Court of Appeal for Ontario

Date: August 7, 2019

Docket: C66092 & C66093

Justices: Juriansz, van Rensburg and Paciocco JJ.A.

Between

Henry Jung Plaintiff/Defendant by counterclaim (Respondent)

and

Talon International Inc. Defendant/Plaintiff by counterclaim (Appellant)

And Between

Henry Jung and Long Ocean Holding Ltd. Plaintiffs/Defendants by counterclaim (Respondents)

and

Talon International Inc. Defendant/Plaintiff by counterclaim (Appellant)

Counsel

For the Appellant: Symon Zucker and Nancy J. Tourgis

For the Respondents: Terry Corsianos

Heard: June 19, 2019

On Appeal

On appeal from the judgments of Justice Bernadette Dietrich of the Superior Court of Justice, dated October 5, 2018, with reasons reported at 2018 ONSC 4245.

Endorsement

Juriansz J.A.:

1Talon International Inc. ("Talon") appeals from two summary judgments. The first judgment ordered that the respondents, Henry Jung and Long Ocean Holding Inc., were entitled to the return of deposits paid for two commercial condominium units. The second judgment ordered that Mr. Jung was entitled to the return of the deposit paid for the purchase of a residential condominium unit in the same development. The two summary judgment motions were heard simultaneously on the consent of the parties. On appeal, I deal with them separately as each raise somewhat different issues.

A. The Commercial Units

(1) Facts

2In the summer of 2005, the respondents and Talon entered into two agreements of purchase and sale ("the agreements") for two commercial condominium units in the former Trump International Hotel. The deals were set to close on March 20, 2009. Following delays, the occupancy closing dates were scheduled for February 2012.

3In May 2012, Talon provided the respondents with a revised disclosure statement for the commercial units. The disclosure statement indicated, among other things, the Trump International Hotel would have only 60 stories instead of 70, the commercial units would not have a kitchen, and the Trump International Hotel would not be connected to the PATH (a network of underground walkways in downtown Toronto).

4The respondents considered these to be material changes and delivered notices of rescission on June 1, 2012 under s. 74(7) of the Condominium Act, 1998, S.O. 1998, c. 19 ("the Act"). In response, Talon brought an application under s. 74(8) to invalidate the notices of rescission. MacKinnon J. found the changes were not "material changes" as defined in the Act and declared the notices of rescission void: Talon International Inc. v. Jung, 2013 ONSC 2466. The respondents' appeal to this court was dismissed: 2014 ONCA 137. Their application to the Supreme Court of Canada for leave to appeal was dismissed on July 24, 2014: [2014] S.C.C.A. No. 179.

5After that, Talon affirmed its intention to close the purchases and the parties agreed to a unit transfer date of August 29, 2014. The respondents subsequently objected to the statements of adjustments provided by Talon. Among other things, they objected to the payment of occupancy fees and the calculation of interest owing. In addition, they sought abatements to the purchase price for the changes in the development. For example, they claimed abatements because the units did not have kitchens, as the agreements provided they would. When the statements of adjustments were not amended to their satisfaction, the respondents sued for specific performance with appropriate revisions to the statements of adjustments, and abatements to the purchase price for each commercial unit. In the alternative, the respondents sued for the return of the deposits. Talon counterclaimed for the forfeiture of the deposits, alleging that the respondents had breached the agreements by delivering the notices of rescission and failing to close the transaction.

6The action and counterclaim were stayed on November 1, 2016, when a receiver was appointed after Talon had run into financial difficulty. On March 30, 2017, the Superior Court issued an approval and vesting order, transferring units to Talon's main creditor free and clear of any security interest, excluded contract, adverse interest, and any right or claim of specific performance. The transfer included the commercial units that Talon had agreed to sell to the respondents.

7Naturally, since Talon no longer owned the commercial units, when the receiver was discharged and the stay of the respondents' action expired, the respondents could no longer obtain specific performance. They brought a motion for summary judgment on their alternative claim for the return of their deposits plus interest.

