CITATION: Yeung v. Chan, 2017 ONSC 3138
DIVISIONAL COURT FILE NO.: DC-14-750
DATE: 20170519
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
Tammy Mei Kwai Yeung and Chi Kin Ho
Plaintiffs/Respondents
– and –
Yin Canny Chan
Defendant/Appellant
Howard A. Wright for the Plaintiffs, Respondents
James H. Chow for the Defendant/Appellant
HEARD at Newmarket: May 16, 2017
REASONS FOR DECISION ON APPEAL
BOSWELL J.
OVERVIEW
[1] The defendant/appellant appeals the judgment of Deputy Judge A. Fisher of the Richmond Hill Small Claims Court dated November 25, 2014.
[2] The underlying action arose out of a failed real estate transaction involving a condominium unit in downtown Toronto. The appellant was the vendor of the unit and the respondents were the purchasers. The trial judge found that the respondents breached the agreement to acquire the unit, but concluded that the appellant’s damages were limited by a mutual release purportedly executed by the parties after the scheduled closing date.
[3] The appellant argues that the trial judge erred in concluding that the parties had entered into a valid and enforceable release. She agrees with his conclusion that the respondents breached the agreement but argues that she is entitled to her full expectation damages up to the $25,000 jurisdictional limit of the Small Claims Court.
[4] The following reasons explain why I agree that no enforceable release was ever concluded and what damages I calculate as owing to the appellant in the result.
THE FACTS
The Agreement
[5] The appellant was a party to a binding agreement to purchase a residential unit at a newly constructed condominium building at the corner of Bay and Front Streets in Toronto. The purchase price was $456,900. The closing date was scheduled for January 6, 2012.
[6] Before the scheduled closing date, the appellant decided to flip the property. On November 24, 2011 the respondents agreed with the appellant to assume her right to purchase the unit (the “assignment agreement”). The respondents agreed to pay $490,000 for the unit, in accordance with the terms of the assignment. The appellant accordingly expected to realize a quick profit of $33,100. The respondents paid a deposit of $15,000 towards the acquisition of the unit. The deposit was held by the appellant’s solicitor.
[7] How the assignment agreement fell apart is not particularly germane to the appeal. Suffice it to say that the respondents failed to complete the transaction. The trial judge concluded that the respondents breached the assignment agreement and no challenge is made in relation to that conclusion.
[8] The appellant was obliged to complete the purchase transaction on her own account and became the registered owner of the unit.
The Mutual Release
[9] Someone drafted a mutual release after the aborted closing. It purports to be an agreement about how the respondents’ $15,000 deposit is to be divided and it includes a clause that the realtor will abandon any claim for commissions on the failed deal. For such a critically important document, there was surprisingly little detail about it adduced in evidence at the trial.
[10] The evidentiary record leaves a great many questions unanswered in relation to the release. For instance:
(a) It is not clear who drafted it;
(b) While it is agreed that the appellant and the respondents signed the release at different times, there was no evidence adduced as to the circumstances surrounding the execution of the document by any of them. The realtor never signed it;
(c) On its face, the release indicated that it was irrevocable by the respondents until 5:00 p.m. on January 27, 2012, after which time it would become null and void. Presumably this means if it was not accepted prior to that time, it became null and void. The face of the document has been amended, however, to provide that it is irrevocable by the appellant until 5:00 p.m. on January 31, 2012, after which it would become null and void. There is no evidence as to who made these amendments, when, or why;
(d) It would appear that the release was initially sent from the respondents’ lawyer, Henry Hui, to the appellant’s lawyer, Chak Wong, on February 6, 2012. There is no evidence as to why it was sent on that date, apparently a week (more or less) after it was already null and void according to its terms. Ms. Yeung testified that Mr. Hui sent a cover letter dated February 6, 2012 to Mr. Wong which said the release was open for acceptance until 3:00 p.m. that date. A copy of Mr. Hui’s letter was not filed in evidence, nor were any questions put to the respondents about their intentions in terms of when the release might be validly accepted;
(e) The release initially provided that the $15,000 deposit would be disbursed as follows: $10,000 would be returned to the respondents and $5,000 would be paid to the appellant. The allocations are scratched out and the reverse handwritten over them. In other words, the appellant was to get $10,000 and the respondents $5,000. There was no evidence as to who made that change, when, or why;
(f) On its face, the appellant appears to have executed the release on May 2, 2012. What she was doing with it in the interim and the circumstances surrounding her execution of it remain unclear. There is no evidence that the signed release was ever conveyed back to the respondents’ counsel.
