COURT FILE NO.: CV-20-639769 DATE: 2020-05-29 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: JINNING WANG, Applicant AND: 2426483 ONTARIO LIMITED, Respondent

BEFORE: Schabas J.

COUNSEL: Gregory Sidlofsky, for the Applicant Stephen Nadler, for the Respondent

HEARD: May 21, 2020

REASONS FOR JUDGMENT

Introduction

[1] The Applicant seeks relief from forfeiture arising from an agreement of purchase and sale of a townhouse after he listed and sold the townhouse without the Respondent’s prior written consent, as required in the agreement. The Applicant seeks an order that the Respondent close the agreement in accordance with its terms or, alternatively, that the Respondent return the deposit and occupancy fees paid by the Applicant. For the Reasons that follow, I dismiss the application.

Background Facts

[2] By agreement of purchase and sale dated March 14, 2016 (the “Agreement”), the Respondent (the “Vendor”) agreed to sell to the Applicant (“Wang” or the “Purchaser”) a townhouse unit (the “Townhouse”) in a pre-construction project located at 73 William Saville Street, in Markham, Ontario, for the sale price of $1,188,800.

[3] In accordance with the Agreement, Wang paid $150,000 in deposits in 2016 and 2017.

[4] The Agreement also provided for an occupancy date, which could be postponed by the Vendor so long as the occupancy date was prior to December 31, 2019. Although the Agreement contemplated dates for occupancy in 2018, it was not until December 5, 2019, that Wang commenced interim occupancy. The Agreement did not set a final closing date, which would occur some time after occupancy. While the Applicant complains on this application about the Vendor’s non-compliance with the notice provisions extending the occupancy date, there is no evidence of any confusion over the delays in occupancy and Wang made no complaint about it at the time. Wang took possession, but did not move into the Townhouse, on December 5, 2019, at which time he began paying monthly occupancy fees to the Vendor of $4,012.38 monthly, pending closing, through March 2020. The total occupancy fees paid were $15,531.79.

[5] In July 2019, the Respondent’s sale manager, Stephanie Kong (“Kong”), visited the Multiple Listing Service (“MLS”) website and discovered that Wang had listed the Townhouse for sale. This was in breach of s. 11.4 of the Agreement, which requires the Vendor’s prior consent to any sale or any other dealing with the property. The relevant portions of section 11.4 of the Agreement provides as follows:

Section 11.4 No Assignment

(a) The Purchaser shall not, directly or indirectly, lease, offer to lease, list for sale, advertise for sale or lease, assign, convey, sell, transfer, or otherwise dispose or part with possession of the Townhouse or any interest the Purchase may have in the Townhouse, or any rights or interest the Purchase may have under this Agreement, or agree to any of the forgoing, without the prior written consent of the Vendor, which consent may be unreasonably and arbitrarily withheld. If the Purchaser breaches this prohibition, the Purchaser acknowledges and agrees that the Vendor shall have the right to charge a default fee of $2,500.00 plus Applicable Taxes for each violation of this provision as an adjustment item on Closing.

The Purchaser acknowledges and agrees that if it breaches the covenants in this Section 11.4, the Vendor shall have the unilateral right and option of terminating this Agreement effective upon delivery of notice to the Purchaser or the Purchaser’s solicitor whereupon the provisions of this Agreement dealing with the consequence of termination by reason of the Purchaser’s Default shall apply.

[6] The Agreement also provides, among other things, in s. 8.1(b), that the Purchaser shall be deemed to be in default in the event of the Purchaser’s breach of any covenant, obligation, restriction or provision of the Agreement. Section 8.3 provides that “[i]n the event of a default by the Purchaser, … the Vendor, at its sole, absolute and unfettered option, shall have the right to declare the Vendor’s obligations under this Agreement null and void,” and in such event, all deposit and other monies paid by the Purchaser, including occupancy fees, “shall be forfeited to the Vendor as liquidated damages and not as a penalty, … and the Purchaser shall … forthwith give up possession of the Townhouse” if he is occupying it.

[7] Kong informed Wang’s real estate agent by email that the listing was in breach of s. 11.4 of the Agreement and demanded that he remove the listing immediately. Shortly thereafter, Wang removed the listing of the Townhouse for sale.

[8] Sometime after the aborted July listing, Wang inquired of Kong about selling or assigning the property to someone else with the Respondent’s consent. However, the Vendor advised Wang that, if the Vendor was willing to consent, the incentive credits provided to him could not be assigned and he would lose the benefit of them. These credits were significant, as the Vendor had agreed to provide a credit of $30,000 towards the purchase price on closing and provided additional options to the Townhouse during construction with a value of approximately $30,000. The Vendor had also agreed to a cap on development charges to be paid by the Purchaser of $9,800. There is some evidence that otherwise Wang’s share of the development charges for the Townhouse would be as much as four or five times the $9,800. Wang did not wish to lose these credits and benefits.

