Holm v Holm, 2013 ABCA 345, a recent decision of the Alberta Court of Appeal, provides a useful reminder of the process that a court will use to interpret ambiguities in a contract.
In Holm, the husband and wife entered into a marriage contract which excluded all property owned by the parties prior to marriage from equalization after separation. When the parties eventually separated, a dispute arose as to whether the increase in value of certain assets was exempt from sharing.
The trial judge found that the marriage contract was ambiguous because it did not explicitly deal with the increase in value of assets. To resolve this ambiguity, the trial judge “looked at what she considered to be the “overall objective intention of the parties”, and concluded that the “objective intention at the time was to treat each other fairly”.” The trial judge used this intention to guide her interpretation of the agreement.
In its unanimous decision, the Alberta Court of Appeal overturned the trial judge’s ruling, and provided helpful reminders of the principles of contractual interpretation:
In interpreting all contracts, including matrimonial property contracts, certain basic principles apply. Firstly, a contract is to be interpreted in accordance with its terms. If the contract is ambiguous, extraneous evidence is permitted in limited circumstances. But whether a contract is ambiguous or not, it is problematic for a court to attempt to interpret a contract based on what is, with hindsight, and having regard to 25 years of subsequent conduct, perceived to be “fair”. Secondly, a related point is that contracts must be interpreted as of the time they are entered into. Interpreting a contract with hindsight based on how circumstances actually unfolded is generally inappropriate.
The Court ruled that the marriage contract contemplated two categories of property, which were mutually exclusive and exhaustive: property acquired before marriage and property acquired after marriage. The Court held that there was no ambiguity about what happened to assets that increased in value because those assets fell into one of the two categories.
This decision is useful for those considering entering into marriage contracts as it sets out the principles that a court will use in interpreting the contract if a dispute ever arises.