DATE: 20010321

DOCKET: C34237

COURT OF APPEAL FOR ONTARIO

GOUDGE, BORINS AND SHARPE JJ.A.

BETWEEN:

SASKATCHEWAN WHEAT POOL

Richard A. Conway and M. Paul Michell for the appellant

Appellant (Plaintiff)

• and -

1037619 ONTARIO INC., JAMES BLACK, 1013951 ONTARIO LIMITED, GARY WIWCHARYK, THE CORPORATION OF THE CITY OF THUNDER BAY, MISSION TERMINAL INC. and WILLIAM A. COVELLO

Respondents (Defendants)

David A. Scott and Laird S. S. Scrimshaw for the respondent William A. Covello

Douglas Shanks for the respondents Garry Wiwcharyk and 1013951 Ontario Limited

Jeffrey S. Leon and Rene Zanin for the respondent Mission Terminal Inc.

Allan D. McKitrick for the respondent City of Thunder Bay

No one appearing for 1037619 Ontario Inc. and James Black

HEARD: December 14 and 15, 2000

On appeal from the judgment of Justice Lawrence C. Kozak dated April 10, 2000.

BORINS J.A.:

Introduction

[1] This is an appeal by the plaintiff, Saskatchewan Wheat Pool (“SWP”), from the result of a motion brought by one of the defendants, Mission Terminal Inc. (“MTI”), for an order pursuant to rule 21.01(1)(b) of the Rules of Civil Procedure striking out the amended statement of claim (“statement of claim”) as disclosing no reasonable cause of action against it, and, in the alternative, for an order pursuant to rule 21.01(1)(a) for the determination of two questions of law raised by the statement of claim.

[2] In its statement of claim, SWP has asserted a number of claims against MTI and five other defendants that concern the enforceability of a restrictive covenant and a personal covenant over certain land in Thunder Bay, Ontario. It is SWP’s position that the agreement by which it sold the land to the defendant 1037619 Ontario Inc. (the “Black Company”) was mutually intended to create a restrictive covenant that would run with the land and prevent the land from being used for grain processing or handling. As this agreement may not have reflected the mutual intention of the parties to create a restrictive covenant running with the land, SWP seeks rectification of the agreement. Black Company sold the land to the defendant 1013951 Ontario Limited (the “Wiwcharyk Company”), which permitted the property to fall into tax arrears. MTI purchased the property through a tax sale by the City of Thunder Bay under the Municipal Tax Sales Act, R.S.O. 1990, c. M.60. In its statement of claim SWP seeks, inter alia, on the construction of the agreement, a declaration that the land is subject to a restrictive covenant running with the land that prevents its use for grain processing or grain handling that binds all of the defendants and an injunction restraining MTI from breaching the terms of the restrictive covenant. If its case on construction fails, SWP claims that the agreement should be rectified so as to include the language required to create a restrictive covenant running with the land.

[3] It was in this context that MTI moved to strike out the statement of claim as failing to disclose a reasonable cause of action against it, or , in the alternative, the determination of the following questions of law raised by the statement of claim:

(i) Do the agreements of purchase and sale (the “Agreements”) affecting the property in question (the “Property”) referred to in the Statement of Claim create a restriction that runs with the land which would survive a tax sale under the Municipal Tax Sales Act?; and

(ii) Did Mission Terminal acquire the Property free and clear of restrictions contained in the Agreements as a result of purchasing the Property pursuant to the Municipal Tax Sales Act?

[4] Although the motion judge, Kozak J., dismissed MTI’s motion to strike out the statement of claim as failing to disclose a reasonable cause of action, he made the following order:

1. THE COURT ORDERS AND DECLARES that the Agreements affecting the Property do not create restrictive covenants that run with the land.

2. THIS COURT ORDERS AND DECLARES that the restrictions contained in the Agreements, including the personal covenant of the defendant, 1013951 Ontario Limited, do not survive the tax sale under the Municipal Tax Sales Act.

