2484234 Ontario Inc. v. Hanley Park Developments Inc.

Ontario Reports Court of Appeal for Ontario Tulloch, van Rensburg and Zarnett JJ.A. April 29, 2020 150 O.R. (3d) 481 | 2020 ONCA 273

Case Summary

Contracts — Interpretation — Mistake — Rectification — Applicant agreeing to purchase lands from respondent for development — Condition of subdivision approval required construction of access road across respondent's adjacent property — Respondent refusing to sell adjacent property but agreeing to an easement — Easement granted for only four of five parts of property — Respondent treating agreement as null and void — Applicant entitled to rectification to include all five parts based on business efficacy, and entitled to specific performance.

Equity — Remedies — Rectification — Applicant agreeing to purchase lands from respondent for development — Condition of subdivision approval required construction of access road across respondent's adjacent property — Respondent refusing to sell adjacent property but agreeing to an easement — Easement granted for only four of five parts of property — Respondent treating agreement as null and void — Applicant entitled to rectification to include all five parts based on business efficacy, and entitled to specific performance.

Sale of land — Specific performance — Availability — Uniqueness — Applicant agreeing to purchase lands from respondent for development — Condition of subdivision approval required construction of access road across respondent's adjacent property — Respondent refusing to sell adjacent property but agreeing to an easement — Easement granted for only four of five parts of property — Respondent treating agreement as null and void — Applicant entitled to rectification to include all five parts based on business efficacy — Applicant entitled to specific performance based on uniqueness of property in fulfilling access road requirements.

The applicant agreed to purchase certain lands from the respondent for the purpose of development. The respondent had obtained conditional approval of a draft plan of subdivision, one of whose conditions was that there be an access road to connect the proposed subdivision to an existing road. The access road had to be built across an adjacent property owned by the respondent. Shortly before the scheduled closing date the parties had dealings concerning the access road. An engineer identified four parts of the respondent's adjacent property that were required for the connection of the access road. The applicant's lawyer proposed acquiring the adjacent property and requested an extension of the closing date. The respondent's lawyer was not prepared to sell or grant an extension, but did offer to grant the applicant an easement over the four parts sufficient for the access road so as to facilitate the development of the proposed subdivision. A transfer agreement was executed on the scheduled closing date, whereby the respondent granted the applicant a formal easement over the four identified parts for the construction of a roadway. However, the applicant subsequently discovered that a fifth part was also required to complete the connection of the access road. Pursuant to the transfer agreement the applicant elected that, instead of a severance, the lands should be transferred to the city. The transfer document included all five parts, with the result that the respondent refused to execute it. The respondent also did not execute a subsequent transfer document for the original four [page482] parts, and ultimately took the position that the transfer agreement became null and void in the absence of a consent to severance or a transfer to the city. The applicant sought rectification of the transfer agreement to include part 5 and sought specific performance of the rectified agreement. The application was dismissed. The applicant appealed.

Held, the appeal should be allowed.

The applicant had a proper claim for rectification. The application judge was satisfied that the parties had an agreement preceding the document sought to be rectified, but did not expressly identify where the terms of the antecedent agreement were to be found nor comprehensively describe their content. The only document that could have contained the antecedent agreement was the letter from the respondent's lawyer offering an easement. In interpreting that agreement, the application judge did not advert to its actual text or identify or apply proper interpretive principles. Not only did the judge take into account irrelevant subjective intentions of the respondent, she failed to analyze the words of the agreement in light of the facts. The antecedent agreement allocated to the respondent the risk that the lands described would be sufficient for the access road. To read the antecedent agreement as providing for a transfer of an easement over parts 1 to 4 only, even if they were known by the respondent to be insufficient and incapable of facilitating development, would result in a commercial absurdity. The applicant's request to acquire all of the adjacent property put part 5 into play even though it was never separately mentioned. The respondent, having promised to convey four parts on the basis that they were sufficient, was obligated to do what was necessary to make them sufficient and which was in its power to do, namely, to include part 5. With part 5 the agreement had business efficacy; without it, it did not. As such, the transfer agreement did not accurately reflect the prior agreement because it did not fully record it. Adding part 5 to the transfer agreement was appropriate because to do so did not extend beyond the express and implied terms of the prior agreement properly interpreted, and was faithful to the way the parties chose to move from the language of the prior agreement to the transfer agreement regarding sufficiency and facilitating development. The respondent's conduct was to lead, or knowingly allow, the applicant to think it was getting what it needed, so permitting the respondent to take advantage of the applicant's mistake amounted to fraud or the equivalent of fraud.

The trial judge erred in finding that the applicant was barred by unclean hands from obtaining rectification. That finding was premised on three alleged breaches of the transfer agreement, all of which were based on a misreading of the agreement.

Specific performance was an appropriate remedy. The property was unique in the sense that it was uniquely positioned to fulfill the requirements for the access road.

Canada (Attorney General) v. Fairmont Hotels Inc., [2016] 2 S.C.R. 720, [2016] S.C.J. No. 56, 2016 SCC 56, 404 D.L.R. (4th) 201, J.E. 2016-2123, 58 B.L.R. (5th) 171, [2017] 1 C.T.C. 149, 2016 D.T.C. 5135, 272 A.C.W.S. (3d) 525, EYB 2016-273668, 2016EXP-3860, apld Lee v. 1435375 Ontario Ltd., [2013] O.J. No. 3726, 2013 ONCA 516, 363 D.L.R. (4th) 222, 310 O.A.C. 187, 34 R.P.R. (5th) 1, 230 A.C.W.S. (3d) 119 (C.A.), consd Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., [2002] 1 S.C.R. 678, [2002] S.C.J. No. 20, 2002 SCC 19, 209 D.L.R. (4th) 318, 283 N.R. 233, [2002] 5 W.W.R. 193, J.E. 2002-448, 98 Alta. L.R. (3d) 1, 299 A.R. 201, 20 B.L.R. (3d) 1, 50 R.P.R. (3d) 212, 111 A.C.W.S. (3d) 733, folld [page483]