(2) Decision of the Motion Judge

8At the outset of the hearing of the motion, the motion judge granted the respondents leave to amend their statement of claim to make specific reference to s. 19 of the agreements. She determined the amendment did not result in any prejudice to Talon. Section 19 provided:

Termination without Default

19. In the event this Agreement is terminated through no fault of the Purchaser, all deposit monies paid by the Purchaser towards the Purchase Price, together with any interest required by law to be paid, shall be returned to the Purchaser;… [Emphasis added.]

9The motion judge found that summary judgment was appropriate, as she was able to make the necessary findings of fact and apply the law to the facts, and there were no genuine issues requiring a trial.

10First, the motion judge referred to Talon's argument in the motion materials, but not advanced at the hearing of the motion, that the respondents' delivery of the notices of rescission constituted anticipatory breaches of the agreements. She said this argument could not succeed, as the respondents "were simply attempting to exercise their statutory rights pursuant to the [Act]". In any event, after the rescission litigation, Talon did not elect to terminate the agreements, but instead affirmed its intention to complete the transactions.

11Next, the motion judge found that the respondents were entitled to refuse to close the transactions on August 29, 2014. She described Talon's statements of adjustments as "aggressive and overreaching". Talon included occupancy fees without a corresponding credit for rental income, and it calculated interest at a rate and for a period that it "declined to substantiate". She found Talon's defence of its statements of adjustments "cannot be supported", and "the [respondents] acted in good faith in their attempts to negotiate fair and reasonable statements of adjustments with a view to closing the transactions on a timely basis." She concluded the respondents "had no obligation to close in the face of erroneous statements of adjustments" and in refusing to close"were merely exercising their right to insist on fair and appropriate statements of adjustments."

12As the respondents had not breached the agreements, the agreements remained in force when the litigation was stayed by the appointment of a receiver. The motion judge reasoned that the receiver had repudiated the agreements when it sold the units to a third party. She said this sale "evinced the receiver's intention not to be bound by the contracts as it rendered Talon unable to tender the units and close the agreements". She concluded the agreements had been terminated "through no fault of the purchasers", and therefore s. 19 mandated the deposits should be returned to the respondents with interest. She granted summary judgment on that basis.

13In her reasons, the motion judge did not refer to the respondents' demand for abatements of the purchase price of each unit.

(3) Issues

14On appeal, Talon alleges the motion judge erred in three respects regarding the commercial units:

1. The amendment of the statement of claim should not have been granted;
2. The notices of rescission were not delivered within the required time, or alternatively, the notices of rescission were anticipatory breaches of the agreements; and
3. The respondents breached the agreements by failing to close, and in any event, the motion judge should have ordered a trial of issues to determine: the validity of the statements of adjustments, and whether the appellants were entitled to abatements of the purchase price.

(4) Analysis

(a) Amendment of the Statement of Claim

15At the hearing of the appeal, Talon did not advance, but did not abandon, its written argument that the motion judge erred by allowing the respondents to amend their statement of claim to make specific reference to the contractual term on which they relied to recover their deposits.

16This argument has no merit given the motion judge's finding Talon would suffer no prejudice by the amendment: see r. 26 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. As she noted, the relief sought in the action included the recovery of the deposits paid with interest. The amendment merely added a reference to a section of the agreement that provided the deposit would be returned with interest should the agreement of purchase and sale be terminated through no fault of the purchaser.

(b) Notices of Rescission

17In oral argument Talon advanced, but did not press, arguments that the respondents' notices of rescission under s. 74(7) of the Act were not delivered within the required time, and if in time, the notices of rescission constituted anticipatory breaches of the agreements.

18These arguments also have no merit. As the motion judge found, Talon affirmed its intention to complete the transactions and set August 29, 2014 as the closing date. All issues related to the notices of rescission became irrelevant when Talon affirmed it would close the agreements, thereby waiving any alleged anticipatory breaches: Ali v. O-Two Medical Technologies Inc., 2013 ONCA 733, 118 O.R. (3d) 321, at para. 24.