3. THIS COURT ORDERS AND DECLARES that Mission Terminal Inc. acquired the Property free and clear of restrictions contained in the Agreements as a result of purchasing the Property pursuant to the Municipal Tax Sales Act.

4. THIS COURT ORDERS AND DECLARES that the Plaintiff’s pleading of rectification as set out in the Amended Statement of Claim, including paragraph 1(c) is hereby struck out.

Although I will review the motion judge’s reasons, I would observe that he struck out SWP’s claim for rectification because he found that it was “an unmeritorious, frivolous and vexatious pleading”.

[5] Counsel for SWP submitted that the motion judge made two errors in striking out SWP’s claim for rectification:

(1) In striking out the claim because it could not succeed as a matter of law, the motion judge applied incorrect legal principles, with the result that it was not plain and obvious that the claim failed to disclose a reasonable cause of action: Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959.

(2) In striking out the claim on the ground that it was “an unmeritorious, frivolous and vexatious pleading”, the motion judge misapplied rule 25.11(b), which permits a pleading to be struck out because it is scandalous, frivolous or vexatious.

Given that the motion judge’s declaratory orders in paragraphs 1, 2 and 3 of his order are based on the unrectified agreement, counsel further submitted that if SWP is successful in its appeal from the order striking out of its claim for rectification, its appeal from the declaratory orders must necessarily succeed.

[6] In my view, this submission makes good sense. Accordingly, the focus of my analysis is whether the motion judge erred in striking out SWP’s claim for rectification. If SWP is successful in obtaining rectification of the agreement between itself and Black Company, with the result that the restrictive covenant in the agreement is found to run with the land, this would affect the result of SWP’s claim against MTI. As it is my opinion that the motion judge erred in striking out SWP’s claim for rectification, it follows that the first three paragraphs of the judge’s order cannot stand.

The statement of claim

[7] As it is mandated by rule 21.01(2)(b) that a motion judge is precluded from considering evidence in deciding whether a statement of claim discloses a reasonable cause of action under rule 21.01(1)(b), and as it well established that for the purposes of a rule 21.01(1)(b) motion the motion judge must assume the truth of the allegations in the pleading, it is helpful to review the allegations in the statement of claim.

[8] In paragraphs 10, 11 and 12 the nature of the business carried on by SWP is described. Its business is that of grain handling throughout Canada. In its Thunder Bay business operations it owned four grain terminals, of which Terminal 15 became surplus. It was SWP’s practice to sell surplus terminals to third parties, provided it could obtain a restrictive covenant preventing the surplus terminal from being used to handle grain, thereby ensuring its non-competitive use. It was SWP’s practice to retain a lawyer in the area where its business was located to ensure that an enforceable restrictive covenant running with the land was included in the contract of purchase and sale, and that the restrictive covenant was registered against the title to the surplus terminal for the benefit of the lands retained by SWP.

[9] The purchase and sale of Terminal 15 on November 2, 1993, to the Black Company is described in paragraphs 13 to 16. At the time of the sale, SWP owned , and retained, Terminals 7A, 7B and 4 (the “dominant tenement”). On the sale of the surplus terminal, SWP retained one of the defendants, William A. Covello, as its solicitor on the purchase and sale and instructed him to draft a suitable restrictive covenant. (SWP has asserted an alternative claim for damages for professional negligence against Mr. Covello.) It was pleaded in paragraph 15: “ The SWP-Black Agreement, which was executed by Black on behalf of the Black Company, contained a restrictive covenant . . . which SWP and the Black Company mutually intended to run with the land and to benefit the Dominant Tenement. The Restrictive Covenant provided that the Black Company would not ‘utilize the property and/or the buildings for the purpose of grain handling and/or grain processing industry’ . . .” The agreement also provided that the restrictive covenant would bind the Black Company and its successors or assigns. It was pleaded that SWP intended that its customers that had formerly used Terminal 15 would transfer their grain handling business to Terminals 7A, 7B and 4. Paragraphs 7 and 8 of the agreement of purchase and sale, which contain the restrictive covenant, are reproduced in the statement of claim.