Other cases referred to 0759594 B.C. Ltd. v. 568295 British Columbia Ltd., [2013] B.C.J. No. 1857, 2013 BCCA 381, 232 A.C.W.S. (3d) 264, 343 B.C.A.C. 285, 49 B.C.L.R. (5th) 67, 19 B.L.R. (5th) 1, 35 R.P.R. (5th) 192 (C.A.); Bhasin v. Hrynew, [2014] 3 S.C.R. 494, [2014] S.C.J. No. 71, 2014 SCC 71, 379 D.L.R. (4th) 385, 464 N.R. 254, [2014] 11 W.W.R. 641, J.E. 2014-1992, 4 Alta. L.R. (6th) 219, 27 B.L.R. (5th) 1, 20 C.C.E.L. (4th) 1, 245 A.C.W.S. (3d) 832, EYB 2014-244256, 2015 CCLG para. 25-556, 2014EXP-3530; Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711, [1987] S.C.J. No. 29, 40 D.L.R. (4th) 385, 77 N.R. 161, 21 O.A.C. 321, 41 C.C.L.T. 1, [1987] I.L.R. para. 92-772, 4 A.C.W.S. (3d) 299; Dynamic Transport Ltd. v. OK Detailing Ltd., [1978] 2 S.C.R. 1072, [1978] S.C.J. No. 52, 85 D.L.R. (3d) 19, 20 N.R. 500, 6 Alta. L.R. (2d) 156, 9 A.R. 308, 4 R.P.R. 208, [1978] 2 A.C.W.S. 72; Eli Lilly and Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129, [1998] S.C.J. No. 59, 161 D.L.R. (4th) 1, 227 N.R. 201, J.E. 98-1562, 80 C.P.R. (3d) 321, 80 A.C.W.S. (3d) 871; Frederick E. Rose (London) Ltd. v. William H. Pim Jnr. & Co., [1953] 2 Q.B. 450 (C.A.); Humphries v. Lufkin Industries Canada Ltd., [2011] A.J. No. 1410, 2011 ABCA 366, 68 Alta. L.R. (5th) 175, 212 A.C.W.S. (3d) 393 (C.A.); Imperial Pacific Greenhouses Ltd. v. Canada, [2011] F.C.J. No. 329, 2011 FCA 79, 420 N.R. 71, 2011 D.T.C. 5041, [2011] 3 C.T.C. 155, 198 A.C.W.S. (3d) 1197 (C.A.); Kentucky Fried Chicken Canada, a Division of Pepsi-Cola Canada Ltd v. Scott's Food Services Inc., [1998] O.J. No. 4368, 114 O.A.C. 357, 41 B.L.R. (2d) 42, 83 A.C.W.S. (3d) 382; McLean v. McLean (2013), 118 O.R. (3d) 216, [2013] O.J. No. 5956, 2013 ONCA 788, 313 O.A.C. 364, 370 D.L.R. (4th) 167, 39 R.P.R. (5th) 181, 235 A.C.W.S. (3d) 415 (C.A.); M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619, [1999] S.C.J. No. 17, 170 D.L.R. (4th) 577, 237 N.R. 334, [1999] 7 W.W.R. 681, J.E. 99-859, 69 Alta. L.R. (3d) 341, 232 A.R. 360, 49 B.L.R. (2d) 1, 44 C.L.R. (2d) 163, 3 M.P.L.R. (3d) 165, 87 A.C.W.S. (3d) 681, REJB 1999-11937; Olivieri v. Sherman (2007), 86 O.R. (3d) 778, [2007] O.J. No. 2598, 2007 ONCA 491, 284 D.L.R. (4th) 516, 225 O.A.C. 227, 159 A.C.W.S. (3d) 364 (C.A.); Purves v. Chisel, [2011] M.J. No. 226, 2011 MBCA 57, 268 Man. R. (2d) 148, 205 A.C.W.S. (3d) 242 (C.A.); Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633, [2014] S.C.J. No. 53, 2014 SCC 53, 373 D.L.R. (4th) 393, 461 N.R. 335, [2014] 9 W.W.R. 427, J.E. 2014-1345, 358 B.C.A.C. 1, 59 B.C.L.R. (5th) 1, 25 B.L.R. (5th) 1, 242 A.C.W.S. (3d) 266, 2014EXP-2369; Semelhago v. Paramadevan, [1996] 2 S.C.R. 415, [1996] S.C.J. No. 71, 136 D.L.R. (4th) 1, 197 N.R. 379, 91 O.A.C. 379, 3 R.P.R. (3d) 1, 63 A.C.W.S. (3d) 973; Toronto (City) v. W.H. Hotel Ltd., [1966] S.C.R. 434, [1966] S.C.J. No. 23, 56 D.L.R. (2d) 539; Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust (2007), 85 O.R. (3d) 254, [2007] O.J. No. 1083, 2007 ONCA 205, 222 O.A.C. 102, 29 B.L.R. (4th) 312, 56 R.P.R. (4th) 163, 156 A.C.W.S. (3d) 95 (C.A.)

Statutes referred to Planning Act, R.S.A. 1970, c. 276 [rep.]

Authorities referred to McCamus, John D., The Law of Contracts, 2nd ed. (Toronto: Irwin Law, 2012)

APPEAL from the judgment of J. Ferguson J., [2019] O.J. No. 3076, 2019 ONSC 3696 (S.C.J.) dismissing an application for rectification.

Richard P. Quance, for appellant. Howard J. Alpert and Vivian Xu, for respondent.

The judgment of the court was delivered by

ZARNETT J.A.: — [page484]

Overview

[1] The appellant appeals the denial of its claim for rectification of a document, entitled "Transfer Agreement", that it entered into with the respondent. Under the Transfer Agreement, the respondent was to transfer, and provide an easement over, certain lands. The appellant required this transfer and easement to construct an access road to a proposed subdivision the appellant had acquired. The appellant's rectification request was to add additional lands to those specified in the Transfer Agreement; the lands specified in the Transfer Agreement were insufficient to build the access road.

[2] 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".

[3] For the reasons that follow, I conclude that the application judge erred in finding that the appellant did not meet the test for rectification. The parties' true agreement was not accurately recorded in the Transfer Agreement. The appellant's conduct did not disentitle it to equitable relief. I would therefore allow the appeal.

Facts

[4] On February 8, 2017, the appellant, 2484234 Ontario Inc., 1 entered into an Agreement of Purchase and Sale (the "February Agreement") with the respondent, Hanley Park Developments Inc. The February Agreement provided for the appellant to purchase certain lands (the "Development Lands") from the respondent located in the City of Belleville (the "City"). The respondent had obtained conditional approval of a Draft Plan of Subdivision contemplating 258 residential dwelling units on the Development Lands.

[5] The purchase price for the Development Lands under the February Agreement was $4.3 million; the closing date was March 9, 2017.

[6] The February Agreement was conditional for a ten-day period during which the appellant was permitted to conduct due diligence with respect to, among other things, the "conditions of draft [page485] approval and other conditions imposed by any governmental authority". On February 18, 2017, the appellant waived its rights under that provision.

[7] One of the conditions of approval of the Draft Plan of Subdivision was that there be an access road to connect the proposed subdivision on the Development Lands to an existing road, Janlyn Crescent, which, at the time, ended before it reached the border of the Development Lands. To meet that condition, a road (the "Access Road") had to be built across a neighbouring property (the "Adjacent Property") to connect the Development Lands to Janlyn Crescent.

[8] The respondent owned the Adjacent Property. The Adjacent Property was not included in the lands to be conveyed by the respondent under the February Agreement. The respondent's principal gave evidence that the respondent intended to apply for approval to build residential lots on certain portions of the Adjacent Property.

[9] Shortly before the February Agreement's scheduled closing date, there were dealings between the parties concerning the Access Road.

[10] On March 6, 2017, Mr. Gord Patterson, an engineer, sent an email to representatives of both the appellant and the respondent. He stated: "Parts 1, 2, 3 and 4 are required for the Janlyn connection. The alignment of this connection has been the subject of much review by the City. It would not surprise me if they wanted to further review and adjust when faced [sic] the actual dedication" (emphasis added).

