Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd.

Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd.
Collection
Supreme Court Judgments
Date
2002-02-22
Neutral citation
2002 SCC 19
Report
[2002] 1 SCR 678
Case number
27934
Judges
McLachlin, Beverley; L'Heureux-Dubé, Claire; Gonthier, Charles Doherty; Major, John C.; Binnie, William Ian Corneil; Arbour, Louise; LeBel, Louis
On appeal from
Alberta
Subjects
Contract
Torts
Notes
SCC Case Information: 27934
Decision Content
Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., [2002] 1 S.C.R. 678, 2002 SCC 19
Performance Industries Ltd. Appellants/Respondents on cross-appeal
and Terrance O’Connor
v.
Sylvan Lake Golf & Tennis Club Ltd. Respondent/Appellant on cross-appeal
Indexed as: Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd.
Neutral citation: 2002 SCC 19.
File No.: 27934.
2000: December 14; 2002: February 22.
Present: McLachlin C.J. and L’Heureux‑Dubé, Gonthier, Major, Binnie, Arbour and LeBel JJ.
on appeal from the court of appeal for alberta
Contracts -- Equitable remedies -- Rectification of contract -- Written contract not reflecting prior oral agreement -- Whether equitable remedy of rectification available -- Whether lack of due diligence a bar to rectification.
Damages -- Punitive damages -- Written contract not reflecting prior oral agreement owing to fraud of one of parties -- Whether trial judge’s award of punitive damages should be restored.
The respondent operated an 18-hole golf course. The appellant O entered into negotiations with B, the respondent’s principal, for a joint venture. The trial judge found that B and O made an oral agreement, which included an option on the 18th fairway for a specific residential development to be undertaken by B. During the negotiations, B discussed with O photographs and plans of a double row of houses clustered around a cul-de-sac along the length of the 18th fairway. When O’s lawyer reduced the terms of the oral agreement to writing, the option clause accurately specified the 480-yard length of the proposed development, but instead of sufficient width to permit a double row of houses (approximately 110 yards), the clause as written allowed only enough land for a single row of houses (110 feet). When B sought to exercise the option, O insisted on the written terms, despite knowing that these terms did not accurately reflect the prior oral option agreement. The respondent commenced the present action against the appellants for rectification of the agreement or damages in lieu thereof, punitive damages and solicitor-client costs. The trial judge held that the respondent was entitled to rectification of the option clause, awarding damages in lieu assessed on the basis of the loss of profit on a fully built residential development. Punitive damages were assessed at $200,000. The Court of Appeal set aside the punitive damages award. In all other respects, the appeal was dismissed.
Held: The appeal and cross-appeal should be dismissed.
Per McLachlin C.J. and L’Heureux‑Dubé, Gonthier, Major, Binnie and Arbour JJ.: The necessary preconditions to obtaining the equitable remedy of rectification of the contract are met in this case. First, the respondent has shown the existence and content of the prior oral agreement. There was a definite project in a definite location to which O and B had given their definite assent. Although the parties did not discuss a metes and bounds description, they were working on a defined development proposal. O’s numbers (110 x 480) can be accepted, while rejecting the error created by his apparently duplicitous substitution of feet for yards in the write-up of the option clause. Second, it was found that O had fraudulently misrepresented the written document as accurately reflecting the terms of the prior oral contract. Third, the precise terms of rectification are readily ascertained, namely to change the word “feet” in the phrase “one hundred ten (110) feet in width” to “yards”. Fourth, there is convincing proof of B’s unilateral mistake and O’s knowledge of that mistake. B’s version of the oral agreement was sufficiently corroborated on significant points by other witnesses and documents. While as an experienced businessman, B ought to have examined the text of the option clause before signing the document, due diligence on the part of the plaintiff is not a (fifth) condition precedent to rectification. Lack of due diligence may be taken into account in the exercise of a discretion to refuse the remedy, but here lack of due diligence was offset by the finding of fraud against O, and rectification was therefore properly granted.
In the absence of an error of principle, or a factual record that supports the appellants’ criticisms, the findings in the courts below on the amount of compensatory damages must stand. Damages for breach of the contract, as rectified, include losses flowing from the special circumstances known to the parties at the time they made their contract.