[9] On December 2, 2019, Wang contacted the Vendor by email to ask if he could list the Townhouse for sale on December 5, 2019, when he would start interim occupancy. The next day, Kong informed Wang that he could not list the Townhouse for sale until after final closing.

[10] Despite this exchange, Wang re-listed the Townhouse for sale two weeks later and in fact entered into an agreement of purchase and sale with Jianyun Ma (“Ma”) in January 2020 to sell the Townhouse for $1,290,000, with a scheduled closing date of April 8, 2020. However, the agreement was conditional on Wang completing the closing with the Vendor first.

[11] On March 2, 2020, Kong visited the MLS website and found that Wang had re-listed the Townhouse for sale on December 18, 2019 and that it had been sold in January 2020. The Vendor had not consented to these actions by Wang.

[12] Following this discovery, on March 4, 2020, the Vendor’s solicitor notified Wang that, in light of breaches of ss. 8.1(b) and 11.4 of the Agreement, the Vendor had terminated the Agreement pursuant to s. 8.3 of the Agreement, and would be keeping the deposits and occupancy fees paid to date.

[13] Wang responded on March 8, 2020, asking if he could discuss the matter with the Vendor. On March 11, 2020, Wang wrote to the Vendor’s solicitor complaining of alleged breaches of the Agreement by the Vendor regarding delays in occupancy. In that letter, Wang notes that he is a “legal professional” as he is a licenced paralegal.

[14] On March 16, 2020, Wang and Ma terminated their agreement of purchase and sale, but Ma was provided with an option to revive the agreement if Wang settled his dispute with the Vendor and closed the sale prior to June 30, 2020.

[15] The Vendor also demanded that Wang vacate the property. As noted, Wang did not move into the Townhouse, but claims his parents spend 2-3 days per week there. Pending this application, the Vendor has not taken steps to repossess the Townhouse, nor has it cashed any further cheques from Wang for monthly occupancy fees.

[16] The Respondent also led uncontradicted evidence that nine townhouses in the project remain unsold. Four of the townhouses are identical to the Townhouse Wang agreed to purchase and the other five are only slightly larger than the Townhouse. As Kong notes, instead of buying Wang’s Townhouse, Ma could have purchased one of the nine remaining units available in the project. This is the purpose of the restriction on reselling a Townhouse before closing, as the success of the project is dependent, at least in part, on the developer selling as many units as possible, which is made more difficult if purchasers are marketing their units as well.

Issues

[17] The following issues arise for determination:

(a) Is the Vendor’s remedy for breach of s. 11.4 limited to charging the Purchaser $2,500 on closing? (b) Is the Applicant entitled to relief from forfeiture and to have the Agreement be completed in accordance with its terms? and (c) In the alternative, is the Applicant entitled to relief from forfeiture in order to have the deposit and occupancy fees returned to him?

Analysis

What remedies apply to a breach of s. 11.4?

[18] As a starting point, it is undisputed that the Applicant breached the Agreement when he listed the Townhouse for sale. However, the Applicant argues that the stipulated penalty for this breach is to charge Wang $2,500 on closing. The Respondent’s position is that it was open to the Vendor to terminate the Agreement under ss. 11.4 and 8.3.

[19] In my view, the Respondent clearly has the right to terminate the Agreement following a breach of s. 11.4. Although subsection 11.4(a) of the Agreement provides the Vendor with the “right to charge a default fee of $2,500.00 plus Applicable Taxes for each violation of this provision as an adjustment item on Closing,” this is a fee that can be charged to cover costs to the Vendor in enforcing the Agreement, such as occurred in July 2019 when Kong discovered the first listing by Wang. But it in no way detracts from the wording elsewhere in the section that a breach of 11.4 by a purchaser gives the Vendor the right to terminate the Agreement, should it choose to do so.

[20] While Wang says he believed that the only consequence of selling his Townhouse in breach of the Agreement was the $2,500 fee, this is simply not credible given his earlier attempt to sell the property, its quick removal from the market when the Vendor learned of it, his other inquiries about his ability to sell the Townhouse prior to closing, and the clear wording of the Agreement.

Is the Applicant entitled to relief from forfeiture and to performance of the Agreement?

[21] Section 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43, permits the court to grant relief from forfeiture “on such terms as to compensation or otherwise as are considered just”. Relief from forfeiture is granted sparingly and the onus rests upon the party seeking the relief: Shah v. Southdown Towns Ltd., 2017 ONSC 5391, 10 C.P.C. (8th) 337, at para. 44, citing Ontario (Attorney General) v. 8477 Darlington Crescent, 2011 ONCA 363, [2011] O.J. No. 2122.

