CITATION: Koutcherenko v. Queensgate Homes Inc., 2013 ONSC 3350

DIVISIONAL COURT FILE NO.: DC-028-0000

DATE: 20130709

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

MATLOW, HARVISON YOUNG & DALEY J.J.

B E T W E E N :

KOSTIANTYN KOUTCHERENKO

Plaintiff (Appellant)

– and –

QUEENSWAY HOMES INC. and QUEENSWAY HOMES (VAUGHAN) INC.

Defendants (Respondents)

H. Albrecht, for the Plaintiff (Appellant)

E.L. Tingley, for the Defendants (Respondents)

Heard at Brampton on March 21, 2013

REASONS FOR JUDGMENT

DALEY, J. (HARVISON YOUNG, Concurring)

A. Introduction:

[1] The appellant, Mr. Koutcherenko, appeals from the trial judgment of Justice Gray of March 16, 2012, and seeks to set aside that judgment which dismissed his action. He further seeks judgment against the respondents, Queensgate Homes Inc. and Queensgate Homes (Vaughan) Inc., in the sum of $35,000.

[2] The underlying action was brought by the appellant, a townhouse purchaser, seeking repayment of monies paid by him to the respondent vendor Queensgate Homes (Vaughan) Inc., in accordance with an agreement of purchase and sale (the “agreement”) entered into by the parties.

[3] In accordance with the agreement, the appellant paid the respondent $35,000 in respect of a total purchase price of $411,900. The appellant did not close the purchase transaction with the respondent, and the townhouse was ultimately sold later to another purchaser.

[4] The appellant put forward several grounds for this appeal in his notice of appeal; however, he only advanced one ground in his submissions. He argued that the trial judge erred in failing to grant the applicant relief from forfeiture by ordering the return of the money paid to the respondent vendor.

[5] For the reasons that follow, the appeal is dismissed.

B. Standard of Review:

[6] This appeal calls for this Court to consider the trial judge’s interpretation of the facts of this case and the application of certain legal tests thereto. As such, this appeal concerns issues of mixed fact and law and the judgment of the trial judge should be maintained absent a palpable and overriding error: Housen v. Nikolaisen, 2002 SCC 33, [2002] S.C.R. 235.

[7] Further, as the appellant’s claim for relief from forfeiture is an equitable and discretionary remedy, the trial judge’s decision to grant or refuse the remedy must not be disturbed unless the appellant can show either an error in the exercise of that discretion, or that the manner in which the discretion was exercised was unreasonable in all the circumstances. See Glimmer Resources Inc. v. Exall Resources Limited, 1999 1102 at para. 29 (Ont. C.A.).

C. Positions of the Parties:

[8] As noted, the only ground of appeal advanced on behalf of the appellant was that the trial judge erred in his consideration of the applicable test for the granting of relief from forfeiture.

[9] Counsel for the appellant submitted that the appellant was entitled to return of the money because:

(1) the appellant acted reasonably;

(2) there was no evidence of the respondent suffering damages as a consequence of the appellant’s failure to close the transaction; and

(3) it would be unreasonable for the respondent to retain monies paid by the appellant.

[10] It was submitted on behalf of the respondent vendor that the money paid by the appellant was a deposit in respect of the agreement, and that in view of the appellant’s default in closing the transaction, the respondent was entitled to retain the deposit amount, regardless of whether or not it had suffered any damages.

D. Analysis:

[11] In accordance with the terms of the agreement between the parties dated November 29, 2007, the appellant paid the sum of $35,000 to the respondent vendor. However, after entering into the agreement and making the payments, he found himself in financial difficulty and was unable to close the purchase of the property.

[12] In accordance with the terms of the agreement, the closing date was extended to July 28, 2009.

[13] Well in advance of the closing date, the appellant informed the respondent that he would not be able to close the transaction and he requested that the respondent release him from the agreement. He also requested that the respondent allow him to assign the agreement to a third-party purchaser.

[14] Although the respondent consented to an assignment of the agreement to any other purchaser who could obtain financing and pay the administrative fee, the appellant did not present any proposed assignee to the respondent prior to the scheduled closing date of July 28, 2009.

[15] On the closing date, the appellant advised the respondent that he had not retained a lawyer and that he was unable to close the transaction.

