Court File and Parties

COURT FILE NO.: 17-61122 DATE: 2019/01/07 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Hamid Bashir Nawara, Plaintiff AND Riverstone Residences of Oakville Ltd., Defendant

BEFORE: The Honourable Justice L. C. Sheard

COUNSEL: Benjamin J. Noorduyn, Counsel for the Plaintiff Mark A. Klaiman, Counsel for the Defendant

HEARD: December 5, 2018

Endorsement

The Issues

[1] This motion was brought under Rule 22 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 for a determination of a point of law. There were two issues to be decided by the court:

(i) Would it be unconscionable for the defendant to retain the full amount of the deposit paid by the plaintiff?; and

(ii) If so, should any or all of the deposit be returned to the plaintiff?

The Facts

[2] The facts are set out in the Agreed Statement of Facts dated January 15, 2018 and can be briefly summarized as follows:

(a) in August 2011, the plaintiff’s brother agreed to purchase a residential condominium owned by the defendant (the “Vendor”). The brother paid deposits totaling $82,498.50 (the “Brother’s Deposit”) but was unable to complete the purchase. In April 2016, as per the terms of the Agreement of Purchase and Sale, the Brother’s Deposit was forfeited;

(b) on May 7, 2016, the plaintiff signed an Agreement of Purchase and Sale with the Vendor for the purchase of a different residential condominium unit in the condominium complex (the “APS”). The purchase price was $359,999.00. Paragraph 1(a) of the APS required the plaintiff to pay a series of deposits totaling $54,000.00 and paragraph 1(b) required a final deposit of $18,000.00 to be paid on the Occupancy Date. In all, the deposits totalled 20% of the purchase price;

(c) on May 26, 2016 the APS was amended. Paragraph 1(a) was deleted and, instead, the Vendor agreed to transfer and credit the Brother’s Deposit as a deposit toward the plaintiff’s purchase. Paragraph 1(b) was amended to increase the deposit required to be paid on the Occupancy Date by $565.00 to $18,565.00. In all other respects the terms and conditions of the APS were to remain unchanged;

(d) On August 2, 2016, the plaintiff failed to make the $18,565.00 payment required by the APS. The Vendor allowed the plaintiff until August 23, 2016 to cure his default, on which date the plaintiff paid $18,565.00. The final closing was set for September 28, 2016, and on that date the plaintiff was obliged to pay $250,926.50, the balance owing on the purchase.

(e) paragraph 25(a) of the APS states, in part, as follows:

All monies paid hereunder (including the deposit monies paid or agreed to be paid by the Purchaser pursuant to this Agreement which sums shall be accelerated on demand of the Vendor), together with any interest earned thereon and monies paid or payable for extras or upgrades or changes ordered by the Purchaser, whether or not installed in the Dwelling, shall be forfeited to Vendor. The Purchaser agrees that the forfeiture of the aforesaid monies shall not be a penalty and it shall not be necessary for the Vendor to prove it suffered any damages in order for the Vendor to be able to retain the aforesaid monies.

(f) The plaintiff was unable to complete the purchase on September 28, 2016. The Vendor extended the closing date to November 2, 2016 to allow the plaintiff to cure his default. The plaintiff did not do so. On November 3, 2016, the Vendor terminated the APS and retained the deposit of $18,565.00, paid by the plaintiff, and the Brother’s Deposit, which, together, totaled $101,063.50.

The Law

[3] Section 98 of the Courts of Justice Act, R.S.O. 1990, c. C. 43 permits the court to grant relief against penalties and forfeitures on such terms as to compensation or otherwise as considered just.

[4] The parties agree that to grant the relief sought by the plaintiff the Court must be satisfied that:

(i) the forfeited sum was out of proportion to the damages suffered; and

(ii) it would be unconscionable for the Vendor to retain the money. (Varajao v. Azish, 2015 ONCA 218, at para. 11; see also Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, at para. 15)

Is the forfeited sum out of proportion to the damages suffered?