[22] In determining whether to grant relief from forfeiture, the court must consider: (1) the conduct of the Applicant; (2) the gravity of the breach; and (3) the disparity between the value of the property forfeited and the damage caused by the breach: Shah, at para. 31; Kozel v. The Personal Insurance Company, 2014 ONCA 130, 315 O.A.C. 378, at para. 31.

Conduct of the Applicant

[23] The Purchaser’s conduct weighs strongly against him. For the court to exercise its jurisdiction to grant relief from forfeiture, it must find that the Applicant has made diligent efforts to comply with the terms of the Agreement, and that he could not comply through no fault of his own. As stated in Shah, at para. 62, relief from forfeiture is “not available as an excuse for the non-performance of contractual obligations within the control of the defaulting party”. See also: North Elgin Centre Inc. v. McDonald’s Restaurants of Canada Ltd., 2017 ONSC 3306, [2017] O.J. No. 3121; 120 Adelaide Leaseholds Inc. v. Oxford Properties Canada Ltd., 1991 CarswellOnt 2200, aff’d [1993] O.J. No. 2801 (C.A.).

[24] In this case, Wang knowingly and deliberately breached the Agreement when he listed and sold the Townhouse in December 2019 and January 2020. He knew this was a breach following his attempt to sell it in July. His knowledge is also clear from his inquiries of Kong about to assigning it and whether he could sell once he obtained occupancy. Wang’s assertion that he thought he would only be charged $2,500 is, as I have already concluded, not credible and is not supported by the wording of the Agreement.

[25] Wang asserts that his post-breach conduct, by rescinding his agreement with Ma, should weigh in his favour. That might be the case if this was his first breach; indeed, it appears the Respondent forgave his breach in July when he immediately delisted the property. But this was the second breach, and Wang has gone much further and actually entered into an agreement to sell the Townhouse following closing his Agreement with the Respondent (and after obtaining the benefit of the incentive credits). Further, Wang’s termination of his agreement with Ma is not really a termination at all, as Ma has an option to buy the Townhouse on the same terms if the deal between Wang and the Respondent continues and closes before June 30, 2020.

[26] As this Court stated in Signal Chemicals Ltd. v. Dew Man Marine Trade Inc., 2011 ONSC 3951, 8 R.P.R. (5th) 151, at para. 26: “While the respondent points to evidence that it wished to continue the transaction in spite of its breach of the contract, … this post breach conduct which is equivocal at best, does not amount to reasonable conduct.” Wang’s post-breach conduct was, at best, equivocal, and does not amount to reasonable conduct which might favour equitable relief.

[27] Wang also claims it is unjust for the Vendor to act on Wang’s breach when, he says, the Vendor breached the Agreement by delaying the occupancy date without strictly complying with the notice provisions. Even if this amounted to a breach, however, Wang’s remedy is to seek compensation for delayed occupancy under s. 7 of the Tarion Addendum to Agreement of Purchase and Sale. It does not give him a right to terminate, or to ignore other terms, of the Agreement. By contrast, the Vendor has acted reasonably in promptly bringing to Wang’s attention his breaches, and in not exercising its right to terminate when Wang first breached the Agreement by listing the property in July 2019.

[28] In my view, Wang’s conduct does not demonstrate reasonable diligence to comply with the Agreement. Rather, he deliberately breached it and made, at best, a half-hearted effort to cure his breach. This conduct precludes a finding of “clean hands”, which is required for the court to grant equitable relief: Shah, at para. 63.

[29] While my finding on this point is sufficient to dispose of the claim, I nevertheless consider the two other factors.

Gravity of the breach

[30] The Purchaser’s breaches were not minor. By attempting to sell his Townhouse, the Purchaser undermined the Respondent’s ability to sell one of its remaining identical units by competing with the Vendor for potential purchasers. This is not a trivial or minor matter such as was found in the cases referred to by Emery J. in Shah, at paras. 66-68. The townhomes are each worth in excess of $1M. The evidence of Kong is that the success and viability of the project is dependent, in part, on the Respondent’s ability to sell all the units which becomes much more difficult when it has to compete with purchasers who have already committed to purchasing their units, but who are actively trying to sell, or flip, their units. Wang breached the Agreement deliberately, in the hope of avoiding losing the incentive credits, and he failed to properly cure the breach by maintaining an option for Ma to purchase the Townhouse if he was able to close the deal with the Vendor. His breach was serious and flagrant, and the gravity of the breach does not support granting relief.

Disparity of value

[31] For similar reasons, I find that this ground does not favour the Applicant either. The question here is whether there is a substantial disparity between the value of the property forfeited and the damage caused to the vendor by the breach: Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490.

