In Canada, the ability to fix tax-related mistakes in documented transactions has become substantially more restricted.  In Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56, the Supreme Court of Canada held that the Ontario Court of Appeal’s leading decision in Juliar v. Canada (Attorney General), (2000), 50 O.R. (3d) 728 (C.A.) on rectification in the tax context was irreconcilable with the Supreme Court of Canada’s jurisprudence in Hart v. Boutilier (1916), 56 D.L.R. 620 (S.C.C.), at p. 622, Ship M. F. Whalen v. Pointe Anne Quarries Ltd. (1921), 63 S.C.R. 109, at p. 126, Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678, at para. 31, and Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, [2009] 1 S.C.R. 157, at para. 56.   This jurisprudence narrowly confined the circumstances in which the equitable remedy of rectification is available (see paragraph 37).  The following is a brief summary of the key points:

  1. General principle: The remedy of rectification in any context, including tax, is limited solely to cases where a written document has incorrectly recorded the parties’ prior agreement; it is not concerned with correcting mistakes or errors of judgment in the making of that prior agreement (see paragraph 13).  In order to get an order of rectification, one must show that the parties were in complete agreement on the terms of their prior agreement, but by some error wrote them down incorrectly in the signed document (see paragraph 29).  Rectification is not equity’s version of a mulligan (see paragraph 39).  In other words, courts cannot rectify a prior agreement where its faithful recording in a document has led to some unintended, undesirable, or unexpected outcome or result – tax related or otherwise.
  2. Types of errors that can be rectified:  Two types of errors can be rectified. The first arises when both parties sign a document under a common mistake that the document accurately records the terms of their prior agreement.  However, to obtain an order rectifying this mistake, it must be shown that (a) the parties had reached a prior agreement whose terms are definite and ascertainable; (b) that the prior agreement was still effective when the document was signed; (c) that the signed document fails to accurately record the prior agreement; and (d) that, if rectified, the signed document would carry out the prior agreement (see paragraph 14).  The second type of error that can be rectified arises where the claimed mistake is unilateral — either because the signed document formalizes a unilateral act, or where one party says that the signed document does not accurately record the prior agreement (the other party says it does).  In the latter instance, it must be further shown that the party resisting the rectification either knew or ought to have known about the mistake and that permitting that party to take advantage of the mistake would amount to fraud or the equivalent of fraud (see paragraph 15). 
  3. Evidential Burden:  A court will require evidence exhibiting a high degree of clarity, persuasiveness, and cogency before substituting the terms of a written document with those said to form the parties’ true prior agreement (see paragraph 36).  The reason for this stringent evidential burden is the somewhat obvious fact that the most cogent evidence of the parties’ prior agreement is to be found in the document itself.  Accordingly, a high degree of evidential clarity, persuasiveness, and cogency is needed to counteract the inherent probability that the written document accurately represents the parties’ prior agreement.