[11] On July 12, 2012, the respondents’ counsel, Mr. Hui, wrote to Mr. Wong and asked him to return the release “sent under our April 10 cover”. Mr. Hui went on to say that the respondents’ “proposal for settlement is hereby withdrawn forthwith”. I have not seen a copy of the April 10 letter and have no idea what it said. It was not entered into evidence at trial.
[12] The respondents hired new counsel, Ms. Marina Li, sometime after July 12, 2012. On October 16, 2012 the appellant’s counsel, Mr. Wong, wrote to Ms. Li. I will set out the essential content of his letter because its contents were a crucial part of the trial judge’s reasoning:
We have spoken with our client and they disagree with the (sic) your client’s assertions. Our client and your client signed a mutual release which our client had signed on May 2, 2012. Your client’s previous solicitor had tried to withdraw the mutual release on July 12, 2012 but the release had already been signed by our respective clients and our client’s position is that the release is binding between our mutual clients.
Our client had been waiting for the agent to sign the mutual release and our client had already forwarded the mutual release to the agent and the broker to sign such release. As the agent’s signature was not forthcoming, our client had made a complaint to RECO with respect to the agent’s action and our client is awaiting a decision from RECO. If RECO decides that that (sic) there should not be any payment to the agent due to the fact that the transaction did not proceed, then our client can settle this matter with your client based upon the release executed between our respective clients of May 2, 2012.
Please be advised that our client will counterclaim against your client if your client decides to issue a statement of claim for your client’s breach of the assignment agreement.
The Pleadings
[13] The respondents commenced a claim in the Richmond Hill Small Claims Court on October 17, 2012 seeking a return of the $15,000 deposit. The appellant filed a defence, undated, which described the release and provided, at para. 8:
On July 12, 2012, the Plaintiff’s lawyer had sent a letter to withdraw the mutual release sign (sic). However since both the Plaintiff and the Defendant had signed the mutual release then this was a binding agreement between the Plaintiff and the Defendant and can not be withdrawn.
[14] The respondents filed an answer to the defence (in effect a reply) on January 28, 2013. At para. 4 of the answer, they alleged that “the mutual release is not a binding document as it is not fully executed.”
[15] On December 3, 2012, the appellant commenced a Defendant’s Claim seeking damages of $25,000 for breach of the assignment agreement. The mutual release was not mentioned in the pleading.
[16] On January 7, 2013, the respondents filed a Defence to the Defendant’s Claim. Again, the release was not mentioned in the pleading.
The Trial Judge’s Findings
[17] The trial judge’s decision was rendered orally. At the outset, he found that the respondents were in breach of the terms of the assignment agreement. Again, neither side challenges that finding.
[18] The trial judge went on to find that the release was duly executed by the appellant and the respondents. While he observed that it had not been executed by the realtor, he found that the realtor did not need to sign the release because it dealt with the rights of the buyer and seller. He appeared to be influenced in his conclusion by the fact that the realtor had never commenced a claim for any commission in the more than two years that had passed since the deal fell apart.
[19] In view of the content of Mr. Wong’s letter of October 16, 2012, as well as the appellant’s pleadings, the trial judge found that the appellant was estopped from asserting that the release was not binding. He also relied on the evidence of Stanley Lum – the appellant’s spouse – that his intent with respect to the release was to reach a settlement. The appellant did not testify at trial. Mr. Lum was not a party to the transaction or the release so his intention was not relevant.
[20] Ultimately, and in accordance with the terms of the release, the trial judge awarded $5,000 in damages to the respondents, to be paid from the $15,000 deposit, plus $2,500 in costs. The balance of the deposit, $7,500, was to be paid to the appellant.
