2023 ONSC 2273

COURT FILE NO.: CV-20-28966 DATE: 20230413

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

AC Metal Fabricating Limited Plaintiff – and – Elmara Construction Co. Limited also known as Elmara Construction, Michele Walter Quaggiotto also known as Mike Quaggiotto and Echelon Insurance/Echelon Assurance Defendants – and – GS Engineering Consultants Third Party – and – Dillon Consulting Limited Fourth Party

AND BETWEEN:

Elmara Construction Co. Limited also known as Elmara Construction Plaintiff by Counterclaim – and – AC Metal Fabricating Limited, Public Works and Government Services Canada, and Attorney General of Canada Defendants by Counterclaim

COUNSEL:

Dan J. Leduc, for the Plaintiff/Defendant by Counterclaim (Responding Party) Roger Flaim and Monisha Ambwani, for the Defendant by Counterclaim (Moving Party), Attorney General of Canada

HEARD: March 29, 2023

REASONS FOR DECISION

MACFARLANE J.

Introduction

[1] This is a motion by the Attorney General of Canada (“Canada”) to rectify a release dated April 12, 2022 between Canada and Elmara Construction Co. Limited (“Elmara”). [1] Canada asserts that, as a result of an error made by counsel for Canada, Wendy Wright (“Ms. Wright”), Elmara and Canada entered into a mutual release in the context of a settlement, when the parties had agreed that only a release from Elmara in favour of Canada would be provided.

[2] Elmara does not oppose the relief sought by Canada. No evidence was filed by Elmara, and no submissions were made by its counsel (“Mr. Gatti”).

[3] The only party opposing the relief sought by Canada is the plaintiff in this proceeding, AC Metal Fabricating Limited (“AC Metal”).

Relief Sought and Evidence Before the Court

[4] Canada’s notice of motion dated November 25, 2022, seeks the following relief:

1. An Order declaring that the Full and Final Mutual Release dated April 12, 2022 between Elmara Construction Co. Limited (“Elmara”) and the AGC (the “Elmara Release”) be rectified so as to take the form of the Full and Final Release attached as part of Exhibit “T” to the affidavit of Wendy Wright, identified below;
2. In the alternative, an Order rescinding the Elmara Release;
3. The costs of this motion payable by the party(ies) opposing the motion; and
4. Such further and other relief as this Honourable Court shall deem just.

[5] Ms. Wright swore an affidavit dated November 24, 2022, in support of Canada’s motion (the “Wright Affidavit”). That is the only direct evidence before this court from a person who was involved in the underlying facts. Some of the documents to which the court was referred are appended as exhibits to the affidavit filed by AC Metal in support of its position, being the affidavit of Dominique Girard-Witts (“Ms. Girard-Witts”) sworn January 27, 2023 (the “Girard-Witts Affidavit”).

[6] I was informed during the hearing that Ms. Wright was cross-examined for five hours upon her affidavit, but no transcript of that examination was filed by either party.

Factual Background and History of the Proceeding

[7] The factual background of this matter is largely not in dispute. An agency of the government of Canada contracted with Elmara for the construction of a 25-metre-tall observation tower in Point Pelee National Park (the “Contract”). Elmara engaged subcontractors and consultants in relation to the Contract, including AC Metal.

[8] There have been some alleged deficiencies in structural metal work completed by AC Metal as part of Elmara’s scope of work under the Contract. There is a general one-year warranty against defective or faulty work from the date of substantial completion of the Contract (which date remains unclear on the evidence), and Elmara agreed to extend the warranty coverage in Canada’s favour for certain items (specifically relating to work performed by AC Metal) by an additional four years (the “Extended Warranty”).

