Court File and Parties
COURT FILE NO.: CV-18-00610599-0000 DATE: 20190613 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 2484234 ONTARIO INC., Applicant AND: HANLEY PARK DEVELOPMENTS INC., Respondent
BEFORE: J.E. Ferguson J.
COUNSEL: Richard Quance, for the Applicant Howard Alpert, for the Respondent
HEARD: June 5, 2019
Endorsement
[1] On February 8, 2017, the applicant (the purchaser) and the respondent (the vendor) entered into an agreement of purchase and sale (the “agreement”) in connection with vacant lands legally described as PT LT 14 CON 1 THURLOW PTS 3 TO 12 21R16650, PIN 40610-0656 (LT) in the City of Belleville (the “purchased lands”) with a closing date of March 9, 2017.
[2] Clause 3 in Schedule “D” of the agreement provides that “upon removal of the Due Diligence Condition, the Buyer acknowledges that it would have completed its due diligence, obtained independent legal advice and will accept the land on an ‘as is, where is’ basis subject only to the representations and warranties provided in this Agreement”.
[3] On February 18, 2017, the applicant signed a waiver which waived the due diligence condition.
[4] Prior to the agreement being entered into, the City of Belleville (the “City”) approved a draft plan of subdivision submitted by the respondent to develop residential dwelling units on the purchased lands. The final approval of the plan by the City was conditional on the development of an access road connecting the purchased lands to an existing road, Janlyn Crescent (the “access road”).
[5] At all material times, the respondent owned lands, legally described as PT LT 38 & 39 PL1604, PT LT 13 CON 1, PT LT 37 & 40 PL 1604, PT 1 TO 8 21R12233, PIN 40610-0001 (LT), which were adjacent to and abutted the purchased lands (the “adjacent property”).
[6] On March 6, 2017, the project engineer, Gord Patterson, sent an email to both the applicant and the respondent advising that Parts 1, 2, 3, and 4 were required for the access road.
[7] The applicant was buying the purchased lands with the intention of developing them in accordance with the draft plan of subdivision.
[8] On March 7, 2017, the applicant’s lawyer sent a letter to the respondent’s lawyer advising that parts of the adjacent property were required for the construction of the access road. The applicant’s lawyer proposed that an amendment to the agreement be executed to include the purchase of the adjacent property.
[9] On March 7, 2017, the respondent’s lawyer sent a letter to the applicant’s lawyer advising that the respondent was not prepared to sell the adjacent property to the applicant. However, the respondent’s lawyer stated on a “without prejudice” basis that the respondent was prepared to convey to the applicant a portion of the adjacent property described as Parts 1, 2, 3 and 4.
[10] The respondent’s lawyer also stated in the March 7, 2017 letter that the frontages of Lots 38 and 39 of the remaining portion of the adjacent property would be affected by the severance of Parts 1, 2, 3, and 4 (the “severance”). This letter required, as a condition of the transfer of Parts 1, 2, 3, and 4 to the applicant or the City, that the previously existing municipal services located at the lot line of Lots 38 and 39 of the adjacent property be restored, at the applicant’s expense, to the new lot line that would be created after the severance.
[11] The applicant and the respondent then entered into another agreement dated March 9, 2017 with respect to Parts 1, 2, 3, and 4 on Plan 21R-24908 (the “parts agreement”), transferring those lands necessary for the development of the access road.
[12] In the process of transferring the necessary lands for the development of the access road, it was discovered that Part 5 of the respondent’s property was also required.
[13] The applicant then requested that all five parts be transferred to it. The respondent refused to transfer any of the five parts. The respondent only ever intended to convey Parts 1, 2, 3, and 4 to the applicant.
[14] Pursuant to the parts agreement, the applicant agreed to a number of conditions, including (i) Clause 7, which sets out that the applicant shall use its best efforts to obtain the approval of the Committee of Adjustment within 180 days of the parts agreement; (ii) Clause 3, which sets out that the parts agreement becomes null and void and of no further effect if the applicant fails to obtain either the consent of the Committee of Adjustment for severance or the transfer of the property to the City by September 9, 2018; and (iii) Clause 5, which sets out that the applicant shall restore municipal services at its expense to the new lot line which will be created upon obtaining the severance.
