Clause Encounters of the Legal Kind

Defining the Client

By Alexander J Friedl

At first glance, identifying the parties to a contract and the intended recipients of its benefits may appear straightforward. In practice, however, this process can be more complex. Precise identification of the contracting parties is critical to ensure that the agreement is legally enforceable against the correct entities and that only those parties are entitled to enforce or benefit from its terms. This need to clearly identify the parties also extends to how the “Client” is defined in the contract. Properly defining the “Client” is especially important in complex corporate structures that involve affiliates, joint ventures, and successor entities. It is also critical for businesses that sell data (e.g., market analysis, predictive modeling, survey data) or operate under a subscription-based model. In these cases, precise definitions help prevent market cannibalization caused by the contracting client dispersing products to unintended, non-paying parties.

The 2024 Ontario Court of Appeal decision in SS&C Technologies Canada Corp. v The Bank of New York Mellon Corporation does an excellent job of highlighting the importance of clearly defining the “Client” in commercial contracts.[1]

The Parties

SS&C Technologies Canada Corp. (through its predecessor, Securities Valuation Company Inc.) (“SS&C”) entered into two data services agreements in 1999: one with “Mellon Trust” (the “Mellon Trust Agreement”) and another with CIBC Mellon Global Securities Company (which was a joint venture of Mellon Financial Corporation (“Mellon Financial”) and the Canadian Imperial Bank of Commerce) (the “CIBC Mellon Agreement”). Notably, “Mellon Trust”, was not a legal entity, despite being the contracting party, but a brand name used by Mellon Financial and its various custodial affiliates.

The Dispute

SS&C was selling market pricing data. The agreements restricted redistribution of SS&C’s data and required that only the named “Client” and its customers could access the data.

Following a series of corporate transactions, including a 2007 merger of Mellon Financial with the Bank of New York to form the Bank of New York Mellon Corporation (“BNY”), SS&C was assured in a letter by a BNY representative that BNY would succeed to Mellon Financials’ rights and obligations under the Mellon Trust Agreement but did not mention that Mellon Financial’s or the Bank of New York’s custodial entities were or would become parties to the Mellon Trust Agreement. Additionally, the Mellon Trust Agreement did not define “Client” to include Mellon Financials’ custodial affiliates, nor was it amended to do so.

However, following the merger, BNY subsequently redistributed SS&C’s data to numerous custodial entities, without SS&C’s consent or paying an additional cost. Compounding the issue, in 2011 CIBC Mellon terminated its own agreement with SS&C (being the CIBC Mellon Agreement) and began obtaining data indirectly through BNY, again without authorization and without additional payment. When SS&C discovered that BNY had been redistributing its data behind its back, SS&C alleged that BNY had breached the Mellon Trust Agreement by redistributing the SS&C-provided data to CIBC Mellon and other BNY affiliates. This led to a dispute over what entities were included under the definition of “Client” in the Mellon Trust Agreement.

In order to determine if BNY was liable, the Court was faced with determining whether “Mellon Trust” was a single legal entity or if the term “Client” actually meant many different entities, being both BNY and its numerous affiliates.

The Court’s analysis focused on contract interpretation, commercial reasonableness, and an examination of the parties’ conduct to resolve the ambiguities in the definition of “Client” under the Mellon Trust Agreement.

Trial Decision and the Parties Positions on Appeal

The Trial Judge interpreted the term “Client” in the Mellon Trust Agreement as referring to a single legal entity, concluding that BNY breached the agreement by sharing data with CIBC Mellon and other affiliates acquired after the contract was signed. He rejected BNY’s position that the contract permitted an ever-changing group of affiliates to access data, finding that interpretation inconsistent with the contract’s text, its commercial purpose, and the parties’ conduct. However, the Trial Judge ruled that the contract did authorize BNY to share data with affiliates owned by its predecessor, Mellon Financial, at the time of contracting.

On appeal, BNY argued that the Trial Judge incorrectly interpreted the Mellon Trust Agreement by finding that CIBC Mellon and all BNY’s other custodial entities were not entitled to access the data. SS&C cross-appealed, arguing that the Trial Judge should have found that only BNY was authorized to access the data under the Mellon Trust Agreement and not Mellon Financial’s custodial entities at the time of contracting.

Outcome: Court of Appeal’s Decision on Who the Client Was

The Court of Appeal found that the Trial Judge correctly held that “Client” did not include CIBC Mellon or affiliates BNY acquired after the Mellon Trust Agreement, but erred in concluding the agreement included entities owned by Mellon Financial at the time of contracting. While the Court of Appeal found that the trial judge properly rejected BNY’s interpretation that the contract covered an indefinite group of affiliates, the Court found his ruling that the original Mellon Financial affiliates were included as a “Client” contradicted his own findings that the term referred to a single legal entity and that both parties treated BNY alone as the counterparty. The Court of Appeal therefore dismissed BNY’s appeal and allowed SS&C’s cross-appeal.

