‘Measure Once, Cut Twice’: Weyerhaeuser Company Ltd. v. Ontario (Attorney General) and the Interpretation of Indemnities

Abstract

While indemnity clauses historically have been understood as a means of allocating risk associated with third party claims against one of the parties to a contract, parties occasionally design these clauses to address direct claims between them as well. In Weyerhaeuser Company Ltd. v. Ontario (Attorney General), the Court of Appeal for Ontario sought to determine under what circumstances an indemnity clause should be read as covering both direct and third party claims. Canadian case law on this matter is sparse, making a review of case law in comparable jurisdictions potentially instructive. The court did not review this case law, but instead applied its own approach emphasizing the “plain meaning” of the words used in the indemnity. The court reasoned that, if an indemnity states that it covers “all” claims, that must mean that it covers direct claims as well as third party claims. This article undertakes the comparative review that is missing from Weyerhaeuser, and finds that England and Wales, Australia, and the overwhelming majority of U.S. states emphasize the indemnity clause’s structural and factual context: under this prevailing approach, “all claims,” read in context, may simply mean “all third party claims.” For so long as it remains good law, the idiosyncratic approach taken in Weyerhaeuser should concern commercial parties and their counsel, who will need to exercise care to draft indemnities governed by Ontario law in a way that reflects the Weyerhaeuser interpretive approach, rather than that applied in other common law jurisdictions.

Keywords: Indemnities, Indemnity Clauses, Contract, Comparative Law, Canadian Law

JEL Classification: K10, K12, K20