[15] Pursuant to the parts agreement, the respondent granted a temporary easement in favour of the applicant in regards to Parts 1, 2, 3, and 4 commencing March 9, 2017 and terminating the earlier of (i) March 9, 2022; (ii) until a severance of Parts 1, 2, 3, and 4 is obtained; or (iii) until Parts 1, 2, 3, and 4 are transferred to the City.
[16] Following March 9, 2017, the respondent did not receive any correspondence from the applicant in connection with the agreement until July 20, 2018, when the applicant’s lawyer sent an email to the respondent’s lawyer requesting an extension of the final deadline of September 9, 2018, set out in Clause 3. The request was based on the ground that an officer of the applicant was running for politics. The respondent was not agreeable to the extension.
[17] The respondent’s lawyer then received a draft severance application from the applicant’s lawyer for review and signature on August 15, 2018. The respondent’s lawyer reviewed the draft severance application and advised the applicant’s lawyer that the application was missing certain required information and attachments.
[18] On August 27, 2018, the applicant’s lawyer advised the respondent’s lawyer that instead of obtaining the Committee of Adjustment’s approval for severance, the applicant requested the respondent to transfer the parts to the City.
[19] On August 30, 2018 at 6:18 p.m., the applicant’s lawyer sent an email to the respondent’s lawyer advising that she had sent him a transfer document on Teraview. The respondent’s lawyer reviewed the transfer document and discovered that it included all five parts, even though the conveyance of Part 5 was not stipulated in the agreement.
[20] On September 5, 2018, the respondent’s lawyer sent an email to the applicant’s lawyer requesting that Part 5 be removed from the transfer and that the applicant provide written assurances from the City that the municipal services will be restored to the newly created lot line within 180 days from the date of registration of the transfer.
[21] The respondent’s position is that, at all material times, the applicant took no meaningful steps and failed to provide any assurances from either itself or the City regarding the timely restoration of the existing municipal services to the newly created lot line.
[22] On September 7, 2018, the applicant’s lawyer sent to the respondent’s lawyer an amended transfer document which included only Parts 1, 2, 3, and 4.
[23] The respondent was not provided with sufficient time to review and sign the amended transfer document. The respondent’s position is that, pursuant to Clause 3, the parts agreement became null and void and of no further effect as of September 10, 2018.
[24] The applicant is seeking (i) rectification of the parts agreement to include Part 5; and (ii) specific performance of the parts agreement as rectified.
[25] The respondent submits that this application should be dismissed on the basis that (i) the applicant has breached the parts agreement and it would be inequitable for this court to grant rectification and/or specific performance of the agreement in favour of the applicant; and (ii) in the alternative, the applicant does not meet the test for granting rectification.
[26] The respondent submits that the timely restoration of the existing municipal services to the new lot line at the applicant’s expense was essential to the respondent, because the respondent was planning to develop residential lots on the remaining portion of the adjacent property retained by it after the severance. Failing such restoration, the respondent’s development plans for the adjacent property would have to be put on hold indefinitely. The respondent would not have agreed to convey Parts 1, 2, 3, and 4 to the applicant without assurances that the existing municipal services would be restored to the new lot line.
[27] Although the applicant initially submitted in its materials that the error was a mutual mistake, during his submissions, counsel confirmed that the court is dealing with a unilateral mistake.
Law on Rectification
[28] Rectification is an equitable remedy that can be used to correct mistakes parties have made in recording their contractual intention.
[29] The rationale for the remedy of rectification in the context of unilateral mistake is that no one should be allowed “to take unfair advantage of another’s mistake”. [1] In accordance with this purpose, the Supreme Court of Canada confirmed that rectification “should not be circumscribed by anomalous or artificial rules, but should be applied where appropriate in order to give better effect to equitable doctrines.” [2]
[30] Rectification must be used with great caution. The Supreme Court of Canada has repeatedly stressed that a relaxed approach to rectification must not be used as a substitute for due diligence at the time that a document is signed. A casual approach to rectifying documents will undermine confidence in written contracts. [3]
[31] In Fairmont [4], 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.
[32] 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’. [5]
[34] The party seeking rectification has the onus of establishing the branches with convincing proof, or “evidence exhibiting a high degree of clarity, persuasiveness and cogency”. [6]
[35] In Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd., Binnie J. cited McLachlin C.J.S.C. (as she then was) in First City Capital Ltd. v. British Columbia Building Corp. on the meaning of “fraud or the equivalent of fraud” [7]:
In this context ‘fraud or the equivalent of fraud refers not to the tort of deceit or strict fraud in the legal sense, but rather to the broader category of equitable or constructive fraud. … Fraud in this wider sense refers to transactions falling short of deceit but where the Court is of the opinion that it is unconscientious for a person to avail himself of the advantage obtained.