The award of punitive damages in this case should not be restored as it does not serve a rational purpose. Only in exceptional cases does tort attract punitive damages. An award of punitive damages is rational “if, but only if” compensatory damages do not adequately achieve the objectives of retribution, deterrence and denunciation. In this case, neither the making of a punitive damages award nor the $200,000 assessment meets the test of rationality.
Per LeBel J.: Subject to the comments on punitive damages in Whiten, the majority reasons were agreed with. Rectification of the contract was properly ordered, but punitive damages would fulfill no rational purpose in this case.
Cases Cited
By Binnie J.
Applied: Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, 2002 SCC 18; referred to: Hart v. Boutilier (1916), 56 D.L.R. 620; Ship M. F. Whalen v. Pointe Anne Quarries Ltd. (1921), 63 S.C.R. 109; Downtown King West Development Corp. v. Massey Ferguson Industries Ltd. (1996), 133 D.L.R. (4th) 550; Lamb v. Kincaid (1907), 38 S.C.R. 516; First City Capital Ltd. v. British Columbia Building Corp. (1989), 43 B.L.R. 29; McMaster University v. Wilchar Construction Ltd. (1971), 22 D.L.R. (3d) 9; Montreal Trust Co. v. Maley (1992), 99 D.L.R. (4th) 257; Alampi v. Swartz (1964), 43 D.L.R. (2d) 11; Stepps Investments Ltd. v. Security Capital Corp. (1976), 73 D.L.R. (3d) 351; Augdome Corp. v. Gray, [1975] 2 S.C.R. 354; I.C.R.V. Holdings Ltd. v. Tri-Par Holdings Ltd. (1994), 53 B.C.A.C. 72; Gordeyko v. Edmonton (1986), 45 Alta. L.R. (2d) 201; Kerr v. Cunard (1914), 16 D.L.R. 662; Byrnlea Property Investments Ltd. v. Ramsay, [1969] 2 Q.B. 253; Rumble v. Heygate (1870), 18 W.R. 749; Bloom v. Averbach, [1927] S.C.R. 615; Beverly Motel (1972) Ltd. v. Klyne Properties Ltd. (1981), 126 D.L.R. (3d) 757; Big Quill Resources Inc. v. Potash Corp. of Saskatchewan (2001), 203 Sask. R. 298; Prince Albert Credit Union v. Diehl, [1987] 4 W.W.R. 419; Windjammer Homes Inc. v. Generation Enterprises (1989), 43 B.L.R. 315; Farah v. Barki, [1955] S.C.R. 107; May v. Platt, [1900] 1 Ch. 616; Central R. Co. of Venezuela v. Kisch (1867), L.R. 2 H.L. 99; United Services Funds (Trustees of) v. Richardson Greenshields of Canada Ltd. (1988), 22 B.C.L.R. (2d) 322; Dalon v. Legal Services Society (British Columbia) (1995), 10 C.C.E.L. (2d) 89; Brown & Root Ltd. v. Chimo Shipping Ltd., [1967] S.C.R. 642; General Securities Ltd. v. Don Ingram Ltd., [1940] S.C.R. 670; Burrard Drydock Co. v. Canadian Union Line Ltd., [1954] S.C.R. 307; Corbin v. Thompson (1907), 39 S.C.R. 575; Asamera Oil Corp. v. Sea Oil & General Corp., [1979] 1 S.C.R. 633; New Horizon Investments Ltd. v. Montroyal Estates Ltd. (1982), 26 R.P.R. 268; Kinkel v. Hyman, [1939] S.C.R. 364; Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130.
By LeBel J.
Referred to: Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, 2002 SCC 18.
Authors Cited
American Law Institute. Restatement of the Law, Second: Contracts (2d), vol. 1. St. Paul, Minn.: American Law Institute Publishers, 1981.
Fridman, Gerald Henry Louis. The Law of Contract in Canada, 4th ed. Scarborough, Ont.: Carswell, 1999.
Spencer Bower, George, and Alexander Kingcome Turner. The Law of Actionable Misrepresentation, 3rd ed. London: Butterworths, 1974.
Waddams, Stephen M. The Law of Contracts, 4th ed. Toronto: Canada Law Book, 1999.