[16] The trial judge concluded that the sum of $35,000, paid in part upon the execution of the agreement, and in part by post-dated cheques, constituted deposit monies paid under the terms of the agreement.

[17] He further concluded that when the appellant failed to pay the balance of the purchase price on the scheduled closing date, this was a default in accordance with paragraph 20 (a) of the agreement which provided: “Default in payment of any amount payable pursuant to this Agreement on the date or within the time specified, shall constitute substantial default hereunder by the Purchaser, and the Vendor shall have the right to terminate this Agreement and the Purchaser shall forfeit all deposit monies in full.”

[18] The agreement further provided in paragraph 13 that: “The deposit monies are expressly deemed to be deposit monies only and not partial payments.”

[19] As such, the trial judge concluded that unless the appellant prevailed in his claim for relief from forfeiture, the respondent would be entitled to retain the deposit monies. At trial, the appellant also asserted that the respondent should not retain deposit monies as this would give rise to unjust enrichment. This argument was not pursued on the appeal.

[20] As noted by the trial judge, the considerations to be examined when relief of forfeiture is sought are set forth in the decision of the Supreme Court of Canada decision in Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Company, 1994 100 (SCC), [1994] 2 S.C.R. 490 at p. 504. They are: the conduct of the applicant and its reasonableness in the situation, the gravity of the breaches, and the disparity between the value of the property forfeited and the damage caused by the breach.

[21] All three elements of the applicable test set forth in Saskatchewan River Bungalows must be considered and satisfied before granting relief from forfeiture.

[22] In this case, the trial judge determined that the appellant had not acted reasonably. Specifically, he noted that the appellant had stated on a number of occasions that he would not close the transaction. Further, he did not retain a lawyer as called for in the agreement, and although the respondent had indicated that it was open to considering an assignment of the agreement to an alternate third-party purchaser, the appellant did not present one to the respondent prior to the scheduled closing date.

[23] Although the trial judge did not rely on this, it is also notable that the appellant, contrary to the terms of the agreement, advertised the property for sale online prior to the scheduled closing date.

[24] The trial judge did not address the second and third branch of the test as set out in Saskatchewan River Bungalows, and in our view he was not required to do so as he determined that the appellant had failed to satisfy the first branch. As noted by the Court in Saskatchewan River Bungalows at p. 505, failure to satisfy the first branch of the test determines the outcome, and it is unnecessary to consider the second and third branches. We are, in any event, satisfied that the trial judge exercised his discretion reasonably in all the circumstances.

[25] It is common ground that, while the respondent was ready, willing and able to close the transaction on July 28, 2009, the appellant was not.

[26] Although it was asserted on behalf of the appellant that his impecuniosity should form part of the assessment of the first branch in Saskatchewan River Bungalows, this court does not agree.

[27] The commercial reality of the parties’ contractual relationship is such that while the appellant’s impecuniosity is most unfortunate and moral blameworthiness is not a factor to be considered, impecuniosity does not relieve a party of otherwise lawfully enforceable contractual obligations.

[28] Although not referred to by the trial judge, in the decision of Gajasinghe v. Dewar, 2007 37682 (Ont. S.C.J.) Low J., in considering whether a defaulting purchaser had acted reasonably under the first branch in Saskatchewan River Bungalows stated at para. 51:

As to whether the purchaser’s conduct was reasonable in the circumstances, I consider the question to require an examination into whether the purchaser acted in a manner consonant with that of a bona fide purchaser – that is, one who was genuinely willing and desirous of completing the transaction.

[29] In our view, the record fully supports the trial judge’s conclusion that the appellant’s conduct was not reasonable.

[30] The appellant did not conduct himself as a bona fide purchaser. He encountered financial difficulties shortly after entering into the agreement and sought to be released from the contract. Although given the opportunity to present an alternative purchaser as a potential assignee of the contract, prior to the closing date, he failed to do so.

[31] The trial judge found as a fact that the appellant did not tender upon the respondent vendor on any of the four scheduled closing dates nor did he object to the closing dates in May or June, 2009.

[32] In our view, the appellant purchaser did not act reasonably and his conduct was not consistent with that of a bona fide purchaser who was genuinely willing and desirous of closing the transaction.