THE ISSUES
[21] The appellant raises the following grounds of appeal:
(a) The trial judge erred in concluding that the release was binding when it was not accepted by the appellant in the time set out in counsel’s letter and it was never signed by the realtor;
(b) The trial judge erred in admitting into evidence Mr. Wong’s letter dated October 16, 2012, which should have been excluded because it was protected by settlement privilege;
(c) The trial judge erred in finding that the appellant was estopped from asserting that the release was not binding; and,
(d) The trial judge erred in not awarding the appellant $25,000 in damages.
THE PARTIES’ POSITIONS
[22] The appellant submits that the release was never a binding and enforceable agreement between the parties. First, it was intended that the realtor execute the release. He did not do so. In the result, the document was not fully executed and is not binding. Second, the release was not executed by the appellant within the time that it was open for acceptance. It became null and void. The subsequent execution of the document by the appellant does not, in law, revive it.
[23] The appellant further submits that her lawyer’s letter of October 16, 2012 should never have been admitted into evidence. Her counsel argues that the letter was written at a time when litigation was on the horizon and that it contains an offer of compromise. It was, in the result, protected by settlement privilege. The trial judge should not have admitted or considered the document.
[24] Finally, the appellant submits that the trial judge should not have applied the principle of estoppel because (1) the October 16, 2012 letter was inadmissible; and (2) Mr. Wong was simply wrong about whether there was a binding release in place. His assertion that the release was valid and binding cannot make an invalid release valid.
[25] The respondents submit that the appeal should be dismissed. Their counsel asserts that the trial judge correctly admitted the October 16, 2012 letter from Mr. Wong. He argues that the evidentiary record supports a finding that the appellant and respondent intended to settle with one another regardless of the signature of the realtor. Mr. Wong was correct when he said the release was binding and the trial judge was right not to let the appellant resile from that position.
DISCUSSION
[26] As I noted above, my view is that the trial judge erred in concluding that the release was a valid and binding document. I will explain my view as I address the grounds of appeal in turn:
Lack of Execution
[27] The evidentiary record is so lacking in detail regarding the creation and proffering of the release that I have no confidence in commenting about the issues of offer and acceptance as between the appellant and the respondent.
[28] On the other hand, it is patently clear that the realtor did not sign the document. On its face, it is apparent that the drafter intended that three parties would sign it – the appellant, the respondents and the realtor.
[29] The trial judge avoided the issue of the absence of the realtor’s signature by suggesting that the realtor had no skin in the game. But this conclusion was based on the fact that the realtor had not, in the two or more years since the deal fell apart, advanced a claim for his commission. The passage of a limitation period may mean that the realtor no longer has a viable claim to commissions, but the situation at the time the release was drafted was far different.
[30] The appellant, as vendor, was particularly exposed to a potential claim by the realtor for commissions. The appellant, presumably, would not be keen to release any of the deposit back to the respondents until she was certain that she was not exposed to a claim by the realtor.
[31] The appellant’s concerns in this regard are evident in Mr. Wong’s letter of October 16, 2012. Although Mr. Wong expressed the view that the release was binding, he also said that he had tried, without success, to get the realtor to sign the document. He was now waiting on word from RECO about whether the realtor had any claim to commissions. If not, then he indicated the appellant and respondent could proceed to settle in accordance with the release.
[32] Contracts are to be interpreted according to some basic principles. In particular, the release in this case must be considered:
(a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;
(b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the "cardinal presumption" that they have intended what they have said;
(c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract); and,
(d) in a fashion that accords with sound commercial principles and good business sense, and that avoid a commercial absurdity.
[33] Absent evidence to the contrary, and there was none, I must interpret the release as though the parties intended that it be signed by the realtor. Such an interpretation accords with the wording on the face of the release and also makes good business sense, in view of the exposure of the appellant to a potential claim by the realtor for commissions.
[34] In my view, the trial judge erred in concluding that the release had been validly executed.
Admissibility of the October 16, 2012 Letter
[35] The appellant’s counsel objected at trial to the admission of Mr. Wong’s letter of October 16, 2012 on the basis that it was protected by settlement privilege.