Binnie J. added that “fraud in the ‘wider sense’ of a ground for equitable relief ‘is so infinite in its varieties that Courts have not attempted to define it’ but ‘all kinds of unfair dealing and unconscionable conduct in matters of contract come within its ken’: McMaster University v. Wilchar Construction Ltd. (1971), , 22 D.L.R. (3d) 9 (Ont. H.C.).” [8]
[36] The party seeking rectification must prove the precise form in which the written agreement can be made to express the parties' alleged prior intention. The court must not “speculate about the parties' unexpressed intention, or impose what in hindsight seems to be a sensible arrangement that the parties might have made but did not.” [9]
Analysis
[37] The respondent has provided evidence that its intention was to only convey Parts 1, 2, 3 and 4.
[38] A relaxed approach to rectification is not to be used as a substitute for due diligence when the document is signed. In this case, the applicant signed a waiver of the due diligence condition only 10 days after the agreement was entered into. Under the waiver, the applicant acknowledged that it had completed its due diligence, obtained legal advice and accepted the land “as is, where is” subject only to representations and warranties. No representations or warranties were provided with respect to the required Parts for the access road. All the project manager stated was that Parts 1, 2, 3, and 4 were required for the access road. The applicant was obliged to exercise its own due diligence with respect to the required Parts and failed to do so.
Clean Hands Doctrine
[39] In Picavet v. Salem Developments Ltd. [10], the court followed the well accepted maxim that “one who comes to equity must come with clean hands” and held that the plaintiff was not entitled to specific performance as he had breached a fundamental term of the agreement.
[40] With respect to the alleged breaches of the parts agreement it is clear that: (a) the applicant breached clause 7 and did not use its best efforts to obtain the approval of the Committee of Adjustments. The president of the applicant admitted during his cross‑examination that the applicant never had any intention to use its best efforts to obtain the approval within 180 days. It was only on July 20, 2018, that the applicant requested an extension of the final deadline which was then denied. Further, after the parts agreement was entered into, the applicant attempted to sell the purchased lands which I agree is a clear indication that the applicant never intended to use its best efforts to obtain the severance or to provide any assurances regarding the timely restoration of the existing municipal services; (b) pursuant to clause 3, the parts agreement became null and void on September 10, 2018, as a result of the applicant’s failure to either obtain consent from the Committee of Adjustments for severance or to transfer the property to the City. Further, the applicant improperly inserted Part 5 into the transfer document, which was sent to the respondent on August 30, 2018. The amended transfer document was only sent on September 7, 2018, and did not provide seven business days as required to sign these transfer documents. The parts agreement became null and void on September 10, 2018; (c) pursuant to clause 5, the transfer of Parts 1, 2, 3, and 4 was conditional on municipal services being restored to the new lot line. The applicant failed to satisfy the requirement to restore those services by the date of the registration of the transfer. The applicant also failed or was unable to provide any assurances regarding the timely restoration of municipal services which were required for the respondent’s development plans.
[41] The applicant’s request for rectification fails because it would be inequitable to grant this remedy given the applicant’s “unclean hands”, which stem from its breaches of the parts agreement.
The Test for Rectification
[42] In addition, I agree that rectification requirements (iii) and (vi) from Fairmont have not been met.
[43] The applicant failed to satisfy requirement (iii) because the agreement to convey Parts 1, 2, 3, and 4 accurately records the prior agreement. The conveyance of Part 5 was never discussed let alone made the subject matter of a prior agreement.
[44] Further the applicant failed to satisfy requirement (vi), because permitting the respondent to take advantage of the unilateral mistake made by the applicant does not amount to fraud or the equivalent of fraud on the part of the respondent. The applicant signed a waiver with respect to the agreement and accepted the land on an “as is, where is” basis. There is no clause in either the agreement or parts agreement that stipulates that the respondent will convey all lands necessary for the development of the access road. I agree that the respondent did not intentionally deceive the applicant and that the applicant should have verified the boundaries prior to executing the parts agreement.
[45] The application is dismissed.
[46] I am prepared to receive brief submissions with respect to costs. They can be sent to my assistant by email at Lorie.waltenbury@ontario.ca within 20 days.
J.E. Ferguson J. Date: June 13, 2019
