Court of Appeal for Ontario

Citation: Stilton Corp. Ltd., 2019 ONCA 746

Date: 2019-09-24

Docket: C65863

Judges: Paciocco, Harvison Young and Jamal JJ.A.

Parties

Between

Paterson Veterinary Professional Corporation Applicant (Respondent)

and

Stilton Corp. Ltd. Respondent (Appellant)

Counsel

W. Jaskiewicz, for the appellant

David Fogel, for the respondent

Heard: August 15, 2019

Lower Court Decision

On appeal from the judgment of Justice E. Ria Tzimas of the Superior Court of Justice, dated August 21, 2018, with reasons reported at 2018 ONSC 4952.

Harvison Young J.A.:

A. Overview

[1] The appellant, Stilton Corp. Ltd., appeals from a judgment which granted the application of the respondent, Paterson Veterinary Professional Corporation, for the enforcement of a settlement agreement that the parties concluded in 2013.

[2] Stilton raises three distinct grounds on this appeal. First, it submits that the application judge erred in finding that an application was an appropriate procedure for enforcing a settlement agreement. Second, it submits that the application judge erred in finding that the doctrine of frustration was inapplicable in the circumstances of this case. Third, it submits that the application judge erred in granting the remedy of specific performance.

[3] For the following reasons, I would dismiss the appeal.

B. Factual Background

[4] This matter arises out of a long association and a shorter history of litigation between veterinarians Dr. James McCleary, president and director of Stilton, and Dr. Marjorie Paterson, the sole director of Paterson Veterinary. Dr. McCleary began his practice in the 1970s. Dr. Paterson joined in the 1980s. The practice operated on Clarkson Road in Mississauga (the "property"). Paterson Veterinary eventually purchased the practice (known as the McCleary Animal Hospital) from Stilton through an agreement of purchase and sale. Stilton continued to own the property, but the agreement of purchase and sale granted Paterson Veterinary a lease of the property with an option to purchase. It is this property that is in issue in this appeal.

[5] As a result of a dispute that arose when Paterson Veterinary wanted to exercise its option to purchase the property, it commenced an action for specific performance and other relief in April 2013. In December of that year, the parties settled that action. The settlement agreement provided that, following a five-year lease extension, Stilton would transfer its title and ownership of the property to Paterson Veterinary and Paterson Veterinary would pay the purchase price of $1,250,000 plus HST. The action was dismissed pursuant to the settlement agreement.

[6] Paterson Veterinary continued to lease the property, as agreed. As it prepared to complete the contemplated purchase, Dr. Paterson was advised on January 26, 2018, through the appellant's counsel, that "Dr. McCleary d[id] not want to sell his property". Stilton refused to close the sale of the property on February 1, 2018, despite Paterson Veterinary's tender of the executed documents and certified cheques for the purchase price and HST.

[7] Paterson Veterinary applied for specific performance of the settlement agreement and for a vesting order. Stilton opposed on a number of bases, including that: (1) there were material facts in dispute relating to the settlement agreement requiring the application to be converted into an action with a full trial, (2) the settlement agreement was no longer binding due to the increase in the value of the property, and that (3) Paterson Veterinary was not entitled to specific performance. The application was granted and is appealed to this court.

C. Analysis

(1) Did the application judge err in proceeding by way of application?

[8] Stilton submits that the application judge erred by allowing this matter to proceed by way of application. In Stilton's view, the application was not properly brought, and proceeding by way of application is inappropriate because there are material facts in dispute. I do not accept either argument.

[9] Although the application judge acknowledged that Paterson Veterinary had technically erred by failing to refer in its notice of application to r. 14.05 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, she held that this oversight could properly be corrected. In her view, adding reference to the rule was covered by the phrase "such further and other remedies as may be appropriate". I see no error in this decision.

[10] The application judge also held that r. 14.05(3)(d) and (e) provide for the use of an application in relevant circumstances, such as "the determination of rights that depend on the interpretation of a deed, will, contract or other instrument" and the making of "a declaration of an interest in or charge on land". Rule 14.05(3)(h), as it read then, also spoke to the use of an application to obtain relief "in respect of any matter where it is unlikely that there will be any material facts in dispute". Relying on these provisions, she held that the respondent's claim could proceed by way of application. She did not err in doing so.

[11] While it is clear that there are matters in dispute between these parties, there was, as the application judge concluded, "no impediment to the court's ability to interpret the legal meaning of the [s]ettlement [a]greement and to make a declaration concerning the interest in the Clarkson property on the basis of the [s]ettlement [a]greement."

