Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd. and O'Connor (No. 2), (2002) 283 N.R. 233 (SCC)

• Judge: McLachlin, C.J.C., L'Heureux-Dubé, Gonthier, Major, Binnie, Arbour and LeBel, JJ.
• Court: Supreme Court (Canada)
• Case Date: February 22, 2002
• Jurisdiction: Canada (Federal)
• Citations: (2002), 283 N.R. 233 (SCC);2002 SCC 19;266 WAC 201;[2002] 5 WWR 193;EYB 2002-28038;[2002] ACS no 20;111 ACWS (3d) 733;20 BLR (3d) 1;299 AR 201;[2002] CarswellAlta 186;JE 2002-448;[2002] SCJ No 20 (QL);[2002] 1 SCR 678;50 RPR (3d) 212;209 DLR (4th) 318;283 NR 233;98 Alta LR (3d) 1

Sylvan Lake Golf v. Performance Ind. (2002), 283 N.R. 233 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2002] N.R. TBEd. FE.014

Performance Industries Ltd. and Terrance O'Connor (appellants) v. Sylvan Lake Golf & Tennis Club Ltd. (respondent)

Sylvan Lake Golf & Tennis Club Ltd. (appellant by cross-appeal) v. Performance Industries Ltd. and Terrance O'Connor (respondents by cross-appeal)

(27934; 2002 SCC 19)

Indexed As: Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd. and O'Connor (No. 2)

Supreme Court of Canada

McLachlin, C.J.C., L'Heureux-Dubé, Gonthier, Major, Binnie, Arbour and LeBel, JJ.

February 22, 2002.

Summary:

Bell controlled the plaintiff company which operated a golf course on leased land. The plaintiff had a right of first refusal if the landowner received an offer to purchase the land. The plaintiff exercised that right. Bell's partner backed out, leaving Bell to find another partner to help finance the purchase. O'Connor, through his company (defen­dants), became Bell's partner. The agreement was conditional on Bell having the right to develop the 18th hole in the future. The area involved was 480 yards by 110 to 130 yards. O'Connor's lawyer drafted the agreement. Bell did not notice that the description of the land he was entitled to develop was 110 feet rather than 110 yards. Several years later, when Bell wished to develop the 18th hole, the alleged misdescription was discovered. The plaintiff applied for rectification of the agreement, claiming that the description did not accurately reflect the intention of the parties (i.e., unilateral mistake). Alternative­ly, the plaintiff sought damages to compen­sate for its lost opportunity to develop the land.

The Alberta Court of Queen's Bench, in a judgment reported 246 A.R. 272, held that the plaintiff signed the agreement under a unilateral mistake as to the description of the development property and the defendant knew the plaintiff was mistaken. The defen­dant's conduct in attempting to take advan­tage of the mistake was equivalent to fraud or misrepresentation amounting to fraud or sharp practice. It would be unjust, inequi­table and unconscionable for the court not to remedy that conduct. Rectification was no longer possible or equitable. The appropriate remedy was damages. The court awarded, inter alia, $820,100 as the loss of profit from the lost opportunity to develop the lands and $200,000 punitive damages. The court also awarded the plaintiff solicitor-client costs against the defendants. The defendants (O'Connor and his company) appealed.

The Alberta Court of Appeal, in a judg­ment reported 255 A.R. 329; 220 W.A.C. 329, allowed the appeal in part. The court affirmed liability, the award of solicitor-client costs and all damages except the punitive damage award. Entitlement to rec­tification was established, but the plaintiff was awarded damages where rectification was no longer possible. Given the substantial and generous compensatory damage award, both punishment and deterrence were served without the necessity of awarding punitive damages. The defendants appealed the find­ing that rectification was appropriate and the damage award. The plaintiff cross-appealed the setting aside of the punitive damage award.

The Supreme Court of Canada dismissed both the appeal and the cross-appeal.

Damage Awards - Topic 2027.1

Exemplary or punitive damages - Uncon­scionable conduct - [See first Deeds and Documents - Topic 5058 ].

