Good as New: Fixing Defective Releases
2025 10-Under-10 Finalist
In Walsh v Canada (Attorney General), 2024 NLSC 176 [“Walsh”], an insurer was successful in rectifying a full and final release so as to not bar a personal injury claim. This case affirms that a contract, including a full and final release, may be deemed void or voidable if there was a mistake that was fundamental to the agreement.
BACKGROUND
Glenn Walsh (“Walsh” or the “Plaintiff”), and Terri Wells (“Wells” or the “Second Defendant”), were involved in a motor vehicle accident on 13 June 2017 (the “Accident”). The vehicle operated by Wells was owned by the Federal Department of Fisheries and Oceans (“DFO”).
The Plaintiff had an automobile insurance policy with Intact Insurance Company (“Intact”). Under the automobile policy, He had no fault benefits coverage (Section B) and no-fault coverage for repair of Walsh’s vehicle (Section C). As a result of the Accident, Walsh sustained personal injuries, and his motor vehicle required over $5,000.00 in repairs. Intact opened a Section B claim and paid the amount of repair costs in accordance with Section C.
Intact pursued its right of subrogation against DFO for its payment of Walsh’s motor vehicle repairs and sent a demand letter to DFO. At around the same time, Intact also notified DFO of its subrogation rights under Section B. Ultimately, DFO agreed to pay the full amount of the subrogated property damage claim in exchange for Intact executing a full and final release.
In January 2018, Intact executed a full and final release (the “Release”) in exchange for the amount claimed. The Release included the following language[1]:
In effect, Wells and DFO were released from any and all claims by the Plaintiff, including claims for personal injury. The Plaintiff, oblivious that Intact signed the Release on his behalf, issued a Statement of Claim against Wells and DFO in June 2019, seeking damages for personal injury. The Statement of Claim was served on Wells and DFO in April 2020.
In an effort to remedy its error, Intact brought an application seeking to have the Release rectified based on the doctrine of mistake. Specifically, Intact sought to add the following sentence to the Release[2]:
In turn, the Attorney General of Canada, acting on behalf of Wells and DFO (collectively, the “Defendants”), brought an application for summary trial. The Defendants’ application stated that the Plaintiff’s action should be dismissed on the ground that the Release discharged the Defendants from all liability and therefore there was no genuine issue for trial.
THE DOCTRINE OF MISTAKE
Rectification is an equitable remedy used to correct mistakes in legal documents so that they reflect the intentions of the parties. It is available when parties to a contract make either a mutual mistake or a unilateral mistake. In this case, Intact asserted that they made a unilateral mistake. The burden was therefore on Intact to establish the Release was only meant to cover the claim for property damage.
The Court cited the Supreme Court of Canada’s decision in (Canada (Attorney General) v Fairmont Hotels Inc, 2016 SCC 56 [“Fairmont”], and the following six-part test for rectification based on unilateral mistake[3]:
As to the first part of the test, the Court agreed with Intact that settlement discussions between Intact and DFO regarding payment for the vehicle repairs in exchange for a standard release was the antecedent agreement. This, however, is not the end of the analysis.
The Court stated that the Fairmont analysis required a determination of the meaning of the terms of the antecedent agreement. To do so, the words of the antecedent agreement had to be analyzed in consideration of the factual matrix. The Court cited the following facts in its analysis[4]:
Was the agreement still effective when the legal document was signed?
The Court noted that there was no evidence of any further discussions between Intact and DFO after the antecedent agreement was formed but before the Release was signed. Accordingly, the Court held that the antecedent agreement was still effective at the time the Release was executed by Intact.
Did the document fail to record accurately the prior agreement?
The Court recited the language of the Release and held that the Release was not only for property damage claims, but for all claims related to the Accident, including any personal injury claims. Based on its finding that the antecedent agreement was only for the release of the property damage claim, Justice Osborne agreed that the Release failed to accurately reflect the antecedent agreement.
If rectified as proposed, would the document carry out the agreement?
The Court cited the Newfoundland and Labrador Court of Appeal decision of Furneaux v Butler, 2006 NLCA 14, for the notion that rectification is limited to putting into words only what the parties had agreed to. The Court reviewed the language submitted by Intact (as referenced previously) and was satisfied that the proposed language restored the parties to “their original bargain.”[5]
Did the party resisting rectification know or ought to know about the mistake?