[9] The present litigation was commenced in 2020, and there are multiple claims, counterclaims, crossclaims, and subsequent party claims. I am advised by counsel that the pleadings are closed. When pleadings had closed, both AC Metal and Elmara had advanced claims against Canada (and each other), and Canada had advanced a claim against AC Metal. There is no evidence that Canada has advanced claims in this proceeding against Elmara. Although pleadings have closed, the litigation has stalled as a result of this rectification motion, and both documentary and oral discovery have yet to be completed.

Mediation and Settlement

[10] A mediation was scheduled to take place on October 14, 2021, with all parties in the litigation, conducted by the Honourable Mary Jo Nolan, a retired justice of this court (the “Mediator”). Some weeks prior to the mediation, Ms. Wright (for Canada), Mr. Gatti (for Elmara), and Anita Landry (“Ms. Landry”) (former counsel for AC Metal) had discussions which ultimately resulted in a settlement agreement in principle that included the following elements:

a) Canada was to pay an amount to AC metal as a contribution to AC Metal’s remediation of some or its work in January 2020; b) Canada was to provide a list of documents; c) Elmara and AC Metal were to discontinue their respective claims against Canada, and Canada was to discontinue its claim against AC Metal; and, d) The parties were to exchange releases among them.

[11] On October 12, 2021, Ms. Wright sent out draft minutes of settlement along with two releases, which were a mutual release between Canada and AC Metal, and a “one way” release to be signed by Elmara in favour of Canada. These documents were sent under cover of an e-mail message to Mr. Gatti and Ms. Landry which said, inter alia, “I have also changed the release between Canada and AC Metal to a mutual release. The release between Elmara and Canada is one way since Canada did not counterclaim against Elmara.”

[12] The mediation proceeded before the Mediator on October 14, 2021, and the settling parties (Canada, AC Metal, and Elmara) confirmed the terms of their settlement with certain revisions. In particular, Canada would also pay the remaining amounts owed under the Contract, and would make its payments in trust rather than directly to AC Metal. The draft settlement documents that had been prepared by Ms. Wright prior to the mediation were not signed.

[13] After the mediation, there were several communications that made clear that the parties understood that there were ongoing warranty obligations that were not the subject matter of the settlement. The Mediator’s mediation report (Exhibit “R” to the Girard-Witts Affidavit) stated:

Through their counsel, AC Metal Fabricating and Elmara Construction will hopefully agree to share the cost of an expert engineer’s report which will provide an estimate of the cost of future warranty items on the project that are costs to be borne by Elmara. Once the number is known and the parties have exchanged Affidavits of Documents, they may schedule a further half-day mediation by Zoom at no further cost.

[14] There were also e-mail messages in evidence from Mr. Gatti sent to Ms. Wright on November 10, 2021 and December 1, 2021 (Exhibits “L” and “M” to the Wright Affidavit), which can only be said to reflect a common understanding and intention of the parties that these “future warranty items” were not within the scope of the settlement.

[15] Shortly after the mediation, AC Metal changed counsel to Mr. Leduc, and there appears to have been some delay as he acquainted himself with the file. Ultimately, Canada, Elmara, and AC Metal entered into a written settlement agreement (the “Settlement Agreement”) to implement the agreement that had been reached among them at the mediation. Although no fully-executed copy of the Settlement Agreement was in evidence, counsel for Canada and AC Metal agreed that the form of the executed Settlement Agreement is as contained in Exhibit “W” to the Girard-Witts Affidavit, and that the Settlement Agreement was fully-signed by all three parties as of April 11, 2022.

[16] The Settlement Agreement contains four paragraphs which address the subject of releases as follows (the party noted as “AGC” is Canada):

7. Releases between AC Metal and AGC to be exchanged as agreed upon by Counsel.
8. Releases between Elmara and AGC to be exchanged as agreed upon by Counsel.
9. AGC and AC Metal shall execute a Mutual Release to not pursue any of the specific disputes raised in the litigation at a future date, in a form to be agreed upon by counsel for each party.
10. Elmara shall execute a Full and Final Release in favour of the AGC to not pursue any of the specific disputes raised in the litigation at a future date, in a form to be agreed upon by counsel for each party.

