A recent decision of the Alberta Court of King’s Bench applies the doctrine of rectification in a CCDC 2 Stipulated Price Contract.
In Metrowest Developments Ltd. v Flynn Canada Ltd, 2022 ABKB 616 (Metrowest), the Alberta Court of King’s Bench (the Court) confirmed the application of rectification to clarify a party’s scope of work in a construction contract where there was a mutual mistake. Relying on the seminal case of Creston Moly Corp v Sattva Capital Corp, 2014 SCC 53 (Sattva), the Court analyzed the circumstances surrounding the agreement between the parties and, despite conflicting evidence, found that the parties had made an error in recording the scope of work within the written contract. As a result, the Court ordered that the mistake be rectified to give effect to the parties’ true intentions for entering into the contract.
The Supreme Court of Canada in Canada (Attorney General) v Fairmont Hotels Inc, 2016 SCC 56 (Fairmont), warned that rectification should be not a substitute for due diligence at the time a document is signed. However, this case stands as evidence that, where there is “convincing proof” that a legal document fails to record the terms of an agreement, the doctrine of rectification remains a remedy that is alive and well in Alberta.
Metrowest involves a dispute arising out of CCDC 2 Stipulated Price Contract (the Contract), where the Defendant had agreed to complete a partial roof replacement for a property owned by the Plaintiff. Central to the dispute was whether an addendum modifying the defendant’s scope of work formed part of the Contract (the Addendum).
The Addendum was added to the tender package after concerns were raised about removing a large HVAC unit from the roof to complete the roofing work. In particular, the Addendum described how the roofing work would be completed without removing the HVAC unit. The bidding contractors utilized this Addendum when bidding, and the Defendant’s bid was ultimately accepted, following which it entered into the Contract.
The Contract referred to the scope of work in the tender package but neglected to include the Addendum. Inevitably, a dispute arose concerning the proper scope of work. The Plaintiff took the position that the scope was properly set out in the Contract and, since the Contract did not include the Addendum, the Defendant ought to have removed the existing roofing assembly, including the roofing underneath the HVAC unit. In response, the Defendant took the position that the parties intended to modify the Defendant’s scope of work by including the Addendum within the Contract and, further, that the Addendum’s exclusion was nothing more than a mistake. As such, the Defendant relied on the doctrine of rectification.
The doctrine of rectification
The doctrine of rectification is an equitable remedy designed to give effect to the true intentions of the parties in an agreement by correcting an error or omission in the recording of terms in written legal instruments. In Fairmont, The Supreme Court of Canada outlined the legal test for the rectification of an agreement. Where the alleged mistake is common to both parties, the party seeking rectification must establish, on a balance of probabilities, that:
- There was a prior agreement whose terms are definite and ascertainable;
- The agreement was still in effect at the time the instrument was executed;
- The executed instrument fails accurately record the agreement; and
- Rectification of the error would give effect to the parties prior agreement.
The Supreme Court went further to identify that meeting this test requires “convincing proof”, referring to the quality of evidence required to discharge the standard. Evidence must be sufficiently clear, convincing and cogent to counteract the evidence of the parties’ intention that is currently displayed in the instrument to be rectified.
The decision in Metrowest:
The Court found the evidence in Metrowest to constitute “convincing proof.” The evidence supported a finding that a prior agreement existed between the parties. The Addendum was included with the tender distributed to bidding contractors, and the Defendant’s bid specifically referenced the Addendum within its scope of work and pricing. Furthermore, the Plaintiff had been provided with a copy of the tender and bid prior to its acceptance, and had raised no concerns about the Addendum. As a result, the conduct of the Plaintiff and the Plaintiff’s representatives clearly established an agreement to perform the scope of work as modified by the Addendum.
The Plaintiff argued that the inclusion of an “entire agreement” clause ought to preclude the altered scope of work outlined in the Addendum as it was not included within the Contract. However, the court found that the Addendum had not been cancelled, or withdrawn, at any time between its issuance and the signing of the Contract. In this regard, there was evidence that the Defendant had completed its work pursuant to the Addendum and, further, that the exclusion of the Addendum was nothing more than an oversight.
As a result, the Court concluded that rectifying the scope of work, by inserting the Addendum into the Contract, was an appropriate remedy that would restore the parties to the bargain that was originally contemplated.
Lessons for the construction industry:
Metrowest is an example of mistakes commonplace in an industry where industry standard contracts are regularly relied upon. Despite the general standard form of these agreements, it is critical that the parties to these agreements perform the proper due diligence to ensure that the bargain being struck is properly outlined and captured within the written document.
The overriding concern of the court is to determine the intent of the parties and the scope of their understanding as it relates to the bargain being struck (Sattva, para 47). In Metrowest, the Albert Court of King’s Bench signaled that, where there is convincing evidence of a common intent, a mutual mistake evidencing an agreed upon scope of work in a written construction contract can be rectified to give effect to true intentions of the parties.
As noted by the Supreme Court of Canada in Fairmont, the remedy of rectification ought not to be a substitute for proper due diligence when entering to an agreement. However, when mistakes happen, this particular equitable remedy remains alive and well in Alberta – even if only in the clearest of cases.
For more information, please reach out to the authors Michael Sestito and Keanan Caouette.