70]

In these circumstances,
Housen
confirms, at para. 27, that what
    appears to be a question of mixed fact and law  can actually be an error of
    pure law.  Similarly, where an impugned finding by a first instance
    decision-maker rests on an incorrect statement of the legal standard, this can
    amount to an error of law:
Housen
, at paras. 31 and 33-35.

[71]

The second and third errors, described above, concern the failure to
    assign meaning to all the contested terms of the Lease and the adoption of a
    construction of the Lease that is inconsistent with the governing principles of
    contractual interpretation.  The Tenant, renewing its argument advanced at the
    appeal hearing, submits that these errors do not involve extricable errors of
    law but, rather, the application of the legal principles of contractual
    interpretation to a unique set of facts, a question of mixed fact and law.

[72]

Again, we disagree.

[73]

The motions judges first error, described above, permeated her entire
    interpretation of the Lease.  In the Appeal Decision, we held, at para. 46,
    that her failure to deal directly with the parties agreed allocation of risk
    regarding fire loss or damage to the Tenants property and business flowed from
    her flawed analysis of the meaning of the word Premises, a defined term under
    the Lease.  This court held, among other things, that the motions judge improperly
    discounted the defined meaning of Premises under the Lease and ignored several
    relevant provisions of the Lease bearing on the intended meaning of Premises:
    Appeal Decision, at paras. 54-70.

[74]

The difficulty, in this regard, is that while the motions judge
    correctly listed the well-established principles of contractual interpretation
    (Appeal Decision, at paras. 54 and 59), she did not actually consider several
    of them in her interpretation of the Lease. Specifically, she ignored or
    discounted the requirements to consider the Lease as a whole, to give effect to
    the parties intentions (the principal objective of contractual interpretation)
    and, to the extent possible, to adopt an interpretation of the Lease that
    assigned meaning to each of its terms: Appeal Decision, at paras. 54, 59, 61 and
    66-70.

[75]

In short, the motions judge failed to consider a number of principles
    relevant to the interpretation of the Lease.  This failure constitutes a legal
    error subject to correctness review.
Sattva
, for example, holds that
    the failure to read a disputed contract as a whole is a question of law that is
    extricable from a finding of mixed fact and law:
Sattva
, at paras. 53,
    63-64.  See also
1298417 Ontario Ltd. v. Lakeshore (Town)
, 2014 ONCA
    802, 122 O.R. (3d) 401, leave to appeal refused, [2015] S.C.C.A. No. 43, at
    paras. 4, 7 and 8.

[76]

We therefore reject the Tenants claim that the legal errors identified
    in the Appeal Decision relate only to the way in which the motions judge
    applied the law to the interpretation of the particular contract before her.  The
    motions judges interpretation of the Lease, a question of mixed fact and law,
    involved extricable questions of law.  The correctness standard of appellate review
    therefore applied to those questions.

(b)

Other Issues Raised

[77]

Although the Tenant also attacks this courts holdings in the Appeal
    Decision concerning: (a) the motions judges admission of external evidence
    regarding the terms of the Landlords leases with other tenants, and (b) her
    ruling on the availability of subrogated claims against additional insureds, it
    does not claim that these issues fail to involve extricable questions of law. 
    In our view, as set out in the Appeal Decision, they do.

[78]

This court employed the correctness standard of review in the Appeal
    Decision in its analysis of the motions judges rulings on these issues.  The
    only issues now before this court concern the appropriate standard of review in
    respect of the motions judges interpretation of the Lease in accordance with
Ledcor
,
    and whether the application of that standard requires this court to alter the
    Appeal Decision.  The Tenant does not challenge the application of the
    correctness standard to this courts previous consideration of the motions judges
    rulings on the admissibility of extrinsic evidence and the availability of
    subrogated claims against additional insureds.  In accordance with
Ledcor
,
    there is therefore no basis for alteration of the Appeal Decision in respect of
    these issues.

[79]

The Tenant also argues that this court erred in its consideration of the
    Tenants claim against the Landlord for business interruption losses.  As we
    have said, this remand case is not an at large review of the merits of the
    issues on appeal.  The Tenants business interruption claim against the
    Landlord was not the focus of submissions before the motions judge or this
    court at the appeal hearing.  It is not open to the Tenant to now raise what
    are essentially new arguments regarding its business interruption claim that
    were not pursued on appeal and that are not
Ledcor
-related.


IV.      Disposition of Remand
    Case

[80]

For these reasons, having reconsidered our decision in light of
Ledcor
,
    we affirm the Appeal Decision.  The parties may make written submissions as to
    costs.  The Landlord shall deliver its brief written submissions to the
    Registrar of this court within 15 days from the date of these reasons and the
    Tenant shall deliver its brief responding submissions to the Registrar within
    10 days thereafter.

Released:

APR 12 2017                                              E.A.
    Cronk J.A.

EAC                                                                      S.E.
    Pepall J.A.



B.W. Miller J.A.






[1]
We will refer in these reasons to the original judgment on appeal and this
    courts costs endorsement dated June 2, 2016, collectively, as the Appeal
    Decision.