[36] The parties were agreed in terms of the legal parameters of settlement privilege. It is a class privilege intended to protect and thus foster settlement negotiations. There are generally three preconditions:
(a) There must be existing or contemplated litigation;
(b) The communication must be made on the express or implied expectation that it would not be disclosed to the court; and,
(c) The communication must have been for the purpose of attempting to effect a settlement.
See Meyers v. Dunphy, 2007 NLCA 1 at para. 12.
[37] The trial judge effectively found that the communication was not for the purpose of attempting to effect a settlement. He found that a settlement had already been reached. Reasonable people may differ about the content of Mr. Wong’s letter. I tend to think he took somewhat contradictory positions from one paragraph to the next. That said, there was an evidentiary basis which reasonably supports the trial judge’s conclusion and I would not interfere with it.
Estoppel
[38] Where I differ with the trial judge, in relation to the October 16, 2012 letter, is whether it creates an estoppel against the appellant.
[39] The trial judge was not entirely clear about the particulars of the estoppel and how it arose. As Professor Waddams describes in his influential text, “the basic concept of estoppel is that a person is precluded from retracting a statement upon which another has relied”: S.M. Waddams, The Law of Contracts, 4th ed. (Aurora: Ont.: Canada Law Book Inc., 1999).
[40] In other words, there is a reliance component to estoppel. And I would add to that a fairness component as well. I would be unfair and inequitable to permit a party to retract a statement he or she has made and upon which another has relied.
[41] The problem in terms of applying the doctrine of estoppel to this case is that there is no evidence of reliance. Indeed, the opposite is true. This is a very unusual case. Each side took a certain position about the enforceability of the release in their pleadings. Each did a 180 degree turn by the time of trial and took the opposite position. As I noted above, the respondents took the position in their Answer to the Defence that the release was not binding because it was not fully executed. The trial judge did not comment on whether the respondents were estopped from asserting otherwise at trial.
[42] In my view, an equitable estoppel did not arise in the circumstances of this case. There is evidence that both sides were prepared to change their positions with respect to the enforceability of the release on the basis of what suited them at any particular time. Absent evidence of reliance on the part of the respondents, the trial judge was wrong to find that an estoppel arose on the basis of Mr. Wong’s letter.
[43] Whether the appellant’s pleading amounted to an admission may be an arguable issue. But that argument was not raised at trial nor argued on appeal and as such I am not going to address it.
Damages
[44] I have found that the trial judge erred in concluding that the release was valid and binding on the parties. I have also found that he erred in concluding that the appellant was estopped from challenging the validity of the release. In the result, the trial judgment is set aside.
[45] The appellant asks that damages be awarded in her favour in the amount of $25,000. She provided a summary of her damages at trial and her lawyer took her husband through each of the items on that list.
[46] The summary as provided is set out on Appendix “A” to these reasons. The total damages allegedly incurred were $50,727.18. The appellant reduced her claim, of course, to $25,000 to remain within the jurisdiction of the Small Claims Court.
[47] The trial judge did not make any specific findings about damages, other than to compliment counsel on his presentation.
[48] It is necessary to make a number of adjustments to the amounts claimed by the appellant.
[49] I am assessing damages as of the time of trial in late November 2014. At that time the appellant still owned the unit. She was renting it out, as she had been since the month after she acquired it.
[50] In calculating damages, it is appropriate to take into account any change in the value of the unit. The appellant presented the trial judge with a number of purportedly comparable sales to support the assertion that the unit had not increased in value between the aborted assignment and the trial. They were only current, however, to October 2013.
[51] I take judicial notice that prices have risen dramatically in the Toronto real estate market over the past several years. I am unable, absent evidence, to conclude what the actual value of the condominium was at the time of trial. I am confident, however, that the absence of evidence works to the benefit of the appellant.