[10] The purchase and sale of Terminal 15 on December 20, 1993 from Black Company to Wiwcharyk Company is described in paragraphs 18, 19 and 20. A restrictive covenant substantially identical to the one in the SWP-Black Company agreement was included in this agreement of purchase and sale and is also reproduced in the pleading. In addition, Wiwcharyk and Wiwcharyk Company gave an independent restrictive covenant (the “Personal Covenant”) to SWP and Black Company, which was in essentially the same terms as the restrictive covenants and intended to protect the business of SWP.

[11] Paragraph 20 of the statement of claim reads as follows:

At all material times, Black, the Black Company, the Wiwcharyk Company and Wiwcharyk knew and operated with the knowledge that the Property was subject to the Restrictive Covenant, that the Restrictive Covenant ran with the land and was for the benefit of the Dominant Tenement. In any event, Wiwcharyk and the Wiwcharyk Company were bound by the Personal Covenant not to “in any other way make available the Property” to a person for use in the grain handling or grain processing.

[12] In paragraphs 21 to 25 the facts respecting the tax sale purchase of Terminal 15 on August 30, 1999, are pleaded. In paragraph 23 it is pleaded that at “the time of the purchase and sale, Mission Terminal had actual or imputed knowledge of the existence of the Restrictive Covenant and the Personal Covenant”. It is pleaded that MTI intends to operate the terminal to handle grain, in breach of the restrictive covenant and the personal covenant, and that it has taken the position that it is not bound by the restrictive covenant.

[13] In paragraph 26, SWP pleads that when MTI purchased the land, and up to the present, Wiwcharyk and the Wiwcharyk Company were the employees or agents of MTI and, as such, MTI “is impressed with their knowledge and vicariously liable for their wrongful acts or omissions in respect of the Restrictive Covenant, Personal Covenant, and otherwise”.

[14] In paragraphs 27 to 30, SWP particularizes its claims seeking the enforcement of the restrictive covenant and the personal covenant. The primary relief sought by SWP is a declaration that the restrictive covenant, either as drafted, or, if necessary, as rectified in accordance with the mutual intention of the parties to it, runs with the land for the benefit of the dominant tenement, and binds Black, Wiwcharyk, Black Company, Wiwcharyk Company, MTI, and their successors and assigns, as well as an injunction restraining MTI from breaching the restrictive covenant.

[15] In paragraph 1(c), SWP seeks “rectification of the agreement between SWP and the Black Company to correspond with the mutual intention of SWP and the Black Company to create . . . a Restrictive Covenant”, in the event that the restrictive covenant contained in the agreement did not create a restrictive covenant that runs with the land.

[16] Finally, in paragraphs 31 to 37 SWP pleads the facts in support of additional claims for damages against Wiwcharyk, Wiwcharyk Company and MTI for conspiracy, interference with contractual relations, and inducing breach of contract. The motion judge refused to strike out these paragraphs for failing to disclose a reasonable cause of action. “Based upon a generous reading of the statement of claim”, he was satisfied of the substantive adequacy of these claims. MTI’s motion for leave to appeal to the Divisional Court from this finding was refused.

Reasons for judgment of the motion judge

[17] The motion judge conducted a lengthy review of the allegations contained in the statement of claim before turning to what he described as the “legal considerations”. He commenced his analysis with the acknowledgment that “[t]he plain and obvious test as set out in the case of Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959 is applicable to both (a) and (b) of Rule 21.01(1)”.

[18] He then reproduced s. 9(5) of the Municipal Tax Sales Act which states:

S.9(5) A tax deed or notice of vesting when registered, vests in the person named therein or in the municipality, as the case may be, an estate in fee simple in the land, together with all rights, privileges and appurtenances and free from all estates and interests subject only to:

(a) easements and restrictive covenants that run with the land;

(b) any estates and interests of the Crown in right of Canada or in right of Ontario other than an estate or interest acquired by the Crown in right of Ontario because of an escheat or forfeiture under the Business Corporations Act or the Corporations Act or a predecessor of those Acts;

(c) any interest or title acquired by adverse possession by abutting landowners before the registration of the tax deed or notice of vesting. [Emphasis added.]