[17] When the form of the Settlement Agreement and the mutual release between Canada and AC Metal (the “AC Metal Release”) had been finalized, Ms. Wright signed both on behalf of Canada and sent them to Mr. Leduc’s office for execution on March 7, 2022. Mr. Leduc’s office returned copies of the Settlement Agreement and AC Metal Release executed by their client to Ms. Wright on March 10, 2022. The AC Metal Release is consistent with clause 15 of the Settlement agreement, which specified a “Mutual Release” as between Canada and AC Metal.

[18] At paras. 29 to 34 of the Wright Affidavit, Ms. Wright details what happened next. In summary:

a) Ms. Wright sent the Settlement Agreement to Mr. Gatti on March 7, 2022 for execution by Elmara; b) Mr. Gatti’s office returned the Settlement Agreement to Ms. Wright on April 11, 2022, executed by Elmara; c) Ms. Wright noticed that Mr. Gatti’s office had not provided a release signed by Elmara when the signed Settlement Agreement was returned; d) Relying on a precedent from another file, Ms. Wright prepared a mutual release between Canada and Elmara, without turning her mind to whether that reflected the terms of the now fully-executed Settlement Agreement; e) Ms. Wright sent the mutual release to Mr. Gatti’s office on April 12, 2022 for execution by Elmara, and also signed the mutual release and sent it to them on behalf of Canada; f) Mr. Gatti’s office returned the mutual release, now signed by Canada and Elmara (the “Elmara Release”) to Ms. Wright on April 29, 2022.

[19] Ms. Wright has deposed at para. 37 of the Wright Affidavit that she received an email from Mr. Leduc on May 13, 2022, in which he “…explained that his client (AC Metal) was taking the position that the Mutual Release signed by Elmara and Canada released Canada’s outstanding warranty claims and foreclosed the possibility of future warranty claims.” She goes on to say at para. 38, “This was the moment I came to appreciate the error I had made in executing and transmitting the Mutual Release.” Her “error” is explained at para. 31 of the Wright affidavit:

In fact, the Mutual Release did not reflect what the parties contemplated. To the contrary, throughout my discussions with Mr. Gatti (before, during and after the mediation) it was understood that Elmara would release Canada from any relevant claims arising from Elmara’s counterclaim. Canada would not be releasing Elmara, as Canada required the protections afforded by its contractual rights including those in the Extended Warranty. Based on all of my discussions with Mr. Gatti, it was clear to me that his understanding was the same as mine in all of these respects.

[20] Ms. Wright wrote to Mr. Gatti on June 22, 2022, to explain that she had relied upon an “ill-suited precedent” and to request that Elmara disregard the Elmara Release and sign a new, one-sided release in a form enclosed with her letter (marked as Exhibit “T” to the Wright Affidavit). On June 24, 2022, Mr. Gatti advised Ms. Wright that Elmara would not execute a new release “…owing to a concern for prejudice that might arise in his client’s ongoing litigation with AC Metal…”. (Wright Affidavit, para. 40.)

[21] It is the Elmara Release that Canada seeks to rectify, “…so as to take the form of the Full and Final Release attached as part of Exhibit “T” to the affidavit of Wendy Wright…”.

[22] Finally, the parties agree I note that Canada has now fulfilled all of its obligations under the terms of the Settlement Agreement. Although some temporal deadlines were not met, the obligations have been fulfilled, and there was no evidence of any prejudice arising from Canada’s failure to meet those deadlines.

The Positions of the Parties

a) Canada

[23] In argument, Mr. Flaim pointed to the “three pillars” of Canada’s case for rectification:

1. The other party to the Elmara Release does not oppose the relief sought;
2. What Canada seeks to have rectified is the Elmara Release itself, not the underlying intention; and,
3. If the Elmara Release is not rectified, Canada’s warranty rights will be jeopardized, creating an unintended windfall for Elmara, and preventing Canada from turning to Elmara to remedy known deficiencies in the work it contracted to perform.

