Court File and Parties

COURT FILE NO.: CV-19-621699 DATE: 20211025 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Delart Investments Ltd. AND: Susan Alfred

BEFORE: W.D. Black J.

COUNSEL: Stephen Schwartz, for the Plaintiff Christopher Cosgriffe, for the Defendant

HEARD: September 27-28, 2021

ENDORSEMENT

Overview

[1] This action concerns an investment by the defendant, Susan Alfred (“Ms. Alfred”), in limited partnership units (the “units”) of the Greater Edmonton Limited Partnership (the “GELP”). The investment was made in 2004. Most of the facts in this case are not in dispute and the evidence presented to me over the course of the two day trial was appropriately brief and efficient.

[2] The issue relates to Ms. Alfred’s sale, in early 2019, of her GELP units. She sold the units to the plaintiff, Delart Investments Ltd. (“Delart”), a real estate developer and the entity from which she originally purchased the units in 2004. Delart was not obliged to purchase the units, but was willing to do so at the time Ms. Alfred approached it about the possibility. There is no dispute on the evidence that the price that Delart calculated for the purposes of the purchase of Ms. Alfred’s units was based on an error about the dollar amount of Ms. Alfred’s original investment. This case relates to that acknowledged error and the consequences of that mistake.

Circumstances of the Original Investment

[3] On May 31, 2004, Ms. Alfred’s first husband, Roger Hertz, tragically died in a plane crash in Michigan, leaving behind Ms. Alfred (then Ms. Hertz) and their two young children (aged one and two at the time of Mr. Hertz’s death).

[4] Fortunately, the couple had purchased life insurance on Mr. Hertz’s life, and the policy paid Ms. Alfred roughly $1.6 million as a consequence of his death.

[5] Ms. Alfred had somewhat limited financial acumen (albeit she later went on to get an MBA) and, in any event, was understandably overwhelmed by the tragic circumstances and the need to care for her two young children. She sought the help of a financial advisor, Philip Evenden (“Mr. Evenden”), to invest the proceeds of the life insurance policy.

[6] Mr. Evenden recommended investments and Ms. Alfred opted to follow his advice. One of the investments Mr. Evenden recommended, representing about 7% of the proceeds of the policy, was in the GELP.

Delart and its Principal Paul Schachter

[7] The GELP was one of many projects in which Delart had an investment and a role. Its role is typically as shareholder and administrator with respect to real estate developments, most often in commercial developments with reputable anchor tenants (frequently grocery stores but sometimes banks or other “blue chip” retail tenants). Delart also provides capital and advisory services in relation to projects and, as in the case of the GELP, raises capital for individual projects through the sale of shares in such projects.

[8] The principal of Delart is Paul Schachter (“Mr. Schachter”). Before establishing Delart in or about 1988, and becoming its president, Mr. Schachter worked with Loblaws in its real estate division where he identified and developed sites for retail operations.

[9] Since 1988, Delart has been involved in over 50 developments. Mr. Schachter testified that the size of the projects has grown over the years, and that Delart has participated in real estate developments in various provinces and now employs about 100 people across the country.

The GELP

[10] The GELP involved three properties in and around Edmonton. Delart, in partnership with an affiliated company, Brentwood Developments Inc. (“Brentwood”), as well as with ASG Financial Corp., a company in which neither Delart nor Mr. Schachter had an ownership interest, were all involved in the GELP.

[11] Specifically, in 2004, GELP was selling 152 Partnership units at a price of $25,000 per unit for a total offering of $3,800,000. Delart/Brentwood would retain 10% of the units and function as property manager and operating partner. In addition to potential appreciation of the value of the assets owned by GELP, investors would receive quarterly distributions when warranted on the basis of a “preferred return” of 9% per annum.

Details of the Defendant’s Investment

[12] It is clear that Ms. Alfred purchased 6 units in GELP at $25,000 per unit for a total investment of $150,000 in 2004. It is also clear and not contested that, during that timeframe and in the personal circumstances described above, Ms. Alfred paid little or no attention to the details of this nor other investments that Mr. Evenden recommended and arranged for her to deploy the proceeds of the insurance policy.

[13] Additionally, it is clear that the investment in GELP proved to be a very favourable one. During the period between Ms. Alfred’s acquisition of the units in 2004 and her sale of those units in 2018, there were distributions to her, paid most quarters during that time span, totaling approximately $368,000. So, in addition to the amount she received when selling her units (discussed in detail below), Ms. Alfred received in dividends an amount approximately two and a half times the value of her initial capital outlay over the course of 14 years.

[14] As further evidence of the value of the investment, at a time not long after the transaction in issue in 2019, and in circumstances not germane to the matters at issue, one of the three properties involved in the GELP investment, the Westway Plaza in Spruce Grove, Alberta (just outside of Edmonton), was sold. That property had a stated acquisition cost in the materials provided to investors of $2,700,000. In 2019, it was sold for something in the order of $6,500,000 million.