[11] The "Parts" referred to in Mr. Patterson's email are parts of the Adjacent Property. Mr. Patterson is described in the evidence as the engineer for the project. Counsel for the appellant advised in argument that the project engineer was hired by the respondent.

[12] On March 7, 2017, the appellant's lawyer wrote to the respondent's lawyer referring to the condition of Draft Subdivision approval that called for a connection to Janlyn Crescent. He stated: ". . . it has come to our attention that your client owns an adjacent property, which in part, is required for the Janlyn Crescent connection". The letter asked if the respondent would be agreeable to selling the Adjacent Property on terms whereby the respondent would have an option to purchase back, for $1.00, "those certain lands of the Adjacent Property which are not required for the said Janlyn Crescent connection". The letter reiterated that this was because "access from Janlyn Crescent is required for final plan approval by the City". The letter also requested an eight-day extension of the closing date for the acquisition of the Development Lands. [page486]

[13] The same day, March 7, 2017, the respondent's lawyer wrote back to the appellant's lawyer. This letter stated that the respondent was not prepared to extend the closing date for the Development Lands or to sell the entire Adjacent Property. However, the letter went on to state that the respondent was prepared to transfer and grant an easement over a portion of the Adjacent Property. The letter stated:

"My client, so as to assist your client and on a without prejudice basis, is prepared to do the following:

1. Convey to your client the parcel of land outlined as Parts 1, 2, 3 and 4 on the attached draft reference plan. The Engineer for the project has advised my client that these 4 parts will be sufficient for the road which is to be built to access the subdivision.

2. My client will apply for a severance of those lands namely Parts 1, 2, 3, and 4 on the draft reference plan from its retained lands and will either convey it to your client or to the municipality. All costs associate [sic] with the severance to be borne by your client together with the registration of same;

3. Lots 38, 39 and 40 will be effected [sic] by the severance. Lot 40 will be conveyed in its entirety and the frontages of Lots 38 and 39 will be affected. My client requires as a condition of the transfer to your client or the municipality, at your client's expense that the municipal services presently at the lot line of Lots 38 and 39 will be restored to the new lot line to be created after the severance.

4. So as to facilitate the development of the proposed subdivision my clients will provide a temporary easement over the said Parts 1, 2, 3 and 4 on the draft reference plan for a term being the earlier of five (5) years or until the severance is obtained.

Please advise whether the above is acceptable to your client."

[14] As I explain below, the application judge implicitly proceeded on the basis that the terms of the March 7, 2017 letter from the respondent's lawyer were accepted by the appellant and that they were the basis for the Transfer Agreement described below.

[15] On March 9, 2017, the closing date for the February Agreement, the appellant and respondent entered into the Transfer Agreement, which was a formal agreement relating to a transfer and easement over part of the Adjacent Property (the "Transfer Agreement"). 2 The Transfer Agreement referred to Parts 1, 2, 3 and 4 on a draft reference plan that was attached, and defined these parts as the "Property". It then provided for a number of things to occur. Those material to this appeal were the following. [page487]

[16] First, the Transfer Agreement either required the appellant to obtain a severance of the Property from the balance of the Adjacent Property, or alternatively, gave the appellant the right to direct the respondent to transfer the Property to the City ("Clause 1"). Second, the Transfer Agreement provided that the respondent would use its best efforts to cooperate with the appellant in connection with the severance of the Property. In that regard, that is, in regard to the severance, the respondent was required to execute any necessary documents within seven business days of a written request; if the respondent failed to do so, the Transfer Agreement permitted the appellant to execute the necessary documents for the severance as attorney for the respondent ("Clause 2"). The appellant was also required to use its best efforts to obtain the severance ("Clause 7"). Third, the Transfer Agreement required the appellant to "obtain the consent from the Committee of Adjustment for the Severance or the transfer of the Property to the City by no later than September 9, 2018", failing which the Transfer Agreement would become null and void ("Clause 3"). Fourth, the Transfer Agreement required the appellant to restore the municipal services to the new lot line that would be created following the severance and construction of the new Access Road ("Clause 5"). Finally, the Transfer Agreement required the respondent to provide a temporary easement over the Property until the earlier of (a) a period of five years, (b) the severance being obtained, or (c) the transfer to the City occurring ("Clause 6").

[17] On March 9, 2017, pursuant to the Transfer Agreement, the respondent granted the appellant a formal easement over Parts 1, 2, 3 and 4 for the construction of a roadway. The formal easement document provided that the appellant could "enter on, . . . exit from . . . pass and repass at any and all times in, over, along, upon, across, through and under [Parts 1, 2, 3 and 4] . . . for the purposes necessary or convenient to the exercise and enjoyment of the [appellant's] rights herein and for the purpose of accessing to and from Janlyn Crescent the [Development Lands]" (emphasis added).

[18] At some point prior to the September 9, 2018 deadline for consent to severance or transfer to the City of the lands described in the Transfer Agreement, the appellant discovered that Part 5 of the Adjacent Property was also required for the Access Road. There is some evidence that it was the City that alerted the appellant to this.

[19] Part 5 is a narrow sliver of land in an important location. It abuts the Development Lands on one side and Part 4 on the other. Without Part 5, a road over Parts 1, 2, 3 and 4 would not connect Janlyn Crescent to the Development Lands. The respondent's representative conceded on cross-examination that he had been aware [page488] of this at all relevant times. He was always aware that, without Part 5, Parts 1 to 4 of the Adjacent Property were not sufficient for the Access Road.

[20] On August 27, 2018, pursuant to the alternative option provided for in the Transfer Agreement, the appellant elected that, instead of a severance, the lands that were the subject of the Transfer Agreement should be transferred to the City. On August 30, 2018, the appellant's lawyer sent an email to the respondent's lawyer advising that she had sent him a transfer document to effect this transfer. The respondent's lawyer reviewed the transfer document and discovered that it included Parts 1 to 5 of the Adjacent Property, even though Part 5 was not referenced in the definition of Property in the Transfer Agreement. The respondent objected to this transfer document because of the inclusion of Part 5.

[21] After the respondent refused to execute a transfer document which included Part 5, the appellant, on September 7, 2018, provided a transfer document for the respondent's execution in favour of the City for Parts 1, 2, 3 and 4. It was not executed, as the respondent took the position that it was entitled to seven business days to sign. The respondent then took the position that the Transfer Agreement became null and void on September 10, 2018, in the absence of a consent to a severance or a transfer to the City having occurred by September 9, 2018.

The Decision Below

[22] The appellant commenced an application seeking rectification of the Transfer Agreement to include Part 5 and seeking specific performance of the Transfer Agreement, as rectified. The application was dismissed.

[23] The application judge accepted the submission of appellant's counsel that the appellant's claim for rectification was one based on its unilateral mistake about the Transfer Agreement: at para. 27. While the application judge did not elaborate on this point, she appears to have accepted that the appellant was mistaken about whether the Transfer Agreement covered lands sufficient for the Access Road, and that the respondent was not similarly mistaken. As mentioned above, the respondent's principal gave evidence during the course of the application that he was always aware that the Transfer Agreement only included Parts 1 to 4 and that they were insufficient for the Access Road.

