The Meaning of Value

Determining what should inform the interpretation of a contract is a little bit like the debate of nature versus nurture – is the proper interpretation innate in the words and context of the document, or does it receive its meaning from the commercial environment?

In the recent decision from the Alberta Court of Appeal, Trico Developments Corporation v El Condor Developments Ltd, 2020 ABCA 132 the majority emphasized the importance of the commercial context when interpreting an agreement. However, the dissent by Justice Slatter calls into question the majority’s interpretation and relies more on the words in their contractual context. 


At issue was the definition of the word ‘value’ as it was used in a Settlement Agreement between Trico Homes and El Condor. The two parties had formed a partnership in 2004 to develop property in southwest Calgary. They sold their respective interests in the lands to the partnership and in return they received partnership units equivalent to the relative market value of their contributions.

Later, El Condor decided to sell some of the lots to one of its affiliates, which Trico opposed. This resulted in a couple of civil actions that were eventually settled. One of those settlements resulted in the Settlement Agreement that was the subject of this litigation. 

In their Settlement Agreement, of July 12, 2006, El Condor agreed to purchase Trico’s units in the partnership using an asset valuation and to pay Trico its share of the profits earned but not distributed up to June 20, 2006. The Settlement Agreement set out a process on how to prepare the valuation of Trico’s units, and if the parties disagreed, El Condor would pay a portion, Trico would transfer its units, and then Trico could bring an action. 

The parties were unable to agree on the valuation. El Condor and Trico both conducted different valuations effective June 30, 2006.  The main difference stemmed from how they treated income tax and discount rates, but they were both considered fair market valuations by the valuation consultants hired by the parties. Since they could not reach an agreement, Trico filed an action, after which they both conducted fresh valuations. 

In its new valuation, El Condor did a fair market valuation using a discounted cash flow approach to account for the risk and time value of money. Trico’s valuation, on the other hand, did not use the discounted cash flow and did not consider the impact of taxation on value. Trico’s valuation consultant, Deloitte, acknowledged that it was not a market value valuation, and it only determined the ‘Partnership Income to be earned’ with no deduction for income taxes or time value of money. El Condor wanted the valuation that accounted for the deductions while Trico preferred the one without. The disagreement went to trial and the valuation method was the fundamental issue, in particular the interpretation of Clause 1 of the agreement, which stated the value of the units would be calculated in accordance to the steps outlined in its subclauses. 

At trial, Trico’s valuation was accepted over El Condor’s. The Trial Judge found that Clause 1 of the Settlement Agreement created a clear and express formula within the contract for valuation, thus modifying the definition of the word value. This meant that Trial Judge found the word ‘value’ in the contract did not mean ‘fair market value’, a definition normally assumed for that term; rather that it was linked to to the express formula of the contract.

Majority’s Decision

The majority of the Court of Appeal disagreed with the trial judge. The majority relied on the decisions of Sattva Capital Corp. v Creston Moly Corp, [2014] 2 SCR 633, IFP Technologies (Canada) Inc. v EnCanada Midstream and Marketing, 2017 ABCA 157, and Wickam Tools v Schuler AG, [1974] AC 235 for the following principles:

·   In a commercial contract it is certainly right that the court should know the commercial purpose of the contract (Sattva, at para. 47);

·   Courts ought not to sanction contractual interpretations disconnected from economic reality (IFP Technologies, at para 88); and

·   The more unreasonable the result, the more unlikely it is that the parties intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear (Wickam Tools, at 251).

The majority held that the word “value” had an ordinary definition consistent with “fair market value”. At para 39, the majority stated that Canadian courts have “considered the word 'value' when it is contained in legislation, regulations, contracts and other legal documents to be synonymous with market value or fair market value”. 

Based on the above principles, the majority held that Clause 1 of the Settlement Agreement did not hold a specific formula for valuation. There was no clear modification of the word ‘value’ in the term “value of those units.” As such, the word value gained its meaning from the commercial context in which it was drafted, which in this case meant ‘fair market value.” 

Furthermore, the majority found that should they have found a formula in Clause 1, it would have led to an absurdity such as excluding tax considerations. This clearly could not be the case because in any fair market valuation, there exists the assumption of a nominal third party, who would always consider the tax liability when determining how much to pay. Besides, there was nothing in the Settlement Agreement that showed El Condor was prepared to pay a premium for Trico’s units. 

The Dissent

Slatter J.A. took a different approach. He began by interpreting the word value in the contractual, rather than the commercial context. He found there was a clear formula in the process set out in Clause 1. 

In contrast to the majority, the dissent held the Settlement Agreement failed to clearly define the word ‘value’ in the conventional sense of the word. It was the overall context of the document that gave it meaning. At para. 60, Slatter J.A. held, “Stating that the word ‘value’ has a fixed legal meaning serves to extract that word from the contract ‘as a whole’, and gives it a predetermined meaning…” and “any meaning must yield to the express terms of this contract.”

The dissent did not neglect to apply a commercial context to the interpretation of the Settlement Agreement. Instead, he finds the commercial sense that best reflects his interpretation of Clause 1. He notes, at para 63, that the partnership income is not taxed at the partnership level, rather the income is allocated to the partnership units and is taxed at the partner level. As such, Trico would have received its allocation on a pre-tax basis and would then have been assessed tax on those amounts.


The problem with the majority’s decision is that it inverted the framework for interpreting contracts, by going outside the contract first and drawing from the commercial context. Sometimes these common terms, i.e. ‘value’, used in industry may have variations from one judicial decision to another. It adds a level of uncertainty where certain important terms lack definition in the document. Slatter J.A. was right to point out that the context of the contract should be interpreted first before considering the commercial context. It could be that in the end the majority would have reached the same outcome, but by jumping so quickly to the commercial context, the majority has added a level of uncertainty to commercial agreements. 

Nevertheless, the decision of the majority reminds us how important it is to define key terms in a contract. The difference in the interpretation of the term ‘value’ in Clause 1 of the Settlement Agreement resulted in a difference of several million dollars. Even the dissent reminds us that we should define terms of art. As Slatter J.A. pointed out, the term may not have a fixed legal meaning. Parties relying in terms of art for the industry are well advised to define these regardless of the unspoken understanding between the parties. 

McLennan Ross has a strong reputation in commercial litigation and is well-positioned to provide you with exceptional advice and representation. If you have any questions or concerns with respect to a contractual dispute or any other litigation matter, please do not hesitate to contact Cesar Agudelo, Peter Major, Q.C., or any member of our CommercialLitigation Team.