Court File and Parties

COURT FILE NO.: CV-16-555982 DATE: 2017-06-12 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

1418885 ONTARIO LTD. Plaintiff – and – 2193139 ONTARIO LIMITED Defendant

Counsel: David M. Goodman, for the Plaintiff Charles C. Chang, for the Defendant

HEARD: March 27, 2017

M. D. FAIETA j.

Reasons for Decision

Introduction

[1] The plaintiff commenced this action for the return of deposits in the sum of $150,000.00 paid by the plaintiff to the solicitor for the defendant in trust in respect of a property that it agreed to purchase from the defendant. The plaintiff brought this motion for summary judgment to resolve its claim.

[2] For reasons described below, I dismiss the plaintiff’s motion for summary judgment. I also grant summary judgment in favour of the defendant and dismiss this action.

Background

[3] The defendant is the owner of a property located in Milton, Ontario (the “Property”). The Property was listed for sale at $4,495,000 and described by the defendant’s real estate agent in the advertisement for sale as follows:

This 38 acre commercial/residential escarpment property is over flowing with opportunity, and amazing potential! Situated beside the Bruce Trail and a soon to be 187 acre quarry lake, the views are breath-taking! Currently featured on the property is a pub-style restaurant and 2 outdoor patios, a 9-hole golf course, 12 residential apartments, a two-storey home (as-in condition), and a banquet hall with charming character.… This unique property would be ideal for a number of different future uses including restaurants, new banquet hall, place of worship, community center [sic] or simply an estate home.

[4] On or about April 20, 2016, the defendant agreed to sell the Property to the plaintiff for $3,800,000. The sale was to be completed on June 15, 2016.

[5] The Agreement of Purchase and Sale (“APS”) contained the following clauses:

8. TITLE SEARCH: Buyer shall be allowed until 6:00 p.m. on the 30th day of May, 2016 (Requisition Date) to examine the title to the property at his own expense and until the earlier of: (i) thirty days from the later of the Requisition Date or the date on which the conditions in this Agreement are fulfilled or otherwise waived or; (ii) five days prior to completion, to satisfy himself that there are no outstanding work orders or deficiency notices affecting the property, that its present use (Mixed uses (not limited to) commercial, agricultural, outdoor, residential) may be lawfully continued and that the principal building may be insured against risk of fire. Seller hereby consents to the municipality or other governmental agencies releasing to Buyer details of all outstanding work orders and deficiency notices affecting the property, and Seller agrees to execute and deliver such further authorizations in this regard as Buyer may reasonably require.…

10. TITLE: … If within the specified times referred to in paragraph 8 any valid objection to title or to any outstanding work order or deficiency notice, or to the fact the said present use may not lawfully be continued, or that the principal building may not be insured against risk of fire is made in writing to Seller and which Seller is unable or unwilling to remove, remedy or satisfy or obtain insurance save and except against risk of fire (Title Insurance) in favour of the Buyer and any mortgagee, (with all related costs at the expense of the Seller), and which Buyer will not waive, this Agreement notwithstanding any intermediate acts or negotiations in respect of such objections, shall be at an end and all monies shall be returned without interest or deduction and Seller, Listing Brokerage and Co-operating Brokerage shall not be liable for any costs or damages …. [Underlined emphasis added. Bold emphasis in original.]

[6] On May 14, 2016, the following conditions were deleted from the APS:

This Offer is conditional upon the Buyer determining, at the Buyer’s own expense, that all environmental laws and regulations have been complied with, no hazardous conditions or substances exist on the land, no limitations or restrictions affecting the continued use of the property exist, other than those specifically provided for herein, no pending litigation respecting Environmental matters, no outstanding Ministry of Environment Orders, investigation, charges or prosecutions respecting Environmental matters exist, there has been no prior use as a waste disposal site, and all applicable licences are in force.…

This Offer is conditional until May 15, 2016 (The Due Diligence Deadline) upon the Buyer, in its absolute discretion, being satisfied of the following:

(1) the property is suitable for the Buyer’s intended use; (2) the portion and location of the property designated as Hazard Land, Flood Plain or an Environmentally Protected Zone; (3) the results of a soil test taken from the property; (4) the availability of any and all municipal services to the property. [Emphasis added.]

[7] On May 18, 2016, the APS was amended to delete that vacant possession of the property would be provided on closing and to add that “… the buyer agrees to assume all existing tenants” upon completion of the agreement.