[24] The application judge noted that rectification is an equitable remedy which the appellant could not obtain if it came to court with "unclean hands". She held that the claim for rectification failed under this doctrine because the appellant breached certain [page489] terms of the Transfer Agreement and was therefore disentitled to equitable relief: at paras. 39-41.

[25] Specifically, the application judge concluded that the appellant breached Clause 7 of the Transfer Agreement by failing to use its best efforts to obtain the approval of the Committee of Adjustments for a severance; that the requirements of Clause 5 were not satisfied because the appellant failed to restore the municipal services to the new lot line by the date of the registration of the transfer; and that the Transfer Agreement was null and void under Clause 3 because the appellant did not give the respondent seven days to execute the transfer document in favour of the City and thus missed the September 9, 2018 deadline: at para. 40.

[26] In addition, the application judge held that the appellant's claim did not meet the test for rectification applicable to a case of unilateral mistake (a case where the assertion is that one party was mistaken about the terms of the formal document even though the other party was not). She articulated the test for rectification set out by the Supreme Court of Canada in Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56, at paras. 31-32 of her reasons, as follows:

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.)

[27] The application judge concluded that the appellant's claim failed to meet steps (iii) and (vi) of the Fairmont test: at paras. 42-44. With respect to step (iii), she held that the Transfer Agreement accurately recorded the prior agreement because "Part 5 was never discussed let alone made the subject matter of a prior agreement": [page490] at para. 43. With respect to step (vi), she held that permitting the respondent to take advantage of the appellant's mistake did not amount to fraud or its equivalent in this case because there was no clause requiring the respondent to convey "all lands necessary for the development of the access road", the respondent did not intentionally deceive the appellant, and the appellant should have verified the boundaries pursuant to the due diligence condition: at para. 44.

[28] The application judge did not consider whether, had she granted rectification, specific performance of the Transfer Agreement as rectified would have been the appropriate remedy.

Issues and Parties' Positions

[29] The parties agree that the application judge correctly set out the test for rectification and correctly treated the appellant's claim as requiring fulfillment of all six elements set out in para. 26 above (as the appellant's claim was one of unilateral mistake). The parties also agree that rectification is an equitable remedy that can be denied to a party under the clean hands doctrine.

[30] The appellant makes two submissions with respect to the main issues on appeal. First, it asserts that the application judge erred in her approach and application of the test for rectification. The appellant argues that the parties' correspondence makes it clear that the appellant was seeking a transfer of and easement over the parts of the Adjacent Property that would allow development of the Access Road and that the respondent communicated that it was agreeable to doing so, even while it was specifying one less part of its property than it knew would be sufficient.

[31] Second, the appellant submits that the application judge made palpable and overriding errors in finding that it had breached the Transfer Agreement and was therefore disentitled to equitable relief.

[32] The respondent does not dispute that it knew that Parts 1 to 4 were insufficient for the construction of the Access Road. However, it states that the application judge was right -- it simply never agreed to transfer Part 5 and that rectification is therefore unavailable. The respondent's position is that the appellant should have verified what it needed and cannot now complain if it signed an agreement that did not achieve its goals. Further, the respondent submits that the application judge did not err in determining that the appellant breached the Transfer Agreement and thus lacked clean hands.

[33] The parties' positions raise in sharp relief the extent of, and limits on, the remedy of rectification. Because of the nature [page491] of the issues, I address first whether the appellant has a proper claim for rectification. I then turn to whether the doctrine of clean hands bars what otherwise would be an entitlement to the remedy.

Analysis

(1) Parameters of the rectification remedy

[34] The six-step test articulated in Fairmont is best understood in light of the discussion in that case about the parameters of the rectification remedy. Writing for the majority, Brown J. underscored the importance of distinguishing between what rectification can do, which is correct a document to accord with what was agreed, and what it cannot do, which is change an agreement to make it achieve a party's desired result [at para. 3]:

Rectification is limited to cases where the agreement between the parties was not correctly recorded in the instrument that became the final expression of their agreement [citation omitted]. It does not undo unanticipated effects of that agreement. While, therefore, a court may rectify an instrument which inaccurately records a party's agreement respecting what was to be done, it may not change the agreement in order to salvage what a party hoped to achieve.

[35] At para. 13 of Fairmont, Brown J. stressed that while rectification corrects mistakes in the recording of a prior agreement, it is not available to correct mistakes in the prior agreement itself:

It bears reiterating that rectification is limited solely to cases where a written instrument has incorrectly recorded the parties' antecedent agreement (Swan and Adamski, at 8.229). It is not concerned with mistakes merely in the making of that antecedent agreement: E. Peel, The Law of Contract (14th ed. 2015), at para. 8-059; Mackenzie v. Coulson (1869), L.R. 8 Eq. 368, at p. 375 ("Courts of Equity do not rectify contracts; they may and do rectify instruments"). In short, rectification is unavailable where the basis for seeking it is that one or both of the parties wish to amend not the instrument recording their agreement, but the agreement itself. More to the point of this appeal, and as this Court said in Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., [2002] 1 S.C.R. 678, 2002 SCC 19, at para. 31, "[t]he court's task in a rectification case is . . . to restore the parties to their original bargain, not to rectify a belatedly recognized error of judgment by one party or the other."

[Emphasis in original]

[36] The majority in Fairmont used different terms to describe what must be found to have existed so that rectification can bring a formal document into conformity with it: the parties' "true agreement" (para. 12); their "prior" or "antecedent" agreement (para. 14); and their "original bargain" (para. 13). These terms are variations on a theme and should be considered together. The search for something "prior", "antecedent" or "original" connotes a search for something that existed in fact before the allegedly [page492] mistaken formal document; the terms "agreement", "bargain" and "true" underscore that what existed must, like any agreement, be interpreted so as to derive what the parties actually agreed to -- their "true agreement".

[37] But what the majority in Fairmont made clear is that rectification cannot go beyond what the parties truly agreed to -- the meaning properly given to their agreement -- into the realm of what one or both parties may have intended as a result or was hoping to achieve, but that was never made part of the "true" agreement.

[38] This distinction is illustrated by the facts of Fairmont. In 2002 and 2003, Fairmont Hotels Inc. ("Fairmont") and two of its subsidiaries had participated in a financing arrangement with a third party, involving reciprocal loans. Fairmont entered into those arrangements with the goal of ensuring foreign exchange tax neutrality. In 2006, a change in Fairmont's ownership led to a modified plan which allowed Fairmont to fully hedge its exposure to foreign exchange tax, without addressing that of its subsidiaries. The "matter of similarly protecting the subsidiaries from exposure was deferred, without any specific plan as to how that might be achieved": Fairmont, at para. 5.

[39] In 2007, overlooking the fact that nothing had been done to protect the subsidiaries from tax exposure, but wishing to terminate the reciprocal loan arrangements at the third party's request, Fairmont redeemed its shares in the subsidiaries. This transaction resulted in a tax liability. Fairmont's rectification request was to change the share redemption to a loan between Fairmont and the subsidiaries in order to avoid the tax liability: Fairmont, at paras. 6-7.