Events of 2018-2019

A. Impetus to Liquidate Investment

[15] By 2018, Ms. Alfred had remarried to her husband, Kevin Alfred (“Mr. Alfred)” (the couple were married in July of 2009). In 2018, she and Mr. Alfred were building a new house in Oakville, Ontario. The cost of building the home was exceeding their original budget and expectations and they were looking into ways of financing the completion of the project. Specifically, as Mr. Alfred testified, they needed about $250,000 and were considering second mortgage financing.

[16] It occurred to Ms. Alfred that there might, as an alternative, be funds available by way of liquidating an investment. Ms. Alfred determined that the GELP investment constituted the most promising potential source.

[17] As such, Ms. Alfred seems to have made a call to one of the entities involved in the development – the details of the initial contact are not clear and do not matter – and eventually found her way to Mr. Schachter. An email exchange between Ms. Alfred and Mr. Schachter about the possibility of liquidating Ms. Alfred’s GELP investment then began to transpire.

[18] As of September 11, 2018, early in the email exchange, Mr. Schachter wrote to Ms. Alfred and said: “Although the investment is not liquid, our company from time to time on other deals has repurchased LP units from investors – we could work to determine a value and then share pricing with you.”

[19] Ms. Alfred followed up with Mr. Schachter a couple of weeks later to ask if Mr. Schachter had determined a value. She copied her husband on that email (of September 24, 2018), letting Mr. Schachter know that Mr. Alfred would be continuing the discussion from that point. Ms. Alfred explained in her testimony, and Mr. Alfred confirmed, that discussion of the GELP investment brought up memories for Ms. Alfred of the events leading to the investment – the death of her first husband – and was difficult for her emotionally. According to the Alfreds, this is why Mr. Alfred took over the discussion.

B. The October 11 Email

[20] After a couple of follow-up emails, Mr. Schachter wrote an email dated October 11, 2018, that is of central importance in this matter. On that date, in an email to both Susan and Kevin Alfred, Mr. Schachter wrote:

I have attached a valuation of the property and equated it to the sale of LP units so that in both cases the after tax amount is equivalent – Based on the attached, each $50,000 investment would have a value of $44,100 – my understanding is that your original investment was $300,000, consequently the value of the original $300,000 invested would be $264,600.

[21] There is no doubt and no dispute that Mr. Schachter’s email was in error. That is, Ms. Alfred’s original investment was $150,000, and not $300,000, and so Mr. Schachter’s calculation and resulting price were based on an assumed initial investment amount twice the actual amount.

[22] To his credit, Mr. Schachter was entirely up front and transparent in his testimony about the error, and “owned” it. He explained that he asked his assistant to confirm the number of units held by Ms. Alfred, but did not ask his assistant to confirm the original price per unit. Mr. Schachter explained that in the vast majority of projects Delart had on the go at the time (numbering approximately 20), the unit price was $50,000. So he assumed, without checking, that this was the unit price in the GELP as well.

[23] As stated in his email, Mr. Schachter attached a spreadsheet showing his methodology in calculating the proposed purchase price per unit and in total. That spreadsheet calculates the value for a notional sale of the entire project by applying a capitalization rate (cap rate) of 7% (and the multiple yielded by that figure) against net income generated by the properties, deducting out fees, taxes and the 10% owned by the developer and arriving at a notional after tax amount per $50,000 invested. In other words, while less immediately clear than in his covering email, Mr. Schachter’s methodology builds in the same erroneous assumption of $50,000 as the unit cost.

C. Defendant’s Need for Money in 2018-2019

[24] In that regard, the evidence of both Ms. Alfred and Mr. Alfred is that they paid little or no attention to anything in the covering email or the spread sheet other than the total suggested price of $264,600.

[25] As noted above, they both confirmed that in order to complete the construction and finishing of their new house (such things as appliances, tiles, counters and the like), they needed about $250,000. Ms. Alfred said that when she saw the total proposed price of $264,600, she was satisfied that the transaction would meet their needs. She testified that she looked on the spreadsheet for that number, did not find it (and indeed it is not there), and so closed the spreadsheet and did not look at it again.

[26] For his part, Mr. Alfred said that he works in finance and that, in that industry, the approach to valuation focuses on cash flows (as opposed to what he described as an “accounting” method in Mr. Schachter’s spreadsheet). As such, when he saw in Mr. Schachter’s email that the price would be in the range of $260,000, he did a “rough and ready” calculation in his head, starting with the fact that the investment had been generating approximately $10,000-$15,000 per year in distributions, and assuming a rate of return of 5%. Using those parameters he calculated a range of $200,000-$300,000 for the value of the investment so that the figure of $264,600 seemed consistent with the actual returns and made sense to him. Given that high-level conclusion, Mr. Alfred said he saw no reason to analyze the details of Mr. Schachter’s methodology and he maintains that he did not do so.

D. UPA Transaction Closes in Early 2019

[27] After some further emails about timing for the closing of the transaction (which was ultimately scheduled in early 2019 to benefit the Alfreds from a tax perspective) and other related details, the transaction was scheduled for and in fact closed on January 8, 2019. For purposes of the transaction, Delart prepared a Unit Purchase Agreement (the “UPA”) to confirm the purchase and sale of the subject units. The UPA and certain related documents were dated and executed on January 8, 2019, contemporaneous with the closing of the transaction and on that date, Ms. Alfred transferred her 6 units in the GELP to Delart in exchange for $264,600.

