Court of Appeal for Ontario

Date: September 10, 2019

Docket: C66128

Panel: Hoy A.C.J.O., Lauwers and Zarnett JJ.A.

Between

1179 Hunt Club Inc. Applicant (Appellant)

and

Ottawa Medical Square Inc. and Abrar Mobarak Respondents (Respondents)

Counsel

Elliot Birnboim and Michael Crampton, for the appellant

Anne Tardif, for the respondents

Heard

May 8, 2019

On Appeal

From the order of Justice Robyn M. Ryan Bell of the Superior Court of Justice, dated October 17, 2018, with reasons reported at 2018 ONSC 6200.

Opinion of the Court

Lauwers J.A.:

[1] Introduction

[1] Ottawa Medical Square Inc., as purchaser, agreed to buy commercial condominium units in the Hunt Club project. The transaction did not close. The vendor, 1179 Hunt Club Road Inc., applied for a declaration that the purchaser had anticipatorily breached the agreement of purchase and sale, and that the vendor was entitled to retain the deposit, under r. 14.05 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[2] The application judge found that the agreement came to an end when both parties were unable to close the transaction on the appointed closing date. She required the vendor to return the deposit to the purchaser.

[3] The vendor appealed and asks this court to make the declaration it sought, and to find that the respondent, Abrar Mobarak, who signed the agreement on behalf of the purchaser, is personally liable for the vendor's damages as guarantor. The vendor wishes both to retain the deposit and to pursue an action for damages for breach of the agreement.

[4] For the reasons that follow, I would dismiss the appeal.

A. The Factual Context

[5] The purchaser was to acquire commercial condominium units in the Hunt Club project for $5.6 million under an agreement of purchase and sale dated January 19, 2015. The deposit was $250,000. Because it was a new project in the course of development, the closing date was uncertain. As provided for in the agreement, counsel for the vendor, Mr. Vinayagalingam, sent a letter to counsel for the purchaser on November 2, 2017 notifying him that the condominium documents had been registered, and setting the closing date for the transfer of the condominium units as November 28, 2017.

[6] On November 22, 2017, new counsel for the purchaser, Mr. Presseau, sent an email to Mr. Vinayagalingam advising that his firm had just been retained. He asked for an extension of the closing date to allow the purchaser to secure financing and to accommodate the change in counsel. Mr. Vinayagalingam and Mr. Presseau then conversed about the closing date and the basis on which the vendor would agree to an extension. Mr. Presseau told Mr. Vinayagalingam that the purchaser would not close on November 28, and said to him "we both know it's not closing."

[7] Litigation counsel for the vendor then sent a letter dated November 24, 2017 to Mr. Presseau, which stated:

Mr. Vinayagalingam has conveyed to you the terms upon which our client would be willing to agree to an extension of the Unit Transfer Date. Your client has rejected these terms and in response has provided no concessions, assurances or incentive for our client to agree to the requested extension. Given the history of this transaction and the numerous concessions already granted to the Purchaser to date, our client is not prepared to agree to an extension of the Unit Transfer Date. Our instructions are therefore to insist that the close of the sale proceed on November 28, 2017, as scheduled, failing which our client will pursue all available rights and remedies, while also seeking to mitigate its damages.

If the sale does not close on November 28, 2017, your client will be in default of its obligations under the Agreement of Purchase and Sale. Our instructions are to then take immediate steps to have your client's deposit released to the Vendor in accordance with section 26 of the Agreement of Purchase and Sale, while our client seeks to mitigate its damages by finding a new purchaser.

[8] However, on November 27, 2017, the vendor learned that the Land Registry Office had made an error in assigning parcel identification numbers to the condominium project. This problem was remedied late in the day on November 27, but it prevented the vendor from registering the remaining condominium documents and any transfers of the condominium units on that date. This came out distinctly in the evidence of Barry Godfrey, the vendor's president. When cross-examined on his affidavits, he testified:

Q. Okay. And as I understand, there was some kind of change to the parcel identification numbers that meant that the vendor was in fact unable to close on November 28th; correct?

A. Yes.

Q. Alright. And that has nothing to do with the purchaser; correct? I'll rephrase – – –

A. Unless we give them the PINs, they can't take title.

Q. Right. What I meant was the delay that was caused by the change in the PINs, that was not the fault of the purchasers.

A. Correct.

[9] Counsel then tussled over whether the lack of PINs meant the vendor was not ready, willing and able to close on November 28, the appointed date. Counsel instructed Mr. Godfrey not to answer the question, and took the question "under advisement".