[33] We are of the view that the trial judge properly considered and weighed the evidence in the context of the applicable law and in concluding that the appellant failed to satisfy the first branch of the applicable test for relief from forfeiture.

[34] We find no palpable and overriding error in the trial judge’s consideration of the evidence or the applicable law.

[35] In the result, for these reasons, the appeal is dismissed.

[36] In the event counsel are unable to agree on the issue of costs, written submissions of no longer than two pages, plus a costs outline shall be filed with the court within 15 days from the release of these reasons.

Daley J.

Harvison Young J.

MATLOW, J. (Dissenting)

My proposed disposition

[37] For the reasons that follow, I respectfully disagree with the disposition of the majority. I would allow the appeal, set aside the judgment in appeal and order a new trial.

The principal issue

[38] The only issue argued by counsel for the plaintiff at the hearing of this appeal was whether the plaintiff should have been granted relief from forfeiture and receive repayment of the entirety of the $35,000 paid by him to the vendor. That issue required the trial judge to examine, initially, the nature of the payments made by the plaintiff and determine whether they constituted a deposit or whether they were payments made on account of the purchase price. If the payments totalling $35,000 were a deposit, it would have been open to the trial judge to grant relief from forfeiture and order that all or a part it be returned to the plaintiff. Otherwise, the plaintiff may have been entitled, in law, to the return of the entire $35,000 subject to the vendor’s right to claim damages for breach of contract. However, as the subject property was resold by the vendor at a higher price than was agreed with the plaintiff, the vendor would not have been able to prove any loss and might well have been obliged to return the entire $35,000.

The trial judge’s decision and reasons

[39] The trial judge decided that the payments did constitute a deposit, giving only the following explanation for his decision:

The Agreement does not make sense if the payments made before closing are not considered a deposit, whatever they are called or not called in para. 2 of the Agreement. That must be so in order to make sense of paras. 6, 13, and 20(a). Thus, the payments are forfeited under para. 20(a) unless the plaintiff succeeds on his arguments of relief from forfeiture or unjust enrichment.

[40] In my view, this explanation reflects numerous palpable and overriding errors of mixed fact and law that are fatal to the judgment in appeal. I will address them below.

The palpable and overriding errors

[41] In determining whether or not the payments were a deposit, it did matter, contrary to what the trial judge stated, what the parties called them or did not call them. As they explicitly referred to the payments as if they were payments on account of the “Purchase Price” rather than as a deposit, the words used by the parties should have been taken into account by the trial judge and might well have been determinative of the issue.

[42] The subject agreement of purchase and sale was made on the vendor’s form of agreement and became legally binding when the plaintiff’s offer was accepted by the s paymentsvendor on November 29, 2007. It provided, in paragraph 2, that the “Purchase Price” of $410,000 was to be paid, by certified cheque, in four instalments as follows:

a) $10,000, to be submitted with the plaintiff’s offer;

b) $10,000, to be submitted with the plaintiff’s offer and post dated on or before February 15, 2008;

c) $15,000, to be submitted with the plaintiff’s offer and post dated on or before May 15, 2008;

d) the balance of the “Purchase Price” to be paid on the closing date.

[43] It is noteworthy that the three required payments totalling $35,000 and the required payment of the balance were all addressed in the same paragraph in which the words, “The Purchase Price”, are set out at the beginning and again near the end. All of the initial three payments and the final payment of the balance were expressly referred to as lpayments on account of “The Purchase Price” without any mention that any of them constituted all or part of any deposit. There certainly can be no serious suggestion that the final payment was also part of a deposit.

[44] As I will explain again below, the word, “deposit” does not appear anywhere in the agreement other than in paragraph 6 which reads as follows:

This Offer shall be irrevocable by the Purchaser until one minute before midnight on December 9, 2007, after which time, if not accepted, this Offer shall be null and void and the deposit returned to the Purchaser without interest.

[45] Nor was there anything in the agreement that described the three payments totalling $35,000 as a deposit. If the vendor had intended that all or part of these payments be a true deposit, it would almost certainly have expressly provided that it would be forfeited in the event of a default by the purchaser. The vendor’s familiarity with such a provision is revealed by my reference to paragraph 20(a) of Schedule “X” in paragraph 47, 48 and 49 below.