(c) The Respondents' Failure to Close

19Talon's primary position is that the respondents breached the agreements by failing to close the transactions on August 29, 2014. Talon claims this breach resulted in the termination of the agreements, and consequently the agreements were no longer binding on Talon when the receiver subsequently conveyed the units to the third party. In Talon's view, by then the deposits had already been forfeited. The motion judge rejected this argument on the basis that the respondents had no obligation to close in the face of Talon's erroneous statements of adjustments.

20Talon argues the motion judge should have ordered a trial of the issues to determine the validity of the statements of adjustments and the respondents' claim for abatements. Talon points out that the motion judge made no findings with respect to the respondents' claim for abatements and argues, at the very least, that any entitlement to abatements was a genuine issue for trial.

21These arguments cannot succeed. Talon offers no basis on which to disturb the motion judge's finding that the statements of adjustments were "aggressive and overreaching". There was ample support in the record for the motion judge's finding that the statements of adjustments were erroneous. No trial of issues was necessary to determine this. There is no basis to interfere with the motion judge's conclusion that the erroneous statements entitled the respondents to refuse to close the transactions. As the motion judge noted, the respondents' action for specific performance (commenced on the scheduled closing date) was consistent with their willingness to close the transactions on a proper basis. The failure by the respondents to close the transactions on August 29, 2014 did not terminate the agreements.

22As a result, the motion judge did not have to deal with the abatements issue. Her finding that Talon's statements of adjustments were improper gave the respondents sufficient grounds to refuse to close. Whether the respondents would have been entitled to close with abatements, and the amount of any abatements, could not be genuine issues for trial because in the circumstances there was no issue of the agreements closing at all.

23I am not persuaded by Talon's argument that the motion judge was obliged to decide, or order a trial of issue to determine, what the results of the moot issues might have been. The act of the receiver conveying the units to a third party made it impossible to close the transactions on any basis and made the abatements issue moot.

(5) Conclusion

24The motion judge's finding that the agreements were terminated as a consequence of the receivership, and not through any fault of the respondents, was amply supported by the record. There is no basis for interfering with that finding. I would therefore dismiss the appeal from her judgment ordering the return of the deposits with interest for the commercial units.

B. The Residential Unit

(1) Facts

25Mr. Jung purchased the residential unit by agreement of purchase and sale ("the agreement") dated November 20, 2006, and took interim occupancy in July 2012.

26On December 20, 2012, Talon set a unit transfer date of February 7, 2013. On February 5, 2013, Mr. Jung claimed the agreement was not binding because Talon had failed to deliver a current disclosure statement. In the alternative, he provided a notice of rescission pursuant to s. 74(7) because there were material changes that Talon had failed to disclose. The material changes alleged were the same ones he had raised in regard to the commercial units, including the height of the building and the lack of connection to the PATH. Talon responded by bringing an application under s. 74(8) for a determination of whether the changes were material.

27Mr. Jung then issued and served a statement of claim, alleging he was entitled to rescind the agreement and have his deposit returned because of the material changes. Mr. Jung did not claim specific performance in the residential unit action. Talon defended and counterclaimed, alleging that Mr. Jung breached the agreement and forfeited the deposit.

28Essentially, this was the state of affairs when litigation was stayed by the appointment of the receiver on November 1, 2016. The receiver conveyed the residential unit to Talon's main creditor, as he had the commercial units. When the stay of proceedings expired, Mr. Jung moved for summary judgment for the return of his deposit plus interest.

(2) The Decision of the Motion Judge

29The motion judge explained that "[o]n February 5, 2013 Mr. Jung sent Talon a notice of rescission demanding a current disclosure statement and seeking the return of his deposit based on material changes in the disclosure." She found that "Talon did not deliver a current disclosure statement to Mr. Jung", but rather "responded by initiating an application seeking a declaration that the notice of rescission was void." She reasoned that:

Mr. Jung had no obligation to close the sale of the residential unit while he was asserting his right of rescission under the [Act]. The assertion of a right of rescission does not amount to a breach of contract.