APPEAL and CROSS-APPEAL from a judgment of the Alberta Court of Appeal (2000), 255 A.R. 329, 185 D.L.R. (4th) 269, 6 B.L.R. (3d) 24, [2000] A.J. No. 408 (QL), 2000 ABCA 116, setting aside the punitive damages award but dismissing the appellants’ appeal in all other respects from a judgment of the Court of Queen’s Bench (1999), 246 A.R. 272, 49 B.L.R. (2d) 284, [1999] A.J. No. 741 (QL). Appeal and cross-appeal dismissed.
David R. Haigh, Q.C., and Brian Beck, for the appellants/respondents on cross-appeal.
Lowell Westersund and Munaf Mohamed, for the respondent/appellant on cross-appeal.
The judgment of McLachlin C.J. and L’Heureux‑Dubé, Gonthier, Major, Binnie and Arbour JJ. was delivered by
1 Binnie J. – In this appeal the Court is called on to deal with rectification of a contract for a real estate development dream that turned into a nightmare for the warring partners. Houses were to have been built along the 18th fairway of the Sylvan Lake Golf Course, within commuting distance of Red Deer, Alberta. It did not happen because the parties fell out over the amount of land to be included in the development contract.
2 There was a written contract but the respondent’s President did not bother to read it before it was signed. Had he done so, the error in reducing the parties’ prior oral agreement to writing would likely have been detected and the development would have gone ahead. The appellants, who rely on the written document, say that a party who fails to exercise due diligence in its business affairs should be refused the equitable remedy of rectification. That is their strongest argument.
3 The principal witness and “directing mind” of the appellant Performance Industries Ltd. (“Performance”), which stands firm on the written document, is Terrance O’Connor. For him, the joint venture ended with his actions being characterized by the trial judge as “fraudulent, dishonest and deceitful” (1999), 246 A.R. 272, at para. 114. The trial judgment made him personally liable (jointly and severally with his company Performance Industries Ltd.) for $1,047,810, including a $200,000 award of punitive damages, plus costs on a solicitor-client basis. He and his company appeal to this Court on various errors of law, few of which were argued before the trial judge.
4 For his erstwhile partner, Frederick Bell, whose corporate vehicle is Sylvan Lake Golf & Tennis Club Ltd. (“Sylvan”), his commercial aspirations have been trapped in the courts for seven years. This was because, so the trial judge found, O’Connor swore false affidavits, refused to produce relevant documents, gave false testimony in the course of two separate trials, and did “everything in his power to prevent the truth from coming to light” (para. 115). Bell is now said to be a spent force, “divorced [and lacking] the initiative or drive and determination to proceed with such a development at his present age” (para. 90). Bell obtained a $200,000 punitive damage award at trial, but this was disallowed by the Alberta Court of Appeal ((2000), 255 A.R. 329, 2000 ABCA 116). In its cross-appeal, his company, Sylvan, seeks restoration of that award.
5 Because of the punitive damages issues, this appeal was heard concurrently with Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, 2002 SCC 18, judgment which is being released concurrently with this judgment.
6 In my view, for reasons which differ somewhat from the memorandum of judgment handed down by the Alberta Court of Appeal, appeal and cross‑appeal should be dismissed both with costs on a party‑and‑party basis.
I. Facts
7 Sylvan had operated a 171.53 acre, 18-hole golf course since 1979 under a lease which gave it a right of first refusal in the event the owner decided to sell the land. On November 3, 1989, a purchaser unrelated to O’Connor or Performance offered to purchase the golf course property for $1.3 million. Sylvan then had until December 31, 1989 to make the purchase on the same terms and conditions. The outside offer triggered the chain of events that led to this action.
8 O’Connor was familiar with the Sylvan Lake Golf Course, having played it frequently and having hosted his corporate tournament at that site for some years.
9 O’Connor, unbeknownst to Bell, had approached the landowner with a view to purchasing the leased golf course property, without result. He had obtained a financing commitment as early as March 31, 1989, from the Federal Business Development Bank (“FBDB”). On learning that Sylvan had exercised its right of first refusal, O’Connor approached Bell with an offer of financial assistance, which was declined. However, when Bell’s former partner dropped out, and Sylvan’s efforts to finance the purchase of the golf course through other means proved unsuccessful, Bell went back to O’Connor. Bell testified that at that meeting he discussed with O’Connor how Bell wanted to secure another five years of operation of the golf course with a chance at the end of that time to secure his retirement by the development of the 18th hole for residential development. Negotiations for a joint venture ensued near the end of November or early December 1989.
