Court of Appeal for Ontario

Date: February 23, 2018

Docket: C64074

Judges: Doherty, Paciocco and Nordheimer JJ.A.

Between

Valeria Scicluna Applicant (Respondent/Appellant by cross-appeal)

and

Solstice Two Limited, Northbridge General Insurance Corporation, and Kevin Thatcher and Associates Ltd. Respondents (Appellant/Respondents by cross-appeal)

Counsel

Evan L. Tingley, for the appellant/respondent by cross-appeal, Solstice Two Limited

Bradley Phillips, for the respondent/appellant by cross-appeal, Valeria Scicluna

Kenneth H. Page, for the respondent by cross-appeal, Kevin Thatcher and Associates Ltd.

Heard: February 6, 2018

On appeal from the judgment of Justice Carole J. Brown of the Superior Court of Justice, dated June 20, 2017, with reasons reported at 2017 ONSC 3674.

Paciocco J.A.:

OVERVIEW

[1] Valeria Scicluna advanced $293,685 for the purchase of a condominium unit. When it came time to close, she was unable to pay the remaining $78,315 because she had lost her job. She therefore breached the amended agreement of purchase and sale ("AAPS") that was in effect at the time.

[2] Initially the vendor, Solstice Two Limited ("Solstice"), showed commendable restraint. Even though there was a forfeiture clause in the AAPS, Solstice entered into a resale agreement with Ms. Scicluna in which Solstice agreed to return to her all but $30,000 of the money she had advanced, if the condominium was resold.

[3] And it was resold for $435,000, significantly more than Ms. Scicluna had been obliged to pay. Unfortunately, when Solstice presented Ms. Scicluna with the release document before repaying her, she refused to sign. She had misread the release, mistakenly believing that she was being asked to let Solstice keep $60,000, double what had been provided for in the resale agreement. Ultimately, she sued Solstice for the return of $263,685, as agreed in the resale agreement.

[4] Being sued ended Solstice's restraint. Solstice decided to invoke the forfeiture provision in response to Ms. Scicluna's lawsuit. It wanted all $293,685, plus the additional profit it had made on the resale. The application judge decided that Solstice's new demand for complete forfeiture was grossly disproportionate, and she granted Ms. Scicluna relief from forfeiture.

[5] But the application judge did not give Ms. Scicluna the money. She gave it to Kevin Thatcher and Associates Ltd. ("KTL"), the trustee in bankruptcy appointed when Ms. Scicluna made an assignment in bankruptcy shortly after losing her job.

[6] In this appeal Solstice argues that the application judge erred in granting relief from forfeiture, and in failing to find that both Ms. Scicluna's claim and KTL's claim are statute-barred. Meanwhile, Ms. Scicluna claims that the application judge erred by giving the money to KTL. She argues that, prior to her discharge from bankruptcy, KTL treated her claim against Solstice as unrealizable property. She argues that KTL was therefore obliged to return her cause of action, and cannot now seek to stand in her place in taking her damage award.

[7] For the reasons below, I would deny both Solstice's and Ms. Scicluna's appeals. The application judge came to the correct result. KTL should have the money claimed by Ms. Scicluna for distribution to Ms. Scicluna's creditors.

BACKGROUND FACTS

[8] In April 2008, Ms. Scicluna entered into an agreement to purchase a condominium from Solstice. The initial closing date was to be more than two years later, in September 2010. In the interim, Ms. Scicluna lived in the condominium.

[9] The initial April 2008 agreement of purchase and sale was twice amended. The AAPS ultimately provided for a closing date of May 5, 2011. When that date arrived, Ms. Scicluna failed to close as she had lost her job. By then, under the terms of the agreements, Ms. Scicluna had advanced $293,685 towards the total purchase price of $372,000. Of the $293,685, $20,000 was in Solstice's immediate possession. The balance was being held by Northbridge General Insurance Corporation on behalf of Solstice.

[10] The AAPS provided that if Ms. Scicluna breached the agreement, Solstice was entitled to unilaterally declare the AAPS terminated, "whereupon all deposit monies theretofore paid, together with all monies paid for any extras or charges to the Unit, shall be retained by the Vendor as its liquidated damages, and not as a penalty…"

[11] A little over two months after the failed closing date, on July 28, 2011, Ms. Scicluna made an assignment into bankruptcy. KTL was appointed as the trustee in bankruptcy. Ms. Scicluna did not disclose to KTL that she had $293,685 in funds sitting in Solstice's hands that she considered to be her own.

[12] Pursuant to the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 71 ("BIA"), Ms. Scicluna lacked the capacity to enter into agreements relating to her property, prior to her discharge. In spite of this, on October 20, 2011, while an undischarged bankrupt, Ms. Scicluna purported to enter into a resale agreement with Solstice for a return of the deposited money. Under the resale agreement, Solstice agreed to repay Ms. Scicluna all but $30,000 of the $293,685 deposit if the condominium was sold. In April 2012, it sold for $435,000.

[13] Ms. Scicluna then refused to sign the release contemplated by the resale agreement. She was under the mistaken belief that the release would entitle Solstice to keep an additional $30,000 beyond the $30,000 provided for in the resale agreement. Understandably, Solstice would not return the funds without a signed release.