[12] The appellant argues that the frustration issue engaged disputed material facts. I agree with the application judge that it did not. Neither party disputed that the value of the property had increased significantly since the settlement agreement was concluded. The issues engaged included, as she put it: "the interpretation of the [s]ettlement [a]greement, the assessment of the existence of a breach, and a determination of the appropriate remedy for that breach."

[13] The appellant argues that a request for specific performance should not be resolved by way of application. I disagree. Where appropriate, specific performance has been granted on applications brought to force the sale of real property: see e.g. Di Millo v. 2099232 Ontario Inc., 2018 ONCA 1051, 430 D.L.R. (4th) 296, leave to appeal to S.C.C. refused, [2019] S.C.C.A. No. 55; THMR Development Inc. v. 1440254 Ontario Ltd., 2018 ONCA 954, 85 B.L.R. (5th) 175; Sivasubramaniam v. Mohammad, 2018 ONSC 3073, 98 R.P.R. (5th) 130, aff'd 2019 ONCA 242, 100 R.P.R. (5th) 1. In the circumstances of this case there are no material facts in dispute that would have rendered an application an inappropriate procedural route for determining whether to order the equitable remedy sought.

[14] The application judge therefore did not err in allowing this matter to proceed by way of application.

(2) Did the application judge err in finding that the settlement agreement was a valid and enforceable contract?

[15] Stilton submits that the application judge erred in law by rejecting its arguments that the settlement agreement "had been frustrated as a result of the steep appreciation in real estate prices or was ultimately the product of conduct that amounted to economic coercion and therefore not enforceable."

[16] I agree with the application judge's analysis on this issue. The appellant asks this court to find that the dramatic increase in the value of the property since the settlement agreement was negotiated is, in and of itself, a frustrating event. I would decline to do so.

[17] A contract is frustrated when, due to a supervening event for which no provision was made by the parties, the performance of the contract becomes radically different from that which was undertaken: Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58, [2001] 2 S.C.R. 943, at paras. 53-56. In this case, the price increase was not a supervening event that made the performance of the contract radically different. Assuming that the lowest initial appraisal exchanged by the parties during the settlement negotiation ($945,000) was an accurate estimate of the value of the property when the settlement agreement was reached in 2013, and that the 2018 appraisal accurately reflects its value ($1,925,000), the value of the property approximately doubled over this period. It was fully open to the application judge to conclude on these facts that this was insufficient to constitute frustration. I agree with her finding that the parties were alive to the issue of the property's value and that they would not have premised their agreement on the value of this property staying the same. The price increase was significant but not an intervening event that in any way made the obligation to transfer the property, at its higher value, radically different.

[18] As a general proposition, even dramatic price changes may be foreseeable and therefore not a suitable basis for a frustration claim. Price changes are a risk inherent in any market. This is no doubt why frustration claims based on price changes often fail: see e.g. Holst v. Singh, 2018 ONSC 4220, at para. 6; 642947 Ontario Ltd. v. Fleischer (1997), 9 R.P.R. (3d) 261 (Ont. C.J.) at para. 97, rev'd , 56 O.R. (3d) 417 (C.A.). There are strong policy considerations militating against these claims. The finality and predictability of contractual relations, as foundational principles of our economy, depend on contractual rights weathering the ebbs and flows of the market. Certainly, in this case, holding that the increase in price over the five-year period frustrated Stilton's obligation to sell the property would turn the law of contract on its head by undermining those principles. I would reject this ground of appeal.

(3) Did the application judge err in holding that the enforcement of the settlement agreement did not engage the court's equitable jurisdiction?

[19] The application judge erred in finding that the existence of a settlement agreement allowed her to order specific performance without undertaking an analysis as to whether this was the appropriate remedy. I am aware of no authority supporting this approach. To the contrary, in Veiga v. Veiga, 2013 ONSC 7027, Stinson J. found it necessary for the party seeking specific performance of a settlement agreement to establish that it is warranted: at para. 43. Similar analysis has been undertaken in analogous cases elsewhere in Canada: see e.g. Beier v. Proper Cat Construction Ltd., 2013 ABQB 351, 564 A.R. 357, at paras. 97-101.

[20] It was incorrect to say that the appellant had "agreed to the requested specific performance of the sales transaction" in the settlement agreement. The settlement agreement is by nature a contract. The contractual obligation taken on by the appellant in this settlement agreement is distinct from a remedy that may be ordered by the court upon finding that this contract has been breached. Even where parties explicitly stipulate in a contract that specific performance is preferred, which these parties did not do, such stipulations are not binding on the court: Robert J. Sharpe, Injunctions and Specific Performance, (Toronto: Thomson Reuters, 2012) (loose-leaf updated 2018, release 27), at para. 7.730. The application judge was required, upon finding the settlement agreement had been breached, to consider whether the court's equitable jurisdiction should have been exercised to grant the requested remedy of specific performance. With respect, she erred by not doing so.