[8] On May 30, 2016, the solicitor for the plaintiff, Mr. Goodman, submitted the following requisition to the solicitor for the defendant, Mr. Pressé:

Our information is that the Halton Inn portion of the property is presently used for residential tenancies, rather than short-term hotel-style rentals. The zoning prohibits this use, and therefore it cannot be legally continued.

REQUIRED: On or before closing, an amendment to the local zoning bylaws to permit the current use to continue legally after closing.

[9] On June 3, 2016, the solicitor for the defendant responded:

Your information is incorrect. The recitals comply with the Town by-laws and are a legal non-conforming use.

[10] The plaintiff’s real estate agent on this transaction, Derrik Libawski, contacted the Niagara Escarpment Commission (“NEC”), which has jurisdiction over zoning in the locality. On June 8, 2016, Mr. Libawski sent the following message to Michael Baran, a planner with the NEC:

[I] was in to see you with Brayden about a month ago to discuss the Halton Inn, and 9 Hole Golf course.

I was hoping you could help clear up a couple of items for us, please.

The main building has a banquet facility, outdoor patios, and 12 rooms. These rooms were originally to be used for overnight stays much like a hotel or B&B. Can these rooms be used for residential tenancies? As in a month to month or week to week basis? Is this legal? Can a new owner operate on this platform lawfully?

I was under the impression after our discussion that operating under this premise was against the NEP, and that you had some interest in this property regarding this matter.

Was there any letter or document sent to the present owner warning him of potential violations of the NEP.

The present uses can be continued, so the golf course operation if continued is not an issue. What happens if the golf operations cease? Even for a short period of time, say a year or just under? Can a new owner just pick up the property and begin functioning again as a golf course and Country Inn?

Can the present owner resume the function of golf course and Inn if it ceased for a period? [Emphasis added.]

[11] Mr. Baran quickly replied on the same day. His email states:

The current commercial use (club house/banquet facility) and the golf course pre-date the approval of the Niagara Escarpment Plan (NEP). The NEP contains provisions for established legally non-conforming uses that otherwise would not be permitted under the respective NEP designations (Escarpment Protection and Escarpment Natural Area in this case). A golf course and commercial uses are not permitted in either NEP designation, therefore if the uses were to cease, its re-establishment would likely not be supported. What time period is being considered, between ceasing and resuming operations?

I advise caution regarding the 12 rooms or apartments. The NEC would need to be satisfied that these were legally established through municipal building permits, etc., with sufficient documentation provided, especially if they were to be integrated with a future development proposal. There are no related NEC records of approval for the apartments and in the one prior Development Permit issued for golf course modifications on the property, the 12 rooms were not identified as part of the existing use….

To my knowledge, the owner was not directly contacted by the NEC regarding the 12 rooms. This issue only recently surfaced in conjunction with the property being on the market. Often, non-compliance issues (once verified) are resolved through a change in ownership. [Emphasis added.]

[12] On June 9, 2016, the solicitor for the plaintiff sent the following letter to the solicitor for the defendant:

Without pertinent information from the Seller (income for the golf course and tenant income) there is no way we can secure the secondary financing. We have heard repeatedly that some information would be made available, but have been given a deliberate and co-ordinated run around by the Seller and real estate representative.…

The present uses as described in Clause 8 of the Agreement of Purchase and Sale cannot be lawfully continued. Nevertheless, my clients are prepared to continue with this transaction provided the income documentation in reasonable form is provided forthwith.…

If my memory is correct, when we spoke recently you advised that the golf course was not operating. That alone would make it no longer a non-conforming use. The apartments are clearly non-conforming.

Below is an extract from an email received from the Niagara Escarpment Commission [excerpt from Mr. Baran’s letter, which is reproduced above].

In summary, I would suggest the following:

1. That we receive the financial information requested forthwith;
2. That the closing be postponed for 2 weeks following receipt of the financial information;
3. Failing the foregoing, that my client’s deposits be returned forthwith, and Mutual Releases exchanged. [Underlined emphasis added. Bold emphasis in original.]

[13] On June 9, 2016, Mr. Pressé responded:

Your client firmed up this transaction on May 14, 2016 waiving his due diligence provisions including “use”. Please read that amendment. Also, your client only raised the issue of secondary financing after firming up the transaction and after all financial matters had been finalized. Your client is not buying the business of the golf course nor were any representations or warranties given about any financial matters. Your client just agreed to assume the tenants as is. There are no representations about the rents. I don’t really care what the listing says nor what your client assumed. If he doesn’t close, he will lose his deposit.