Section9(5)(a) pertains to this appeal because if Black Company acquired the land from SWP subject to a restrictive covenant concerning the use of the land that runs with the land, then, although MTI acquired an estate in fee simple in the land when it purchased it on the tax sale, its title was subject to the restrictive covenant.

[19] The motion judge next dealt with the elements of a restrictive covenant that runs with the land. One of the elements requires that there be a dominant tenement for the benefit of which the restrictive covenant is given: Galbraith v. Madawaska Club Ltd., [1961] S.C.R. 153. In this case, the servient tenement is the land which Black Company purchased from SWP, and the dominant tenement is the land on which the three grain terminals retained by SWP are located. In MTI’s submission, the omission of the dominant tenement from the restrictive covenant in the SWP-Black Company agreement resulted in there being no restrictive covenant that ran with the land.

[20] As SWP’s claim for rectification is the central issue in this appeal, I set out what Kozak J. said about rectification:

In order to succeed on a plea of rectification the Court must be satisfied that the parties were in complete agreement as to the terms of their contract but wrote them down incorrectly. It is not a question of the Court being asked to speculate about the parties’ intention but rather to make an inquiry to determine whether the written agreement properly records the intention of the parties as revealed in their prior agreement. (H.F. Clarke Ltd. v. Thermidaire Corporation (1973) 1973 CanLII 41 (ON CA), 33 D.L.R. (3d) 13 at 20-21 Ont. C/A). [Emphasis in original.]

Rectification is a jurisdiction that must be exercised with great caution and only after a heavy onus of proof has been discharged and the Court is convinced by evidence which is strong and irrefragable involving a high degree of conviction, leaving no fair and reasonable doubt that the document before the Court does not truly represent the concluded agreement between the parties. Hence, rectification is not a remedy which is available after there has been a breach of contract, but only at the stage when there is some disagreement as to what the contact really was. (Fridman, the Law of Contract, Second Edition, Page 742)

[21] The motion judge concluded his discussion of the “legal issues” by returning to the test that governs a motion to strike out a claim for failing to disclose a reasonable cause of action. He correctly recognized that he was required to assume that the facts as stated in the statement of claim can be proved and that it must be plain and obvious that the statement of claim discloses no reasonable cause of action. He recognized, as well, that he should not look beyond the pleadings to determine if the action has any chance of success. He appreciated that the threshold for sustaining a pleading is not high and that it is only in the clearest of cases that a statement of claim should be struck out and a plaintiff be deprived of a trial. Finally, he stated that the statement of claim was to be read generously, with a view to accommodating any inadequacies in the form of allegations as a result of drafting deficiencies. He added, referring to rule 25.06(1), that where the necessary elements of a tort are not pleaded, a claim should be struck out.

[22] The motion judge found that the restrictive covenant in the SWP and Black Company agreement of purchase and sale did not create a restrictive covenant running with the land as the land to be benefited by the covenant, the dominant tenement, was not described. He went on to make the following findings:

The failure of the parties to the S.W.P.-Black agreement to refer to or describe in the restrictive covenant, the land to be benefitted, must be construed as evidentiary of an intention that the restrictive covenant was not intended to run with the land, but was intended to be a personal covenant. The ordinary meaning of the language contained in the restriction [sic] covenant when coupled with the omission of any reference to dominant land, make it clear that the parties and especially S.W.P., which was not a neophyte to such transactions, contemplated a restriction as to the use of the property which would fall short of a restrictive covenant that would run with the land. The fact that virtually identical wording was utilized on three separate occasions in the drafting of the subject covenants also points to the clear intention of the parties as to the nature of the covenant that was to be employed. It is the finding of this Court that the restrictive covenants contained in the agreements, as well as the restrictive covenant provided by Wiwcharyk to Black and S.W.P., fail to meet the requirements of covenants that run with the land and are hereby declared to be merely personal covenants or undertakings that bind only the parties to the agreement. [Emphasis added.]