(4) Is specific performance the appropriate remedy?

[21] Having determined that the application judge erred in failing to determine whether specific performance was an appropriate remedy, it is now necessary to undertake this analysis. As in THMR Development, this court is in as good a position as the application judge to deal with this issue because this case was argued on a paper basis: at para. 21. As already discussed earlier in these reasons, there are no material facts in dispute that require a trial on this issue, despite the appellant's submissions to the contrary.

[22] Specific performance is a discretionary equitable remedy that should be granted "where damages cannot afford an adequate and just remedy in the circumstances": Matthew Brady Self Storage Corporation v. InStorage Limited Partnership, 2014 ONCA 858, 125 O.R. (3d) 121, at para. 29, leave to appeal refused, [2015] S.C.C.A. No. 50. In determining whether to exercise this discretion I consider below (1) whether the property is unique, (2) whether the respondent remained ready, willing and able to close, (3) whether the respondent is disentitled to an equitable remedy and (4) whether damages are a suitable and just alternative in this case. For the reasons that follow, specific performance was the appropriate remedy.

(1) Is the property unique?

[23] The Supreme Court of Canada has held that in the case of a breach of a contractual obligation to sell real property, specific performance should not be granted "as a matter of course absent evidence that the property is unique to the extent that its substitute would not be readily available": Semelhago v. Paramadevan, [1996] 2 S.C.R. 415, at para. 22. Real property will be unique when it has a quality that cannot be replicated elsewhere that relates to the proposed use of the property and makes it particularly suitable for the purpose for which it was intended: John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd. (2001), 56 O.R. (3d) 341 (S.C.), at para. 73, aff'd , 63 O.R. (3d) 304 (C.A.), leave to appeal refused, [2003] S.C.C.A. No. 145.

[24] In her evidence, Dr. Paterson lists a number of features that make the property uniquely suited to Paterson Veterinary's needs as the owner of the practice, including that it: (1) is currently set up as a veterinary clinic, (2) is a free-standing bungalow building, (3) has 11 parking spots, (4) is situated on a quiet street for walking dogs in her preferred neighbourhood, and (5) has capacity to board approximately 80 animals. There was no evidence as to the number of animals actually boarded or the financial significance of boarding to the practice. Dr. McCleary's evidence is that the clinic had "limited ability to board animals", and on cross-examination he estimated the capacity at 70 animals. He did not dispute the other characteristics highlighted by Dr. Paterson but denied that the property is uniquely featured.

[25] Perhaps most significantly, it is undisputed that the clinic has operated out of the property since 1974. In that time, goodwill value has been accumulated. This goodwill attaches not only to the veterinary practice but also to the property on which it has operated during this period. Indeed, it is common ground that in negotiating the sale of the practice, Dr. Paterson was adamant that Paterson Veterinary would only buy if it was able to eventually purchase the building. Dr. Paterson's evidence is that ownership of the property is "critical" to the business, and the respondent negotiated accordingly.

[26] This fact scenario is very similar to that in The One Stop Fireplace Shop Ltd. v. Parigon Industries Inc., 2013 ONSC 1562, 31 R.P.R. (5th) 277. There, a tenant under a commercial lease brought an application to compel a landlord to sell the leased premises. On the issue of whether the property in question was unique, thereby entitling the tenant to specific performance, Nightingale J. found that the property was unique to the tenant because they had been operating their business out of the location for several years. As the property had accumulated "considerable goodwill value" to the tenant with its customers, it was unique to the tenant: at para. 72. Similarly, in this case, the goodwill value attached to the property makes it particularly suitable for the purpose of continuing to operate the veterinary practice.

[27] I would also note the fact that the respondent negotiated with the appellant for title in the property not only when it purchased the veterinary practice, but also after settling the 2013 litigation. The consistency with which Dr. Paterson has pursued legal title in the property provides further support for the conclusion that it is uniquely suited to Paterson Veterinary's purpose. In addition, despite somewhat bald statements by Dr. McCleary on cross-examination that there are other similar or better properties nearby, Stilton has not provided specific details of any such property, for example, real estate listings of properties for sale.