[24] Both parties referenced the leading case of Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56 [2]. At para. 38 of Fairmont, Justice Brown writing for the majority summarized the remedy of rectification as follows:

To summarize, rectification is an equitable remedy designed to correct errors in the recording of terms in written legal instruments. Where the error is said to result from a mistake common to both or all parties to the agreement, rectification is available upon the court being satisfied that, on a balance of probabilities, there was a prior agreement whose terms are definite and ascertainable; that the agreement was still in effect at the time the instrument was executed; that the instrument fails to accurately record the agreement; and that the instrument, if rectified, would carry out the parties’ prior agreement. In the case of a unilateral mistake, the party seeking rectification must also show that the other party knew or ought to have known about the mistake and that permitting the defendant to take advantage of the erroneously drafted agreement would amount to fraud or the equivalent of fraud.

[25] Mr. Flaim argued that Canada has demonstrated through the evidence all of the conditions required for the court to grant rectification, specifically:

a) The Settlement Agreement is a prior agreement whose terms are definite and ascertainable. b) The Settlement Agreement (executed April 11, 2022) was in effect when the Elmara Release was signed (executed by Canada on April 12, 2022 and by Elmara on April 28, 2022), and remains in effect today. c) The Elmara Release fails to accurately record the agreement between Canada and Elmara. Specifically, clause 16 of the Settlement Agreement provides that “Elmara shall execute a Full and Final Release in favour of the AGC to not pursue any of the specific disputes raised in the litigation at a future date, in a form to be agreed upon by counsel for each party.” This is in contrast to the immediately preceding clause 15, which provided that the AC Metals Release would be a mutual release. Mr. Flaim argued that when the Settlement Agreement is read as a whole in all of the surrounding circumstances, there is no ambiguity between clause 16 and clause 8, which reads “Releases between Elmara and AGC to be exchanged as agreed upon by Counsel.” Mr. Flaim further argued that the form and content of the Elmara Release is not consistent with the scope and nature of release that the parties agreed to in the Settlement Agreement. At para. 75 of Canada’s factum he noted:

The Elmara Release, titled “Full and Final Mutual Release”, is a customary mutual release that states that Elmara releases Canada (referred to therein as the Crown), but also provides that “the CROWN hereby releases and forever discharges ELMARA” in respect of claims Canada “ever had, now have [sic] or hereinafter can, shall or may have…in connection with all matters in relation to the Contract…and the Action…” This fails to record the intentions of the parties as expressed in the Settlement Agreement.

d) The proposed release, a redacted copy of which is found as part of Exhibit “T” to the Wright Affidavit (at pages 301-303 of Canada’s motion record) and an unredacted version of which is attached as an appendix to Canada’s factum, would carry out the parties’ intentions as set out in the Settlement Agreement, by preserving Canada’s warranty rights as against Elmara. As Mr. Flaim put it in argument, “Who knows what will need to be done?” and “All parties have received substantially what they bargained for in the Settlement Agreement, except for Canada because of the mutual release.”

[26] Mr. Flaim further argued that the mistake in this case (i.e., the execution of a mutual release that did not reflect the terms of the Settlement Agreement) was common to both parties to the Elmara release. He noted that Elmara did not lead any evidence or take any position on this motion to say otherwise.

[27] Mr. Flaim argued briefly in the alternative that Canada also meets the additional requirements to support rectification in the case of unilateral mistake, as noted in Fairmont at para. 38. These are to show that the other party knew or ought to have known about the mistake, and that permitting the other party to take advantage of the moving party’s mistake would amount to “fraud or the equivalent of fraud”. On these two points, he argued:

1. That Elmara knew or ought to have known that the Elmara Release contained an error because Elmara had not at any point negotiated to conclude its warranty obligations, and the Settlement Agreement plainly called for Elmara to release Canada, but not for Canada to release Elmara.
2. The element of “fraud” has been defined as referring to “…transactions falling short of deceit but where the Court is of the opinion that it is unconscientious for a person to avail himself … of the advantage obtained…,” and the result would be “unconscionable and unfair”: see 2484234 Ontario Inc. v. Hanley Park Developments Inc., 2020 ONCA 273 [3].

