How do Ontario courts interpret ambiguous contract terms?

When contract language is ambiguous, Ontario courts apply well-established principles to determine its meaning. The primary goal is to give effect to the parties' objective intention — what a reasonable person in their position would have understood the words to mean, read in context.

Courts look at the entire contract as a whole, not individual words in isolation. They consider the commercial purpose of the agreement, the circumstances surrounding the contract's formation (the "surrounding circumstances" or factual matrix), and any trade or industry custom that both parties would have understood.

Where ambiguity remains after these tools are applied, courts may invoke the contra proferentem rule: ambiguous language is interpreted against the party who drafted it. This is particularly important in standard form contracts and exclusion or limitation clauses, where the drafter had the opportunity to be clear and chose language that turned out to be uncertain.

Courts will not rewrite a contract simply because one party made a bad deal. The goal is to find meaning, not to impose fairness. If a contract term is genuinely ambiguous on a disputed point, how it was actually performed by the parties over time can also be relevant evidence of what they both understood it to mean.