30The motion judge found that Mr. Jung's position that Talon had failed to provide a "current disclosure statement" as required by the Act was reasonable and taken in good faith. She said:

He could not have known with certainty the extent of the material change because he had not been provided with a current disclosure statement despite his request for one and his legal entitlement to it. Based on the disclosure given to him regarding the commercial units, he would have known that there were some changes in the disclosure (e.g., the change in the height of the Trump Tower and the fact it would not be connected to the PATH). He would not have known whether there were additional changes in the disclosure relating to the residential unit that could be material.

31She noted that at the time Mr. Jung took this position and delivered the notice of rescission, his appeals from MacKinnon J.'s decision (which found that the changes were not material to the commercial unit transactions) had not yet been exhausted.

32In the motion judge's view, the agreement continued to exist while the litigation remained unresolved. The agreement was then terminated through no fault of Mr. Jung. She found:

The agreement for purchase and sale of the residential unit was repudiated when the receiver sold the unit to a third-party creditor. Mr. Jung accepted the repudiation when he moved for partial summary judgment of his claim and sought the return of the deposit. The agreement was thereby terminated.

33The motion judge granted summary judgment. She did so on the basis of s. 20 of the agreement which, like s. 19 in the commercial unit agreements, stated the deposit would be returned with interest should the agreement be terminated "through no fault of the [p]urchaser".

(3) Issues

34On appeal, Talon advances a number of grounds on which it submits the appeal should be allowed, some of which are identical to those raised in the appeal of the commercial units:

1. The amendment of the statement of claim should not have been granted;
2. The notice of rescission was not delivered within the required time, or alternatively, the notice of rescission was an anticipatory breach of the agreement;
3. Mr. Jung's claim was res judicata, as MacKinnon J. already determined the changes at issue were not material; and
4. Mr. Jung breached the agreement by failing to close and commencing an action in which he did not seek specific performance.

35Before explaining why none of Talon's arguments have merit, I dispose of a new argument Mr. Jung advanced on appeal: namely, the agreement was never binding on him as provided by s. 72(2) of the Act, because Talon never delivered a copy of the current disclosure statement.

(4) Analysis

(a) Current Disclosure Statement

36Mr. Jung advanced a new argument on appeal based on the motion judge's finding that Talon failed to deliver a "current disclosure statement relating to the residential unit." The legal consequence of this factual finding, he submits, is that that the agreement was never binding on him. Section 72(2) provides:

An agreement of purchase and sale of a unit or a proposed unit entered into by a declarant is not binding on the purchaser until the declarant has delivered to the purchaser a copy of the current disclosure statement. [Emphasis added.]

37I am not persuaded the matter is that simple. While the motion judge did indeed find Talon had not delivered a "current disclosure statement", her finding when read in the full context of her reasons suggests she meant that Talon had not provided a "revised disclosure statement" under s. 74. Her analysis is consistent with the framework of s. 74, not s. 72. Section 74(1) requires the declarant to deliver to the purchaser a notice or "revised disclosure statement" clearly identifying and summarizing the changes that may be material changes. As the motion judge stated:

When Talon provided the new disclosure statement to Mr. Jung and his company for each of the commercial units, it did not provide Mr. Jung with a current disclosure statement relating to the residential unit. [Emphasis added.]

38This sentence suggests the motion judge meant that Talon did not provide Mr. Jung with a "new" (i.e. the revised) disclosure statement for the residential unit at the time it provided one in regard to the commercial units.

39It is telling that, Mr. Jung, in para. 16 of his affidavit, which he asserts is the evidentiary support for the motion judge's finding, says "Talon failed to provide a new disclosure statement in regards to the residential suite" (emphasis added).