[14] On June 13, 2016, Mr. Pressé sent the following message to Mr. Goodman:

As you are aware, this matter is scheduled to close, Wednesday, June 15, 2016. I have not received a requisition letter, closing documents not a draft of the vendor take back mortgage. We have sent you drafts of the closing documents that we prepared and the Statement of Adjustments. I left a message for you this morning to ask your client’s plans but have not heard back. My client is ready, willing and able to close. What are your client’s intentions?

[15] Later that day, an employee at Mr. Goodman’s firm sent the following letter on behalf of Mr. Goodman:

Mr. Goodman was not in the office today as it is a Jewish Holiday and will be in tomorrow. We will have our client’s documents for your review tomorrow.

[16] On June 14, 2016, Mr. Goodman sent the following letter to Mr. Pressé:

I enclose a copy of the vendor take back mortgage for your review.

Please note that title to the property will be registered in the name of 1957399 Ontario Inc. and would ask that you amend your documents.

I note that the Agreement says there are twelve residential apartments and yet your Statement of Adjustments refer 10 rooms plus the house; would you please clarify.

I will have the HST number for you tomorrow.

Please provide your personal undertaking to discharge instrument HR1047585 in favour of Halton Crushed Stone Limited.

[17] Mr. Pressé responded that same day as follows:

In response to your letter of this date, my closing package had already been picked up when I got your letter. (you may have received it by now.) You are hereby authorized to change the name of the buyer on the closing documents. I understand that of the 12 rental units 2 are vacant and that is why there are only 10 referred to on the Statement of Adjustments. I have provided you with my undertaking on the mortgage but I do have the discharge in my possession and I will register it once I am in funds and we are ready to close.

[18] On June 15, 2016, Mr. Goodman sent the following letter to Mr. Pressé:

I met with my clients at length. As a result of the zoning illegalities as set forth in my earlier correspondence with you, they are not prepared to close this transaction.

We will instruction the Realtors to prepare Mutual Releases, and would ask you to return the deposits that you are holding through the Realtors.…

[19] On June 15, 2016, Mr. Pressé responded:

I am in complete shock as a result of your last letter. As of 11:30 this morning, you advised your client was due in at noon to bring funds and sign the closing documents. Obviously, he has misled you as well.

I would confirm that you are not in funds and are unwilling to close. Please return my closing package to me as soon as possible. As you are aware, your client’s complaints about zoning are groundless as he waived his due diligence provisions in May, 2016. He is bound to close.

I will be releasing the deposits to my client in accord with the terms of the Agreement of Purchase and Sale.…

[20] Mr. Goodman and Mr. Pressé appear to have attempted to salvage the transaction after this point and continued their correspondence, although those letters and faxes were not filed with the court as they were made on a “without prejudice” basis.

[21] On June 20, 2016, Mr. Libawski sent the following message to Mr. Baran:

[A]ttached is a set of documents from the present owner of [the Property]. They are claiming that the main building which houses the Halton Country Inn, banquet facility, and outdoor patios have residential apartments currently being rented out and can be legally continued with a new owner.

I have not been able to determine where in your NEP multiple residential units are allowed, let alone call this type of usage legally non-conforming.…

[22] Once again, Mr. Baran responded on the same day. He stated:

Multiple dwelling units are not permitted on lands located in the primary NEP designations (Escarpment Natural, Protection and Rural). Any purchasers should satisfy themselves that the units were legally established before NEC Development Control was established (1973). The NEC has no record of any approval granted for the units, nor was this type of use disclosed through a prior Development Permit that was issued in relation to the existing golf course.

[23] In follow up to certain questions taken under advisement during his cross-examination for the purposes of this motion, Mr. Pressé advised that:

(1) He inquired with the Seller regarding documentation that would establish or show that the usage of the 12 residential units existed prior to 1973 and was advised that, despite a diligent search, no such documentation could be located. (2) He inquired to the previous owner regarding documentation that would establish or show that the use of the 12 residential units existed prior to 1973 and was advised that, despite a diligent search, no such documentation could be located. The previous owner advised that he operated the Halton Country Inn and golf course from 1978 until 2007 and that during that time, the Inn was used only for monthly or weekly tenancies.

[24] The plaintiff submits that the APS was terminated pursuant to paragraph 10 of the APS because (1) the present use of the proper could not be lawfully continued; (2) the defendant was unable or unwilling to remove, remedy or satisfy that issue; and (3) the plaintiff did not waive the objection.