10 After a number of preliminary meetings, O’Connor spent about two and a half hours at Bell’s home during the December 16-17 weekend. The two men met at length in O’Connor’s truck a day or two later. The trial judge found that Bell and O’Connor came to a verbal agreement on the terms of their joint venture. They would pool their resources plus a $700,000 mortgage from the FBDB to purchase the property. Sylvan (Bell) would thereafter operate the facilities for five years for its own account without any day-to-day involvement of O’Connor. In brief, at the conclusion of five years, Sylvan would be bought out by Performance (O’Connor) for an agreed sum less any money then outstanding on the FBDB mortgage.
11 For present purposes, the only contentious issue was the option for a residential development to be undertaken by Bell (or a third party) “along the 18th fairway”. O’Connor and Bell did not discuss a metes and bounds description of the optioned land, but Bell testified, and the trial judge accepted, that he showed O’Connor photographs and plans of the sort of development he had in mind, namely a double row of houses (i.e., on both sides of a street) clustered around a cul-de-sac along the length of the 18th fairway (480 yards). A photograph of a comparable golf course development where Bell had lived in the Bayview area of Toronto formed part of the negotiations (and was marked at trial as Exhibit 1, Tab 67). O’Connor agreed to option the land to permit such a development, otherwise (as the trial judge found) Bell would not have agreed to the five-year joint venture. The parties agreed that the purchase price of the optioned land would be $400,000 by a third party (or $200,000 if the existing owner Sylvan (Bell) chose to develop the parcel).
12 As part of the agreement, O’Connor undertook to have his lawyer reduce the verbal terms to writing. In due course, a document was produced. Clause 18, the option, accurately specified the 480-yard length of the proposed development, but instead of sufficient width to permit a double row of houses (approximately 110 yards), clause 18 allowed only enough land for a single row of houses (110 feet). This misstatement of the oral agreement was thus pleaded in para. 9 of the Statement of Claim:
Paragraph 18 of the December 21st, 1989 written Agreement did not accurately reflect the terms of the oral agreement made between Performance and Sylvan in that it misdescribed the width of the lands subject to the Agreement as “One Hundred and Ten (110 ft.) feet in width east to west”, when the width of the lands comprising the 18th hole was approximately 110 yards in width east to west. [Emphasis in original.]
Bell had in mind a development of about 58 homes on about 11 acres. O’Connor’s draft allowed 3.6 acres. Bell testified, and the trial judge accepted, that he had specifically told O’Connor during the negotiations that a single row housing development (which is all that clause 18 would permit) would “be a waste of land and an uneconomic use of the 18th hole” (para. 42).
13 Clause 18 of the Joint Venture Agreement, as drawn up by O’Connor’s lawyer, provided as follows:
18. The parties agree that sale of a portion of the lands for development of residential housing is contemplated by both of them within the term of Sylvan’s tenancy. Such portion of the lands is: one hundred ten (110 ft) feet in width east to west and approximately four hundred eighty (480 yds) yards in length north to south, and abutted by the eastern border of the lands along its entire length. The parties agree that, if they are presented with an appropriate offer, those lands will be sold to a third party developer. It is agreed that such appropriate offer will offer the sum of at least four hundred thousand ($400,000) dollars cash for those lands and provide for the continued, uninterrupted existence of the golf course consisting of no less than six thousand two hundred fifty (6250 yds) yards in length with all eighteen fairways well divided, defined and reasonably wide (for reference sake the parties agree that the fairways of the golf course are, at the date of this agreement, for the most part well divided, defined and reasonably wide). [Emphasis added.]
14 On December 21, 1989, O’Connor and Bell signed the Joint Venture Agreement as well as the documentation to finance the purchase of all of the land. The documents were then delivered to the solicitor for Sylvan, who reviewed it, and suggested revisions, which led to the signing of an amended Joint Venture Agreement on December 27, 1989. Sylvan’s solicitor testified at trial that he did not discuss the optioned property dimensions with Bell, and Bell said he never read the option clause. All copies of the documents had been left with his lawyer. O’Connor’s solicitor was not called to testify, an omission that caused the trial judge to draw the adverse inference that if the lawyer had testified, it would not have assisted O’Connor.