[52] In any event, the adjustments I make, with reference to Appendix “A”, are as follows:
(a) The appellant’s math is wrong. The total for out-of-pocket closing costs is $28,440.37 and not $17,627.18. That means the gross losses are actually $61,540.37;
(b) The appellant has neglected to deduct certain expenses she would have had in the event the transaction with the respondents closed. Notably, real estate commission was saved. The evidence at trial was a little thin in terms of the commission being charged with respect to the assignment. I am inferring it was the same as the 5.5% being charged when the condo was re-listed for sale. The total commission payable on $490,000 would have been $26,950 plus HST of $3,503.50. The appellant saved the payment of commission;
(c) The appellant would also have incurred legal fees and disbursements on closing. I expect they would have been similar to the fees incurred on the purchase and so I have deducted all legal fees claimed;
(d) The estimated real estate taxes were over-stated. The appellant’s 2012 tax return indicated annual taxes paid (and claimed against rental income) were $2,906.21. Moreover, the appellant – or at least her husband – claimed those taxes as a deduction against rental income and, in the final analysis, still realized an annual profit on rental income. I am removing them from the damage claim altogether;
(e) The appellant realized a profit the first year of renting of the unit of $1,271.81. That sum included only 11 months rental income, but all the expenses for 12 months. The rental income for 11 months was $20,583. Extrapolated over 12 months, the rental income would be $22,454.18. Expenses claimed, for twelve months, were $19,311.19. Assuming rental income was steady over the next two years and expenses were also steady, the profits realized in 2013 and 2014 would have been $3,143 per year. Moreover, in the 2012 expenses, there were agent’s fees payable of $2,147. There was no direct evidence relating to those fees, but I infer they had to do with the rental of the unit. They would presumably not be payable in subsequent years. I accordingly add them back into profit for the years 2013 and 2014. I calculate rental profit at $5,290 per year for each of 2013 and 2014. To be fair, the trial was heard in November 2014 and so I will include only 11/12 of the profit for 2014, namely $4,849.16. I calculate total rental profit to the time of trial to be $11,410.97. There should also have been some calculation made as to the present value of the anticipated future rental profit stream, but there is no evidence before the court as to what that figure might be.
[53] My adjusted calculation of the appellant’s damages is, therefore, as follows:
Loss of Anticipated Profit $33,100.00
Out-of-Pocket Expenses 28,440.37
Saved Commissions with HST (30,453.50)
Saved Legal Fees and Disbursements (1,695.00)
Claimed Real Estate Taxes (4,569.00)
Rental Profits to date of trial (11,410.97)
Net Damages $13,411.90
[54] The net damage figure is favourable to the appellant because it does not include mitigation for the present value of the future rental income stream. Without evidence, I am unable to include that figure.
Costs
[55] The trial judge indicated that he would not have awarded costs, but for an offer the respondents had submitted. That offer was to walk away, which would have seen the appellant receive $15,000 in damages. The respondents have still done better than their offer and I see no reason to interfere with the trial judge’s award of costs of $2,500 in favour of the respondents.
[56] As for appeal costs, the simple fact is that the appeal was not a reasonable exercise. In my view, the trial judge’s approach to resolution was a sensible one, notwithstanding what I have identified as legal errors. The result on appeal is only marginally different than the result achieved at trial and remains below the respondents’ offer. Moreover, the appellant is fortunate that the evidence on mitigation is not complete as her damages would undoubtedly be subject to further reduction.
[57] The results on appeal were mixed, at best. There will be no order for costs of the appeal.
[58] In the result, from the deposit being held, the sum of $13,411.90, less $2,500 for costs, for a total of $10,911.90 will be paid to the appellant. The balance will be returned to the respondents.
Released: May 19, 2017 Boswell J.
Appendix “A”
Appellant’s Damages Claim
Loss of Profit on Assignment
($490,000 - $456,900) $33,100.00
Out of Pocket Closing Expenses
Pro-rated Common Expenses 307.84
2011 Estimated Realty Taxes 951.35
2012 Estimated Realty Taxes 4,569.00
Development Charges 4,985.00
Education Levy 2,457.00
Park Levy 1,749.00
s. 37 Levy 325.00
Water Installation 221.00
Tarion Warranty 1,039.60
Legal Fees for Discharges 678.00
Other Legal Fees 542.60
Disbursements 474.40
Status Certificate 100.00
Land Transfer Tax and Title Ins. 5,563.00
Toronto Land Transfer Tax 4,477.58
Subtotal 17,627.18 (sic)
TOTAL 50,727.18 (sic)