[28] The Alfreds testified that in keeping with their plan (and the reason for entering into the transaction), they spent the proceeds of the sale of Ms. Alfred’s GELP units in the immediate aftermath of the transaction.

E. Mr. Schachter’s Discovery of Mistake

[29] A few months later in May of 2019, in the context of considering and obtaining authorization for the sale of the Spruce Grove property mentioned above, Mr. Schachter noticed that the unit purchase price for units in the GELP had been $25,000 per unit and not $50,000 per unit as he had erroneously assumed for the purpose of the purchase of Ms. Alfred’s units.

[30] Upon discovering his error, Mr. Schachter immediately sent an email to the Alfreds in which he wrote:

Just working on a different item for Greater Edmonton and noticed that there was a significant error in our transaction this past January – As you can see from the email below, the valuation for your LP units was based on you having originally invested $300,000 – your original investment was actually $150,000 which is half. Clearly we need to adjust, and I could suggest either of the following options: 1. We simply reverse the transaction and you would retain your LP units; 2. You would need to reimburse Delart $132,300 (half of the $264,600 paid). Not sure how the error occurred, but the amount is significant and must be addressed.

[31] Mr. Schachter sent a couple of follow-up emails before he received a response. In the second such follow-up email he told the Alfreds that the issue would not “go away” and that they needed to respond.

[32] For his part, Mr. Alfred confirmed that they were in fact hoping the issue would go away. He said that he found Mr. Schachter’s email of May 6, 2019 “irritating”, that they (Mr. and Ms. Alfred) had done the transaction in good faith and based on the purchase price supplied by Delart, and that they were hoping that Delart would apologize for the follow-up emails and then move on without further communications.

[33] When it became apparent that this would not be the case, Mr. Alfred sent a responding email to Mr. Schachter on May 15, the important part of which said:

It’s unfortunate to hear that the valuation that we were presented with by you had an error. As you know, we relied on that valuation in making the decision to pursue the transaction. At this point, there isn’t much we can do about it. We have already spent the money. Sorry about that.

[34] In his testimony at trial, apart from confirming that by May 2019 the money had indeed been spent, Mr. Alfred also confirmed that, as set out above, the Alfreds focused on the proposed purchase price of $264,600. According to Mr. Alfred, he viewed this purchase price synonymously with the “valuation”, and agreed to the price in large part because it seemed reasonable and, perhaps more importantly, met their needs at that time to finish their new house. Mr. Alfred said that if Mr. Schachter/Delart had quoted a price of $132,300 – as Mr. Schachter now said was the correct price based on the actual cost of the units in 2004 – the Alfreds would not have gone ahead with the transaction since it would not have met their immediate financial needs in relation to finishing the new home.

[35] Having received the answer that Mr. Schachter did from Mr. Alfred, Delart proceeded to bring this claim.

The Claim

[36] Delart seeks, among other relief set out in its claim, a return of 50% of the purchase price and rectification or recission of the UPA. In discussions during submissions, counsel for Delart initially advised that recission (which would result in the return of the units in exchange for refunding the full purchase price) was now off the table and that Delart was seeking rectification and a refund of $132,300. Later in its submissions, however, Delart acknowledged that recission remains in the pleading and that I have discretion to fashion whatever remedy I see fit.

[37] Delart’s primary position (in support of whatever remedy the court deems appropriate), is that the UPA transaction proceeded on the basis of a common mistake. It acknowledges that the mistake was made by Delart at first instance (albeit it was an honest mistake), but argues that the intention of the parties was to base the purchase price on the correct original price and that there was clearly an error in that regard. Therefore, Delart argues that the purchase price amounted to a common mistake in implementing the parties’ intention or an incorrect expression of the parties’ agreement.

[38] It was not suggested by Delart that Ms. (or Mr.) Alfred deliberately or deceitfully took advantage of the error. Delart accepts that Ms. Alfred did not know or remember when she approached Delart in 2018 how many units she had purchased in 2004, or at what price. Rather, it argues that by simply accepting the purchase price proposed by Delart, and not questioning Delart’s stated assumption regarding the original purchase price per unit, Ms. Alfred was joining Delart in that assumption such that the mistake became common.

[39] Moreover, Delart submits, having laid out its assumptions and approach transparently in the form of the October 11, 2018 email and its attached spreadsheet detailing the method of calculation, that it provided the Alfreds with an opportunity to check not only the approach to the calculation, but also their own records to ensure that what was proposed was fair and based on true facts. That the Alfreds failed to do so was their own decision but the consequences of that failure should not be borne by Delart alone. What it means, says Delart, is again that the parties were proceeding on the same mistaken basis.

Defendant’s Acknowledgement of Mistake

[40] It is significant that the Alfreds agree, in retrospect and having seen the full array of documents relative to Ms. Alfred’s original purchase of the units, that Delart made a mistaken assumption as to the original price per unit. Their position is not that there was no error, but rather, that the error and therefore its consequences are the responsibility of Delart. As set out below, they also argue that since the UPA contained an entire agreement clause, it does not matter what came before the agreement or what assumptions it was based upon. The effect of the entire agreement clause, they say, is that the price of $264,600 was agreed and confirmed in the UPA and cannot be undone.