[46] Paragraph 6, by its terms, could not have had any affect on the application of the agreement to the issue of whether or not the payments of $35,00 were a deposit. It did not alter the language used in paragraph 2 which described the payments of $35,000 as part of the “Purchase Price”. By its explicit language it was made applicable only to a true deposit that the parties could have provided for but chose not to.

[47] As well, it is noteworthy that paragraph 6 provided that the purchaser would have the right to get his deposit back if the vendor were to fail to accept the purchaser’s offer by one minute before midnight on December 9, 2007. However, as at that moment, the plaintiff had made only the initial payment of $10,000 and that is the total sum to which paragraph 6 could conceivably have applied even if the vendor had not accepted the plaintiff’s offer.

The Phantom Schedule “X”

[48] Inexplicably, the other two paragraphs to which the trial judge referred, paragraphs 13 and 20(a), are nowhere to be found in the basic agreement. It has only six consecutively numbered paragraphs.

[49] However, I have found what I believe are those paragraphs in Schedule “X” which is another document attached to the agreement and I infer that the trial judge must have mistakenly referred to them when he referred to paragraphs 13 and 20(a) in his reasons, believing that they were included in the basic agreement or incorporated by reference. They read as follows:

DEPOSITS

13. The deposit monies are expressly deemed to be deposit monies only and not partial payments.

DEFAULTS

20(a). Default in payment of any amount payable pursuant to this Agreement on the date or within the time specified, shall constitute substantial default hereunder by the Purchaser, and the Vendor shall have the right to terminate this Agreement and the Purchaser shall forfeit all deposit monies in full.

[50] Although the basic agreement incorporated, by reference, eleven different Schedules, Schedule “X” was not one of them. Despite the fact that this new critical finding might well have had a bearing on the disposition of this appeal by the majority, they have chosen not to consider it or even comment on it in their reasons.

[51] As well, I have observed that Schedule “X” is also referred to in paragraphs 19, 26, 27 and 29, of the vendor’s factum as if it had been incorporated by reference, to the basic agreement. I have reviewed the transcript of the trial and the other material before us for some explanation as to how it occurred that both the trial judge and counsel for the vendor happened to refer to provisions that were not part of the agreement and should not been referred to but have been unable to find anything.

My proposed disposition

[52] Having regard to the errors committed by the trial judge, the judgment in appeal cannot meet the standard of review referred to in paragraph 40, above. The trial judge’s finding that the payments of $35,000 constituted a deposit, which was fundamental to his judgment, rested on a severely flawed foundation and cannot be upheld.

[53] Although the plaintiff’s claim was framed as a claim for relief from forfeiture, it might well have been better framed as a claim for the return of the monies paid by him on account of the purchase price of the subject property rather than as a claim for relief against forfeiture a deposit. I alluded to this in paragraph 38, above, where I considered what might have been the proper result of this action.

[54] This is a rare example of a case where, at trial and on appeal, both counsel and the trial judge proceeded on the basis of significant misapprehensions which tainted not only how the plaintiff’s claim and the defence of were presented but, not surprisingly, the judgment that resulted.

[55] Rule 1.04 of the Rules of Civil Procedure provides that the rules “ shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits. In these very unusual circumstances, it is my view that the objective of rule 1.04 has not yet been attained in this case and that it cannot be attained without a new trial.

Costs

[56] I would be inclined to refer the costs of the trial and this appeal to the judge presiding at the new trial. That judge will have an opportunity to canvas matters that have not been addressed but which may be relevant to costs throughout.

Matlow, J.

Released: July 9, 2013

CITATION: Koutcherenko v. Queensgate Homes Inc., 2013 ONSC 3350

DIVISIONAL COURT FILE NO.: DC-028-0000

DATE: 20130709

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

MATLOW, HARVISON YOUNG, DALEY J.J.

B E T W E E N :

KOSTIANTYN KOUTCHERENKO

Plaintiff (Appellant)

– and –

QUEENSWAY HOMES INC. and QUEENSWAY HOMES (VAUGHAN) INC.

Defendants (Respondents)

REASONS FOR JUDGMENT

DALEY, J. (HARVISON YOUNG, Concurring)

RELEASED: July 9, 2013