[28] Overall then, the respondent has met its burden of establishing that the property is unique. The property logically has a number of features that make it uniquely suited to the purpose of carrying on a veterinary practice that has in fact operated there for decades. Even if the physical features could be replicated elsewhere, an alternative location would be an inadequate substitute because the goodwill associated with the practice is intertwined with this property. It is common ground that the respondent would not have purchased the practice without the option to own the property and has twice negotiated its purchase. As the combination of the goodwill and physical features cannot be replicated elsewhere and are uniquely suited to the continuation of the veterinary practice by the respondent, the property is unique for the purposes of the Semelhago analysis.

(2) Was the respondent ready, willing and able to close?

[29] A party seeking a sale of real estate to be specifically performed must remain ready, willing and able to close on the purchase of the property: Silverberg v. 1054384 Ontario Limited (2008), 77 R.P.R. (4th) 102 (Ont. S.C.), at para. 110, aff'd 2009 ONCA 698, 266 O.A.C. 216.

[30] Paterson Veterinary was and is clearly ready, willing and able to purchase the property as of the date agreed upon in the settlement agreement. The closing date set out in the settlement agreement is February 1, 2018. On January 26, 2018, Stilton's lawyer wrote to Paterson Veterinary's lawyer confirming that he represented Stilton, requesting that any further correspondence be directed to him, and expressing that Dr. McCleary did not want to sell the property. It is uncontested that on the agreed upon closing date a representative of Paterson Veterinary attempted to deliver closing documents, including certified trust cheques, to Stilton's lawyer. Dr. McCleary's evidence is that he instructed his lawyer not to accept any documents related to the purchase of the property. It was the refusal of Stilton to sell, and not unwillingness or inability on the part of Paterson Veterinary that prevented the deal from closing. As in Silverberg, at para. 112, the commencement of the application for specific performance is evidence that Paterson Veterinary continues to be ready, willing and able to purchase the property.

(3) Is the respondent disentitled to equitable relief?

[31] A relevant consideration in deciding whether to order specific performance is the behaviour of the parties having regard to the equitable nature of the remedy: Matthew Brady, at para. 32. Equitable relief may be refused if the party seeking relief has been guilty of misconduct in relation to the contract that party seeks to enforce: Silverberg, at para. 120. Here, there are no facts disentitling the respondent to equitable relief. Paterson Veterinary has clean hands, there was no delay in bringing this application, and no disentitling circumstances were seriously alleged.

[32] To the contrary, the equities of this case clearly favour the respondent. It seeks to enforce a settlement agreement that was negotiated between two commercial parties represented by counsel. That settlement agreement was itself the product of a lawsuit seeking an agreement of purchase and sale concerning this property to be specifically performed. As discussed above, Stilton's position that the settlement agreement was not enforceable is without merit. The agreement was breached. Dr. McCleary's evidence is that he felt that the settlement agreement was no longer in full force and effect because there had been a dramatic increase in the property's value and that the "property is [his] baby". This did not justify Stilton's refusal to honour the settlement agreement. Here, the equities clearly favour the respondent who seeks to enforce a valid settlement agreement in face of the appellant's clear breach.

(4) Are damages a suitable alternative in this case?

[33] Damages are not a suitable alternative to specific performance on the facts of this case. As discussed above, the property is uniquely suited to Paterson Veterinary's business and even a substantial damages award would not allow it to purchase a readily available substitute. Further, the damages caused by Stilton's breach would be difficult if not impossible to accurately quantify given the intertwining of the goodwill in the business with the goodwill in the property. It would be inequitable to force the respondent to engage in this exercise. It had already sued the appellant to specifically perform the sale and entered into a valid settlement agreement under which the appellant agreed to sell before finding itself in court again seeking specific performance of the same sale. As the application judge highlighted, there is value in parties being able to rely on settlement agreements and thus avoiding a "never-ending spiral" of litigation. Damages would therefore be inadequate and inequitable in the circumstances.

(5) Conclusion on the appropriate remedy

[34] Given that the property is unique, that Paterson Veterinary was and is willing and able to close the transaction, that there are no facts disentitling it to equitable relief, and that damages are not a suitable alternative, specific performance is the appropriate remedy.

D. Disposition

[35] I would dismiss this appeal. I would order the appellant to transfer title to the property pursuant to the settlement agreement. The sale must be completed within 30 days of the release of this decision, failing which I would order that the property shall vest in the respondent upon the respondent's performance of its corresponding contractual obligations under the settlement agreement, provided such performance occurs within 90 days of the release of this decision.

[36] If the parties have not been able to agree on costs, I would order that they file costs outlines, bills of costs along with their submissions, not to exceed 5 pages in length, within 10 business days of the receipt of this decision.

Released: September 23, 2019

"DMP"

"A. Harvison Young J.A."

"I agree D.M. Paciocco J.A."

"I agree M. Jamal J.A."