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Rescission

. Deschenes v. Lalonde

In Deschenes v. Lalonde (Ont CA, 2020) the Court of Appeal considered an appeal from a summary judgment of an action to set aside a settlement for historic sexual assault by a Catholic priest. On unilateral mistake and rescission the court stated:
[29] The equitable remedy of rescission is available for a false or misleading representation that induces a contract: Guarantee Co. of North America, at para. 39. Rescission requires proof that the misrepresentation was material and was relied on by the party seeking to rescind the contract: 1323257 Ontario Ltd. o/a “Hyundai of Thornhill” v. Hyundai Auto Canada Corp. (2009), 2009 CanLII 494 (ON SC), 55 B.L.R. (4th) 265 (Ont. S.C.), at para. 71; Barclays Bank v. Metcalfe & Mansfield, 2011 ONSC 5008, 82 C.B.R. (5th) 159, at paras. 156-59, aff’d 2013 ONCA 494, 365 D.L.R. (4th) 15, leave to appeal refused, [2013] S.C.C.A. No. 374. To be material, a misrepresentation must relate to a matter that would be considered by a reasonable person to be relevant to the decision to enter the agreement, but it need not be the sole inducement for acting: York University v. Makicevic and Brown, 2016 ONSC 3718, 33 C.C.E.L. (4th) 26, at para. 145, aff’d 2018 ONCA 893, 51 C.C.E.L. (4th) 30, leave to appeal refused, [2019] S.C.C.A. No. 134. Whether a contracting party did in fact rely on the misrepresentation, at least in part, to enter into the agreement is a “question of fact to be inferred from all the circumstances of the case and evidence at trial”: Barclays Bank, at para. 159.

[30] The remedy of rescission is available even if the misrepresentation was made innocently, that is, by a party who believed it was true: “Where rescission is claimed it is only necessary to prove that there was misrepresentation. Then, however honestly it may have been made, however free from blame the person who made it, the contract, having been obtained by misrepresentation, cannot stand”: Derry v. Peek (1889), [1886-90] All E.R. Rep. 1 (H.L.), at p. 13, per Lord Herschell. In Kingu v. Walmar Ventures Ltd., 1986 CanLII 142 (BC CA), [1986] B.C.J. No. 597 (C.A.), McLachlin J.A. (as she then was) set out a list of requirements for rescission of a contract on the basis of innocent misrepresentation. In addition to the requirement of a positive misrepresentation of an existing fact that induced the plaintiff to enter into the contract, in order for rescission to be granted, the plaintiff must have acted promptly upon discovery of the misrepresentation to disaffirm the contract, no third party may have acquired rights for value as a result of the contract, and it must be possible to restore the parties substantially to their pre-contract position: Kingu, at para. 15.

....

[32] As noted by Côté J.A. in Radhakrishnan, a settlement agreement may also be rescinded on the basis of unilateral mistake. I will explain why I reject the appellants’ submission that the motion judge, after finding a “unilateral mistake by the Diocese”, erred in this case in rescinding the settlement agreement on this basis. The law on rescission for unilateral mistake is that a party may seek rescission of a contract for its own unilateral mistake only where the mistake goes to a material term of the contract, where the other party knows or ought to know of the mistake, and where it would be unconscionable for the second contracting party to rely on the contract: 256593 B.C. Ltd. v. 456795 B.C. Ltd. (1999), 1999 BCCA 137 (CanLII), 171 D.L.R. (4th) 470 (B.C.C.A.), at p. 479. See also Gerald H. Fridman, The Law of Contract in Canada, 6th ed. (Toronto: Thomson Reuters Canada Limited, 2011), at pp. 252-54; Toronto Transit Commission v. Gottardo Construction Limited et al. (2005), 2005 CanLII 31293 (ON CA), 257 D.L.R. (4th) 539 (Ont. C.A.), at para. 30, leave to appeal refused, [2005] S.C.C.A. No. 491. The motion judge did not refer to these principles, and for good reason. Although the motion judge characterized the misrepresentation as a “unilateral mistake of the Diocese”, he did not, nor could he have, rescinded the settlement agreement for unilateral mistake, where the only mistake he found was that of the Diocese, not Ms. Deschenes. Rather, the framework he applied was that of rescission for innocent misrepresentation.

....

[45] As I have previously noted, a contracting party may obtain rescission on the basis of its own unilateral mistake where the mistake goes to a material term of the contract (something that goes to the root of the contract, or is fundamental to the contract), where the other party knows or ought to know of the mistake, and where it would be unconscionable for the second contracting party to rely on the contract. Indeed, this is the law that the appellants rely on in this appeal. There is no question that where there has been a unilateral mistake by the innocent party to a contract, a contract can be rescinded only if the non-mistaken party knew, or ought to have known, of the innocent party’s mistake. The core element of knowledge, however, is that of the non-mistaken party. Professor Fridman makes this clear when he says, at pp. 252-54:
If the party not in error knows or ought to know of the other’s mistake, any purported agreement between them may not be enforceable in equity … on the ground that equity will not permit a party to take advantage of the error in offering or accepting by the other party. The rationale of such cases is that equity penalizes unconscionable conduct, whether it actually constitutes fraud or involves something amounting to fraud in the view of equity. It must be unfair, unjust or unconscionable to enforce or uphold the contract.

It is not necessary for the party seeking to avoid the contract on the ground of mistake to prove that the other party caused or induced the mistake (although if such causation is established it might lead to rescission for fraud, or for innocent misrepresentation). As long as the unmistaken party knows of the mistake, without having caused it, that party cannot resist a suit for rectification on the grounds of mistake. The same will apply if the other party had good reason to know of the mistake and to know what was intended. The converse of the proposition as to the knowledge of the other party’s mistake is that if the unmistaken party is ignorant of the other’s mistake the contract will be valid and neither rescission nor rectification will be possible. [Footnotes omitted.]
[46] The unilateral mistake analysis simply does not fit this case. Here, the mistake was that of the Diocese, not Ms. Deschenes. Indeed, as noted above, the motion judge characterized the misrepresentation at various points in his reasons as a “unilateral mistake by the Diocese” (emphasis added). To support an analysis based on rescission for unilateral mistake, the motion judge would have had to have found that Ms. Deschenes was the mistaken party and that the Diocese was trying to take advantage of her mistake. It may be that Ms. Deschenes was also “mistaken”, in which case, as Professor Fridman notes in the passage quoted above, rescission for innocent or fraudulent misrepresentation could follow on proof that the other party caused or induced the mistake.

[47] The proper characterization of what occurred here is that the Diocese made a representation that was false when it stated repeatedly, including under oath, that no one knew that there was any reason to be concerned about Father Sylvestre’s behaviour before Ms. Deschenes claimed to have been assaulted by him, and that there had been no prior complaints. In this sense, the Diocese made a “mistake”. Although the Diocese was mistaken when it made the representation, this was not a case of rescission for unilateral mistake. Rather, rescission of the settlement agreement was warranted on the basis of the law of innocent misrepresentation.



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