15 O’Connor knew from Bell’s comment during the negotiations that he would not sign an agreement without the option for sufficient land to create the “Bayview” layout development with two rows of housing. Anything less would be “a waste”. O’Connor therefore knew when Bell signed the document that he had not detected the substitution of 110 feet for 110 yards.
16 In 1990, Bell experienced some “cash flow difficulties” that led to a modification to the financial terms of the Agreement, but pressed ahead with plans for the potential development. For a time in 1992, he worked with UMA Engineering Ltd. He subsequently retained Norman Trouth, a development consultant, who produced alternative plans and sketches for developments of 50 and 58 houses along the 18th fairway. Trouth estimated the 58-house project on or about 10.9 acres would net $820,100. In some respects, Bell was looking for more land than O’Connor had verbally agreed to. The proposals would, as contemplated from the outset, involve a measure of realignment of the 18th fairway. Bell therefore left these development proposals with O’Connor, who said he would review them. In the meantime, the lands in the golf course had been annexed to the Town of Sylvan Lake and there was potential for development of the entire 171.5 acres, much to O’Connor’s benefit.
17 Time went by. In May 1993, Bell again contacted O’Connor, who promised to review the proposal, but did not respond either then or even after a later meeting arranged by Bell’s wife. The clock was running because the option required the development to be completed by December 31, 1994. Finally, by letter dated June 8, 1993, O’Connor’s lawyer advised Bell that “[i]t is very unlikely that Performance Industries Ltd. will approve of any development plan which is not strictly in line with the Agreement”.
18 Bell testified that at that point, for the first time, he read clause 18 and realized that it did not conform to the oral agreement. O’Connor, he concluded, had slipped in a change of dimensions that turned a viable project into “a waste of land”. Bell says he was incensed. He attended at O’Connor’s office for what he described as a heated meeting.
19 Attempts were made to resolve the dispute, but O’Connor continued to insist that Bell’s right to develop the property was limited under clause 18 of the Agreement to a strip of land 110 feet wide on the easterly boundary of the golf course adjacent to the 18th hole. Bell continued to insist that O’Connor live up to the verbal agreement, which would require 110 feet being read as 110 yards.
20 In December 1994, the 5-year duration of the joint venture coming up for expiry, O’Connor tendered the funds required to buy out Sylvan’s interest. Bell refused to allow Sylvan to relinquish possession of the land, and O’Connor commenced an action for specific performance. The Alberta Court of Queen’s Bench granted an order for specific performance and O’Connor assumed possession of the property and built a clubhouse at the 18th hole. Also in late 1994, Sylvan commenced the present action against Performance and O’Connor for rectification of the Agreement or damages in lieu thereof, punitive damages and solicitor-client costs.
II. Judicial History
A. Alberta Court of Queen’s Bench (1999), 246 A.R. 272
21 Wilkins J. noted that the onus was on the plaintiff “to establish both that Bell was mistaken as to the description of the development property when he signed the Agreement and that O’Connor knew of his mistake” (para. 66).
22 In the view of Wilkins J., “O’Connor’s conduct in attempting to take advantage of the mistake he knew Bell to have made in signing the Agreement is equivalent to a fraud or a misrepresentation amounting [to] fraud or sharp practice” (para. 87). He concluded that “[i]t would be unjust, inequitable and unconscionable for this court not to offer redress to Bell in the face of that conduct” (para. 87). Accordingly, it was “clear from the evidence” that Bell is entitled to rectification of clause 18 of the Agreement. Sylvan was awarded damages in lieu of specific performance of the rectified Joint Venture Agreement.
23 The compensatory damages were assessed on the basis of “the amount of money that Bell would have been entitled to [receive] had he been permitted to complete the residential development of the 18th hole in accordance with the terms of the rectified clause 18” (para. 92). Wilkins J. was satisfied that a development of 58 houses could have “been constructed and substantially marketed prior to December 31, 1994” (para. 93). In the result, he assessed damages on the basis of the 58-lot development on the 480-yard 18th fairway in the amount of $820,100. From this he subtracted $200,000 (being the amount Sylvan (Bell) would have had to pay Performance (O’Connor) to exercise the $400,000 option) for a net of $620,100.