[14] On two occasions, while an undischarged bankrupt and without notice to KTL, Ms. Scicluna attempted to sue Solstice for the return of the deposit. The first attempt, in 2011, was aborted because she could not secure legal funding. Another suit was filed in 2013, but was declared a nullity as Ms. Scicluna lacked the capacity to sue as she was an undischarged bankrupt.

[15] Ms. Scicluna was discharged from bankruptcy on February 12, 2014. The trustee in bankruptcy, KTL, has yet to be discharged.

[16] On July 6, 2016, Ms. Scicluna brought an application for a declaration that she is entitled to the return of $263,685 of the deposit she paid to Solstice, plus interest earned on that amount. She claimed the right to rely on the resale agreement for the return of this money in spite of her refusal to sign what she considered to be an improper release document.

[17] Solstice responded that it was entitled to the money since Ms. Scicluna forfeited it after failing to close the condominium purchase. Solstice also argued that, in any event, Ms. Scicluna's claim is statute-barred under s. 5 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B ("Limitations Act").

[18] Ms. Scicluna also joined KTL as a party to the application. She contended that her right to the money was unaffected by her bankruptcy. She said that KTL's failure to take action against Solstice prior to her discharge, or for more than two years thereafter, confirms that KTL had decided that this chose in action was unrealizable property. She claimed that KTL was therefore obliged under s. 40 of the BIA to "return" to her the right to sue Solstice.

[19] KTL claimed that any money secured by Ms. Scicluna in her application should vest in KTL as the trustee in bankruptcy. KTL denied that it had concluded that the claim against Solstice was unrealizable property. KTL submitted that it did not have a chance to make that determination because of Ms. Scicluna's failure to disclose the details about her claim.

[20] Meanwhile, Solstice resisted KTL's claim, arguing that KTL's purported interest was also statute-barred. Solstice maintained its position, even if Ms. Scicluna's claim was not discoverable by KTL, as the trustee in bankruptcy can stand in no better position than the bankrupt.

[21] On June 20, 2017, the application judge released her decision. She did not accept the limitations arguments. She relieved Ms. Scicluna from her forfeiture of the $263,685, but then awarded the money to KTL as bankruptcy estate property.

ISSUES ON APPEAL

[22] Solstice now appeals, claiming that the application judge erred in: (i) granting relief from forfeiture that was not formally sought, (ii) finding that the facts justified an order for relief from forfeiture, and (iii) failing to hold Ms. Scicluna and KTL's claims to be statute barred.

[23] Ms. Scicluna has also cross-appealed. She says the application judge erred by ordering the return of the deposit to KTL instead of to her under s. 40 of the BIA.

[24] I would dismiss both appeals.

ANALYSIS

Limitation Period

[25] Although the application judge should have responded overtly in her decision to Solstice's limitation period defence, she was clearly correct to reject it. In my view, Yim v. Talon International Inc., 2017 ONCA 267, 137 O.R. (3d) 184 confirms that Ms. Scicluna's claim is governed by the 10 year limitation period in s. 4 of the Real Property Limitations Act, R.S.O. 1990, c. L.15 ("RPLA"), not by the Limitations Act. I reject Solstice's attempt to distinguish this case based on the factual difference that Yim dealt with a deposit whereas the "forfeited money" claimed by Solstice is no longer a deposit. The RPLA governs actions to recover "land", and "land" is defined in s. 1 as including "money to be laid out in the purchase of land". Ms. Scicluna's application to recover monies advanced in a real estate purchase falls under that definition regardless of whether it is properly characterized as a deposit.

Relief from Forfeiture

[26] In finding against Solstice, I do not accept Ms. Scicluna's contention that the deposit was not forfeited. That is a difficult argument for Ms. Scicluna to make given that she breached the terms of the AAPS that provided for forfeiture in the event of breach – especially in light of the fact that Solstice had advised Ms. Scicluna that a failure to close would result in forfeiture, and that the funds were already under Solstice's control.

[27] In my view, even though the deposit was forfeited, the application judge was entitled to grant relief from forfeiture, notwithstanding that s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43 was not formally advanced by Ms. Scicluna. It was implicit in the application below that Ms. Scicluna was seeking relief from forfeiture. Ms. Scicluna was suing for the return of the deposit that Solstice claimed was forfeited. A judge has a broad discretion under s. 98 to grant such relief.

[28] Moreover, relief from forfeiture was the obvious outcome on these facts, even though relief from forfeiture is an equitable and purely discretionary remedy: Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Company, [1994] 2 S.C.R. 490, at p. 504; and Kechnie v. Sun Life Assurance Co. of Canada, 2016 ONCA 434, 401 D.L.R. (4th) 620, at paras. 26-28. The "appropriate questions to consider" in deciding whether to award relief from forfeiture were identified in Liscumb v. Provenzano (1985), 51 O.R. (2d) 129 at p. 137 (S.C.), affirmed (1985), 55 O.R. (2d) 404 (C.A.), by McKinlay J. (as she then was):

first, was the conduct of the plaintiff reasonable in the circumstances; second, was the object of the right of forfeiture essentially to secure the payment of money; and third, was there a substantial disparity between the value of the property forfeited and the damage caused the vendor by the breach?