A) Why CIBC Mellon Was Not a “Client”

The Court of Appeal rejected BNY’s argument that CIBC Mellon was authorized to access the data under the Mellon Trust Agreement for two reasons. The first reason was the agreement did not include Mellon Financial’s custodial entities. The second reason was CIBC Mellon and Mellon Financial’s other affiliates were reasonably distinguished from one another. The Court of Appeal applied the “related contracts” principle when distinguishing the two entities. As the Court of Appeal held in Ottawa (City) v. ClubLink Corporation ULC, “where more than one contract is entered into as part of an overall transaction, the contracts must be read in light of each other to achieve interpretative accuracy and give effect to the parties intentions”.[2] Since the Mellon Trust and CIBC Mellon Agreements were executed concurrently for distinct purposes, they had to be read harmoniously. The Court of Appeal held that treating CIBC Mellon as a “Client” under both agreements would render the CIBC Mellon Agreement redundant and undermine the parties’ clear intent to treat CIBC Mellon as a separate contractual counterparty.

B) Why BNY’s After-Acquired Affiliates Were Not “Clients”

When rejecting BNY’s argument that the Mellon Trust Agreement permitted after-acquired affiliates to access SS&C’s data, the Court of Appeal agreed with the Trial Judge’s finding that such affiliates were not entitled to the data, emphasizing that SS&C could not reasonably have anticipated that “Mellon Trust” encompassed a broad and evolving group of entities. BNY’s reliance on the principles of commercial reasonableness, were it argued that Mellon Trust also needed data to service its customers, also failed. The Court noted that reasonableness must be assessed from both parties’ perspectives; while BNY sought efficiency in sharing data across its network, such an interpretation would undermine SS&C’s commercial interests by allowing unrestricted redistribution of proprietary data, effectively enabling BNY to cannibalize SS&C’s business. The Court of Appeal also rejected BNY’s claim that the successorship clause in the Mellon Financial Agreement showed the definition of “Client” was meant to include an expanding number of subsidiaries as mergers occurred. It clarified that “successors” refers only to legal successors through merger or amalgamation, not to subsidiaries of a successor entity. The principle of separate corporate personality meant newly acquired affiliates could not inherit rights without explicit inclusion.

C) Why Custodial Entities of Mellon Financial at the Time of Contracting Were Not the “Clients”

Finally, the Court of Appeal overturned the trial judge’s decision that Mellon Financial’s affiliates owned at the time of contracting were included in the definition of “Client” in the Mellon Trust Agreement, finding the Trial Judge erred when applying the law of contract interpretation to this issue. The Court of Appeal providing four overarching reasons why the Trial Judge’s decision should be overturned.

The first reason was that the Trial Judge relied on BNY’s individualized background facts to interpret the contract, contrary to the principles established in Sattva Capital Corp. v. Creston Moly Corp.,[3] which requires the interpretation to limit the use of surrounding circumstances to facts within the parties’ shared knowledge and prohibits using one party’s undisclosed intentions or information to justify commercial reasonableness. The Trial Judge used BNY’s version of background facts to find that the parties should have known Mellon Financial consisted of numerous affiliates at the time of contracting and that it would be commercially unreasonable to prevent Mellon Financial, and later, BNY, from redistributing its data to those affiliates. This finding was inconsistent with the Trial Judge’s previous findings that SS&C could not have known that Mellon Trust was a brand made up of Mellon Financial and its many subsidiaries (being the undisclosed fact SS&C had no knowledge of). 

The second reason was that, even if the Court of Appeal did consider BNY’s subjective facts, the Trial Judge should not have found that limiting the definition of “Client” to Mellon Financial was commercially unreasonable. The Trial Judge found that Mellon Financial was only formed to control subsidiaries and used this finding to infer that Mellon Financial did not need data itself, which, in his opinion, resulted in a commercially unreasonable outcome. However, this finding was made in error, as the evidence demonstrated Mellon Financial did use the data itself.

The third reason was that the Trial Judge misinterpreted the contract by disregarding the textual constraints that defined “Client” as a single legal entity, such as the singular use of “either party” rather than the plural, which resulted in the Trial Judge improperly rewriting the agreement rather than applying its plain meaning.

Finally, the Court of Appeal found that the Trial Judge misapprehended the course of performance evidence by overlooking the 2007 co-signed letter wherein the parties’ chief representatives agreed BNY and SS&C were the contracting parties’, and by overlooking the letters consistency with the parties’ 2003 amendment to the CIBC Mellon Agreement (which was amended to add affiliates to the agreement), which showed that affiliates required explicit inclusion to gain access. This evidence reinforced that the Mellon Trust Agreement authorized only BNY to receive data.

Conclusion

This case serves as a cautionary tale for businesses entering into contracts. As corporate structures grow more complex, the need to precisely define who the “Client” is, and who is entitled to benefit from contractual rights, has never been more critical. While all businesses should ensure the appropriate parties are defined as the “Client” in any contractual agreement, there is a heightened necessity when that business is operating inside industries that sell data or operate on a subscription-based model.