[40] This rectification request failed, however, because there was no variation between any prior agreement and the formal document sought to be rectified. The prior agreement only contemplated a redemption of shares, and moreover, fulfilled the contractual objective of terminating the reciprocal loan arrangements. The same was true of the formal document. The variation that occurred was between the tax effect Fairmont intended to accompany its contractual objective -- tax neutrality -- and the tax effect of the agreed upon share redemption -- adverse taxes. This was insufficient to allow rectification because [Fairmont, at paras. 30-31]:

[R]ectification corrects the recording in an instrument of an agreement (here, to redeem shares). Rectification does not operate simply because an agreement failed to achieve an intended effect (here, tax neutrality) -- irrespective of whether the intention to achieve that effect was "common" and "continuing". . . . Rectification does not correct common mistakes in judgment that frustrate contracting parties' aspirations or, as here, unspecified "plans"; it corrects [page493] common mistakes in instruments recording the terms by which parties, wisely or unwisely, agreed to pursue those aspirations.

(2) Identification of the prior agreement in this case

[41] An important question in any claim for rectification is a central question in this one: did the parties have an agreement that preceded the document sought to be rectified (the Transfer Agreement), and if so, what were the terms of that prior agreement and what did they mean? It is only by answering this question that one can address whether the appellant is seeking to correct an error in the recording of the parties' true agreement, or is seeking to insert something that was never the subject of a prior agreement.

[42] The existence of any agreement is a question of mixed fact and law: Purves v. Chisel, 2011 MBCA 57, at para. 11; Imperial Pacific Greenhouses Ltd. v. Canada, 2011 FCA 79, at para. 10.

[43] Here, the application judge was satisfied that there was a prior agreement. As noted above, she held that the appellant did not have a proper claim for rectification because it did not satisfy two steps of the Fairmont test, steps (iii) and (vi). The application judge did not find a failure to meet steps (i) or (ii), which, in this case, involve there being a prior agreement with definite and ascertainable terms that continued in force until the signing of the formal Transfer Agreement. Step (iii), which the application judge found not to be fulfilled, presupposes the existence of a prior agreement since it calls for a comparison between the prior agreement and the document sought to be rectified. This comparison can only be done if a prior agreement exists. The application judge made that very comparison. In finding a failure to meet step (iii), the application judge stated: "the agreement to convey Parts 1, 2, 3, and 4 accurately records the prior agreement" (emphasis added): at para. 43.

[44] Although the application judge was clearly satisfied that there was a prior agreement, she did not expressly identify where the terms of the antecedent agreement were found nor comprehensively describe their content.

[45] In my view, there is only one document that the application judge could have been referring to as containing the terms of the antecedent agreement, and that is the respondent lawyer's letter of March 7 (excerpted at para. 13 of these reasons). This March 7 letter set out terms and called for their acceptance. Although the application judge did not make a finding of express acceptance of the March 7 letter, she was entitled to infer acceptance given the absence of any dispute to its terms or of any continuing negotiations after the [page494] correspondence leading up to the Transfer Agreement. The application judge's finding that there was a prior agreement, as understood within the meaning of the rectification test, means that the March 7 letter from the respondent's lawyer, as opposed to any other negotiations, terms or proposals, was the basis on which the parties moved forward to the Transfer Agreement.

[46] I do not consider the fact that the terms in the March 7 letter were presented on a without prejudice basis, as respondent's counsel emphasized in argument, to be an obstacle to this conclusion. The without prejudice language would not necessarily continue to have force upon acceptance of the terms of the letter. Moreover, for the purposes of rectification, the antecedent agreement need not be a binding agreement or contain all of the relevant terms of a complete agreement. It must only express the parties' agreement on specific terms, and do so in a way which is definite, ascertainable and continuing, even if the antecedent agreement is intended to be preliminary to a more formal agreement: John D. McCamus, The Law of Contracts, 2nd ed. (Toronto: Irwin Law, 2012), at pp. 588-89.

(3) Interpretation of the prior agreement

[47] The next question to be determined is the meaning of the terms of the prior agreement. Indeed, a Fairmont analysis cannot be properly undertaken without determining what the terms of the prior or antecedent agreement mean.

[48] The application judge made three findings that, according to her, indicated what the antecedent agreement did not provide for: that the respondent gave evidence that its intention was only to convey Parts 1, 2, 3 and 4 (at para. 37); that "[n]o representations or warranties were provided with respect to the required Parts for the access road" (at para. 38); and that "[t]he conveyance of Part 5 was never discussed let alone made the subject matter of a prior agreement" (at para. 43). In my view, she made reversible errors in coming to these conclusions.

[49] The application judge did not advert to the actual text of the antecedent agreement or identify or apply the interpretive principles employed to determine the meaning of the words used. Indeed, the approach she adopted is contrary to the applicable interpretive principles. As a result, her interpretation is not subject to deference: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at para. 53.

[50] For example, the application judge relied on the evidence of the respondent that it did not intend to transfer more than Parts 1 to 4. Although this fact may be relevant to other parts of the [page495] rectification analysis (specifically steps (v) and (vi)), it is irrelevant to the meaning of the antecedent agreement, which is determined objectively.

[51] The principles of contractual interpretation exclude consideration of either party's subjective intention in determining whether the parties reached an agreement. In Olivieri v. Sherman (2007), 86 O.R. (3d) 778, 2007 ONCA 491, at para. 44, this court re-stated the principle that only objective factors are relevant in determining whether the parties reached a consensus:

As was stated by Middleton J.A. in Lindsey v. Heron Co. (1921), 50 O.L.R. 1, [1921] O.J. No. 75, 64 D.L.R. 92 (C.A.) at 98-9, quoting Corpus Juris, vol. 13 at 265:

The apparent mutual assent of the parties essential to the formation of a contract, must be gathered from the language employed by them, and the law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. It judges his intention by his outward expressions and excludes all questions in regard to his unexpressed intention. If his words or acts, judged by a reasonable standard, manifest an intention to agree in regard to the matter in question, that agreement is established, and it is immaterial what may be the real but unexpressed state of his mind on the subject.

[52] Equally, evidence of a party's subjective intention is irrelevant to what the parties' agreement means: Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129, [1998] S.C.J. No. 59, at para. 54; Sattva, at paras. 59-61.

[53] The principle that subjective intentions are ignored when interpreting an agreement is also applicable to interpreting an antecedent agreement in rectification cases: McLean v. McLean (2013), 118 O.R. (3d) 216, 2013 ONCA 788, 313 O.A.C. 364 (C.A.), at para. 61. In Fairmont, at para. 29, the court quoted the following from the English Court of Appeal in Frederick E. Rose (London) Ltd. v. William H. Pim Jnr. & Co., [1953] 2 Q.B. 450 (C.A.), at p. 461:

Rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly; and in this regard, in order to ascertain the terms of their contract, you do not look into the inner minds of the parties -- into their intentions -- any more than you do in the formation of any other contract.

[54] For this reason, the application judge's reliance on the respondent's subjective intention not to transfer more than Parts 1, 2, 3 and 4 was an error, as it was immaterial to the meaning of the antecedent agreement.