Damages - Topic 1301.5

Exemplary or punitive damages - Deceit or misrepresentation - [See first Deeds and Documents - Topic 5058 ].

Damages - Topic 1316

Exemplary or punitive damages - Fraud - The defendant fraudulently deprived the plaintiff of a development opportunity - The plaintiff received generous compensa­tory damages for lost profits - At issue was whether punitive damages should also be awarded - The Supreme Court of Canada stated that "the misconduct found against [the defendant] was his contemptuous disregard for [the plaintiff's] rights ... together with his subsequent use of the written document (which he knew mis­stated their verbal agreement) ... to obtain possession of the ... property and thereby to destroy the value of [the plaintiff's] option to develop the agreed-upon residen­tial project. Torts such as deceit or fraud already incorporate a type of misconduct that to some extent 'offends the court's sense of decency' and which 'represents a marked departure from ordinary standards of decent behaviour', yet not all fraud cases lead to an award of punitive dam­ages. [The defendant's] fraud was a condi­tion precedent to [the plaintiff's] successful claim to rectification, for which his com­pany will now receive compensatory dam­ages of $620,100. Payment of $620,100 hurts. The question is whether more pun­ishment is rationally required by way of retribution, deterrence or denunciation ... I agree ... that the award of punitive dam­ages ... does not serve a rational purpose. ... the trial judge ... thought punishment above and beyond the payment of generous compensatory damages was required for two reasons, namely that [the defendant's] actions (1) 'demand an award which will stand as an example to others' and (2) 'at the same time assure that [the defendant] does not unduly profit from his conduct'. These are both legitimate objectives for ... punitive damages ... However, ... an award of punitive damages is rational 'if, but only if' compensatory damages do not adequately achieve the objectives of retri­bution, deterrence and denunciation. This was a commercial relationship between two businessmen. One tried to pull a fast one on the other. ... [The defendant's] miscon­duct was planned and deliberate ... but in the end the courts did their work and [the plaintiff] obtained full compensation plus costs on a solicitor-client basis, all of which undoubtedly had a punitive effect on [the defendant]. ... The [plaintiff] is unable to identify any aggravating circumstances that would not be present in almost any case of business fraud except that [the defendant] was found to have behaved abominably in the conduct of the litiga­tion." - See paragraphs 77 to 88.

Damages - Topic 1316

Exemplary or punitive damages - Fraud - [See first Deeds and Documents - Topic 5058 ].

Damages - Topic 5713

Contracts - Breach of contract - Loss of profits - [See first Deeds and Documents - Topic 5058 ].

Deeds and Documents - Topic 5058

Rectification - When available - Mistake - Unilateral - Bell and O'Connor, through their companies, agreed as partners to purchase golf course land, conditional on Bell having the future opportunity to de­velop the 18th hole (480 yards by 110 to 130 yards) for residential housing - O'Con­nor, through his lawyer, drafted the clause to read 110 feet instead of 110 yards - The trial judge found that the misdescription was a fraudulent, deceitful and dishonest attempt to limit Bell's development oppor­tunity - Bell executed the agreement with­out noticing the misdescription (failed to read the clause) - The trial judge held that the misdescription was a unilateral mistake entitling Bell to rectification - Since rec­tification was no longer available (O'Con­nor had developed the lands), the trial judge awarded Bell $820,100 damages for lost profits (lost opportunity to develop) and $200,000 punitive damages - The appeal court affirmed liability and damages for lost profits, but set aside the punitive damage award - Given the compensatory damage award, punishment and deterrence were satisfied without awarding punitive damages (i.e., no rational purpose for awarding punitive damages) - The Supreme Court of Canada affirmed that rectification was available, that Bell's negligence or lack of due diligence did not bar rectification, that the trial judge did not err in awarding damages for lost profits (the losses flowed from the special circum­stances known to the parties at the time that they made their contract) and that punitive damages served no rational pur­pose - See paragraphs 29 to 93.

Deeds and Documents - Topic 5058

Rectification - When available - Mistake - Unilateral - The Supreme Court of Canada discussed the availability of rectification for unilateral mistake - The court stated that "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 ..., provided certain demanding precondi­tions are met. ... 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 ... 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." - See para­graph 31.