Law Relied on by Plaintiff

[41] In support of its position, Delart relies in particular on the Court of Appeal for Ontario’s decision in McLean v. McLean, 2013 ONCA 788, 118 O.R. (3d) 216.

[42] In that case, parents sold their farming business as a going concern to their son and daughter‑in‑law. The parties signed a memorandum of agreement outlining the terms of the transfer. The appellant, the mother, Helen, claimed rectification of the memorandum of agreement on the basis that the total purchase price was incorrectly recorded. Specifically, she alleged that the portion of the purchase price related to real property was recorded in the agreement at $115,000 less than the fair market value of the property. She testified at trial that the sale of the business was intended to be at fair market value and that the mistake caused the price to be $115,000 less than that fair market value.

[43] The respondent daughter-in-law, Maureen, maintained that the parties did not have the requisite common intention as to the purchase price. Although she accepted in cross‑examination that the purchase price related to the real property was, as alleged, incorrectly recorded in the agreement as $115,000 less than the fair market value of the property, she nonetheless testified that she believed the total purchase price for the business, including the real estate, was to be an amount of $625,000, and not the $733,255 claimed by Helen. She argued that since there was therefore no consensus on this amount, rectification could not be granted.

[44] The trial judge refused to grant rectification. Apart from holding that there was a different standard of proof for rectification – “convincing proof” as opposed to the balance of probabilities – he held, although acknowledging that the documentation in issue was poorly drafted and contained errors, that the requirements for rectification were not met because the parties did not have a common intention as to the amount of consideration for the farm business at the time they executed the agreement.

[45] Justice Weiler found that the trial judge erred, first by failing to apply the ordinary civil standard of proof, and then by relying almost entirely on Maureen’s subjective belief as to the intended purchase price. On this latter point, Justice Weiler stated, at para. 10, that:

Instead, he should have adopted an objective approach; that is, what a reasonable observer would have believed the parties intended, taking into consideration the evidence of all of the parties as well as the surrounding documentary evidence.

[46] Doing so, she found, at para. 11, that “the parties had a common intention to enter into a transaction for a total selling price at fair market value, the fair market value is clear, and the fair market value was incorrectly expressed in the documentation. Unless rectification is granted, Maureen will be unjustly enriched.”

[47] Applying this approach to the case at hand, Delart argues that the parties entered into a transaction with the common intention that Ms. Alfred would receive the 2018/19 value of her units, starting from the correct information about the original purchase price for those units. That original purchase price, Delart says, is clear and undisputed and objectively verifiable, and the purchase price on the basis of which the parties proceeded in the UPA is therefore demonstrably in error.

[48] As set out above, Ms. Alfred does not disagree that there was an error. She says, though, that there was no common mistake inasmuch as she (and Mr. Alfred) paid no attention to the methodology nor the constituent elements of the valuation (including the original price per unit) and, instead, only focused on the bottom line price of $264,600. Therefore, she argues that she formed no common intention beyond that bottom line price and made no common mistake with Delart.

[49] I find this argument difficult to accept. It smacks to some extent of “gotcha”. It also creates an incentive, if upheld, for parties to undertake no due diligence to investigate a calculation performed and provided in good faith, and to ignore the details of such calculation when it suits their interest to do so. Again, neither the plaintiff nor I attribute any deceitful motives or actions to the Alfreds. Nonetheless, their willingness to rely on what they acknowledge to be a mistake to their benefit is troubling.

[50] Moreover, there are significant parallels to the Court of Appeal’s decision in McLean. In McLean, Maureen’s subjective belief as to the overall purchase price was undercut, ultimately, by the objective evidence that the value of real property was understated in the memorandum of agreement (a fact with which it appears Maureen effectively agreed). Likewise, in this case, Ms. Alfred’s focus on the purchase price in the UPA is at odds with the objective (and undisputed) evidence that that purchase price was premised on a mistake as to the original price per unit paid by Ms. Alfred.

Law Relied on by Defendant

[51] The defendant, for her part, relies in relation to the issue of common mistake on the Court of Appeal for Ontario’s decision in Miller Paving Limited v. B. Gottardo Construction Ltd., 2007 ONCA 422, 86 O.R. (3d) 161.

[52] In that case, the appellant Miller Paving Limited (“Miller”) contracted to supply aggregate materials to the respondent B. Gottardo Construction Ltd. (“Gottardo”). Gottardo, in turn, used the materials for a highway extension it had contracted to build for SLF Joint Venture (“SLF”), the owner of highway 407.

[53] Gottardo paid Miller an agreed price per ton and SLF paid Gottardo a higher price per ton, the difference covering Gottardo’s costs of placing, spreading, and compacting the material.

[54] Each load of material delivered by Miller would be weighed at its pit and on delivery to the highway site, a Gottardo employee would sign the delivery ticket as accepted. One copy was kept by Miller, one by Gottardo, and one forwarded to SLF.