Issue #1: Is a Motion for Summary Judgment Appropriate?

[25] Rule 20.04(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, states that a court shall grant summary judgment if the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.

[26] In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the Supreme Court of Canada stated the following, at para. 49:

There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

[27] Rule 20.04(2.1) provides that in determining whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at trial:

1. Weighing the evidence.
2. Evaluating the credibility of a deponent.
3. Drawing any reasonable inference from the evidence.

[28] In response to affidavit material or other evidence supporting a motion for summary judgment, a responding party may not rest solely on the allegations or denials in the party’s pleadings, but must set out, in affidavit material or other evidence, specific facts showing that there is a genuine issue requiring a trial: see Rule 20.02(2). Each side must “put its best foot forward” with respect to the existence or non-existence of material issues to be tried: see Papaschase Indian Band No. 136 v. Canada (Attorney General), 2008 SCC 14, [2008] 1 S.C.R. 372, at para. 11. A court is entitled to assume that the record contains all the evidence that the parties would present if the matter proceeded to trial: see Aronowicz v. EMTWO Properties Inc., 2010 ONCA 96, 98 O.R. (3d) 641, at paras. 17-19.

[29] As noted earlier, this motion proceeded on the basis of affidavit evidence filed by both parties.

[30] I find that I am able to make a “fair and just” determination of the merits of the motion for summary judgment.

Issue #2: Can the Residential Tenancy Use of the Property be Lawfully Continued?

[31] The Property was marketed as, amongst other things, containing 12 residential apartments.

[32] Paragraph 8 of the APS states that the Buyer shall satisfy himself that its present use may be lawfully continued.

[33] There does not appear to be any dispute that the NEP governs the Property and that a residential tenancy use of the Property is not permitted under the NEP (since the NEC Development Control was established in 1973) unless it is a legal non-conforming use.

[34] By letter dated June 10, 2016, Mr. Pressé delivered acknowledgements signed by 11 tenants indicating when their leases commenced and the terms of their tenancies. According to these documents, the oldest tenancy dates to August 1, 2000, although some of the acknowledgements do not indicate a start date.

[35] On cross-examination, conducted on January 31, 2017, Mr. Pressé stated that, according to the website for the Halton Country Inn, the residential tenancy use of the Property had continued since 1958. Mr. Pressé undertook to make inquiries from both the defendant and the prior owner of the Property; however, no documentation to support his belief that the Property was used for residential tenancy purposes prior to 1973 was obtained.

[36] I am satisfied that the defendant has failed to establish that the residential tenancy use of the Property is a legal non-conforming use and, thus, it cannot be lawfully continued.

[37] I am also satisfied that the defendant was unwilling or unable to remedy the plaintiff’s objection. The defendant failed to provide the requisite evidence to the plaintiff. I also note that the defendant did not provide a statutory declaration in its closing documents from the defendant’s principal to the effect that the residential tenancy use had legally existed prior to 1973.

Issue #3: Does the Legally Non-Conforming Residential Use Entitle the Plaintiff to Rescind Under the Terms of the APS?

[38] Under paragraph 8 of the APS, the plaintiff is allowed until June 10, 2016 (being five days prior to the completion of the APS) to satisfy itself that the Property’s present use may be lawfully continued.

[39] Paragraph 10 of the APS provides that if, within the specified times referred to in paragraph 8, any valid objection to the fact that the present use may not be lawfully continued is made in writing to the seller and the seller is unable or unwilling to remedy or satisfy it – and which the Buyer will not waive – then the APS, notwithstanding any intermediate acts or negotiations, is at an end and all monies shall be returned.

[40] The plaintiff communicated to the defendant its concern regarding whether the present use could be lawfully continued on many occasions prior to June 10, 2016. For instance, see the requisition letter from Mr. Goodman dated May 30, 2016 and his subsequent letter dated June 9, 2017.

[41] The defendant’s solicitor took the position that the plaintiff had waived any objections regarding whether the present use of the Property could be lawfully continued given that the purchaser had agreed to delete the due diligence condition originally found in the APS, which had required the plaintiff to be satisfied, amongst other things, that “the property is suitable for the buyer’s intended use.”

[42] In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 47, the Supreme Court of Canada stated that the interpretation of a contract has evolved towards a practical, common-sense approach that is not dominated by technical rules of construction. The Court stated:

The overriding concern is to determine the ‘intent of the parties and the scope of their understanding.’ To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning. [Citations omitted.]