Deeds and Documents - Topic 5075

Rectification - Bars - Negligence or lack of due diligence - The Supreme Court of Canada rejected the submission that a party to a commercial contract who was negli­gent or lacked due diligence in discovering an error was absolutely barred from obtain­ing rectification - Since rectification was an equitable remedy, where there was negligence or lack of due diligence the court "may" exercise its discretion to re­fuse rectification - The court stated that "in a case where the court concludes that it would be unjust to impose on a defendant a liability that ought more properly be attributed to the plaintiff's negligence, rectification may be denied" - However, where the defendant fraudulently drafted a contractual term contrary to what the plaintiff and defendant agreed to, the de­fendant could not set up the plaintiff's failure to discover the fraud as a bar to rectification - The court referred to the statement that "carelessness on the part of the victim has never been a defence to an action for fraud" - See paragraphs 57 to 70.

Deeds and Documents - Topic 5181

Rectification - Proof and evidence - Stan­dard of proof - The Supreme Court of Canada stated that the preconditions to the granting of rectification must be estab­lished by "convincing proof", defined 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" - See paragraph 41.

Practice - Topic 9012

Appeals - Restrictions on argument on appeal - Issues or points not previously raised - The appellants appealed the grant­ing of rectification (as affirmed on appeal) - The respondent objected to the appellants now arguing objections to rectification that were not raised at trial - The Supreme Court of Canada stated that "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. ... 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." - See para­graphs 32 to 33.

Cases Noticed:

Whiten v. Pilot Insurance Co. et al. (2002), 283 N.R. 1; 156 O.A.C. 201 (S.C.C.), appld. [para. 5].

Hart v. Boutilier (1916), 56 D.L.R. 620 (S.C.C.), refd to. [para. 31].

Ship M.F. Whalen v. Pointe Anne Quarries Ltd. (1921), 63 S.C.R. 109, refd to. [para. 31].

Downtown King West Development Corp. v. Massey Ferguson Industries Ltd. (1996), 89 O.A.C. 373; 133 D.L.R.(4th) 550 (C.A.), refd to. [para. 31].

Lamb v. Kincaid (1907), 38 S.C.R. 516, refd to. [para. 32].

First City Capital Ltd. v. British Columbia Building Corp. (1989), 43 B.L.R. 29 (B.C.S.C.), refd to. [para. 39].

McMaster University v. Wilchar Construc­tion Ltd. (1971), 22 D.L.R.(3d) 9 (Ont. H.C.), refd to. [para. 39].

Montreal Trust Co. v. Maley (1992), 105 Sask.R. 195; 32 W.A.C. 195; 99 D.L.R.(4th) 257 (C.A.), refd to. [para. 39].

Alampi v. Swartz (1964), 43 D.L.R.(2d) 11 (Ont. C.A.), refd to. [para. 39].

Stepps Investments Ltd. v. Security Capital Corp. (1976), 73 D.L.R.(3d) 351 (Ont. H.C.), refd to. [para. 39].

Augdome Corp. v. Gray et al., [1975] 2 S.C.R. 354; 3 N.R. 235, refd to. [para. 41].

I.C.R.V. Holdings Ltd. v. Tri-Par Holdings Ltd. (1994), 53 B.C.A.C. 72; 87 W.A.C. 72 (C.A.), refd to. [para. 45].

Gordeyko v. Edmonton (City) (1986), 71 A.R. 192; 45 Alta. L.R.(2d) 201 (Q.B.), refd to. [para. 45].

Kerr v. Cunard (1914), 16 D.L.R. 662 (N.B.S.C.), refd to. [para. 45].

Byrnlea Property Investments Ltd. v. Ramsay, [1969] 2 Q.B. 253 (C.A.), refd to. [para. 45].

Rumble v. Heygate (1870), 18 W.R. 749 (Ch.), refd to. [para. 46].

Bloom v. Averbach, [1927] S.C.R. 615, refd to. [para. 47].