[55] SLF paid Gottardo on the basis of the accepted delivery tickets and Miller sent invoices to Gottardo on a regular basis. Gottardo’s accounts payable clerk would check these invoices against the delivery tickets and arrange for payment subject to any anomalies. Up to the point of the disputed invoice, Gottardo had paid Miller almost $5 million for more than 12,000 truckloads of material.

[56] The highway extension was completed in September of 2001 and, at SLF’s request, Gottardo signed a full and final release of all claims it might have against SLF.

[57] Before delivering the release to SLF, Gottardo sought confirmation from Miller – on three separate occasions – that Miller had in fact been fully paid by Gottardo. Subject to a relatively small outstanding balance, Miller confirmed that this was the case.

[58] Based on this exchange, Gottardo provided Miller with a cheque for the small outstanding balance and then, on December 20, 2001, Miller and Gottardo signed a “Memorandum of Release” acknowledging that the project was complete and with Miller specifically acknowledging that it had received payment in full for the materials it had supplied.

[59] In late January 2002, Miller discovered that through inadvertence, it had failed to bill Gottardo for various loads of material delivered between June 2001 and September 2001. As a result, it delivered an invoice to Gottardo for about $480,000 (adjusted downward at trial to about $450,000). After some initial uncertainty, Gottardo confirmed that it had been paid for SLF for at least most of the material in dispute.

[60] The trial judge found that there was no reason for Gottardo to know of any outstanding amounts owed to Miller when the December 20 release agreement was signed, nor should it have known. Miller acknowledged at trial that at the time of the December 20 release, it told Gottardo that it had paid all of Miller’s accounts and that there were no more invoices to come.

[61] Miller did not dispute the trial judge’s finding that Miller’s failure to send the disputed invoice until early 2002 was due to a “gross oversight” on Miller’s part. Miller also agreed that it was not asserting that Gottardo had any responsibility for the failure to invoice certain deliveries until January 2002.

[62] Finally, and critically for the purposes of Ms. Alfred’s argument in this case, the trial judge found as a fact that Gottardo spent the “windfall” funds received from SLF for these deliveries on the purchase of equipment, thereby altering its position.

[63] The trial judge dismissed Miller’s claim, finding that the December 20, 2001 release agreement ought not to be set aside simply because of the misapprehension as to the facts, and that it was both a complete answer to any claim on the supply contract and a sufficient juristic reason to deny recovery for unjust enrichment, particularly given that Gottardo had altered its position after receiving the “windfall” funds.

[64] The Court of Appeal noted that the central issue before it was whether the trial judge erred in failing to apply the doctrine of common mistake to set aside the December 20, 2001 agreement. It started by confirming, at para. 20, that “there can be no doubt that this is a case of common mistake”.

[65] At para. 20, Justice Goudge elaborated:

Miller and Gottardo reached an agreement on December 20, 2001 on the terms of their memorandum of release, but shared an error with respect to an important contextual circumstance, namely that all material supplied by Miller had been paid for by Gottardo. At the time, each thought that this was so. The question is whether in the circumstances the contract should be set aside because of the common mistake.

[66] I pause here to address one of the arguments that the defendant makes before me. She says that because she never turned her mind to the methodology, let alone agreed it, and because she had no recollection of the details of her original investment, she (and Mr. Alfred) never formed a common intention/understanding with Delart in terms of the means of valuing the investment. In short, they say Delart made a mistake but they did not.

[67] I think that this argument is undercut by the decision in Miller Paving (and the decision in McLean). In Miller Paving, both the trial judge and the Court of Appeal were clear that there was no reason for Gottardo to know of any outstanding amounts owed to Miller when the December 20 agreement was signed. In the case before me, to the contrary, there was a way for Ms. Alfred to know that Mr. Schachter’s calculation was based on an erroneous assumption. That is, Ms. Alfred could have accessed the original acquisition documents but chose not to do so.

[68] If a party who has no way of confirming a particular fact or set of facts can be said to have been a party to a common mistake while clearly relying on information solely in the possession of its counterparty, then in my view a party who had the ability to double check the information posited by the other side but chose not to do so should not be placed in a better position and excused from the common mistake by virtue of not checking.

[69] However, that does not end the potential assistance for the defendant from the Miller Paving decision. Having determined that the case was undoubtedly one of common mistake, the court went on to canvass a line of English cases dealing with the common law and equitable doctrines of common mistake.

[70] It referred to the House of Lords decision in Bell v. Lever Brothers, [1932] A.C. 161 as articulating the test for determining whether a contract is void for mistake at common law. Justice Goudge cited the speech of Lord Justice Atkin in that case, to the effect that for the doctrine to operate, it must be shown that the subject matter of the contract has become something essentially different from what it was believed to be. While notionally helpful, it strikes me that without further definition that guidance is difficult to apply. On this issue, for example, Delart argues that the subject matter of the agreement changed from the purchase of 6 units originally purchased for $25,000 per unit to a different and incorrect subject matter. Ms. Alfred, on the other hand, argues that the subject matter at all times was the purchase and sale of units in the GELP and that the essence of this never changed.