24 With respect to punitive damages, Wilkins J. reiterated that he found “the actions of O’Connor to be tantamount to fraud, equivalent to a misrepresentation in the nature of fraud, and sharp practice” (para. 109). O’Connor’s “actions demand an award which will stand as an example to others and at the same time assure that [he] does not unduly profit from his conduct” (para. 109). Wilkins J. stated that “[this] latter statement is the only proper basis for an award of punitive damages” (para. 109) in this case. Accordingly, O’Connor’s punitive damages should be awarded “at least to the extent of disgorging the base profit he has realized by his improper conduct” (para. 110). Punitive damages were assessed at $200,000. For their misbehaviour in the conduct of the action, the defendants (now appellants) were required to pay solicitor-client costs.
25 O’Connor argued that he should not be personally liable for any judgment against Performance in favour of the plaintiff, but Wilkins J. rejected this argument “in its entirety” (para. 119). He said that every step taken in furtherance of this joint venture was directed by O’Connor, as was every attempt to defeat Bell’s legitimate interests in the protracted litigation. “Surely there could never be a clearer case in which the court must pierce the corporate veil and attribute” (para. 119) liability personally to O’Connor. And so he did.
B. Alberta Court of Appeal (2000), 255 A.R. 329, 2000 ABCA 116
26 In a per curiam decision, the Court of Appeal upheld Wilkins J.’s rulings that the Agreement could be rectified and that the corporate veil could be lifted. It also upheld the damages award, with the exception of the award for punitive damages, which it set aside. The order for solicitor-client costs was similarly upheld.
27 With respect to compensatory damages, the Court of Appeal was “not prepared to interfere with the award of damages in this case” (para. 27). It did, however, describe the trial judge’s award as “generous” (para. 27).
28 The Court of Appeal agreed with the trial judge that “the misconduct of the defendants was so outrageous that punishment and deterrence [were] required” (para. 28), but that punitive damages “should be awarded only if they achieve some rational purpose” (para. 28). In the Court of Appeal’s view, the “substantial and generous compensatory damages awarded” (para. 29) by the trial judge satisfy both the punishment and deterrence objectives in this case. The Court of Appeal was also of the view that this was not a case where it was necessary to award punitive damages to ensure that the defendant does not profit from his misconduct. O’Connor would have profited under the Agreement even if he had not misbehaved. Accordingly, the Court of Appeal set aside the punitive damages award. In all other respects, the appeal was dismissed.
III. Analysis
29 When reasonably sophisticated businesspeople reduce their oral agreements to written form, which are prepared and reviewed by lawyers, and changes made, and the documents are then executed, there is usually little scope for rectification. Nor does a falling out between business partners usually attract an award of punitive damages. This case is unusual because of the findings of fraud and deceit made against the appellant O’Connor by the trial judge. The appellants are therefore obliged to try to make their case, if at all, out of the mouth of Bell, with such help as they can find in the law books for their position.
30 Counsel for the appellants (who was not counsel at trial) seeks to raise three issues, which he describes as follows: (1) the relationship between the plea of unilateral mistake and the remedy of rectification (particularly where the mistake is the product of the plaintiff’s own negligence); (2) the kind of pleading and proof that a plaintiff who seeks rectification must offer, as well as the proper standard of proof to apply in rectification cases; and, (3) the proper method of quantifying damages ordered in lieu of rectification in cases where the subject matter of the rectified contract is an option for the sale of land. The respondent, as stated, cross‑appeals against the quashing of the award of punitive damages.
A. Rectification of the Contract
31 Rectification is an equitable remedy whose purpose is to prevent a written document from being used as an engine of fraud or misconduct “equivalent to fraud”. 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: Hart v. Boutilier (1916), 56 D.L.R. 620 (S.C.C.), at p. 630; Ship M. F. Whalen v. Pointe Anne Quarries Ltd. (1921), 63 S.C.R. 109, at pp. 126-27; Downtown King West Development Corp. v. Massey Ferguson Industries Ltd. (1996), 133 D.L.R. (4th) 550 (Ont. C.A.), at p. 558; G. H. L. Fridman, The Law of Contract in Canada (4th ed. 1999), at p. 867; S. M. Waddams, The Law of Contracts (4th ed. 1999), at para. 336. 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.