[55] Not only did the application judge take into account irrelevant subjective intentions, she failed to analyze the words that did [page496] appear in the antecedent agreement in light of the factual matrix, as is required to interpret an agreement: Sattva, at paras. 50 and 57. The March 7 letter from the respondent's lawyer contains two clauses that bear on the interpretation of what was to be conveyed. These were not adverted to or analyzed by the application judge.

[56] First, the description of what would be transferred does not end with a reference to Parts 1 to 4. Instead, that reference is followed by the clause: "The Engineer for the project has advised my client [the respondent] that these 4 parts will be sufficient for the road which is to be built to access the subdivision." This statement goes beyond what was in Mr. Patterson's e-mail to both parties. It instead refers to advice given directly to the respondent that describes what will be conveyed in functional terms, its key attribute being that it will be sufficient for the building of the Access Road. The statement is not qualified by anything indicating that the respondent holds a contrary view. Of critical importance, the statement that the respondent had received professional advice about the sufficiency of what will be conveyed and its implied corollary that the respondent held no contrary view, is included as part of the terms the respondent offered that, upon acceptance, became part of the antecedent agreement.

[57] Second, the March 7 letter provided for an easement over the same lands as were to be transferred "to facilitate the development of the proposed subdivision". This is another description of what was to be conveyed expressed in terms of its relationship to the ability to build the Access Road (and thus facilitate development of the proposed subdivision). The description of what the easement will accomplish -- facilitate development -- is also made part of the terms that formed the antecedent agreement.

[58] Two important consequences flow from a consideration of this language.

[59] First, these terms of the antecedent agreement make this case quite different from Fairmont. That the lands conveyed would be sufficient to build the Access Road and would facilitate development was not simply an "aspiration", an "unspecified plan", an "intended effect", or an "inchoate or otherwise undeveloped 'intent'", as was tax neutrality in Fairmont: see Fairmont, at paras. 30 to 31. That the lands would be sufficient for the Access Road and thus facilitate development is addressed in the terms of the antecedent agreement itself.

[60] Second, the application judge's statement that there was no representation or warranty by the respondent as to what was required for the Access Road was made without adverting to these terms, let alone giving them meaning. An agreement must be interpreted as a whole and by giving meaning to all of its terms: Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust (2007), 85 O.R. (3d) 254, 2007 ONCA 205, 222 O.A.C. 102 (C.A.), at para. 24 (a).

[61] What meaning should be ascribed to the antecedent agreement stipulating that Parts 1 to 4 would be conveyed, but also stipulating that the respondent had received professional advice that Parts 1 to 4 were sufficient for the Access Road and that an easement over those lands would facilitate development, without any qualification that the respondent held a different view? Although the words "represent" or "warrant" are not used, in my view, the language is most reasonably interpreted as having a similar effect, given that representations and warranties in an agreement are a manner of allocating risk between the parties: 0759594 B.C. Ltd. v. 568295 British Columbia Ltd., 2013 BCCA 381, 49 B.C.L.R. (5th) 67 (C.A.), at para. 41.

[62] The language of the March 7 letter is usefully compared to the agreement considered in Lee v. 1435375 Ontario Ltd., 2013 ONCA 516, 310 O.A.C. 187 (C.A.), at paras. 77-80. In Lee, the only term about zoning in an unconditional purchase agreement was one that specified that the real estate broker had advised the parties to obtain their own independent professional advice. That agreement was held to have allocated the risk of zoning to the purchaser.

[63] In contrast to the agreement in Lee, the antecedent agreement in this case allocated, to the respondent, the risk that the lands described would be sufficient for the Access Road. It was a term of the antecedent agreement that the respondent had received professional advice that the lands conveyed were sufficient. That statement was not qualified in any way, including by any statement that the respondent held a different view about sufficiency. Parties to an agreement are under a duty of honest performance, under which they must not mislead each other about matters relevant to the contract: Bhasin v. Hrynew, 2014 SCC 71, at para. 73. In light of that duty, the unqualified reference in the antecedent agreement to the respondent having received advice of sufficiency must be taken as meaning the advice was accurate in the respondent's view. Otherwise, there would be no reason to include it and the reference to such advice would be misleading.

[64] The court should also seek to avoid an interpretation of a commercial contract that "would result in commercial absurdity": Toronto (City) v. W. H. Hotel Ltd., [1966] S.C.R. 434, [1966] S.C.J. No. 23, at p. 440 S.C.R.; Ventas, at para. 24(d). Rather, commercial contracts are to be construed in accordance with sound commercial principles and good business sense, objectively rather than from [page498] the perspective of one contracting party: Kentucky Fried Chicken Canada, a Division of Pepsi-Cola Canada Ltd. v. Scott's Food Services Inc., at para. 27. Reading the antecedent agreement as providing a contractual assurance by the respondent that the lands transferred are sufficient for the Access Road accords with objectively sound commercial principles, as it gives appropriate significance to the term of the agreement which referred to advice only the respondent had received, and that did not invite further enquiry by the appellant or require it to satisfy itself. To read the antecedent agreement as only providing for a transfer of and easement over Parts 1 to 4, even if they were known by the respondent to be insufficient and incapable of facilitating development, would result in a commercial absurdity.

[65] The factual matrix -- the objective facts known to the parties at the time, including the genesis and aim of the transaction -- is examined to enhance the understanding of the words used: Sattva, at paras. 47-48. The application judge did not undertake that examination. Here, it supports an interpretation of the words used in the antecedent agreement that the risk with respect to the sufficiency of Parts 1 to 4 was on the respondent. The March 7 letter was in response to a direct request of the appellant for parts of the Adjacent Property that would allow it to meet the condition in the Draft Plan of Subdivision requiring the Janlyn Crescent connection. That was the genesis and aim of the transaction. These objective facts underscore the importance of the lands being described in the antecedent agreement as "sufficient" and an easement over them as facilitating development. In light of the factual matrix, these words cannot be viewed as surplus. An interpretation that allows the contract to function in furtherance of its commercial purpose is preferred over one that does not: Humphries v. Lufkin Industries Canada Ltd., 2011 ABCA 366, 68 Alta. L.R. (5th) 175 (C.A.), at para. 15.

(4) Did the prior agreement include an obligation about Part 5?

[66] Properly interpreting the words in light of the factual matrix raises a further interpretive question, namely whether the antecedent agreement's requirements to transfer and grant an easement over Parts 1 to 4, together with its language about their sufficiency for the Access Road and to facilitate development, imposed an obligation about Part 5.

[67] The application judge found that Part 5 was never discussed, let alone made part of a prior agreement. With respect, I do not believe that fully addresses the question. [page499]

[68] First, as a factual matter, the request of the appellant that the respondent transfer all of the Adjacent Property, with an option to reacquire those parts not required to fulfill the access condition, put Part 5 into play, even though it was never separately mentioned.