[71] Turning to equity, the court in Miller Paving then cited the decision of Lord Denning in Solle v. Butcher, [1950] 1 K.B. 671 (C.A.). In that case, in developing the equitable jurisdiction to set aside as voidable contracts that might be found enforceable at common law, Lord Denning effectively opened the door for courts to relieve from common mistake when it would be “unconscientious” in all the circumstances to allow a contracting party to avail itself of the legal advantage it obtained, and where this could be done without injustice to third parties. At para. 23, Justice Goudge quotes Lord Denning’s judgment in Solle, at p. 693 as follows:

A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault.

[72] Ms. Alfred latches on to the final few words of the quote. She argues that, inasmuch as Delart (Mr. Schachter) was clearly at fault for the error, the plaintiff is disentitled from relying on equity to rectify the mistake.

[73] Justice Goudge went on to note, at para. 24, that it is undeniable that both the common law and equitable doctrines of common mistake have been “woven into the fabric of Canadian contract law”.

[74] Finally, Justice Goudge referred to, but hesitated to embrace, the more recent English decision in Great Peace Shipping v. Tsavliris Salvage, [2003] Q.B. 679 (C.A.). In that case, the Court of Appeal appeared to do away with the equitable doctrine of common mistake, holding that Solle could not stand with Bell and should not be followed. Instead, it purported to refine the common law test, proposing a number of elements required to be present.

[75] In considering but resisting the application of the Great Peace decision in Canadian jurisprudence, Justice Goudge said, at para. 26:

The loss of flexibility needed to correct unjust results in widely diverse circumstances that would come from eliminating the equitable doctrine of common mistake would, I think, be a step backward.

[76] However, at para. 27, Justice Goudge also noted:

Before turning to the application of any of these tests to the facts of this case, it must be noted that Great Peace does provide one useful reminder that is of significance here, whether or not its approach to common mistake is adopted in Canada. It is that in considering whether to apply the doctrine of common mistake either at common law or in equity, the court should look to the contract itself to see if the parties have provided for who bears the risk of the relevant mistake, because if they have, that will govern.

[77] On the heels of this observation, Justice Goudge expressed the view that the December 20 “Memorandum of Release” was “just such a contract”. It clearly provided he wrote, at para. 28, that: “It is the supplier that ‘acknowledges and agrees that payment in full has been received for the materials supplied’”. At para. 28, he also noted that:

[T]he billing practice here, as with most supply contracts, made it the responsibility of the supplier to determine what was owing for the material supplied and to then invoice for that amount. When the contract language is read in the context of this factual matrix, I conclude that the contract clearly allocates to Miller the risk that payment in full has not been received. I would therefore find that the December 20 agreement itself requires Miller to bear the consequence when that risk transpires, rather than allowing it to invoke the doctrine of common mistake.

[78] Ms. Alfred argues that the entire agreement clause in the UPA operates to the same effect as the “Memorandum of Release” in Miller Paving. She says that the inclusion of that clause places the risk of error squarely at the feet of Delart.

[79] I do not agree. While the entire agreement clause must be considered – and I will do so below – relative to its primary and usual purpose, I do not accept that it places the risk of error squarely on one side or the other. Rather, its intention is to put both parties on equal footing, excluding for both sides reference to pre-contractual matters.

[80] Ms. Alfred also relies on the discussion in Miller Paving about both the common law and equitable doctrines of common mistake. In particular, she points to Justice Goudge’s conclusion that, were he to resort to those doctrines – which he found, given the clear allocation of risk to Miller in the December 20 Memorandum of Release, he was not required to do – he still would have held against Miller. In the case of the common law, he opined that the subject matter of the Memorandum of Release was the release of all further claims and that this subject matter did not change in light of the mistaken assumption. In any event, he held that Miller would be unable to show that it was not at fault for the presumed state of affairs (since, as Justice Goudge had already noted, it clearly was).

[81] Similarly, in the case of the equitable doctrine, Justice Goudge again noted that Lord Denning’s formulation in Solle required Miller to show that it was not at fault and, again, it could not do so.

[82] On its face, this argument creates considerable problems for Delart. That is, while as I have found the mistake is a common one, there can be little doubt that Delart promulgated the error by failing to carefully check the details of Ms. Alfred’s original investment in GELP.

Further Decisions on Common Mistake

[83] Delart’s answer is to point to other subsequent cases in which the fact that one party was clearly responsible for the error in issue was not found to preclude that party from resorting to the doctrine and prevailing in the dispute.

[84] In particular, Delart relies on the 2018 decision of the Court of Appeal for Ontario in Alguire v. The Manufacturer’s Life Insurance Company, 2018 ONCA 202, 140 O.R. (3d) 1. In that case, the defendant/respondent insurance company (“Manulife”) had issued a life insurance policy to the plaintiff/appellant that was a guaranteed renewable insurance protection policy with a face amount of $5 million.