[23] While this was a conclusion which the motion judge was entitled to reach on the basis of the deemed truth of the facts pleaded in the statement of claim, it was unnecessary that he make a finding as to the intention of the parties to the SWP-Black Company agreement. Indeed, as I will explain, the “intention of the parties as to the nature of the covenant that was to be employed” is for the trial judge to determine on the evidence at the trial of SWP’s claim for rectification.

[24] The motion judge then considered SWP’s claim for rectification of the restrictive covenant, observing that the claim, “in a sense [acknowledged] the shortcomings or deficiencies of the restrictive covenant contained in the . . . agreement”. It should be noted that the claim for rectification was not in the original statement of claim, and was added to the statement of claim by new counsel retained by SWP after MTI commenced its motion. In striking out the claim for rectification, the motion judge said:

The pleading of rectification, which can only be viewed as being brought at a most untimely opportunity, must be struck as an unmeritorious, frivolous and vexatious pleading . . .

[25] The motion judge struck out this claim for three reasons:

(1) The Municipal Tax Sales Act provides a complete code for the determination of interests in land that is sold for arrears in taxes thereby providing certainty and finality in tax sales. It enables purchasers to obtain a clear title to land, except for restrictive covenants that run with the land. To the motion judge, “to allow rectification” of the SWP-Black Company agreement after MTI had purchased the property in a tax sale (with the effect of creating a restrictive covenant running with the land which, under s. 9(5)(a) of the Act, survives the tax sale) would defeat the purpose of the Act.

(2) On the authority of Bloomer v. Spittle (1872), L.R. 13 Eq. 427, the right to claim rectification was “barred” by lapse of time.

(3) The remedy of rectification is not available “after there has been a breach of contract but only at the stage where there is some disagreement as to what the contract really was”. There was no disagreement as to the nature of the contract until after MTI had acquired title to the property and SWP had changed solicitors.

[26] The motion judge concluded his reasons by dealing with the restrictive covenant in this way:

Accordingly, it is hereby declared that the agreements of purchase and sale affecting the property in question do not create a restrictive covenant that runs with the land and that restrictions contained in the agreements, including the personal covenant of the Wiwcharyk company, do not survive the tax sale under the Municipal Tax Sales Act by the City to Mission Terminal Inc..

This conclusion, which is based on the motion judge’s findings of fact that I have reproduced in paragraph 22, was his way of responding to the two questions of law which he was asked to answer that I have reproduced in paragraph 3, and resulted in the three declaratory orders which he granted.

Analysis

[27] In my view, the real issue is whether the motion judge erred in striking out SWP’s claim for rectification of the restrictive covenant in the SWP-Black Company agreement. The motion judge based his answers to the two questions of law on his finding that the restrictive covenant did not run with the land. He may have answered these questions differently had he concluded that the agreement contained a restrictive covenant that ran with the land. Thus, the answers to the questions of law depend on the success or failure of SWP’s rectification claim. If the motion judge erred in striking out this claim, then he also erred in answering the questions and in granting the declaratory orders, because the answers would necessarily have had to await the result of the trial of the rectification claim.

[28] The motion judge struck out the claim for rectification because, in his view, as a matter of law, rectification of the SWP-Black Company was not available to create a valid restrictive covenant that would run with the land and, hence, be enforceable against MTI. The motion judge offered three reasons for this conclusion: (1) as a matter of law, to permit rectification would defeat the certainty and finality in tax sales provided by s. 9(5) of the Municipal Tax Sales Act; (2) rectification was barred by lapse of time; and (3) a contract cannot be rectified after it has been breached.