[28] Mr. Flaim argued in the further alternative that if the court found that rectification was not an appropriate remedy, it could order rescission of the Elmara Release. In support of this position, he reiterated that the Settlement Agreement provides for a one-sided release, Elmara agreed to that in the Settlement agreement, Elmara must have known that a mutual release was an error, and Elmara has received an unconscionable benefit from the error.

b) AC Metal

[29] Mr. Leduc advised the court that he had changed firms on or about March 1, 2023. The factum filed on behalf of AC Metal is dated March 1, 2023, appears to have been electronically signed by Mr. Leduc, and appears to have been filed by his former firm. Mr. Leduc did not follow the argument in the factum, and essentially disavowed it, saying that he did not see the document until it had been filed with the court. There was no explanation as to why a revised factum was not prepared for the assistance of the court, and a substantial part of the argument put forward by Mr. Leduc was not set out in his factum as required. Clause C.12 of the Consolidated Practice Direction for the Southwest Region Effective August 1, 2016, as amended, provides that “Factums are required for all special appointments. Pursuant to the Rules of Civil Procedure, the moving party’s factum shall be served and filed at least seven days before the scheduled hearing date of the special appointment. The responding party’s factum shall be served and filed at least four days before the hearing.” Mr. Leduc had ample opportunity to deliver a revised factum and did not. Instead, he simply said that the factum filed on his client’s behalf did not represent his words.

[30] In brief oral submissions, Mr. Leduc outlined his argument as focusing on the following:

1. The relief sought by Canada;
2. The contractual chain;
3. a) The wording of the AC Metals mutual release; b) Common mistake; c) Unilateral mistake.

[31] With respect to the relief sought by Canada, he pointed out that Canada was seeking rectification of the Elmara Release only and that no other relief was sought.

[32] With respect to the contractual chain, he noted that an agency of Canada known as Parks Canada had entered into a contract with Elmara, which in turn had entered into a contract with AC Metal. He said that the only scope of work at issue is the AC Metal scope of work, and for that reason, his client’s position is that Elmara does not have to oppose the motion if AC Metal does so.

[33] Mr. Leduc turned to the AC Metal Release, a redacted copy of which is marked as Exhibit “K” to the Wright Affidavit, and an unredacted copy of which is part of Exhibit “W” to the Girard-Witts Affidavit. In particular, he focused on the following paragraphs of the AC Metal Release:

AND IN CONSIDERATION OF THE PAYMENT NOTED ABOVE, AC METAL and ATTORNEY GENERAL OF CANADA further agree not to make any claim or take any proceedings against any other person agency, department or corporation who might claim contribution or indemnity under the provisions of the Negligence Act and the Amendments thereto against the other party under the provisions of any statute or otherwise, in respect any of the matters released herein.

AND IT IS AGREED AND UNDERSTOOD that if AC Metal and the AGC, or either of them, commence such an action, or take such proceedings, and either AC Metal or the AGC is added to such proceedings in any manner whatsoever, justified in law or not, the party that commenced such an action will immediately discontinue the proceeding or action, and will be jointly and severally liable to the other party for the legal costs incurred in any such proceeding or action, on a solicitor and his own client (full indemnity) scale. This Mutual Release shall operate conclusively as an estoppel in the event of any claim, action, complaint or proceeding which might have been brought in the future by AC Metal or the AGC with respect to the matters covered in this Mutual Release. This full and final release may be pleaded in the event any such claim, action, complaint or proceeding is brought, as a complete defence and reply, and may be relied upon in anv proceeding to dismiss(lie claim, action, complaint or proceeding on a summary basis and no objection will be raised by AC Metal or the AGC in any subsequent action that the other parties in the subsequent action were not privy to the information of this Mutual Release.