[69] Second, and more importantly, what a vendor must do under an agreement to transfer or create an easement over land is a function of both the agreement's express terms and its implied terms, including terms implied to give an agreement business efficacy: Dynamic Transport Ltd. v. O.K. Detailing Ltd., [1978] 2 S.C.R. 1072, [1978] S.C.J. No. 52, at pp. 1084-1085 S.C.R. As noted in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619, [1999] S.C.J. No. 17, at para. 27, quoting Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711, [1987] S.C.J. No. 29, a term will be implied into an agreement

based on the presumed intention of the parties where the implied term must be necessary "to give business efficacy to a contract or as otherwise meeting the 'officious bystander' test as a term which the parties would say, if questioned, that they had obviously assumed".

[70] It is not in dispute that the difference between sufficient and insufficient lands for the Access Road, or between what would and would not facilitate development, is whether Part 5 is included. In order for the respondent to comply with the express terms of the antecedent agreement about Parts 1 to 4 being sufficient and facilitating development, Part 5 had to be included; with it, Parts 1 to 4 are made to comply with the covenants about sufficiency and facilitation of development; without it, they do not.

[71] In Dynamic Transport, the court found an implied term in a purchase agreement that was subject to approval under the Planning Act, R.S.A. 1970, c. 276, but silent on who would obtain it. The implied term was that the vendor was required to obtain the approval as only it could lawfully do so. At p. 1085 S.C.R., the court adopted with approval the following statement: "When a person undertakes to do a thing which he can himself do, or has the means of making others do, the court compels him to do it, or procure it to be done, unless the circumstances of the case make it highly unreasonable to do so . . . A vendor must do his best to obtain any necessary consent to the sale; if he has sold with vacant possession he must, if necessary, take proceedings to obtain possession from any person in possession who has no right to be there or whose right is determinable by the vendor."

[72] Here, the respondent having promised to convey Parts 1 to 4 on the basis that they were sufficient, was obligated to do what was necessary to make them sufficient and which was in its power to do, namely, to include Part 5. The circumstances for implying a term [page500] about Part 5 were undoubtedly present. With Part 5, the agreement has business efficacy; without it, the agreement does not. It cannot seriously be disputed that if parties who had contracted in good faith for the terms found in the antecedent agreement had been asked, by an officious bystander, about whether Part 5 would be included if the Parts specified as sufficient were not in fact sufficient, they would have answered: "obviously". The inclusion of Part 5 is an implied term of the parties' true agreement.

(5) Did the Transfer Agreement accurately record the parties' true agreement?

[73] It follows that the Transfer Agreement did not accurately record the parties' prior agreement because it did not fully record it: Fairmont, at para. 14. It did not include the provisions of the antecedent agreement about Parts 1 to 4 being sufficient according to advice from the project engineer to the respondent, or about the easement facilitating the development of the subdivision -- terms which put the risk about such matters on the respondent. Nor did it include the implied term necessary to give the prior agreement business efficacy. Because Parts 1 to 4 were not sufficient and would not facilitate the development (as was known to the respondent only), this variation between the antecedent agreement and the Transfer Agreement was material.

(6) Can Part 5 be included in the Transfer Agreement by rectification if it was not expressly mentioned in the prior agreement?

[74] In this case, the request for rectification is not a request to include the exact language from the antecedent agreement in the Transfer Agreement, but to include Part 5 in it. The appellant does not ask for the inclusion, in the Transfer Agreement, of a representation and warranty about the sufficiency of Parts 1 to 4, or of language from which an obligation about Part 5 might be implied. It asks for the express inclusion of Part 5.

[75] As rectification is available to correct a document that does not record the parties' true agreement, but is not available to fill in something that was never agreed to, the precise nature of the actual correction must be approached with caution. An applicant for rectification must show the precise form in which the written instrument can be made to express the prior agreement. As stated in Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19, at para. 40, "[t]his requirement closes the 'floodgates' to those who would invite the court to speculate about the parties' unexpressed [page501] intentions, or impose what in hindsight seems to be a sensible arrangement that the parties might have made but did not."

[76] In my view, in the circumstances of this case, the appropriate correction is to add Part 5 to the Transfer Agreement. I reach this conclusion for two reasons.

[77] First, as the above analysis shows, an obligation about Part 5, as something necessary to the fulfilment of the terms agreed to about sufficiency for the Access Road, was part of the parties' true agreement. Adding Part 5 to the Transfer Agreement does not extend beyond the express and implied terms of the prior agreement when properly interpreted. Adding Part 5 would not fill in something that existed only in the extra-contractual and speculative netherworld of inchoate or unexpressed aspirations.

[78] Second, adding Part 5 is faithful to the way the parties chose to move from the language of the prior agreement -- which identified Parts and described their sufficiency -- to the Transfer Agreement, which described Parts only without added description as to their functionality regarding the Access Road. That could be done, without changing the meaning of the prior agreement, only by including the right Parts.

[79] This approach follows that taken by the Supreme Court in Performance Industries. In that case, a formal joint venture agreement described an option for a residential development having a width of 110 feet and a length of 480 yards. Rectification of that document was granted to change the width from 110 feet to 110 yards. The court found an oral antecedent agreement that was incorrectly recorded in the formal joint venture agreement, even though the discussion leading up to the oral agreement did not include any metes and bounds description. Feet and yards were never discussed. What was important was that the discussion revealed what was intended to be built (a double row of town houses) from which it was clear that what was required was a sufficient width for that type of project. The width of 110 feet, inserted into the formal joint venture agreement by one party, knowing that it was insufficient and not noticed by the other party, did not meet that requirement; 110 yards did.

[80] Accordingly, in Performance Industries, the parties did not have an antecedent agreement on a precise boundary or that included a metes and bounds description, and they had never orally agreed using the words "110 yards". However, they had an adequate antecedent agreement to permit rectification to specify 110 yards because "there was a definite project in a definite location to which [the parties] had given their definite assent . . . they were working on a defined development proposal": Performance Industries, at paras. 48-49. That was sufficient to support rectification of the formal agreement into which one party had inserted the inadequate width of 110 feet and knew the other had not detected this: Performance Industries, at para. 15.

[81] Importantly, the court rejected the argument that the joint venture agreement could not be rectified to include a measurement that the parties had never discussed. Having chosen to reflect the effect of the prior agreement in metes and bounds measurements, the party who inserted an inadequate measurement could not object to the substitution of the adequate measurement Performance Industries, at para. 49:

Although the parties did not discuss a metes and bounds description, they were working on a defined development proposal. O'Connor cannot complain if the numbers he inserted in clause 18 (110 x 480) are accepted and confirmed. The issue, then, is the error created by his apparently duplicitous substitution of feet for yards in one dimension. We know the 480 must be yards because it measures the 18th fairway. If the 110 is converted from feet to yards, symmetry is achieved, certainty is preserved and Bell's position is vindicated.

[82] Similarly, here, there was a defined development (the Access Road) and a defined location (connecting the Development Lands to Janlyn Crescent). The language in the antecedent agreement, that the Parts conveyed would be "sufficient" for the access road and an easement over them would "facilitate" development, as well as the term that should be implied to give the prior agreement business efficacy, connotes the parties' assent to the defined development and the defined location.