[85] The insurer included with the policy a table of non-forfeiture values, which outlined insurance coverage in the event of default. The table set out the policy’s paid-up values, per $1,000 of face value, as of various policy anniversary dates. Starting on the fifteenth anniversary of the policy, the paid-up values exceeded the policy’s face amount coverage of $5 million. According to the table, the policy’s listed paid-up value was $13.4 million by the commencement of trial. The insured plaintiff’s action sought mandatory and declaratory relief and an order requiring the insurer to honour the terms of the policy and the paid-up values listed, arguing that the paid-up values reflected his request for inflation protection.

[86] Manulife argued that the plaintiff had never made a request for inflation protection and that the values set out in the table of paid-up values were clearly created in error. It brought a cross‑application for rectification of the policy.

[87] Pausing here, it is clear that the error at issue was Manulife’s.

[88] The trial judge found that the paid-up values were in error and reflected a common mistake, as the policy did not accurately reflect the agreement of the parties. As Justice Hourigan wrote in the Court of Appeal’s decision, the trial judge “rejected Mr. Alguire’s version of events, and equated the proceedings with ‘gotcha’ litigation.”: para. 10.

[89] Justice Hourigan briefly reviewed the law on rectification, describing it at para. 12, as “an equitable doctrine that is available when it is clear that the parties’ written agreement does not accord with their actual agreement”. He noted Manulife’s position that in this case, rectification was necessary to correct a common mistake and observed, at para. 13 (quoting from Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56, [2016] 2 S.C.R. 720, at para. 14), that “such a mistake arises where the parties ‘subscribe’ to an instrument under a common mistake that it accurately records the terms of their antecedent agreement”.

[90] The appellant argued that there was an insufficient evidentiary basis at trial to conclude that the parties had entered into an antecedent agreement, and that it was therefore not open to the trial judge to find that the agreement (i.e., the terms of the policy including the paid-up values) was definite and ascertainable. He argued that in those circumstances the remedy of rectification was unavailable.

[91] In rejecting that submission, Justice Hourigan held that there was ample evidence residing in Manulife’s internal files, including various documents and notations based on a $5 million policy. He further noted that there was no evidence in Manulife’s entire application file supporting purported inflation protection.

[92] In conclusion on this argument, Justice Hourigan held, at para. 22, that “because the trial judge found that the quote was an antecedent agreement that contained the definite and ascertainable terms of the parties’ bargain”, it was open to him to rectify the policy to reflect the parties’ true intention.

[93] In reliance on this decision, Delart argues that likewise in the case before me there is ample and uncontradicted evidence in Delart’s files (and indeed in Ms. Alfred’s files, had she taken the time to look), confirming the basis of Ms. Alfred’s original purchase of the units. Moreover, despite the fact that it was clearly Manulife’s error that led to the excessive paid-up value arising from the table included in the policy, Manulife was nonetheless not precluded, by its own fault, from successfully resorting to rectification.

[94] Delart points not only to this case, but others, in which the party or parties who made the error at first instance were not disallowed resort to rectification to correct a common mistake. For example, in S & D International Group Inc. v. Canada (Attorney General), 2011 ABQB 230, 512 A.R. 118, the applicants mistakenly transferred to their spouses 100% of certain lands rather than retaining 25% of the lands in relation to the interests of other shareholders. Despite quoting from Miller Paving, and despite explicitly referencing the passages from the English cases about fault disentitling a party from rectification to correct a common mistake, the court in S & D, at the conclusion of a discussion about the applicant’s potential resort to equity, said, at paras. 90-91:

There is no fault attributed to the Applicants or any of them. The conduct here is not blameworthy and there is no absence of clean hands. I see nothing sinister or improper about the Applicants doing nothing to undo or correct the transactions until they were advised by the CRA as to the tax consequences resulting from the transactions.

Thus there are no impediments to the granting of equitable relief.

[95] Implicit in this analysis is that “fault” as identified by Lord Denning as barring a party from accessing equitable relief from a common mistake, appears to have been interpreted to mean something more culpable than an innocent mistake. In my view, this accords with the familiar requirement of only being able to access equitable relief with “clean hands” and explains why, in the cases cited by Delart, rectification is granted to parties who were clearly responsible for the underlying error leading to the “common mistake” at issue in those cases.

Conclusion on Common Mistake

[96] Proceeding on that basis, there is nothing in Delart’s conduct that would disentitle it to equitable relief. The mistake Mr. Schachter made was clearly an innocent one and he was entirely up front about his responsibility for the error. As counsel for Delart notes, virtually all of the cases in this area involve some degree of fault and yet, in many of them, rectification is granted. Moreover, as set out above, while there is no suggestion that Ms. Alfred’s conduct was in any way intentional or deceitful, she did have at her disposal the information necessary to confirm the details of her original purchase and chose not to do so. While again there is nothing reprehensible about this choice, she should not benefit from having made it.

[97] I also find that Ms. Alfred’s use of the proceeds from the GELP units to pay off a pre-existing debt means that, unlike the case in Miller Paving, Ms. Alfred did not “change her position” as a result of receiving the windfall. Unlike Gottardo in Miller Paving, Ms. Alfred was going to have to pay the debt in question regardless of the mistake.

Argument re “Entire Agreement” Clause

[98] That still leaves what I think is Ms. Alfred’s most compelling argument, that the entire agreement clause in the UPA renders irrelevant all that preceded that agreement including the details of Ms. Alfred’s original acquisition of units.

