Rectification: The Governing Legal Principles
The Ontario case of Kanji v Canada Attorney General 2013 ONSC 781 provides a good review of the law of rectification of a mistake.
A taxpayer attempted unsuccessfully to rectify a trust that was going to incur a great deal of taxation.
16 Let me start by considering the law concerning rectification in the case of a contract which results from negotiations between two arm’s-length parties. Rectification is an equitable remedy. As described by Binnie J in Sylvan Lake Golf& Tennis Club Ltd. v. Performance Industries Ltd: 209 DLR (4th) 318 SCC
The traditional rule was to permit rectification only for mutual mistake, but rectification is now available for unilateral mistake (as here), provided certain demanding preconditions are met. Insofar as they are relevant to this appeal, these preconditions can be summarized as follows. Rectification is predicated on the existence of a prior oral contract whose terms are definite and ascertainable. The plaintiff must establish that the terms agreed to orally were not written down properly. The error may be fraudulent, or it may be innocent. What is essential is that at the time of execution of the written document the defendant knew or ought to have known of the error and the plaintiff did not. Moreover, the attempt of the defendant to rely on the erroneous written document must amount to “fraud or the equivalent of fraud”. The court’s task in a rectification case is corrective, not speculative. It is to restore the parties to their original bargain, not to rectify a belatedly recognized error of judgment by one party or the other (citations omitted)… In Hart, supra, at p. 630, Duff J. (as he then was) stressed that “[t]he power of rectification must be used with great caution”. Apart from everything else, a relaxed approach to rectification as a substitute for due diligence at the time a document is signed would undermine the confidence of the commercial world in written contracts.[FN9]
17 The person seeking rectification bears the onus of satisfying the court that the request to rectify merelywould align the document with the true intentions underlying it and that the aspects sought to be rectified are mistakes which obstruct the true intentions which drove the document’s formation.[FN10] Although over the years some cases have held that a person seeking rectification must make out its case on a clear and convincing standard, in C. (R.) v. McDougall the Supreme Court of Canada held that in civil cases only one standard of proof exists at common law — proof on a balance of probabilities.[FNl 1] Of course, judges must remain mindful of inherent probabilities or improbabilities.[FN12] In this regard, the comments of Brightman LJ. in Thomas Bates & Son Ltd. v. Wyndham’s (Lingerie) Ltd. are apposite:
The standard of proof required in an action of rectification to establish the common intention of the parties is, in my view, the civil standard of balance of probability. But as the alleged common intention ex hypo-thesi contradicts the written instrument, convincing proof is required in order to counteract the cogent evidence of the parties’ intention displayed by the instrument itself. It is not, I think, the standard of proof which is high, so differing from the normal civil standard, but the evidential requirement needed to counteract the inherent probability that the written instrument truly represents the parties’ intention because it is a document signed by the parties.[FN13]
Rectification of a mistake is a discretionary remedy which should be cautiously watched and guarded, [FN 14] especially in the case of a voluntary settlement. [FN 15]