40I am satisfied the motion judge's finding Talon did not provide a "current disclosure statement" meant that Talon did not provide a "revised disclosure statement" to advise the purchaser of what might be material changes as required by s. 74.

41I do not accept that s. 72(2) rendered the agreement not binding on Mr. Jung.

(b) Amendment of the Statement of Claim

42For the reasons given in regard to the commercial units, the motion judge made no error in permitting Mr. Jung to amend his statement of claim to make specific reference to the contractual term that provided the deposit would be returned with interest should the agreement of purchase and sale be terminated through no fault of the purchaser.

(c) Notice of Rescission and Repudiation

43Before proceeding with the analysis of Talon's argument that the notice of statutory rescission repudiated the agreement, it is useful to review the framework of s. 74, and its role in the Act.

44It is well-established that an important purpose of the Act is consumer protection: see Harvey v. Talon International Inc., 2017 ONCA 267, 137 O.R. (3d) 184, at para. 62. Section 74, in particular, provides a statutory scheme to protect the purchaser when there are material changes to a condominium development after the purchaser was first provided with a disclosure statement as required by s. 72. As noted, s. 74(1) requires the declarant to deliver to the purchaser a notice or revised disclosure statement clearly identifying and summarizing the changes. If the changes in the revised disclosure statement are material changes, or if there is a material change that the declarant does not disclose, s. 74(6) gives the purchaser the right to rescind the agreement by delivering a notice under s. 74(7). Either the purchaser under s. 74(5), or the declarant under s. 74(8), may make an application to the Superior Court for a determination whether the changes constitute material changes. Sections 74(9) and (10) require that the declarant refund the purchaser's money with interest within ten days of receipt of the notice of rescission if no application has been made, or if an application has been made, within ten days of a determination that the changes are material.

45The motion judge was correct to summarily reject Talon's argument that Mr. Jung's notice of rescission under s. 74(7) constituted a repudiation of the contract. The effect of notice of rescission under s. 74(7) must be understood within the entire framework of s. 74 and its purpose of consumer protection. The framework: (1) places a duty on the declarant to disclose material changes to the information in the disclosure statement first presented to the purchaser, (2) provides a means of determining whether changes to the development are "material" within the meaning of the Act, and (3) entitles the purchaser to rescind the agreement if there are material changes. The notice of rescission under s. 74(7) is subject to the court confirming or invalidating the notice of rescission. The delivery of a notice of rescission is the exercise of a statutory right, not a contractual or equitable right.

46In any event, the argument does not assist Talon. If the purchaser's notice of rescission under s. 74(7) is regarded as a repudiation of the contract, then the declarant's application to the court under s. 74(8) would be an affirmation of the contract. In its application under s. 74(8), Talon requested the court to find the notice of rescission was void.

(d) Notice of Rescission and Timeliness

47Talon submits that Mr. Jung's notice of rescission was not delivered within the statutorily required ten days. Talon says there are two bases for this finding.

48First, Talon submits that in its counsel's letter dated December 20, 2012, in which it set a unit transfer date of February 7, 2013, it provided to Mr. Jung's counsel "the information to access all of the closing documents". This, Talon, argues satisfied its obligation under s. 74(1) to provide a revised disclosure statement and started the running of the ten-day period for the purchaser to deliver a notice of rescission. Talon points out that Mr. Jung's notice of rescission was delivered on February 5, 2013, more than ten days after its December 20, 2012 letter.

49This argument amounts to an attack on the motion judge's finding that Talon did not provide to Mr. Jung a "revised" disclosure statement as required s. 74(1). The argument fails because providing information on how to access the closing documents does not satisfy s. 74(1)'s requirement that revised disclosure be provided "under this section". T.A. Heeney R.S.J. explained in Ram v. Talon International Inc., 2015 ONSC 5660, aff'd 2016 ONCA 807, why disclosure under s. 74(1) must clearly and specifically bring home to the purchaser that s. 74 is being engaged. He said at para. 226:

Since the giving of a notice "under this section" triggers certain specified statutory rights on the part of the purchaser, to which attach certain specified time limits during which those rights must be exercised, it seems to me to be essential that the notice bring home to the purchaser that s. 74 of the Act is thereby being engaged. Words such as "this notice is being delivered to you pursuant to s. 74 of the [Act]" would be necessary and sufficient to put the purchaser on notice that the time limit for exercising his or her rights under s. 74 has now begun to run.