[34] Mr. Leduc asserted that this was wording drafted by Canada, and that it operates as a complete estoppel to Canada pursuing any claims, including contractual or warranty claims, against Elmara to the extent that such claims are within the scope of work performed by AC Metal. He expressed that any such claim might result in Elmara seeking “contribution or indemnity” against AC Metal. I asked Mr. Leduc that if that was his client’s position, then would that estoppel operate whether or not there was a mutual release between Canada and Elmara, and he responded “Yes”. He denied that any evidence of the parties’ intentions from the surrounding circumstances, such as Ms. Wright’s evidence, the Mediator’s post-mediation report, and the emails from Mr. Gatti in which he was scheduling inspections with a view to determining the scope of future warranty claims, should detract from this conclusion. I note that both of these pieces of evidence related particularly to the scope of work performed by AC Metal.

[35] Based upon Mr. Leduc’s analysis, he concluded that the parties’ common intention must have been that there would be a mutual release between Canada and Elmara.

[36] Turning to the facts that are required to build the foundation of a rectification claim, Mr. Leduc argued that the Settlement Agreement was not “definite and ascertainable,” because clauses 8 and 16 create an ambiguity. He argued that clause 8 necessarily means that there would be mutual releases, contrary to the wording of clause 16.

[37] Finally, Mr. Leduc asserted that the court could not grant rectification on the basis of a unilateral mistake because there was no evidence of fraud. When asked whether there might be fraud in the sense of unconscionability or unfairness because of evidence that might tend to suggest that Canada and Elmara intended to preserve warranty claims, he denied that was the case.

[38] In reply to Mr. Leduc’s submissions, Mr. Flaim expressed concern that the court should not consider arguments that were being advanced for the first time at the hearing (i.e., the wording of the AC Metal Release) when Canada had announced that it would be bringing this motion about nine months prior to the hearing. Contrary to Mr. Leduc’s suggestion that the only issue before the court concerned AC Metal’s scope of work, Mr. Flaim asserted that the Elmara Release is broad enough to encompass the entire Contract, which is part of the reason that rectification is sought. He also argued that Mr. Leduc was focusing on the consequences of rectification, rather than whether a mistake was made. Finally, Mr. Flaim reiterated that in cases of unilateral mistake, the test is not fraud as it is generally understood but whether the result would be “unconscionable and unfair”.

Analysis

[39] The test for rectification, whether arising from a common mistake or unilateral mistake, was set by the Supreme Court of Canada in Fairmont and is not in dispute. Where the claim for rectification arises from a unilateral mistake, the Court of Appeal for Ontario clarified in Hanley Park that the element of “fraud or tantamount to fraud” set out in Fairmont means unfairness or unconscionability.

[40] I have considered the terms of the Settlement Agreement and the uncontroverted evidence of Ms. Wright, whose affidavit was thorough and contrite. I note that although cross-examined by counsel for AC Metal for five hours upon this affidavit, the transcript of her evidence was not placed before this court. From this I infer that there was no evidence elicited which would have been of assistance to AC Metal.

[41] I have also considered the evidence given by Ms. Girard-Witts. Ms. Girard-Witts is a litigation assistant who works or worked with Mr. Leduc, counsel for AC Metal, and her evidence was largely based upon information and belief from him. The substance of her affidavit was of little assistance to the court. It was nevertheless useful to have unredacted versions of certain documents before the court, as redacted versions had been attached to the Wright Affidavit out of an abundance of caution and concern for the privilege belonging to other parties.