[10] Counsel for the vendor later responded and answered in writing:

Yes, the Vendor was ready, able and willing to complete the transaction on November 28, 2017. On November 27, 2017, Mr. Grégoire [prior real estate counsel for the purchaser] was provided with the Statement of Adjustments in relation to the sale of the Units…. The same day, Mr. Vinayagalingam's office was advised that there had been an error at the [Land Registry Office] at Ottawa with respect to the PINs. That error was resolved later that evening.

The only outstanding registration issues on November 28, 2017 were the registration of the Shared Facilities Agreement and the Condominium By-Laws. At that time, these documents were prepared and ready to be registered. The Vendor was clearly in a position to register the Shared Facilities Agreement and the By-Laws on November 28, 2017.

Recall that Mr. Pressau [new counsel for the purchaser] advised Mr. Vinayagalingam on November 22nd that the sale of the Units would not close on the Unit Transfer Date while seeking an extension of same. Mr. Vinayagalingam also had received no response to his email enclosing the Statement of Adjustments, nor any response to his office's email requesting that the Gowlings firm [acting for the purchaser] designate an appropriate recipient of the Transfers on the morning of November 28th.

Had the Purchaser indicated (in any way) that it had reconsidered, and was ready, willing and able to close on November 28, 2017, Mr. Vinayagalingam's office would have registered the Shared Facilities Agreement and the By-Laws under the new PINs on that date, prior to registering the transfer to the Purchaser. In the event, those outstanding documents were in fact registered the next day, November 29, 2017.

B. The Issues

[11] There are three live issues in this case. First, did the purchaser anticipatorily repudiate the agreement? Second, if so, did such repudiation excuse the vendor from its obligation to be ready, willing and able to close the transaction on the closing date? Third, did the guarantee clause in the agreement bind the signatory, Ms. Mobarak, personally?

C. Analysis

(1) Did the purchaser anticipatorily repudiate the agreement?

[12] The application judge found, at para. 27, that Mr. Presseau did not anticipatorily repudiate the agreement in the conversation he had with Mr. Vinayagalingam on November 22, 2017. She expressed a concern that such an "approach would automatically equate a party's request for an extension of time within which to complete a transaction an anticipatory repudiation of the contract." She worried that doing so "would impede cooperative discussions between parties aimed at completing transactions and avoiding litigation."

[13] I agree with application judge that a mere request for an extension of time would not ordinarily amount to anticipatory repudiation. But the conversation did not end there. The purchaser sought the extension of time because it did not have the financing to complete the transaction on the appointed date. Knowing this, the vendor was entitled to refuse the purchaser's extension request. The purchaser moved into the state of being in anticipatory breach of the agreement when it did not relent in the face of the vendor's refusal and undertake to close on the appointed date. It is not the request for an extension that amounted to the purchaser's anticipatory breach, but its refusal to close on the appointed date when the vendor refused the extension as it was entitled to do. In my view the application judge erred in concluding that the purchaser did not anticipatorily repudiate the agreement.

(2) Did the purchaser's repudiation excuse the vendor from its obligation to be ready, willing and able to close the transaction on the closing date?

[14] This issue requires consideration of the judgment of this court in Domicile Developments Inc. v. MacTavish (1999), 45 O.R. (3d) 302 (C.A.). At pp. 306-307 (paras. 10-12), Laskin J.A. said:

Because Domicile's rejection of MacTavish's anticipatory repudiation kept the agreement alive, time remained of the essence. A time is of the essence provision means that on the closing date an innocent party may treat the contract as ended and sue the defaulting party for damages or it may keep the contract alive and sue for specific performance or damages. In order to take advantage of a time of the essence provision the innocent party must itself be "ready, desirous, prompt and eager" to carry out the agreement. Domicile could not satisfy this requirement on the closing date. Because it had not yet substantially completed construction of the house it could not carry out the agreement. Equally MacTavish could not rely on the time of the essence provision to end the agreement. A time of the essence provision can be raised as a defence only by a party who is ready, willing and able to close on the agreed date and MacTavish was not ready, willing and able to close on September 15, 1995.