With respect to the fifth prong of the Fairmont test, the Court noted that DFO knew it was dealing with an insurance company, and not the Plaintiff himself. There was no evidence that Intact had the authority to settle the Plaintiff’s personal injury claim. Further, the Court noted that because DFO was aware that there was a Section B claim, they should have known that the Plaintiff had a potential injury claim. The Court found that DFO ought to have known that the Release included more than just the release of the property damage claim.
Would permitting the resisting party to take advantage of the mistake amount to fraud, or the equivalent of fraud?
The Court stated that, in the context of equitable relief, “fraud or the equivalent of fraud” does not refer to fraud in the legal sense. Rather, it refers to a situation where the Court is of the view that “it is unconscientious for a party to avail of the advantage obtained.”[6] Having regard to all the facts in this case, Justice Osborne succinctly stated, “[t]o let the Defendants take advantage of this opportunity would be unconscionable.”[7]
CONCLUSION
In all, the Court was satisfied that it was appropriate to rectify the Release based on the doctrine of mistake. Accordingly, the Defendants’ application for summary trial was unsuccessful. However, despite being the victorious party, the Court did not award costs in Intact’s favour, as the applications would have been unnecessary had Intact not made the unilateral mistake. The parties were ordered to bear their own costs.
IS WALSH CONSISTENT WITH BAILEY?
Four years ago, Corner Brook (City) v Bailey, 2021 SCC 29, the Supreme Court of Canada held that a release ought to be interpreted according to general contractual law principles.
By way of background, Mary Bailey (“Bailey”) suffered injuries when she struck pedestrian worker, David Temple (“Temple”), and Temple’s employer’s vehicle. Following which, Bailey sued Temple’s employer (the City of Corner Brook), for damages respecting her injuries and the property damage to her vehicle.
The City of Corner Brook settled Bailey’s claim for personal injuries and property damage for $7,500 in exchange for a full and final release. The release included standard boilerplate language, including that the City of Corner Brook was released from “…all demands and claims of any kind or nature whatsoever arising out of or relating to the accident…”.[8] Subsequently, Temple brought a separate action against Bailey for damages for his injuries. Nearly five years later, Bailey’s insurer filed a defence to Temple’s action and issued a third party notice to the City of Corner Brook, seeking indemnity or contribution. The City of Corner Brook brought an application for summary trial to dispose of the third party claim on the basis that the release barred it. The key issue at all levels of court was whether the broad wording of the release barred the third party claim.
Ultimately, the Supreme Court of Canada reinstated the decision of the applications judge and found that the broad wording of the release captured the third party claim. Unlike Walsh, the doctrine of mistake was not argued, or discussed by the Court. Instead, Justice Malcolm Rowe, speaking for a unanimous Supreme Court, held that a release ought to be interpreted according to general contractual law principles. While the Court affirmed that there is no particular “rule” for interpreting releases, courts must consider “the words used [in a contract] their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.”[9]
Justice Rowe noted the wording of certain releases may suggest that a narrow interpretation is appropriate. The Court commented that in many cases, releases are often worded broadly to catch any and all future claims. Where this is so, the Court stated that a narrow interpretation is more likely to follow. Accordingly, when drafting releases, Justice Rowe provided the following topical guidance[10]:
KEY TAKEAWAY
BACKGROUND
Glenn Walsh (“Walsh” or the “Plaintiff”), and Terri Wells (“Wells” or the “Second Defendant”), were involved in a motor vehicle accident on 13 June 2017 (the “Accident”). The vehicle operated by Wells was owned by the Federal Department of Fisheries and Oceans (“DFO”).
The Plaintiff had an automobile insurance policy with Intact Insurance Company (“Intact”). Under the automobile policy, He had no fault benefits coverage (Section B) and no-fault coverage for repair of Walsh’s vehicle (Section C). As a result of the Accident, Walsh sustained personal injuries, and his motor vehicle required over $5,000.00 in repairs. Intact opened a Section B claim and paid the amount of repair costs in accordance with Section C.
Intact pursued its right of subrogation against DFO for its payment of Walsh’s motor vehicle repairs and sent a demand letter to DFO. At around the same time, Intact also notified DFO of its subrogation rights under Section B. Ultimately, DFO agreed to pay the full amount of the subrogated property damage claim in exchange for Intact executing a full and final release.
