Court File and Parties
Court of Appeal for Ontario Date: 2024-09-27 Docket: COA-23-CV-1085
Judges: Miller, Copeland and Dawe JJ.A.
In the Matter of the Bankruptcy of Aiden Pleterski and AP Private Equity Limited, of the Town of Whitby, in the Province of Ontario
Counsel: Kelli Preston, for the appellant 2649360 Ontario Inc. Scott McGrath and Leanne M. Williams, for the respondent Grant Thornton Limited, in its capacity as Trustee in Bankruptcy of the Estates of AP Private Equity Limited and Aiden Pleterski
Heard: September 19, 2024
On appeal from the order of Justice Peter J. Osborne of the Superior Court of Justice, dated September 29, 2023, with reasons reported at 2023 ONSC 5546, 10 C.B.R. (7th) 196.
Reasons for Decision
[1]
Overview
The appellant 2649360 Ontario Inc. appeals from a motion decision granting the respondent Grant Thornton Limited (“Grant Thornton”) relief from forfeiture of a $500,000 real estate purchase deposit.
[2]
Background
In October 2021, Aiden Pleterski – the self-styled “Crypto King” – and Colin Murphy agreed to buy a commercial property on Westney Road in Ajax from the appellant for $5.5 million. The purchasers, who were already leasing part of the property, apparently planned to use it to store their exotic car collection.
3Mr. Pleterski paid a $500,000 deposit. Nearly all of this money came from funds he had obtained from investors, who believed he would be investing their money in cryptocurrency, and who had not authorized him to instead use their funds to buy real estate for himself and Mr. Murphy.
4The transaction was scheduled to close on September 28, 2022. However, before the scheduled closing date some of Mr. Pleterski’s creditors successfully applied to have him and his company, AP Private Equity Limited, declared bankrupt. Grant Thornton was appointed as the Trustee in Bankruptcy for both Mr. Pleterski and his corporation.
5A few weeks before the closing date, Grant Thornton and Mr. Murphy advised the appellant that they would not be completing the transaction. The appellant treated this as an anticipatory breach, and a few months later it sold the Westney Road property to another purchaser for $300,000 more than Mr. Pleterski and Mr. Murphy had agreed to pay for it. However, the appellant maintains that before it resold the property it had to spend money repairing damage done by Mr. Pleterski and Mr. Murphy.
[6]
The Motion Decision
Grant Thornton moved for relief from forfeiture of the $500,000 deposit, pursuant to s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”). The motion judge granted this relief and ordered that the $500,000 deposit being held in trust by the realtor be returned to Grant Thornton, for the benefit of the creditors in the bankruptcy.
7Applying the two-part test approved of in Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, 137 O.R. (3d) 374, at para. 15, the motion judge considered the following two factors:
(1) whether the forfeited deposit was out of all proportion to the damages suffered; and (2) whether it would be unconscionable for the seller to retain the deposit.
He concluded that in the circumstances here, both factors weighed in favour of directing that the full amount of the deposit be returned to Grant Thornton.
8The motion judge summarized the main bases for his conclusion as follows:
[E]ven if the Westney Deposit is paid over to the Trustee, [the appellant] will realize a net profit of $135,500. The investors, on the other hand, will recover de minimus amounts on their investments. Having considered all of the circumstances, I conclude that it would be unconscionable to permit [the appellant] to retain the additional $500,000 of the Westney Deposit.
[9]
Analysis
The appellant appeals. It acknowledges that decisions under s. 98 of the CJA are discretionary and ordinarily command appellate deference: see Redstone, at para. 14. However, the appellant argues that the motion judge made errors that justify our interfering with his exercise of his discretion. The appellant framed its arguments somewhat differently in its factum, but in oral argument counsel distilled her submissions into an argument that the motion judge made two related errors.
[10]
Consideration of Creditors' Interests
First, the appellant argues that it was an error for the motion judge to take the interests of the creditors into account when assessing the equities of the situation, since the creditors were not parties to the purchase and sale agreement.
11We do not agree that the motion judge was obliged to focus his attention as narrowly as the appellant contends. As Lauwers J.A. noted in Redstone, at para. 18, “[t]he analysis of unconscionability requires the court to step back and consider the full commercial context.” In this case, the motion judge was entitled to take into account his findings that “[a]t least 99.8% of the Westney Deposit came from investor funds”, and that Mr. Pleterski had misappropriated this money. He was also entitled to consider that if he granted relief from forfeiture the deposit money would not go back into Mr. Pleterski’s or Mr. Murphy’s pockets, but would instead flow back to Mr. Pleterski’s creditors, who had never meant for their money to be used to purchase the property.