Beverly Motel (1972) Ltd. v. Klyne Prop­erties Ltd. (1981), 126 D.L.R.(3d) 757 (B.C.S.C.), refd to. [para. 64].

Big Quill Resources Ltd. v. Potash Corp. of Saskatchewan (2001), 203 Sask.R. 298; 240 W.A.C. 298 (C.A.), refd to. [para. 65].

Prince Albert Credit Union v. Diehl et al., [1987] 4 W.W.R. 419; 57 Sask.R. 173 (Q.B.), refd to. [para. 65].

Windjammer Homes Inc. v. Generation Enterprises (1989), 43 B.L.R. 315 (B.C.S.C.), refd to. [para. 65].

Farah v. Barki, [1955] S.C.R. 107, refd to. [para. 68].

May v. Platt, [1900] 1 Ch. 616, refd to. [para. 68].

Central Railway Co. of Venezuela v. Kisch (1867), L.R. 2 H.L. 99, refd to. [para. 69].

United Service Funds (Trustees) v. Richardson Greenshields of Canada Ltd. (1988), 22 B.C.L.R.(2d) 322 (S.C.), refd to. [para. 70].

Dalon v. Legal Services Society (B.C.) (1995), 10 C.C.E.L.(2d) 89 (B.C.S.C.), refd to. [para. 70].

Brown & Root Ltd. v. Chimo Shipping Ltd., [1967] S.C.R. 642, refd to. [para. 73].

General Securities Ltd. v. Don Ingram Ltd., [1940] S.C.R. 670, refd to. [para. 73].

Burrard Drydock Co. v. Canadian Union Line Ltd., [1954] S.C.R. 307, refd to. [para. 73].

Corbin v. Thompson (1907), 39 S.C.R. 575, refd to. [para. 73].

Baud Corp., N.V. v. Brook, [1979] 1 S.C.R. 633; 23 N.R. 181; 12 A.R. 271, refd to. [para. 73].

Asamera Oil Corp. v. Sea & Oil General Corp. - see Baud Corp., N.V. v. Brooks.

New Horizon Investments Ltd. v. Montroyal Estates Ltd. (1982), 26 R.P.R. 268 (B.C.S.C.), refd to. [para. 73].

Kinkel v. Hyman, [1939] S.C.R. 364, refd to. [para. 74].

Hill v. Church of Scientology and Manning, [1995] 2 S.C.R. 1130; 184 N.R. 1; 84 O.A.C. 1, refd to. [para. 79].

Authors and Works Noticed:

American Restatement of the Law of Con­tracts (2d) (1981), s. 157, Commentary [para. 62].

Fridman, G.H.L., The Law of Contract in Canada (4th Ed. 1999), pp. 867 [para. 31]; 879 [para. 43].

Spencer-Bower, G., and Turner, A.L., The Law of Actionable Misrepresentation (3rd Ed. 1974), p. 218 [para. 70].

Waddams, S.M., The Law of Contracts (4th Ed. 1999), paras. 336 [paras. 31, 37]; 337 [para. 43]; 342 [paras. 39, 50].

Counsel:

David R. Haigh, Q.C., and Brian Beck, for the appellants/respondents on cross-appeal;

Munaf Mohamed and Lowell A. Westersund, for the respondent/appellant on cross-appeal.

Solicitors of Record:

Burnet, Duckworth & Palmer, Calgary, Alberta, for the appellants/respondents on cross-appeal;

Fraser Milner Casgrain, Calgary, Alberta, for the respondent/appellant on cross-appeal.

This appeal and cross-appeal were heard on December 14, 2000, before McLachlin, C.J.C., L'Heureux-Dubé, Gonthier, Major, Binnie, Arbour and LeBel, JJ., of the Supreme Court of Canada.

On February 22, 2002, the judgment of the Supreme Court of Canada was delivered in both official languages and the following opinions were filed:

Binnie, J. (McLachlin, C.J.C., L'Heureux-Dubé, Gonthier, Major and Arbour, JJ., concurring) - see para­graphs 1 to 93;

LeBel, J. - see paragraph 94.