In January 2018, Intact executed a full and final release (the “Release”) in exchange for the amount claimed. The Release included the following language[1]:
Know all persons by these present that Glenn and Melissa Walsh of 310 Tolt Road, Portugal Cove, NL, A1M 1P2 does hereby remise, release and forever discharge Her Majesty the Queen in Right of Canada and Terri Wells or 12 Legend Drive, Paradise, NL A1L 0x6, from all manners of action, claims or demands, of whatever kind or nature that Glenn and Melissa Walsh ever had, now has or can, shall or may hereafter have by reason of damage to or personal injury, or both, damages of their 2015 Toyota Tundra Platinum Truck as a result of or in any way arising out of the Motor Vehicle Accident that occurred on June 13, 2017 at approximately 1330 hrs, in front of PJs Convenience Store in St. Philip’s NL. (sic)
In effect, Wells and DFO were released from any and all claims by the Plaintiff, including claims for personal injury. The Plaintiff, oblivious that Intact signed the Release on his behalf, issued a Statement of Claim against Wells and DFO in June 2019, seeking damages for personal injury. The Statement of Claim was served on Wells and DFO in April 2020.
In an effort to remedy its error, Intact brought an application seeking to have the Release rectified based on the doctrine of mistake. Specifically, Intact sought to add the following sentence to the Release[2]:
For greater certainty, Glenn and Melissa Walsh are not releasing any bodily injury claims or claims for personal injuries, including but not limited to claims for general damages (pecuniary or non-pecuniary), special damages, loss of income and so forth, arising from the above noted motor vehicle accident.
In turn, the Attorney General of Canada, acting on behalf of Wells and DFO (collectively, the “Defendants”), brought an application for summary trial. The Defendants’ application stated that the Plaintiff’s action should be dismissed on the ground that the Release discharged the Defendants from all liability and therefore there was no genuine issue for trial.
THE DOCTRINE OF MISTAKE
Rectification is an equitable remedy used to correct mistakes in legal documents so that they reflect the intentions of the parties. It is available when parties to a contract make either a mutual mistake or a unilateral mistake. In this case, Intact asserted that they made a unilateral mistake. The burden was therefore on Intact to establish the Release was only meant to cover the claim for property damage.
The Court cited the Supreme Court of Canada’s decision in (Canada (Attorney General) v Fairmont Hotels Inc, 2016 SCC 56 [“Fairmont”], and the following six-part test for rectification based on unilateral mistake[3]:
- there was a prior agreement with definite and ascertainable terms;
- the agreement was still effective when the legal document was signed;
- the document fails to record accurately the prior agreement;
- if rectified as proposed, the document would carry out the agreement;
- the party resisting rectification knew or ought to have known about the mistake; and,
- permitting the resisting party to take advantage of the mistake would amount to fraud, or the equivalent of fraud.
As to the first part of the test, the Court agreed with Intact that settlement discussions between Intact and DFO regarding payment for the vehicle repairs in exchange for a standard release was the antecedent agreement. This, however, is not the end of the analysis.
The Court stated that the Fairmont analysis required a determination of the meaning of the terms of the antecedent agreement. To do so, the words of the antecedent agreement had to be analyzed in consideration of the factual matrix. The Court cited the following facts in its analysis[4]:
- The demand made by Intact was handled by the Regional Fleet Manager at DFO. This individual only dealt with claims against DFO for amounts less than $25,000, and if there was no personal injury. Claims that involve personal injury had to be referred to DFO’s legal department. There was no such referral in this case.
- The payment requisition requesting funds indicated that the Plaintiff did not suffer any injury and that the payment was for vehicle repairs only.
- Intact had advised DFO that it had subrogated rights for property damage, and the Intact employee who handled the claim worked in the Section C subrogation unit.
- Intact did not hold itself as representing the Plaintiff’s personal injury claim.
- The Release used was DFO’s standard form release.
Was the agreement still effective when the legal document was signed?
The Court noted that there was no evidence of any further discussions between Intact and DFO after the antecedent agreement was formed but before the Release was signed. Accordingly, the Court held that the antecedent agreement was still effective at the time the Release was executed by Intact.
Did the document fail to record accurately the prior agreement?
The Court recited the language of the Release and held that the Release was not only for property damage claims, but for all claims related to the Accident, including any personal injury claims. Based on its finding that the antecedent agreement was only for the release of the property damage claim, Justice Osborne agreed that the Release failed to accurately reflect the antecedent agreement.
If rectified as proposed, would the document carry out the agreement?
The Court cited the Newfoundland and Labrador Court of Appeal decision of Furneaux v Butler, 2006 NLCA 14, for the notion that rectification is limited to putting into words only what the parties had agreed to. The Court reviewed the language submitted by Intact (as referenced previously) and was satisfied that the proposed language restored the parties to “their original bargain.”[5]
Did the party resisting rectification know or ought to know about the mistake?