[83] As in Performance Industries, the absence of a specific mention of Part 5 in the antecedent agreement does not prevent the conclusion that an adequate antecedent agreement existed justifying the inclusion of Part 5 in the Transfer Agreement. The Transfer Agreement expressed the terms of the antecedent agreement by a reference only to specific Parts without a statement about their sufficiency. As noted above, this could be done, without changing the meaning of the antecedent agreement, only by specifying Parts that were sufficient for the Access Road. The respondent was aware of both the insufficiency of the Parts referred to in the Transfer Agreement and of the appellant's mistake about this. The respondent "cannot complain" now that the Parts only methodology it agreed to in the Transfer Agreement necessitates the inclusion of the additional Part required to make those referred to sufficient, so as to fully conform to the meaning of the antecedent agreement.

[84] Accordingly, step (iii) of the rectification test was met. The application judge erred in concluding otherwise. [page503]

(7) The mistake and equivalent to fraud elements of the rectification test

[85] As discussed above, the Fairmont analysis provides for six steps in cases of unilateral mistake. Consideration of certain of the steps presupposes satisfaction of a prior step. This is the case regarding step (vi), which required the application judge to consider whether permitting the respondent to take advantage of the appellant's mistake would amount to "fraud or the equivalent of fraud". Both the application's judge's consideration of this step and the manner in which she did so necessarily entails the conclusion that she was satisfied that step (v) was met, namely that the appellant had made a mistake about the terms of the Transfer Agreement and that the respondent was aware of the appellant's mistake.

[86] The application judge's finding that step (vi) was not met is summarized at para. 44 of her reasons:

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.

[87] In my view, the application judge erred in law in reaching that conclusion. The fact that the appellant waived the due diligence condition in the February Agreement has no bearing on whether the antecedent agreement of March 7 was accurately recorded in the Transfer Agreement. As explained, the application judge's statement that the February Agreement and Transfer Agreement did not contain a term that the respondent must convey all lands necessary for the Access Road is off point. The question was whether the antecedent agreement did in fact contain such a term, which was not reflected in the Transfer Agreement. The statement that the appellant should have verified the boundaries was in error in light of the Supreme Court's rejection of a lack of due diligence as an absolute bar to rectification: Performance Industries, at para. 36. Moreover, the application judge's statement that the respondent did not intentionally deceive the appellant does not advert to the proper test. Deceit or fraud in the strict legal sense is unnecessary; rather, the court looks for conduct that makes it "unconscientious for a person to avail himself of the advantage obtained" and includes "all kinds of unfair dealing and unconscionable conduct": Performance Industries, at para. 39. [page504]

[88] The respondent's principal was aware that the Access Road was the reason why the appellant wanted the transfer and easement. He was aware of the terms of the antecedent agreement and that it referred to advice received by the respondent regarding the sufficiency of the lands for the Access Road. Indeed, although he suggested that his lawyer ought not to have used the word "sufficient" in the March 7 letter, he admitted in cross-examination to seeing the March 7 letter after it was sent, and there was no evidence of any effort to revise or correct it. He was aware that the lands could only be sufficient with Part 5; Parts 1 to 4 were insufficient if Part 5 was not included. And he was aware that the formal Transfer Agreement only referred to Parts 1 to 4. In my view, the respondent's explanation for its behaviour, a concern that the appellant might not close the purchase of the Development Lands unless it thought it was getting what it needed for the Access Road, accentuates rather than attenuates the unfair and unconscionable nature of the respondent's conduct, which was to lead, or knowingly allow, the appellant to think it was getting what it needed. In my view, element (vi) of the rectification test was met in these circumstances.

(8) Did the appellant come to court with clean hands?

[89] Correcting the errors in the application judge's analysis results in the conclusion that the appellant had made out a proper claim for rectification. I now turn to consider the application judge's finding that the appellant lacked clean hands and was thus barred from obtaining rectification. Her finding was premised on what she considered to be three breaches of the Transfer Agreement. In my view, each is the product of an unreasonable reading of the terms of the Transfer Agreement. The application judge's reading of that document did not conform to the language used.

[90] First, the application judge stated that the appellant breached the provisions of the Transfer Agreement which required it to use best efforts to obtain the Committee of Adjustment's consent to a severance. This finding misreads the Transfer Agreement. The appellant was entitled, as an alternative to obtaining consent to a severance, to require the respondent to make the transfer to the City. It elected to do so, obtained the City's consent to a transfer, and provided the respondent with a transfer document to sign to that effect.

[91] Second, the application judge stated that the Transfer Agreement became null and void on September 10, 2018 because the appellant only provided the transfer document to the respondent on September 7, 2018, and the respondent was entitled to [page505] seven business days to sign. Again, this misreads the Transfer Agreement. The requirement for seven days to sign was in respect of severance-related documents and specified the time after which the appellant could sign the documents on the respondent's behalf. It did not apply to documents that were designed to effect the alternative to severance (a transfer to the City). Nor in any event did that requirement allow the respondent to rely on its own delay in signing to declare the Transfer Agreement null and void.

[92] Finally, the application judge stated that the appellant failed to restore municipal services to the new lot line and failed to provide assurances that it would do so. However, the Transfer Agreement required the municipal services to be restored following the severance and construction of the new Access Road. Even though there was to be a transfer to the City rather than a severance, the Access Road was not expected or required to have been constructed before the transfer even occurred; the time for restoring the municipal services had clearly not arrived. The Transfer Agreement itself was the assurance that the appellant would do so; there was nothing in it that required any further assurance.

[93] The application judge thus erred in finding that the appellant had unclean hands by breaching the Transfer Agreement.

Remedy

[94] The application judge did not determine what remedy would be appropriate if rectification were ordered.

[95] The appellant asked that if rectification were granted, specific performance of the rectified Transfer Agreement should be ordered. The respondent argued that specific performance could not be ordered because the application judge found that the Transfer Agreement had come to an end. I have determined that the application judge erred when she found that the Transfer Agreement came to an end on September 10, 2018, given that the respondent could not rely on its own delay to bring about that result.

[96] The respondent did not argue the absence of any other requirements for an order for specific performance. The property is unique, in the sense that it is uniquely positioned to fulfill the requirements for the Access Road, and therefore specific performance would be an appropriate remedy: Semelhago v. Paramadevan, [1996] 2 S.C.R. 415, [1996] S.C.J. No. 71, at paras. 21-23.

Conclusion

[97] Accordingly, I would allow the appeal and substitute an order that the Transfer Agreement be rectified so that it includes Part 5 in the definition of Property, and that it be specifically performed as rectified. The parties should return to the Superior [page506] Court to deal with any issues that may arise out of the order and for any necessary directions to carry out its terms.

[98] The appellant is entitled to its costs of the appeal, fixed in the sum agreed between the parties, namely, $13,000, inclusive of disbursements and applicable taxes. The parties did not address the disposition of the costs below in the event of a successful appeal. They may do so in writing. The appellant's submissions, not to exceed three pages, shall be delivered within ten days of the release of these reasons. The respondent's submissions shall be delivered within ten days of the delivery of the appellant's submissions.

Appeal allowed.

Notes

1 The purchaser in the February Agreement is described as "2345221 Ontario Inc., in trust for a company to be incorporated".

2 The Transfer Agreement describes the purchaser as "2482234 Ontario Inc.".

End of Document