Commercial Litigation and Dispute Resolution Blog

What options does one have when they discover that a term in a previously executed contract or written instrument was worded poorly, or incorrectly drafted? Generally, parties in this scenario may seek the remedy of rectification, which gives a court the equitable jurisdiction to rectify or correct the document so that it accords with the parties’ true agreement. However, rectification is cautiously granted, and generally limited to cases in which the party seeking the remedy can show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down incorrectly.

However, in a recently reported decision of the B.C. Supreme Court, Wei Guang Real Estates Development Ltd. v Nettwerk Productions Ltd^[1], the Court held that rectification is not the only solution in similar factual scenarios. In this case, the Court found as matter of contractual interpretation (i.e. not rectification) that an agreement for the purchase and sale of a commercial office building in Vancouver (the “Lands”) evidenced the parties’ intention that the vendor represented and warranted that the Lands “do not contain” any hazardous substance despite the omission of the word “not” in the relevant clause. The clause read:

“the Lands have never been used to manufacture, refine, handle, store or dispose of any hazardous substance, except in compliance with all applicable laws, regulations and orders and do contain, nor to the knowledge of the Vendor have they ever contained, any hazardous substance”.

Five years after closing, the purchaser discovered hazardous substances on the Lands during redevelopment excavations. The purchaser incurred costs to remediate the Lands and dispose of the hazardous substances, and sought damages for recovery of those costs and for breach of contract. The purchaser argued that the only reasonable interpretation is that the vendor, represented that the Lands did not contain any hazardous substance based on the words used, their grammatical context, the circumstances surrounding the contract, and the avoidance of a commercial absurdity. In contrast, the vendor argued that the purchaser’s interpretation violated several fundamental rules of interpretation and ignored the ordinary and grammatical meaning of the words. The vendor further argued that the purchaser sought to frame the issue as a question of interpretation when, in reality, their claims were a veiled attempt to seek the remedy of rectification despite not having the proper legal basis to do so.

While the Court acknowledged that this dispute could be framed as an issue of rectification, the court rejected the proposition that contractual interpretation and rectification should be understood as mutually exclusive, such that similar issues can only be resolved using one or the other. Ultimately, the Court determined that the issue in this case was appropriately addressed as a question of interpretation. In interpreting the agreement, the Court emphasized the importance of a practical approach that prioritizes common-sense and the context of the words over technical rules of construction, with the goal of discerning “what meaning the Agreement is reasonably interpreted to convey, [which] is distinct from an inquiry into the meaning of the words it contains”^[2].

In finding that it was necessary to read in the word “not” between the words “do” and “contain”, the Court relied on the following:

• Grammatical Coherence: the use of the word “nor” in the dependent clause that followed “do contain” is grammatically incoherent, and the use of the word “do” prior to “contain” is superfluous.
• Logical Coherence: a representation that the Lands “do contain” a hazardous substance is logically inconsistent with the subsequent representation that the Lands have never, to the knowledge of the Vendor, contained hazardous substances.
• Circumstances Surrounding the Agreement: No evidence was given that both parties had an understanding that the Lands could possibly contain hazardous substances.
• Commercial Absurdity: it does not make sense for a vendor in a commercial real estate transaction to represent and warrant that property contains hazardous substances that would decrease the property’s value and therefore lower its selling price on the market.

This decision may encourage parties who discover a detrimental error in the wording of a contract or written instrument they previously executed to frame the issue as one of contractual interpretation. By contrast, parties who benefit from the explicit wording of an instrument will resist this approach and argue that the opposing party is in fact seeking rectification. This would require the party seeking the remedy to meet a more stringent legal test. However, this decision also appears to support common-sense and commercially reasonable interpretations of contracts, and the notion that parties ought not be able to rely on typos to avoid their contractual obligations.

_{[1] 2021 BCSC 215}

_{[2] At para 42.}