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Rectification

Posted on August 5, 2020 | Posted in Commercial Matters, Five Liners, Real Estate

2484234 Ontario Inc. v. Hanley Park Developments Inc. 2020 ONCA 273

Purchaser claimed rectification of an agreement relating to an easement over part of land necessary to allow access to other lands that purchaser had purchased from vendor.

The Court noted that “Rectification is an equitable remedy available to correct a document that fails to accurately record the parties’ true agreement. It is not available to correct an improvident bargain or to fill a gap in the parties’ true agreement, even when the omission defeats what one (or both) of the parties was seeking to achieve. As an equitable remedy, it is also not available when the party seeking it does not have ‘clean hands’.”

In particular, the party claiming rectification has to prove the following:

In Fairmont, the Supreme Court of Canada held that, where the error of the instrument results from a common mistake, rectification of an agreement is available upon the court being satisfied that,

(i) The parties had reached a prior agreement whose terms are definite and ascertainable;

(ii) The agreement was still effective when the instrument was executed;

(iii) The instrument fails to record accurately that prior agreement; and

(iv) If rectified as proposed, the instrument would carry out the agreement.

In the case of a unilateral mistake, Fairmont also held that, in addition to the four requirements set out above, the court must also be satisfied that,

(v) the party resisting rectification knew or ought to have known about the mistake; and

(vi) permitting that party to take advantage of the mistake would amount to ‘fraud or the equivalent of fraud’. [See Fairmont, at paras. 14-15.]

In order to determine whether there was a prior agreement with definite and ascertainable terms, the Court had to interpret the prior agreement. It noted that the application judge erred in the interpretation by relying on vendor’s subjective intention, which is irrelevant to the meaning of an agreement that has to be determined objectively. Similarly, application judge failed to analyse the words of the prior agreement in light of the factual matrix. All of this resulted in errors of law, allowing the Court of Appeal to review the decision based on correctness. The Court ordered rectification, noting that all the criteria were met. In particular, vendor knew of purchaser’s error in the agreement terms and taking advantage of that mistake would amount to fraud.

 

Jonathan Speigel

 

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.

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