B. Preliminary Objection
32 The respondent says the appellants ought not to be allowed to argue various objections to rectification that were not raised at trial. The alleged uncertainty about the terms of the prior oral agreement, for example, is an issue that did not come into bloom until after the appellants had lost in the Alberta Court of Appeal. There is some merit in this objection. Unless the parties have fully addressed a factual issue at trial in the evidence, and preferably in argument for the benefit of the trial judge, there is always the very real danger that the appellate record will not contain all of the relevant facts, or the trial judge’s view on some critical factual issue, or that an explanation that might have been offered in testimony by a party or one or more of its witnesses was never elicited. As Duff J. put it in Lamb v. Kincaid (1907), 38 S.C.R. 516, at p. 539:
A court of appeal, I think, should not give effect to such a point taken for the first time in appeal, unless it be clear that, had the question been raised at the proper time, no further light could have been thrown upon it.
33 In my view, the appellants’ contentions on the rectification issues are fact-based, but are manageable on the evidentiary record and raise important issues of law and equity. The Court is free to consider a new issue of law on the appeal where it is able to do so without procedural prejudice to the opposing party and where the refusal to do so would risk an injustice.
34 Here the respondent sought and obtained an equitable remedy to rectify a situation which need never have arisen had Bell properly read the draft document in December 1989. He who seeks equity must do equity. If equitable relief had been wrongfully granted, we should not close our eyes to a fatal objection because of counsel’s oversight at trial. The facts vital to the appellants’ new legal position are readily ascertainable in the evidence and the necessary findings are implicit, if not always explicit, in the trial judge’s reasons.
C. The Conditions Precedent to Rectification
35 As stated, high hurdles are placed in the way of a businessperson who relies on his or her own unilateral mistake to resile from the written terms of a document which he or she has signed and which, on its face, seems perfectly clear. The law is determined not to open the proverbial floodgates to dissatisfied contract makers who want to extricate themselves from a poor bargain.
36 I referred earlier to the four conditions precedent, or “hurdles” that a plaintiff must overcome. To these the appellants wish to add a fifth. Rectification, they say, should not be available to a plaintiff who is negligent in reviewing the documentation of a commercial agreement. To the extent the appellants’ argument is that in such circumstances the Court may exercise its discretion to refuse the equitable remedy to such a plaintiff, I agree with them. To the extent they say the want of due diligence (or negligence) on the plaintiff’s part is an absolute bar, I think their proposition is inconsistent with principle and authority and should be rejected.
37 The first of the traditional hurdles is that Sylvan (Bell) must show the existence and content of the inconsistent prior oral agreement. Rectification is “[t]he most venerable breach in the parol evidence rule” (Waddams, supra, at para. 336). The requirement of a prior oral agreement closes the “floodgate” to unhappy contract makers who simply failed to read the contractual documents, or who now have misgivings about the merits of what they have signed.
38 The second hurdle is that not only must Sylvan (Bell) show that the written document does not correspond with the prior oral agreement, but that O’Connor either knew or ought to have known of the mistake in reducing the oral terms to writing. It is only where permitting O’Connor to take advantage of the error would amount to “fraud or the equivalent of fraud” that rectification is available. This requirement closes the “floodgate” to unhappy contract makers who simply made a mistake. Equity acts on the conscience of a defendant who seeks to take advantage of an error which he or she either knew or ought reasonably to have known about at the time the document was signed. Mere unilateral mistake alone is not sufficient to support rectification but if permitting the non-mistaken party to take advantage of the document would be fraud or equivalent to fraud, rectification may be available: Hart, supra, at p. 630; Ship M. F. Whalen, supra, at pp. 126-27.
39 What amounts to “fraud or the equivalent of fraud” is, of course, a crucial question. In First City Capital Ltd. v. British Columbia Building Corp. (1989), 43 B.L.R. 29 (B.C.S.C.), McLachlin C.J.S.C. (as she then was) observed that “in this context ‘fraud or the equivalent of fraud’ refers not to the tort of deceit or strict fraud in the legal sense, but rather to the broader category of equitable fraud or constructive fraud. . . . Fraud in this wider sense refers 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” (p. 37). Fraud in the “wider sense” of a ground for equitable relief “is so infinite in its varieties that the Courts have not attempted to define it”, but “all kinds of unfair dealing and unconscionable conduct in matters of contract come within its ken”: McMaster University v. Wilchar Construction Ltd. (1971), 22 D.L.R. (3d) 9 (Ont. H.C.), at p. 19. See also Montreal Trust Co. v. Maley (1992), 99 D.L.R. (4th) 257 (Sask. C.A.), per Wakeling J.A.; Alampi v. Swartz (1964), 43 D.L.R. (2d) 11 (Ont. C.A.); Stepps Investments Ltd. v. Security Capital Corp. (1976), 73 D.L.R. (3d) 351 (Ont. H.C.), per Grange J. (as he then was), at pp. 362-63; and Waddams, supra, at para. 342.
