Williams Moving – B.C. Court of Appeal chooses to itself correct the bankruptcy proposal which CRA had misinterpreted

A drafting error (involving an inappropriate duplication of text) in the proposal which was approved by the creditors of an insolvent company (Williams Moving) and by the B.C. Supreme Court resulted in CRA subsequently concluding that debts owing by Williams Moving to related companies had been forgiven pursuant to the proposal, so that it reassessed to apply s. 80 to Williams Moving. Following the reassessment, Williams Moving applied for a judicial order to correct the error.

Wilcock JA, after referring to authorities on the interpretation of “patently inconsistent provision in a contract,” concluded that “the most common‑sense reading of the Proposal, and that which does the least violence to its words, is to read out the duplicated text so as to resolve the inconsistency in the [relevant] definition” thereby excluding the debts owing to the related companies from the debt forgiveness.

In finding that the chambers judge had not erred in denying rectification of the written terms of the proposal, Wilcock JA noted (at para. 68) the finding in Fairmont that “rectification requires the parties to show an antecedent agreement with respect to the term or terms for which rectification is sought” and stated:

[I]t is difficult to see how it can be said that the creditors would have understood the Proposal to be anything other than what was presented to them. …

There was insufficient evidence of a common understanding amongst the appellant and its creditors on the matter in dispute … .

However, the chamber judge had failed to exercise her discretion under s. 187(5) of the Bankruptcy and Insolvency Act (“BIA”) to vary the court order giving effect to the proposal, even having regard to Rule 92 under the BIA, which provided that “the court may correct any clerical error or omission in it, if the correction does not constitute an alteration in substance.” In finding that it was appropriate on this appeal to now exercise such discretion, Wilcock JA stated:

I am satisfied the duplicated text appeared in the version of the Proposal accepted by creditors as a result of a clerical error which the Court may correct. The correction does not constitute an alteration in substance. It will not prejudice creditors or third parties … [nor] is [it] a collateral attack upon a [CRA] decision that should be challenged elsewhere.

Neal Armstrong. Summary of Williams Moving & Storage (B.C.) Ltd. v. Canada (Minister of National Revenue), 2024 BCCA 160 under General Concepts – Rectification.