[29] I do not accept Solstice's position that Saskatchewan Rivers holds this to be a three part test, requiring satisfaction of each and every part. The Supreme Court described these questions as "factors", at p. 504 of that decision. See also Kozel v. Personal Insurance Co., 2014 ONCA 130, 119 O.R. (3d) 55, at para. 31. The Supreme Court's readiness to accept the trial judge's decision to refuse relief based on the unreasonableness of the conduct of the plaintiff alone does not intimate that each factor is a condition precedent to relief from forfeiture. It signals no more than that a trial judge, exercising this equitable and purely discretionary remedy, is entitled to refuse relief based on unreasonable conduct alone.

[30] The failure of the application judge to refer overtly to Ms. Scicluna's conduct is not, therefore, fatal to her decision. Indeed, the application judge was well aware that Ms. Scicluna failed to close the AAPS, and that she refused to sign the release agreement. The application judge was also aware that Ms. Scicluna did not close the transaction because she lost her job, and that her refusal to sign the release agreement was based on a misunderstanding of the meaning of the release agreement. This is not a case where Ms. Scicluna's conduct was so unreasonable that this court should interfere in the trial judge's exercise of discretion.

[31] Indeed, in this case the "substantial disparity between the value of the property forfeited and the damage caused [to Solstice] by the breach" is so manifest and so grossly disproportionate that relief from forfeiture is patently a correct result. This can be said with confidence even without evidence particularizing the actual cost to Solstice of Ms. Scicluna's failure to close. This is not a case of an ordinary deposit. In the unusual circumstances of this case, Ms. Scicluna had advanced close to 80% of the total purchase price, $293,685 on a purchase price of $372,000. To compound this, Solstice was able to sell the same property that Ms. Scicluna had almost entirely paid for to another purchaser for $435,000. Even before the $263,685 that Solstice claims as forfeited money, it has, in pocket, $93,000 more than it would have had if Ms. Scicluna had closed on the AAPS. This is because of the $30,000 forfeited deposit that Solstice retains under the application judge's order, and the $63,000 net difference between the condominium's original sale price and subsequent resale price. Whatever expenses Solstice may have incurred because of Ms. Scicluna's failure to close, it is obvious that Solstice is not in a net loss position. If Solstice's forfeiture claim is accepted, it would have a grossly disproportionate windfall. I would not disturb the application judge's finding on this issue.

Bankruptcy Trustee's Entitlement

[32] Nor would I disturb the application judge's finding that the $263,685 deposit is to be paid to KTL as bankruptcy trustee, and administered pursuant to the BIA. Pursuant to s. 71 of the BIA, any right Ms. Scicluna had in the return of the deposit is property that vested in the trustee when she was assigned into bankruptcy in July 2011. KTL remains undischarged as bankruptcy trustee and it has released none of the bankrupt's property. The starting point, then, is that this money belongs to the trustee, not Ms. Scicluna.

[33] Nor is there a basis for finding that KTL must return this property to Ms. Scicluna through the operation of s. 40 of the BIA as unrealizable property.

[34] The application judge made no palpable and overriding error in finding that KTL was not in a position to decide whether to bring an action against Solstice for the deposit because of Ms. Scicluna's non-disclosure. KTL was also not in a position to determine whether the deposit was unrealizable property.

[35] This case is unlike Shelson (Re) (2004), 70 O.R. (3d) 171 (C.A.). There the bankruptcy trustee "incontrovertibly had knowledge of the existence of the action" from the outset of the bankruptcy but decided the action was of little value to the estate and would not be pursued unless the creditors insisted: Shelson, at para. 31. Over five years later, long after the discharged bankrupt had been carrying the action, the bankruptcy trustee changed its mind and tried to assert control over that action. In this case, on the application judge's findings, Ms. Scicluna did not list her claim to the deposit in her list of assets. She also attempted to launch legal proceedings to secure it without the trustee's knowledge, and was not forthcoming with the trustee about the nature of her claim.

[36] The equities of the two cases are not close either. In Shelson, the discharged bankrupt was lulled into the reasonable belief that the trustee was making no claim to the lawsuit. In this case, Ms. Scicluna prevented the trustee in bankruptcy from understanding the potential of the lawsuit.

[37] Moreover, and more importantly, had Ms. Scicluna signed the release, as she should have, the $263,685 would have been paid to her and would have been available for her creditors and distributed before her discharge. It does not advance the principles of the BIA for her to advance, after her discharge, a claim that she failed to disclose to KTL and then try to keep the proceeds for herself. The application judge was correct in the decision she made.

CONCLUSION

[38] I would therefore dismiss both appeals. As agreed, costs are payable on the appeal to KTL, both by Ms. Scicluna and Solstice, in the amount of $5,000 each, inclusive of HST and disbursements.

Released: February 23, 2018 ("D.D.")

"David M. Paciocco J.A."

"I agree. Doherty J.A."

"I agree. I.V.B. Nordheimer J.A."