Dear Colleagues:

 

Those interested in rectification will find much to think about in the SCC’s companion appeals in Jean Coutu Group (PJC) Inc. v. Canada (Attorney General), 2016 SCC 55 (dealing with the civil law) and Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56 (dealing with the common law).   Here is Justice Brown’s summary of the issues and result in Fairmont:

 

[2]          The present case arises from a financing arrangement which the parties had intended, both at its inception and ongoing, to operate on a tax-neutral basis. Because of the particular financing mechanism chosen, an unanticipated tax liability was incurred. Both the chambers judge at the Ontario Superior Court of Justice and the Court of Appeal for Ontario granted rectification on the grounds of the parties’ intended tax neutrality. 

[3]          Without disputing that tax neutrality was the parties’ intention, for the reasons that follow it is my respectful view that both courts below erred in holding that this intention could support a grant of rectification. 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 … .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. Moreover, these rules confining the availability of rectification are generally applicable, including where (as here) the unanticipated effect takes the form of a tax liability. To be clear, a court may not modify an instrument merely because a party has discovered that its operation generates an adverse and unplanned tax liability. I would therefore allow the appeal. 

 

Fairmont also overrules Performance Industries on the issue of the standard of proof (at [34-36]). In Performance Industries it was suggested that a party seeking rectification would have to meet all elements of the test by “convincing proof”, which it described as “proof that may fall well short of the criminal standard, but which goes beyond the sort of proof that only reluctantly and with hesitation scrapes over the low end of the civil ‘more probable than not’ standard”. The Fairmont court instead stated that “the applicable standard of proof to be applied to evidence adduced in support of a grant of rectification is that which McDougall [2008 SCC 53] identifies as the standard generally applicable to all civil cases: the balance of probabilities”.

 

On a quick reading (and as presently advised), I find Justice Brown’s decision to be vastly superior to the dissent by Justices Abella and Côté  which seems to mix vague references to unjust enrichment and the civilian concepts of intention into a conclusion that rectification should be allowed in Fairmont.

 

Interestingly, there was no mention of the recent and controversial UKSC cases dealing with mistake as to tax consequences.

 

Congratulations go out to the 14 ODGers (by my quick count) who were cited in the opinions.

 

Sincerely,

 

 

Jason Neyers
Professor of Law
Faculty of Law
Western University
Law Building Rm 26
e. jneyers@uwo.ca
t. 519.661.2111 (x88435)