[5] The plaintiff urges this Court to conclude that, in this case, the deposit is out of proportion to the damages suffered by the Vendor in that the Vendor may have suffered little or no damages: the Vendor was ultimately able to re-sell the subject condominium for $11,000.00 more than the plaintiff was required to pay pursuant to the APS.

[6] The Vendor submits that at paragraph 25 of the APS, the parties specifically agreed that the forfeiture of the deposit would not constitute a penalty and that it would not be necessary for the Vendor to prove it suffered any damages in order for it to retain the deposits.

[7] Secondly, the Vendor relies on Redstone, in which the Court concluded that, although the vendor in that case had suffered no damages, that fact alone did not render the forfeiture of the deposit unconscionable.

[8] Redstone is clear: the fact that the Vendor may not have suffered damages is not determinative. To be entitled to the relief sought, the plaintiff must establish that it would be unconscionable for the Vendor to retain the deposit.

[9] The plaintiff submits that the deposit was disproportionately large and that Redstone would allow a court to find the forfeiture of a disproportionately large deposit to be unconscionable. The total deposit amount of $101,063.50 was equal to approximately 28% of the purchase price.

[10] The plaintiff offered no expert opinion or evidence as to what may be customary in the circumstances here. Instead, the plaintiff asked the Court to consider deposits that have been found by other courts to be reasonable: 10%, as found by the court in Tang v. Zhang, 2013 BCCA 52; 2.59% found to be reasonable on a purchase price of $2,900,000.00 in Varajao; and 7% on a commercial transaction of $10,225,000.00 as in Redstone, supra.

[11] In cases put forth by the Vendor, deposits of 25% of the purchase price were not considered to be a penalty. In Signal Chemicals Ltd. v. Dew Man Marine Trade Inc., 2011 ONSC 3951 the court stated that “merely examining the percentage of the deposit to the purchase price is not determinative of whether or not a defaulting purchaser is entitled to relief from forfeiture” and noted that other courts had found deposit amounts of 4.8%, 20% and 25% not to be penalties (at para. 16). Other courts have reached similar conclusions: see, Hinkson Holding Ltd. v. Silver Sea Developments Limited Partnership, 2007 BCCA 408; and Amiri v. One West Holdings Ltd., 2013 BCCA 155.

[12] Here, the deposit of approximately 28% is 3% higher than the 25% deposits referred to in the cases put forth by the Vendor. While there was no direct evidence before the Court as to what is customary on a condominium purchase in the circumstances here, the agreements entered into between the Vendor and the plaintiff, and the Vendor and the plaintiff’s brother, offer some evidence as to the deposits paid in respect of this condominium building.

[13] The APS, as originally drafted, required the plaintiff to pay deposits totalling approximately 20% of the purchase price. Similarly, the initial agreement of purchase and sale entered into by the plaintiff’s brother on August 15, 2011 also contemplated his paying a deposit of just over 20% of the stated purchase price. Therefore, it is reasonable to conclude, which I do, that in the case of this Vendor, it was usual and customary to require a deposit of just over 20%.

[14] The Vendor urges the Court to look not only at the total amount of the deposit but to consider the source of the deposit. Here, the bulk of the deposit came from the Brother’s Deposit. The plaintiff, himself, paid no deposit until August 23, 2016, when he paid $18,565.00, just over 5% of the purchase price. Those facts distinguish this case from the cases referred to by the parties.

[15] The plaintiff submits that it does not matter that the bulk of the deposit came from the Brother’s Deposit: the parties agreed that it would be a credit to the benefit of the plaintiff. The Vendor submits that to return any portion of the Brother’s Deposit to the plaintiff would be a windfall to the plaintiff, who would be unjustly enriched by his own default.

[16] The plaintiff asks the Court to consider Liu v. Cole Harbour Properties Partnership, 2006 BCCA 385, a case referred to by the Vendor. In Liu, as here, the onus was on the plaintiff to establish that it would be unconscionable for the vendor to retain the deposit “in the factual circumstances” of that case (at para. 6). Liu canvassed trial decisions from that province and noted that while no relief from forfeiture was granted involving a 30% deposit in a volatile market, deposits much in excess of 20% of the purchase price “would invite particular scrutiny by a court” (at para. 14).