[29] MTI did not attack SWP’s claim for rectification on the ground that it failed to disclose a reasonable cause of action. Indeed, it is common ground that the equitable remedy of rectification is well-recognized. Although counsel for MTI took some issue with the formal adequacy of how the claim was pleaded, he attacked the pleading on legal grounds. In my view, SWP has pleaded facts which raise an arguable case for rectification and the success or failure of the rectification claim, both in fact and in law, can be determined only on the basis of a full factual record at trial.

[30] As for the motion judge’s first ground, his concern about the finality and the integrity of a tax sale appears to be premised on protecting a third party who might acquire land through a tax sale that is subject to an unknown restrictive covenant running with the land. I do not take issue with this concern as a general proposition. Indeed, there can be no dispute that rectification of a deed, which, like other equitable remedies is discretionary, is unavailable where a bona fide purchaser for value has taken title to land without notice of a restrictive covenant. See, e.g., Wise v. Axford, 1954 CanLII 323 (ON CA), [1954] O.W.N. 822 (C.A.). Or, as stated in Thames Guaranty Ltd. v. Campbell, [1985] Q.B. 210 at 240 (C.A.): “Rectification will not be granted to the prejudice of a bona fide purchaser for value without notice, who has taken an interest under the instrument in its unrectified form.” However, in the appropriate case rectification may be ordered against successors in title: Equity and Law Life Assurance Society Ltd. v. Coltness Group Ltd. (1983), 267 E.G. 949 (Ch.).

[31] However, SWP has pleaded that MTI was not a bona fide purchaser for value without notice of the restrictive covenant running with the land. In paragraphs 20 and 26 of the statement of claim SWP has alleged that at the relevant times: (a) Wiwcharyk and Wiwcharyk Company knew that the restrictive covenant ran with the land for the benefit of the dominant tenement; and (b) as Wiwcharyk and Wiwcharyk Company were employees or agents of MTI, MTI was aware of the restrictive covenant running with the land when it purchased the land. In paragraph 15 it is alleged that the covenant provided that Black Company would not use the land for the purpose of grain handling or grain processing. The motion judge did not refer to these paragraphs in his analysis. In my view, although this is not a model pleading, it does raise an arguable claim for rectification of the SWP–Black Company agreement despite the tax sale. However, the resolution of the claim must await trial.

[32] We have not been provided with any authority that has considered whether the remedy of rectification is, or is not, available in the context of a tax sale where the purchaser is not a bona fide purchaser for value without notice. To the extent that this may be considered a novel issue, SWP should not be precluded from having it decided at trial.

[33] As for the motion judge’s second ground, in my view he erred in deciding at the pleading stage that the SWP’s right to claim rectification was “barred by lapse of time”. Although the passage of time may make it more difficult for a plaintiff to prove the mutual mistake necessary to succeed on a claim for rectification: Fredenson v. Rothschild, [1941] 1 All E.R. 430 (C.A.), mere delay of itself, however long, does not prevent the granting of rectification: Burroughes v. Abbott, [1922] 1 Ch. 86. It is only a trial judge, in the context of the evidence of all the relevant circumstances, who can decide what effect, if any, lapse of time or delay may have on SWP’s claim for rectification.

[34] As for the motion judge’s third ground, in my view he was in error in concluding that “rectification is not a remedy which is available after there has been a breach of the contract”. In reaching this conclusion, the motion judge relied on a passage in Fridman, The Law of Contract, 2nd ed., 1986, at p. 742, which, in the Professor Fridman’s opinion, is supported by the finding in Murray and Murray v. Brown (1955), 1955 CanLII 586 (BC SC), 16 W.W.R. 397 (B.C. S.C.). This case does not appear to support the proposition stated by Professor Fridman. In Murray, at p. 400, it is stated only that rectification is not a remedy for breach of contract. However, in fairness to Professor Fridman, perhaps the passage in his text was poorly drafted, and when it is considered in the context of the paragraphs that precede it, it may be that the point he intended to make was that rectification is a remedy where there is a mistake in a contract and that it is not a remedy for breach of contract. No other authorities were provided to the court in support of the proposition that rectification is unavailable after there has been a breach of contract.