[99] Ms. Alfred relies on the Court of Appeal for Ontario’s decision in Soboczynski v. Beauchamp, 2015 ONCA 282, 125 O.R. (3d) 241, in which, in colorfully describing the purpose of an entire agreement clause, Justice Epstein wrote, at para. 43:

An entire agreement clause is generally intended to lift and distill the parties’ bargain from the muck of the negotiations. In limiting the expression of the parties’ intentions to the written form, the clause attempts to provide certainty and clarity.

[100] At para. 44, Justice Epstein goes on to quote the similarly colorful description of entire agreement clauses by Lightman J. in Inntrepreneur Pub Co. Ltd. v. East Crown Ltd., [2000] 41 E.G. 209 (U.K. Ch.):

The purpose of an entire agreement clause is to preclude a party to a written agreement threshing the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty… For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere.

[101] Relying on these references, Ms. Alfred argues that if the underlying methodology for calculating the purchase price was intended to be part of the agreement, then it had to be included in the text of, or as an attachment to, the UPA. She argues that Delart’s failure to include that methodology in the UPA that it (Delart) drafted, is, by virtue of the entire agreement clause, a bar to referring to, or relying on, the terms of Ms. Alfred’s original purchase.

[102] As a general proposition, I agree that entire agreement clauses provide clarity, certainty and finality and ought to be upheld to preclude arguments emerging from the “muck” or “undergrowth” of pre-contractual negotiations.

[103] In my view, however, the subject sought to be addressed in this case is not in the nature of pre‑contractual negotiations and should not be swept under the rug by the entire agreement clause. To allow that to happen in these circumstances – where both parties acknowledge that Delart’s formulation of the purchase price was based on an error – would be to allow Ms. Alfred to unfairly take advantage of what was clearly a mistake and clearly an innocent mistake at that.

[104] Support for this view is found in Justice Gordon’s decision in Track & Wheels Equipment Brokers Inc. v KKP Investments Inc., 2020 ONSC 309.

[105] In that case, the plaintiff brought a motion for summary judgment seeking specific performance of certain options to purchase entered into with the defendant, along with a declaration that it was the legal and equitable owner of the real property referred to in the options in question.

[106] At para. 17 – the part of the judgment to which both parties made reference – Justice Gordon wrote:

[R]ectification is an equitable instrument designed to correct errors in the recording of terms in written legal instruments. It is to restore the parties to their original bargain. Surely an “entire agreement” clause cannot, in the face of cogent evidence of a bargain reached by two parties but erroneously recorded, operate to prohibit implementation of the original bargain. An “entire agreement” clause presupposes that the agreement in question is the one reached by the parties. If it is not, then such a clause should not prevent rectification of the agreement to reflect that original bargain.

[107] In relying on this passage, counsel for Delart submits that, as Justice Gordon’s language suggests, an entire agreement clause would not apply to preclude equitable relief. He argues that, given the common mistake, and given that the error is clear and uncontested and, indeed, forms the premise of the purchase price in the UPA, the need for rectification should trump the entire agreement clause.

[108] In reference to the same passage, counsel for Ms. Alfred argues that the purchase price of $264,600, which was the basis of the agreement, was accurately recorded such that there is nothing to rectify. As such, his argument in effect repeats the arguments that I have reviewed above. He does not argue, for example, that an entire agreement clause would preclude equitable relief; rather he argues that there is no common mistake and therefore no basis for equity to intervene.

[109] For the reasons set out above, I disagree.

Remedy

[110] As set out above, both recission and rectification are pleaded in the Statement of Claim. While initially advising that recission is “off the table”, counsel for Delart later acknowledged that I can order whatever relief I find appropriate in the circumstances.

[111] When he originally discovered the error and advised the Alfreds, Mr. Schachter offered them either option, i.e., he said they could simply return half of the money (the equivalent of rectification), or could unwind the entire transaction, returning the entire amount of $264,600 in exchange for receiving back the 6 units of the GELP (the equivalent of recission). In the latter scenario, Ms. Alfred would also be entitled to whatever distributions would have been made to her as the owner of the units between the closing date in 2019 and today. It would also entitle her to the benefit, albeit not yet realized, of any continued increase in the value of the investment net of any liabilities incurred.

[112] I suspect that although the upfront payment required of her may prove to be marginally higher in the recission scenario, Ms. Alfred may be better off in the longer term if the parties are restored to their original position rather than simply returning half of the purchase price for the units. That said, I am giving the defendant the option to elect either remedy. If she fails to elect within 30 days from the date of this decision, then the default will be rectification and she shall be obliged to pay $132,300 plus pre and post judgment interest.

[113] In either scenario, the plaintiff is entitled to its costs. If costs cannot be agreed, I am prepared to receive written submissions from the plaintiff within 45 days hereafter (Thursday, December 9, 2021), not to exceed 5 pages in length and attaching a bill of costs, and responding submissions from the defendant, also not to exceed 5 pages in length, within 15 days thereafter (Friday, December 24, 2021).

W.D Black J.

Date: October 25, 2021