Therefore, on the closing date neither Domicile nor MacTavish was entitled to enforce or end the agreement. A similar situation arose in King v. Urban & Country Transport Ltd. (1974), 1 O.R. (2d) 449, 40 D.L.R. (3d) 641, a decision of this court relied on by Binks J. In King v. Urban, the purchaser was not in a position to close on the closing date; but the vendor was also in default and not entitled to rely on the time of the essence provision in the contract. Arnup J.A. resolved the stalemate by applying two propositions (at pp. 454-56):

When time is of the essence and neither party is ready to close on the agreed date the agreement remains in effect.

Either party may reinstate time of the essence by setting a new date for closing and providing reasonable notice to the other party.

An important corollary of Arnup J.A.'s second proposition is that a party who is not ready to close on the agreed date and who subsequently terminates the transaction without having set a new closing date and without having reinstated time of the essence will itself breach or repudiate the agreement.

[15] The application judge addressed Domicile Developments, at para. 33. She noted that if the purchaser did anticipatorily repudiate the agreement, then the vendor, "as the innocent party, was put to an election: it could accept the repudiation and sue for damages or it could reject the repudiation and insist on performance of the contract".

[16] In applying Domicile Developments, the application judge found, at para. 34, that the vendor had made its election in its counsel's November 24 letter, and "expressly rejected the repudiation and insisted on performance of the agreement." Accordingly, the rejection of the purchaser's anticipatory repudiation "kept the agreement of purchase and sale alive, [and] time remained of the essence." In her view: "In order to take advantage of a time of the essence provision, the innocent party must itself be 'ready, desirous, prompt and eager' to carry out the agreement (Domicile Developments at para. 10)."

[17] The application judge then considered whether the vendor was in a position to close the transaction on November 28, 2017, the closing date set by the vendor. She assessed the evidence, particularly the written answer of counsel to the question taken under advisement in Mr. Godfrey's cross-examination. She rejected the assertion that the vendor would have registered the Shared Facilities Agreement and condominium by-laws on November 28, 2017 if the purchaser had indicated it was ready, willing and able to close: at paras. 39-40.

[18] The application judge gave three reasons for rejecting the evidence. First, she stated at para. 40: "It is clearly contentious. Pursuant to r. 39.01(5) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, this evidence cannot be provided on information and belief." Second, she added: "More importantly, it lacks credibility as it contradicts the evidence provided by Mr. Godfrey in his affidavit."

[19] Third, as noted in paras. 41 and 42, the vendor's position that November 28 was the proper closing date contradicted an email by Mr. Vinayagalingam on November 30 invoking s. 36 of the agreement to close on November 30 electronically, and the position taken by counsel for the vendor at the cross-examination of Mr. Godfrey that specified November 30 as the date on which the purchaser failed to close. The application judge stated that it was "too late" for the vendor "to now assert that the date of [the purchaser's] breach was November 28, 2017 in an effort to avoid the consequences of its own inability to close the transaction on November 28, 2017."

[20] I note that Mr. Godfrey's answer to the question taken under advisement, to the effect that the vendor would have registered the Shared Facilities Agreement and condominium by-laws on November 28, 2017, really concedes that on that day it was not actually ready to close.

[21] If the vendor had simply refused to accept the purchaser's repudiation, it would have been open to the vendor on November 28, 2017 to tender or to set a new closing date. Domicile Developments states that when time is of the essence and neither party is ready to close on the agreed date, the agreement remains in effect. By contrast, here the vendor not only refused to accept the repudiation but insisted that the transaction close on November 28, specifying the consequences if that did not occur, including the immediate pursuit of legal remedies. The application judge concluded that, in light of that insistence, because the vendor was not ready on November 28, the agreement came to an end. She relied on Kwon v. Cooper (1996), 89 O.A.C. 239 (C.A.), leave to appeal refused, [1996] S.C.C.A. No. 142, where the vendor's insistence that the closing occur on the scheduled date and its threat to claim damages if that did not occur, given its own subsequent failure to be ready, willing and able to close as scheduled, resulted in the contract coming to an end. In such a situation the vendor could not rely on King v. Urban & Country Transport Ltd. to maintain that the agreement continued in effect and to set a new closing date.

[22] I agree with the application judge's analysis.

[23] Having refused to accept the purchaser's repudiation of the agreement, and having insisted on perfection in the purchaser's performance, the vendor was required to render perfection in its own performance and it did not. The vendor's failure to tender on November 28, 2017 was fatal. This strict approach is not unusual in the law, in view of the maxim "he who seeks equity must do equity", or in life, where the proverbial caution that "he who lives by the sword dies by the sword." Both resonate.