40 The third hurdle is that Sylvan (Bell) must show “the precise form” in which the written instrument can be made to express the prior intention (Hart, supra, per Duff J., at p. 630). This requirement closes the “floodgates” to those who would invite the court to speculate about the parties’ unexpressed intentions, or impose what in hindsight seems to be a sensible arrangement that the parties might have made but did not. The court’s equitable jurisdiction is limited to putting into words that — and only that — which the parties had already orally agreed to.
41 The fourth hurdle is that all of the foregoing must be established by proof which this Court has variously described as “beyond reasonable doubt” (Ship M. F. Whalen, supra, at p. 127), or “evidence which leaves no ‘fair and reasonable doubt’” (Hart, supra, at p. 630), or “convincing proof” or “more than sufficient evidence” (Augdome Corp. v. Gray, [1975] 2 S.C.R. 354, at pp. 371-72). The modern approach, I think, is captured by the expression “convincing proof”, i.e., 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.
42 Some critics argue that anything more demanding than the ordinary civil standard of proof is unnecessary (e.g., Waddams, supra, at para. 343), but, again, the objective is to promote the utility of written agreements by closing the “floodgate” against marginal cases that dilute what are rightly seen to be demanding preconditions to rectification.
43 It was formerly held that it was not sufficient if the evidence merely comes from the party seeking rectification. In Ship M. F. Whalen, supra, Duff J. (as he then was) said, at p. 127, “[s]uch parol evidence must be adequately supported by documentary evidence and by considerations arising from the conduct of the parties”. Modern practice has moved away from insistence on documentary corroboration (Waddams, supra, at para. 337; Fridman, supra, at p. 879). In some situations, documentary corroboration is simply not available, but if the parol evidence is corroborated by the conduct of the parties or other proof, rectification may, in the discretion of the court, be available.
44 It is convenient at this point to deal with the trial judge’s findings in relation to these traditional requirements. I will then turn to the appellants’ proposed fifth precondition — due diligence on the part of the plaintiff.
(1) The Existence and Content of the Prior Oral Agreement
45 The appellants’ principal argument against rectification is that the alleged prior oral agreement is void for uncertainty. Reliance is placed on I.C.R.V. Holdings Ltd. v. Tri-Par Holdings Ltd. (1994), 53 B.C.A.C. 72, where rectification of an agreement to purchase a recreational vehicle park was refused because, per Finch J.A. (now C.J.B.C.), at para. 7, the parties never agreed on “the precise location of the eastern boundary”, and Gordeyko v. Edmonton (1986), 45 Alta. L.R. (2d) 201 (Q.B.), where Stratton J. (as he then was) found the evidence uncertain about a notice period envisaged by the prior oral agreement. See also Kerr v. Cunard (1914), 16 D.L.R. 662 (N.B.S.C.). Appellants’ counsel quotes Lord Denning’s “pithy” observation that: “[a] mistake made by one party to the knowledge of the other is a ground for avoiding a contract, but not for making one” (Byrnlea Property Investments Ltd. v. Ramsay, [1969] 2 Q.B. 253 (C.A.), at p. 265).
46 I agree with the appellants that on this point the trial judge’s reasons are somewhat unsatisfactory, but this appears to be because the “uncertainty” argument now made against rectification was not before him. The issue of uncertainty of subject matter was raised neither in the pleadings nor at trial. The trial judge directed his reasons to the points that he believed were in controversy. As to the appellants’ new arguments, one may echo the words of James, V.C., in Rumble v. Heygate (1870), 18 W.R. 749 (Ch.), who said, at p. 750, that the objections to the agreement in that case on the basis of uncertainty of quantity of land and of its site “are mere shadows which vanish when examined by the light of common sense”.
47 The Court should attempt to uphold the parties’ bargain where the terms can be ascertained with a reasonable level of comfort, i.e., convincing proof. Here the trial judge predicated his award of compensatory damages on the finding that the optioned land co