[35] Moreover, the suggestion that rectification is not an available remedy after there has been a breach of contract is contrary to both principle and authority. Courts regularly entertain actions claiming both rectification and breach of contract and award damages on the basis of a rectified contract: Carroll v. Erie County Natural Gas and Fuel Co. (1899), 1899 CanLII 7 (SCC), 29 S.C.R. 591; Pritchard v. Fick (1902), 1 O.W.R. 815 (Div. Ct.); United States v. Motor Trucks, Ltd., 1923 CanLII 431 (UK JCPC), [1924] A.C. 196 (P.C., Ont.). Mistakes in contractual documents are often discovered only after a party is in breach of the contract, when one party seeks to rely on language in the written contract that is contrary to the mutual intention of the parties. The position taken by the motion judge would seriously limit the remedy of rectification.

[36] As I have stated, the motion judge properly instructed himself that he could strike out the claim for rectification only if it was plain and obvious that it could not succeed. This test creates a high hurdle for parties invoking rule 21.01(1)(b). In my view, on none of the three grounds relied on by the motion judge can it be said that it is plain and obvious that SWP’s claim for rectification cannot succeed. Nor can it be held, as stated by the motion judge, apparently applying rule 25.11(b), that the claim should be struck “as an unmeritorious, frivolous and vexatious pleading”: Duryea v. Kaufman (1910), 21 O.L.R. 161; Brydon v. Brydon, [1951] O.W.N. 369 (C.A.). However, that is not to say that the statement of claim would not benefit by further amendment to better plead the facts relied on to support the claim of rectification.

[37] I would also observe that, by its nature, rectification is a fact-driven equitable remedy. As stated in Snell’s Equity, 29th ed., 1990, at p. 626: “If by mistake a written instrument does not accord with the true agreement between the parties, equity has the power to reform, or rectify, that instrument so as to make it accord with the true agreement.” Thus, rectification ensures that the instrument contains the provisions which the parties actually intended it to contain. At p. 628 the elements of rectification are discussed:

The general rule is that rectification will not be granted unless there has been a mistake in expression which is common to all parties. In general, a claim will succeed only if it is established, first, that there was some prior agreement between the parties; second, that this was still effective when the instrument was executed; third, that by mistake the instrument fails to carry out that agreement; and fourth, that if rectified as claimed, the instrument would carry out the agreement.

[38] It is apparent, therefore, that central to the trial of a claim for rectification is an inquiry into the state of mind of the parties to the agreement which the plaintiff seeks to rectify. Where a possible factual foundation for a claim for rectification has been pleaded, the claim must be permitted to proceed to trial to enable the necessary findings of fact to take place. Granted that a generous reading of the statement of claim is necessary in this case to achieve that factual foundation, in my view it has been achieved.

[39] As I have discussed, the reversal of the motion judge’s decision to strike out the claim for rectification necessarily requires the reversal of the declaratory orders contained in the first three paragraphs of the formal judgment.

[40] It should be made clear that I have not found that SWP’s claim for rectification is valid from a legal perspective. What I have decided is that it is not plain and obvious that this claim cannot succeed. It remains for the trial judge to determine whether SWP can establish factually that its agreement with Black Company should be rectified, and, if so, whether as a matter of law it can be rectified.

Conclusion

[41] Accordingly, I would allow the appeal, set aside the judgment of Kozak J. and dismiss the motion. SWP is to have its costs of the motion and the appeal payable by MTI. SWP is granted leave to amend its statement of claim, if so advised. Counsel for Mr. Covello filed a factum and was present at the appeal in support of SWP. Counsel for Wiwcharyk and the Wiwcharyk Company filed a factum and was present at the appeal in support of MTI. These parties are neither entitled to costs, nor responsible for the costs of the successful party.

Released: March 21, 2001

“S. Borins J.A.”

“I agree S. T. Goudge J.A.”

“I agree Robert J. Sharpe J.A.”