[42] It is notable that no direct evidence was introduced from any witness who had actually participated in the mediation held on October 14, 2021, other than Ms. Wright. Elmara did not oppose the relief sought by Canada on this motion, and no evidence was led from the representatives of Elmara who attended the mediation. AC Metal had representatives in attendance at the same mediation, and although it opposed the motion, it led no evidence from those representatives and did not provide any explanation for their failure to do so.

[43] I am unable to accept Mr. Leduc’s argument that the AC Metal Release operates as a release or estoppel of future warranty claims by Canada against Elmara. That issue was not properly put before the court. Notwithstanding that, I observe that only claims released by Canada under the terms of the AC Metal release are expressed on the second page of the AC Metal Release (at page 162 of AC Metals’ motion record) as:

…any and all actions, causes of action, claims, suits, demands, proceedings, damages and losses of any nature and kind whatsoever, and howsoever arising, up to the present time, which the ATTORNEY GENERAL OF CANADA ever had, now have or hereinafter can, shall or may have, in connection with all matters in dispute in the Action bearing Court File No. CV-20-00028966-0000 (“Action”). [Emphasis added.]

[44] Quaere whether future warranty claims under the Contract or the Extended Warranty are within the scope of the claims released by Canada in the AC Metal Release. Again, this issue was not properly put before the court by AC Metal, which brought no motion of its own, but I find it difficult to imagine that such claims would be found to be within the scope of the AC Metal Release at all. I also question whether a future warranty claim advanced by Canada against Elmara would be considered to be a “… claim … against any other person … who might claim contribution or indemnity under the provisions of the Negligence Act and the Amendments thereto against the other party under the provisions of any statute or otherwise …”, which is the wording relied upon by AC Metal.

[45] On the evidence before me, I find that an agreement was reached among Canada, Elmara, and AC Metal at the conclusion of the mediation on October 14, 2021. The terms of that agreement were binding and ascertainable, and were eventually reduced to writing and incorporated into the Settlement Agreement that was executed by all three parties as of April 11, 2022. I further find that the parties did not intend that future warranty claims by Canada against Elmara, under either the Contract or the Extended Warranty, would be included within the terms of the Settlement Agreement. The Settlement Agreement was in effect as of April 11, 2022 at the latest and remains in effect, and was therefore in effect at the time the Elmara Release was executed (April 12, 2022 by Canada, and April 28, 2022 by Elmara).

[46] I find that the Elmara Release fails to accurately record and implement the terms of the Settlement Agreement in both its nature and its scope:

1. The nature of the release, being a mutual release, is not what is required by the terms of the Settlement Agreement, and specifically clause 16 thereof. I find that clauses 8 and 16 of the Settlement Agreement, when read together, are not ambiguous and clearly express the intention of the parties to the Settlement Agreement that Elmara will release Canada, but Canada will not release Elmara; and,
2. The scope of the release, by providing that “the CROWN hereby releases and forever discharges ELMARA” in respect of claims Canada “ever had, now have [sic] or hereinafter can, shall or may have…in connection with all matters in relation to the Contract …and the Action” [emphasis added], is overly broad, going well beyond the scope of the Settlement Agreement. Even counsel for AC Metal argued that the “only scope of work at issue is the AC Metal scope of work”, but the Elmara Release is drafted so broadly that it would arguably prevent any claim against Elmara, including work done by other subcontractors who were not even parties to the Settlement Agreement (and none of which, I note, opposed Canada’s motion).

[47] I find that the form of release attached as the appendix to Canada’s factum (and attached to these reasons as “Schedule ‘A’”) would carry out the terms of the Settlement Agreement. I note again that the party which would grant a release in that form, Elmara, does not oppose the relief sought by Canada on this motion.