[43] I accept the plaintiff’s position that this deleted due diligence condition addresses suitability other than in respect of whether the present use of the Property could be lawfully continued. Paragraphs 8 and 10 of the APS specifically reserve the purchaser’s rights (and the seller’s remedies) in respect of whether the use of a property can be legally continued. In my view, it is not commercially sensible to interpret the due diligence provision so broadly that it makes paragraphs 8 and 10 redundant in respect of objections about whether a present use can be legally continued.

[44] Accordingly, by operation of paragraph 10 of the APS, the APS ended June 10, 2016, unless the plaintiff waived its objection.

Issue #4: Did the Plaintiff Waive its Objection on or Before June 10, 2016?

[45] In W.J. Alan & Co. Ltd. v. El Nasr Export and Import Co., [1972] 2 Q.B. 189, at p. 213, Lord Denning M.R. explained the principles associated with the waiver of a term of a contract as follows:

The principle of waiver is simply this: If one party, by his conduct, leads another to believe that the strict rights arising under the contract will not be insisted upon, intending that the other should act on that belief, and he does act on it, then the first party will not afterwards be allowed to insist on the strict legal rights when it would be inequitable for him to do so: see Plasticmoda Societa per Azioni v. Davidsons (Manchester) Ltd. [1952] 1 Lloyd's Rep. 527, 539. There may be no consideration moving from him who benefits by the waiver. There may be no detriment to him by acting on it. There may be nothing in writing. Nevertheless, the one who waives his strict rights cannot afterwards insist on them. His strict rights are at any rate suspended so long as the waiver lasts. He may on occasion be able to revert to his strict legal rights for the future by giving reasonable notice in that behalf, or otherwise making it plain by his conduct that he will thereafter insist upon them: Tool Metal Manufacturing Co. Ltd. v. Tungsten Electric Co. Ltd. [1955] 1 W.L.R. 761. But there are cases where no withdrawal is possible. It may be too late to withdraw: or it cannot be done without injustice to the other party. In that event he is bound by his waiver. He will not be allowed to revert to his strict legal rights. He can only enforce them subject to the waiver he has made.

[46] More recently, the Ontario Court of Appeal in Technicore Underground Inc. v. Toronto (City), 2012 ONCA 597, 296 O.A.C. 218, at para. 63, stated:

Waiver occurs when one party to a contract (or proceeding) takes steps that amount to foregoing reliance on some known right or defect in the performance of the other party. It will be found only where the evidence demonstrates that the party waiving had (1) a full knowledge of the deficiency that might be relied on and (2) an unequivocal and conscious intention to abandon the right to rely on it. The intention to relinquish the right must be communicated. Communication can be formal or informal and it may be inferred from conduct. The overriding consideration in each case is whether one party communicated a clear intention to waive a right to the other party.

[47] Absent waiver, the APS, by its own terms, ended on June 10, 2016, as the defendant had been unable or unwilling to remedy or satisfy the plaintiff’s concern regarding the present use of the Property.

[48] It is clear from a review of the plaintiff’s statements and conduct prior to June 10, 2016, particularly Mr. Goodman’s letters dated May 30, 2016 and June 9, 2016, that the plaintiff had full knowledge of the deficiency related to the present use of the Property.

[49] However, I find that the plaintiff did, on balance, communicate an “unequivocal and conscious intention to abandon” the right to terminate the APS under paragraph 10 of the APS prior to June 10, 2016. The plaintiff agreed to amend the APS on May 18, 2016 to provide that it would assume all existing tenants upon completion of the APS. Further, the plaintiff’s solicitor sent a letter on May 30, 2016 requesting that the plaintiff obtain an amendment, on or before closing (June 15, 2016) to the local zoning bylaw to permit the current use to continue legally after closing. And in his letter of June 9, 2016, the solicitor for the plaintiff advised Mr. Pressé that the plaintiff was prepared to continue with the purchase, despite concerns related to whether the current use could be legally continued, provided that it received satisfactory rental and golf course income documentation from the defendant. To that end, the plaintiff proposed that the closing be postponed for two weeks.

Conclusions

[50] I dismiss the plaintiff’s motion for summary judgment. As well, I grant summary judgment in favour of the defendant and dismiss this action.

[51] The parties have agreed that the successful party shall have its costs of $15,000, inclusive of disbursements and taxes. Accordingly, the plaintiff shall pay costs of $15,000 to the defendant.

Mr. Justice M. D. Faieta Released: June 12, 2017