[24] I do not agree, however, with the application judge's approach to the evidence of Mr. Godfrey on one point. His evidence, given via counsel's answer to a question taken under advisement, was that the vendor would have been ready, willing and able to close on November 28, 2017 if the purchaser had indicated it was ready to close. In my view, an answer to an undertaking has the same character as the basic document to which it relates, in this case Mr. Godfrey's affidavit. The application judge invoked r. 39.01(5) of the Rules to assert that counsel's answer, which constitutes evidence, "cannot be provided on information and belief" because it is "clearly contentious"

[25] The difficulty with the application judge's approach is that r. 14.05 permits an application for a declaration in relation to an agreement of purchase and sale, as in this case. However, if a factual controversy that is real, relevant and material emerges, and could affect the outcome of the case, then the controversy must be resolved before the decision can be justly rendered. In my view it is not open to an application judge to sidestep an issue on the basis that it has become "controversial". The method of resolution in applications is usually the trial of an issue, which can be as short and efficient as the application judge directs. In the spirit of Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, it would be most efficient if the application judge remained seized of the matter.

[26] In this case, the issue is not whether the vendor could have been ready to close on November 28, 2017, but that it was not ready to close on that date, a date on which it insisted. Hence the controversy was not material.

[27] The appellant argues that its failure to register the Shared Facilities Agreement and condominium by-laws on November 28, 2017 amounted to a "curable imperfection/defect" that could have been easily cured "the next day." The appellant cites in support Time Development Group Inc. (In trust) v. Bitton, 2018 ONSC 4384, 98 R.P.R. (5th) 308, but that was a case involving an imperfect tender where the vendor remained capable of closing on the scheduled date. Having set the date, here the vendor did not trouble itself to tender, and in fact could not have tendered because on that day it was incapable of transferring title.

[28] I therefore agree with the application judge that, since the agreement terminated on November 28, 2017 because of the inability of both parties to close, the purchaser is entitled to the return of the deposit.

(3) Did the guarantee clause in the agreement bind the signatory, Ms. Mobarak, personally?

[29] The appellant argues that Ms. Mobarak is liable for damages it suffered from the respondent's failure to close because the agreement she signed contained a guarantee clause that bound her personally.

[30] Ms. Mobarak is the purchaser's president, secretary and founding director, although Mr. Godfrey admitted that he did not know this at the time that the agreement of purchase and sale was signed in January 2015. Her signature appears on the first page of the agreement of purchase and sale, where she signs for the purchaser. The vendor relies on the guarantee in s. 41(b) of the agreement, which is buried in thick text on p. 9. It provides:

Where the Purchaser is a corporation, or where the Purchaser is buying in trust for a corporation to be incorporated, the execution of this Agreement by the principal or principals of such corporation, or by the person named as the Purchaser in trust for a corporation to be incorporated, as the case may be, shall be deemed and construed to constitute the personal guarantee of such person or persons so signing with respect to the obligations of the Purchaser herein.

[31] There is no other indication in the agreement that the signatory is signing a guarantee in her personal capacity.

[32] As a result of the purchaser's failure to waive the financing condition in its favour in the original agreement of purchase and sale, the agreement of purchase and sale became null and void. The parties reinstated the agreement subject to the terms and conditions set out in a reinstatement and amending agreement made as of April 30, 2015. The agreement was specifically revived without any conditions in favour of the purchaser. Although she signed it for the purchaser, Ms. Mobarak was not personally a party to that agreement and it does not refer to a personal guarantee.

[33] The application judge found that, reading the agreement of purchase and sale agreement as a whole and considering the surrounding circumstances, the agreement was ambiguous as to whether the parties intended s. 41(b) to be a personal guarantee on the part of Ms. Mobarak. Applying the contra proferentem rule, the application judge found that s. 41(b) does not amount to a personal guarantee given by Ms. Mobarak. She also concluded that, if it had amounted to a valid guarantee, then Ms. Mobarak's obligations were discharged when the agreement of purchase and sale came to an end as result of the purchaser's failure to waive the financing condition. She was not a party to the new agreement, it did not refer to the guarantee, and it varied the risks under the agreement by deleting the condition in favour of the purchaser.

[34] I largely agree with the application judge's reasoning. The guarantee clause is an artfully designed trap for the unwary, the validity of which must be closely considered by the court: see Kevin McGuinness, The Law of Guarantee, 3rd ed. (Markham: LexisNexis Canada, 2013), at p. 365, s. 7.88.