[48] The mistake giving rise to this motion was the execution by Canada and Elmara of the Elmara Release. That mistake was common to both parties to the Elmara Release. Although the error conceded by Ms. Wright in creating the form of the Elmara Release was unilateral, the execution of the document was mutual. Therefore, applying the test in Fairmont at para. 38, I am satisfied that,

…on a balance of probabilities, there was a prior agreement whose terms are definite and ascertainable; that the agreement was still in effect at the time the instrument was executed; that the instrument fails to accurately record the agreement; and that the instrument, if rectified, would carry out the parties’ prior agreement.

[49] If I am incorrect that there was a common mistake between Elmara and Canada, and this is a case of unilateral mistake on the part of Canada, I am satisfied that given the clear wording of the Settlement Agreement, Elmara knew or ought to have known that a mutual release in the form provided by Ms. Wright and executed by Canada was a mistake. I am further satisfied that permitting Elmara to take advantage of the erroneously drafted Elmara Release would amount to fraud or the equivalent of fraud, in the sense that it would be unfair or unconscionable (see Fairmont at para. 38 and Hanley Park at para. 87). This is particularly so given that the scope of the Elmara Release would appear to extend to work under the Contract that was clearly not at issue in this proceeding. This “unintended windfall” to Elmara, as argued by Mr. Flaim, is unconscionable and unfair.

[50] In light of these findings, it is not necessary for me to consider the alternative remedy of recission sought by Canada. As stated by Mr. Flaim at para. 49 of Canada’s factum, “[t]his is a quintessential case for rectification”.

Order

[51] In the result, an order shall issue declaring that the Elmara Release be rectified so as to take the form of the the Release of the Attorney General of Canada attached as Schedule “A” to these reasons.

Costs

[52] Costs should normally follow the event. The parties submitted costs outlines in which Canada and AC Metal respectively sought costs on a partial indemnity scale in the all-inclusive amounts of $27,093.45 and $25,916.32. In his submissions, Mr. Flaim indicated that if Canada was successful in the application, he would be content to have the costs fixed in the amount set out in AC Metal’s costs outline.

[53] My presumptive view is that Canada is entitled to its costs, and that such costs should be fixed on a partial indemnity scale in the sum of $25,916.32 all-inclusive, in accordance with Mr. Flaim’s submission at the hearing and the amount set out in AC Metal’s costs outline.

[54] If necessary, and the parties are unable to agree upon costs, counsel should have an opportunity to address the court on the issue. The court expects that experienced counsel such as those who appeared on this matter will and should be able to resolve the issue of costs themselves.

[55] However, if the parties are unable to agree on the question of costs, they may file brief written submissions with the court, of no more than five (5) double-spaced pages (exclusive of any costs outline, bill of costs, dockets, offers to settle, or authorities), in accordance with the formatting standards of rule 4.01 of the Rules of Civil Procedure [4] and the following schedule:

a. Canada shall deliver its submissions within thirty (30) days following the release of these reasons; b. AC Metal shall deliver its submissions within twenty (20) days following service of Canada’s submissions; c. Canada shall deliver its reply submissions, if any, which shall be limited to no more than three (3) pages, within five (5) days following service of the AC Metal’s submissions; and d. If either party fails to deliver their submissions in accordance with this schedule, they shall be deemed to have waived their rights with respect to the issue of costs, and the court may proceed to make its determination in the absence of their input or give such directions as the court considers necessary or advisable.

Original signed by Justice J. Ross Macfarlane

J. Ross Macfarlane Justice

Released: April 13, 2023

Footnotes

[1] Others in attendance, but taking no position and making no submissions included: Dante D. Gatti, for the defendant/plaintiff by counterclaim, Elmara Construction Co. Limited; K. Lovell, observer from The Attorney General of Canada; Jacqueline Riccobene, for the Third Party, GS Engineering Consultants.

[2] Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56, [2016] 2 S.C.R. 720 (“Fairmont”).

[3] 2484234 Ontario Inc. v. Hanley Park Developments Inc., 2020 ONCA 273 at para. 87 (“Hanley Park”).

[4] Rules of Civil Procedure, R.R.O. 1990, Reg. 194, as amended.