With respect to the fifth prong of the Fairmont test, the Court noted that DFO knew it was dealing with an insurance company, and not the Plaintiff himself. There was no evidence that Intact had the authority to settle the Plaintiff’s personal injury claim. Further, the Court noted that because DFO was aware that there was a Section B claim, they should have known that the Plaintiff had a potential injury claim. The Court found that DFO ought to have known that the Release included more than just the release of the property damage claim.
Would permitting the resisting party to take advantage of the mistake amount to fraud, or the equivalent of fraud?
The Court stated that, in the context of equitable relief, “fraud or the equivalent of fraud” does not refer to fraud in the legal sense. Rather, it refers to a situation where the Court is of the view that “it is unconscientious for a party to avail of the advantage obtained.”[6] Having regard to all the facts in this case, Justice Osborne succinctly stated, “[t]o let the Defendants take advantage of this opportunity would be unconscionable.”[7]
CONCLUSION
In all, the Court was satisfied that it was appropriate to rectify the Release based on the doctrine of mistake. Accordingly, the Defendants’ application for summary trial was unsuccessful. However, despite being the victorious party, the Court did not award costs in Intact’s favour, as the applications would have been unnecessary had Intact not made the unilateral mistake. The parties were ordered to bear their own costs.
IS WALSH CONSISTENT WITH BAILEY?
Four years ago, Corner Brook (City) v Bailey, 2021 SCC 29, the Supreme Court of Canada held that a release ought to be interpreted according to general contractual law principles.
By way of background, Mary Bailey (“Bailey”) suffered injuries when she struck pedestrian worker, David Temple (“Temple”), and Temple’s employer’s vehicle. Following which, Bailey sued Temple’s employer (the City of Corner Brook), for damages respecting her injuries and the property damage to her vehicle.
The City of Corner Brook settled Bailey’s claim for personal injuries and property damage for $7,500 in exchange for a full and final release. The release included standard boilerplate language, including that the City of Corner Brook was released from “…all demands and claims of any kind or nature whatsoever arising out of or relating to the accident…”.[8] Subsequently, Temple brought a separate action against Bailey for damages for his injuries. Nearly five years later, Bailey’s insurer filed a defence to Temple’s action and issued a third party notice to the City of Corner Brook, seeking indemnity or contribution. The City of Corner Brook brought an application for summary trial to dispose of the third party claim on the basis that the release barred it. The key issue at all levels of court was whether the broad wording of the release barred the third party claim.
Ultimately, the Supreme Court of Canada reinstated the decision of the applications judge and found that the broad wording of the release captured the third party claim. Unlike Walsh, the doctrine of mistake was not argued, or discussed by the Court. Instead, Justice Malcolm Rowe, speaking for a unanimous Supreme Court, held that a release ought to be interpreted according to general contractual law principles. While the Court affirmed that there is no particular “rule” for interpreting releases, courts must consider “the words used [in a contract] their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.”[9]
Justice Rowe noted the wording of certain releases may suggest that a narrow interpretation is appropriate. The Court commented that in many cases, releases are often worded broadly to catch any and all future claims. Where this is so, the Court stated that a narrow interpretation is more likely to follow. Accordingly, when drafting releases, Justice Rowe provided the following topical guidance[10]:
…the drafter of a release might consider wording that makes clear whether the release will cover unknown claims and whether the claims must be related to a particular area or subject matter. This is a sensible approach. I would add that releases that are narrowed to a particular time frame or subject matter are less likely to give rise to tension between the words and what the surrounding circumstances indicate the parties objectively intended.
KEY TAKEAWAY
Although certain cases may require a broad full and final release, capturing all unknown or future claims, other cases may not be as clear cut. This is especially so in cases where there are there are multiple interested parties (i.e., an insurer and an insurer) or different policy provisions at play. While mistakes happen, both parties should thoroughly review the full and final release prior to execution to ensure that the language accurately reflects the claim, the terms of the settlement and the mutual understanding of the parties.
[1] Walsh v Canada (Attorney General), 2024 NLSC 176, at para 43.
[2] Ibid, at para 46.
[3] Ibid, at para 17.
[4] Ibid, at para 33.
[5] Ibid, at para 48.
[6] Ibid, at para 54.
[7] Ibid, at para 57.
[8] Corner Brook (City) v Bailey, 2021 SCC 29 at para 7.
[9] Ibid, at para 20.
[10] Ibid, at para 41.
The opinions expressed in this report are those of the author(s) and should not be taken as legal advice. Any errors, omissions or inaccuracies are the responsibility of the author(s). Content in Hearsay is edited for spelling, grammar and basic punctuation only.