12Conversely, the motion judge found that permitting the appellant to keep the deposit would give it a substantial windfall, since the appellant had already made a sizeable profit by reselling the property to a new buyer at a higher price. The motion judge rejected the appellant’s argument that it had not really profited from the resale, based on its claim that it had originally sold the property to Mr. Pleterski and Mr. Murphy at a reduced price in exchange for a “gentleman’s agreement” that the appellant could continue using part of the property. This supposed agreement was not included in the written contract, and the motion judge found that there was “no evidence upon which I can conclude that there was any additional loss suffered, let alone quantify the value of such a loss.”
13In Redstone, at paras. 19-20, this court adopted the British Columbia Court of Appeal’s analysis of the purpose of deposits in real estate transactions in Tang v. Zhang, 2013 BCCA 52, 359 D.L.R. (4th) 104. As Newbury J.A. noted in Tang at para. 30, the rules governing deposits are “designed to motivate contracting parties to carry through with their bargains.” In the circumstances here this policy rationale had less force than it usually does, since Grant Thornton was not the party who had entered into the bargain in the first place, and since Mr. Pleterski’s investors were the true source of nearly all of the deposit funds, and they had never agreed to have their money used for this purpose.
[14]
Characterization of the Parties and Default
The appellant’s second argument is that the motion judge erred by describing this case as a “dispute … between two innocent parties.” According to the appellant, if the motion judge had focused his attention on Grant Thornton rather than on Mr. Pleterski’s investors, he would not have characterized Grant Thornton as “innocent”, since Grant Thornton had deliberately caused the breach of contract by choosing not to complete the transaction.
15The appellant places particular reliance on Frechette (Re) (1991), 3 O.R. (3d) 664 (Gen. Div.), which at p. 673 quoted approvingly Cotton L.J.’s observation in Howe v. Smith (1884), 27 Ch. D. 89 (C.A.), at p. 96, that a purchaser who has “acted as to repudiate on his part the contract” cannot “take advantage of his own default to recover [a] deposit from the vendor.”
16However, this court has rejected the argument that there is an absolute rule that bars a party who has caused a breach of contract from ever obtaining relief from forfeiture of a deposit. In Naeem v. Bowmanville Lakebreeze West Village Ltd., 2024 ONCA 383, 51 B.L.R. (6th) 199, at para. 7, this court held:
Significantly, Redstone does not make it a precondition for obtaining relief from forfeiture that the party seeking relief demonstrate that they were not to blame for the contractual breach. Although the would-be buyer’s conduct will often be highly relevant to the question of whether it would be unconscionable to permit the vendor to keep the deposit, it is only one factor to be considered.
17In Ching v. Pier 27 Toronto Inc., 2021 ONCA 551, 460 D.L.R. (4th) 678, at para. 78, Pepall J.A. explained that:
[R]elief from forfeiture is an equitable and discretionary remedy. Absent a legal or palpable and overriding error, it is not for this court to substitute its discretion for that of the trial judge.
18In the case at bar, the motion judge correctly instructed himself about the applicable legal principles. He recognized that “[a] finding of unconscionability must be an exceptional one, strongly compelled on the facts of the case”, adding:
It is indeed the rare case when the law that typically applies to deposits ought not to be applied. That is precisely why, in my view, the equitable remedy of relief from forfeiture exists in the first place, and it is also why such equitable relief is granted only sparingly and in rare cases.
19On the facts of this case, as the motion judge found them, he concluded that the equities favoured returning the full amount of the deposit to Grant Thornton, for the benefit of the creditors whose money Mr. Pleterski had misappropriated to pay the deposit. We are not persuaded that the motion judge’s reasons reveal any error of law or palpable and overriding error of fact that would permit us to interfere with his discretionary decision.
[20]
Claim for Property Damage
The appellant also argues that even if the motion judge did not err in granting relief from forfeiture, he should have allowed the appellant to keep some of the deposit funds as compensation for the purchasers’ damage to the property, which they were contractually obliged to “repair and restore” under the agreement of purchase and sale. The motion judge did not give effect to this argument, noting that the appellant would still “realize a net profit of $135,500” even if the full amount of the deposit was returned to Grant Thornton. In our view, this was a discretionary choice he was entitled to make in the circumstances here.
[21]
Disposition
The appeal is accordingly dismissed. Grant Thornton is entitled to its costs of the appeal, which the parties agree should be fixed at $15,000 all inclusive.
“B.W. Miller J.A.” “J. Copeland J.A.” “J. Dawe J.A.”