50There is no basis for revisiting the motion judge's finding Talon failed to provide a "revised" disclosure statement. The ten-day period to deliver a notice of rescission did not begin running when Talon provided Mr. Jung's counsel "the information to access all of the closing documents".

51Second, Talon submits that Mr. Jung learned of all the material changes when he received the revised disclosure statement regarding the commercial units, and that he did not deliver the notice of rescission until well after ten days later.

52This may be so, but s. 74(6) requires that the notice of rescission be delivered "within 10 days of the latest of ": (1) receipt of the revised disclosure statement if one is provided, (2) the date when the purchaser became aware of the material change, or (3) the date on which the Superior Court determines whether the change is a material change. Here, Talon's application to the Superior Court to determine whether the changes were material has never been determined. Therefore, the notice of rescission cannot be out of time.

(e) MacKinnon J.'s Decision

53Talon claims that the motion judge ought to have applied the principle of res judicata to Mr. Jung's claim. Talon points out the alleged material changes are in fact the same changes that MacKinnon J. found not to be material in the commercial unit transactions.

54This argument also rests on a faulty premise. MacKinnon J.'s decision turned on expert evidence that the changes did not affect the investment value of the commercial units, and there would be no reduction in the income the purchasers might have expected to receive from the commercial units. Quite different considerations would apply in determining whether a change is material to a residential unit. For example, whether a building has direct access to the PATH may be material to a person who is resident in the building throughout the winter.

55Mr. Jung's claim that there were material changes entitling him to rescind the agreement is not barred by the principle of res judicata. The motion judge found that Mr. Jung brought this claim in good faith and on an objectively reasonable basis. His claim – and Talon's s. 74(8) application – remained outstanding at the time of receivership.

(f) Failure to Seek Specific Performance

56Talon's principal argument is that Mr. Jung breached the agreement by failing to close and commencing an action in which he did not seek specific performance. Talon submits the failure to seek specific performance is the crucial difference in the two actions: by not seeking specific performance, Mr. Jung did not affirm his intention to complete the transaction as he had in regard to the commercial units.

57However, the fact that the Superior Court has not yet determined Talon's s. 74(8) application undermines Talon's main argument. That Talon's s. 74(8) application remained outstanding means the agreement could not be considered terminated. In determining that application, the court might have invalidated Mr. Jung's notice of rescission leaving him with the obligation to close the transaction, or it might have confirmed his right to rescind the agreement. But the application was stayed by the appointment of the receiver before proceedings reached that stage of finality. When the stay expired, Talon's s. 74(8) application and the validity of Jung's notice of rescission had become moot because the receiver had conveyed the residential unit to the third-party creditor. The motion judge properly concluded the agreement was still in force up until the time at which the receiver conveyed the residential unit to the third party.

58I stated in regard to Talon's argument about the commercial units, the motion judge was not obliged to decide, or order a trial of issue to determine, what the results of the moot issues might have been. Once the receiver had completed the transfer of the residential unit, the agreement was terminated through no fault of Mr. Jung. On the basis of s. 20 of the agreement, Mr. Jung was entitled to the return of the deposit plus interest.

(5) Conclusion

59The motion judge's finding that the agreement was terminated as a consequence of the receivership, and not through any fault of Mr. Jung, was amply supported by the record. There is no basis for interfering with that finding. I would therefore dismiss the appeal from her judgment ordering the return of the deposit plus interest for the residential unit.

C. Costs

60As agreed by the parties, costs are awarded to the respondents in the amount of $10,000 inclusive of disbursements and applicable taxes.