[17] The deposit here exceeds the 20% that appears to be the deposit amount usually required by the Vendor for this condominium complex and is above the upper range of 25% found in the cases referred to by the Vendor. Accordingly, it is appropriate to look closely at the facts for any indicia of unconscionability.

Would it be unconscionable for the Vendor to retain the money?

[18] The plaintiff argues that it would be unconscionable to allow the Vendor to retain the deposit. The plaintiff acknowledges that there was nothing unfair about the APS but submits that he has established certain indicia of unconscionability. In particular, the plaintiff raises inequality of bargaining power as between the plaintiff and the Vendor, suggesting that the plaintiff is relatively unsophisticated as compared to the Vendor; that bona fide negotiations did not take place because the plaintiff was not involved in the drafting of the APS; and the size of the deposit was disproportionate.

[19] The Vendor disputes that there was inequality of bargaining power and correctly points out that there is no evidence that the buyer was unsophisticated. The Vendor adds that allowing the Brother’s Deposit to be credited toward the plaintiff’s purchase used was “more than fair”.

[20] The Vendor also asks the Court to consider that the plaintiff was represented by his own real estate agent. With respect to the bona fides of the negotiations, the Court notes that the APS was amended after it was signed, to the significant benefit of the plaintiff.

[21] The Vendor asks the Court to consider the conduct of the Vendor, which twice accommodated the plaintiff by extending deadlines, and the absence of any evidence of efforts made by the plaintiff to complete the purchase.

Analysis

[22] Redstone instructs the Court in its analysis and makes it clear that a “finding of unconscionability must be an exceptional one, strongly compelled on the facts of the case.” (at para. 25). A deposit for the sale of land is an exception to the general rule that the payment should be a genuine pre-estimate of the loss and can be validly forfeited despite that the amount of the deposit bears no reference to the anticipated loss. (Tang v. Zhang, at para. 24, as quoted in Redstone, at para 27)

[23] For the reasons set out above, the plaintiff has not established that the deposit was disproportionately large in the circumstances of this case, or that, even if it were larger than customary, the size of the deposit, by itself, was sufficient to make its forfeiture unconscionable. As stated in Redstone, the indicia of unconscionability is context-specific (at para. 30).

[24] On the facts before the Court, it cannot be concluded that:

(i) there was inequality of bargaining power;

(ii) a substantially unfair bargain existed;

(iii) the plaintiff was relatively unsophisticated as compared to the Vendor;

(iv) the negotiations were not bona fide; or

(v) the conduct of the Vendor supports a finding of unconscionability.

[25] The gravity of the plaintiff’s breach was significant: he contracted to purchase the condominium and failed to complete the purchase. By contrast, the Vendor gave the plaintiff a significant benefit by allowing the Brother’s Deposit to be used as credit toward the plaintiff’s purchase and twice offered to extend the timelines to allow the plaintiff to complete the purchase.

Disposition

[26] Notwithstanding that the deposit totals 28% of the purchase price, on the facts of this case, I conclude that it would not be unconscionable for the Vendor to retain the full amount of the deposit. Therefore, the plaintiff’s motion is dismissed and the defendant (Vendor) is entitled to retain the deposit in full.

Costs

[27] As the successful party on the motion, the defendant is entitled to its costs. In its factum, the defendant asked for its costs on a partial indemnity basis. The plaintiff’s factum did not include costs submissions.

[28] If the parties are unable to agree on costs, they may deliver written submissions of no more than three pages, double-spaced, in addition to any pertinent offers and supporting dockets. The defendant’s submissions are to be served and filed within 21 days, and the plaintiff’s reply submissions shall be served and filed within 14 days thereafter. Written submissions are to be forwarded to me at my chambers at 45 Main Street East, Suite 626, Hamilton Ontario L8N 2B7. If no submissions are received within 35 days, the parties will be deemed to have settled the issue of costs as between themselves.

L. Sheard J. Released: January 7, 2019