The Supreme Court of Canada issued its judgment in
Québec (Agence du revenu) v. Services environnementaux
the Court AES inc. and Québec (Agence du revenu) v.
Riopel, 2013 SCC 65, confirming that the Civil Code of
Québec allows the rectification of contracts due to an
error. In so deciding, the Supreme Court confirmed the judgments of
the Québec Court of Appeal and allowed the correction of the
taxpayer's transactions, denying the tax authorities revenues
that would have otherwise resulted purely from the errors made by
the parties and their representatives.
This judgment may have a significant impact on both the
rectification of transactions which have unexpected or unwanted tax
consequences and on the interpretation of contracts more
By its decision, the Supreme Court confirmed the distinction
between the common intention of the parties (negotium) and
the expression thereof found in the impugned contract (the
instrumentum). In case of conflict between the two, courts can
now rely on the provisions of the Civil Code of
Québec in respect of the interpretation of contracts in
order to modify legal documents that do not reflect the common
intention of the parties, thereby correcting errors. In short,
courts can eliminate "the inconsistency between the
parties' original agreement and the manner in which it had been
In these cases, the tax advisors of the taxpayers had made
errors in the implementation of reorganizations that were to be
without immediate tax consequences. The courts and the Supreme
Court have allowed the rectification of the reorganizations in
order to achieve this result.
The framework of analysis and conclusions of the Supreme Court
could also be relied upon in other instances where the parties seek
the correction of a contract that does not reflect their common
intention, subject to the applicable rules of evidence.
In tax matters, the Supreme Court stressed that specific
evidence of the common intention of the parties will be required.
In the drafting of any contract, it would be advisable to clearly
set out the common intention of the parties and, in particular,
with respect to its tax implications.
This judgment of the Supreme Court may have a significant impact
on the stability of contracts and their interpretation. It will be
of great interest to monitor how this decision is followed by lower
The Attorney General of Canada intervened in this case in an
attempt to reverse the decisions of the Court of Appeal on the
basis that rectification as applied in cases concerning taxes such
as Juliar (Attorney General of Canada v Juliar, 50 OR (3d)
728; 2000 CanLII 16883 (Ont CA)) is not good law. Although LeBel J.
declined to specifically comment on Juliar and common law
rectification in cases concerning taxes, the decision in this case
concluded that such rectification was acceptable for the purposes
of the Civil Code of Québec. It would be most
peculiar if such rectification was good law in Québec but
not in the common law Provinces.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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