[32] The prohibition on listing or selling the Townhouse without consent is to prevent purchasers from competing with the Respondent in selling all the properties in the complex. Selling all the units contributes to the success of the project. Competing with the Vendor for potential purchasers interferes with the Vendor’s ability to sell unsold units worth in excess of $1M each. While there is no evidence that Ma would have bought a townhouse from the Respondent instead, and therefore no evidence that the Respondent in fact suffered damage as a result of the breach by the Applicant, the potential loss of a purchase is significant, and may well be comparable to the loss suffered by the Applicant, if not higher. Consequently, there is no basis for me to find a significant disparity between the value of the property forfeited and the damage caused to the Vendor.

[33] In argument, counsel for the Applicant put considerable emphasis on my recent decision in Lucas et al v. 1858793 Ontario Inc. o/a Howard Park et al., 2020 ONSC 964, 314 A.C.W.S. (3d) 879, in arguing that the forfeit of Wang’s deposit and occupancy fees would be disproportionate to the harm suffered by the vendor. However, in Lucas the breach (if any) was cured immediately, the vendor sat on its rights to the prejudice of the purchaser for several months, and the purchaser’s loss was much greater than the harm to the vendor which, as I found, would have been unjustly enriched by selling the unit for a much higher amount. In short, Lucas is distinguishable on every point.

[34] Accordingly, none of the relevant factors in granting relief from forfeiture to complete the Agreement favour the Applicant, and that relief is denied.

Is the Applicant entitled to relief from forfeiture for the deposit and occupancy fees?

[35] Where a transaction involving the sale of land does not close due to defaults by the purchaser, the general rule is that the vendor is entitled to the deposit amount without having to prove damages: Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, 137 O.R. (3d) 374, at paras. 20 and 27. The Agreement, in s. 8.3, goes one step further and provides that the deposit and occupancy fees are forfeited to the Vendor as liquidated damages. However, the Court retains jurisdiction to grant relief from forfeiture of these amounts in circumstances where the Applicant establishes: (1) that the forfeited deposit is out of all proportion to the damages suffered; and (2) that it would be unconscionable for the vendor to retain the deposit: Redstone, at para. 15.

[36] In my view, the Applicant meets neither branch of the test. Again, the burden is on the Applicant to meet the test and satisfy the court that the relief, which is to be granted sparingly, is appropriate.

Proportionality

[37] The deposit and occupancy fees paid are not disproportionate to the damages suffered, or which may have been suffered, by the Vendor. Although Wang argues that the Vendor suffered no damages, making the forfeiture disproportionate, his actions led to the removal from the market of a potential purchaser interested in buying a townhouse in the project. The Vendor was deprived the opportunity to sell one of its identical, or nearly identical, unsold townhouses to Ma and deriving the sales revenue therefrom.

[38] In any event, even if the Vendor suffered no damages, it has no obligation to prove damage Rather, the issue is whether the Vendor’s right to retain the funds, or the full amount of the funds, is unconscionable: Redstone, at para. 17; Xu v. 2412367 Ontario Limited, 2017 ONSC 4445 at paras. 64-65; 567 College Street Inc. v. 2329005 Ontario Inc., 2019 ONSC 7346 at paras. 64-67.

Unconscionability

[39] In Redstone, the Court of Appeal stated, at para. 18, that “[t]he analysis of unconscionability requires the court to step back and consider the full commercial context.” This involves considering the purpose of deposits in real estate transactions and looking at whether the amount was unreasonable and grossly disproportionate to the purchase price. Further, where there is no gross disproportionality then the Court must consider other indicia of unconscionability, including “inequality of bargaining power, a substantially unfair bargain, the relative sophistication of the parties, the existence of bona fide negotiations, the nature of the relationship between the parties, the gravity of the breach, and the conduct of the parties:” Redstone, at para. 30.

[40] As the Court of Appeal stated at para. 25, “the finding of unconscionability must be an exceptional one, strongly compelled on the facts of the case.” In my view this is not such an exceptional case. Wang has not established that it would be unconscionable for the Vendor to retain the deposit. The deposit size, which is 12.6% of the purchase price in the Agreement, falls within a reasonable range in accordance with case law and is in fact lower than deposits of greater amounts and greater percentages of the purchase price which have been found not to be disproportionate in other cases: see e.g., Redstone, at paras. 27-28: Signal Chemicals, at para. 16; Azzarello v. Shawqi, 2018 ONSC 5414, 439 D.L.R. (4th) 127, at para. 66; Dar v. The Yards Corporation, 2018 ONSC 5043, 299 A.C.W.S. (3d) 214, at paras. 12 and 91; Nawara v. Riverstone, 2019 ONSC 111, 300 A.C.W.S. (3d) 882 at para. 26; Greco v. Padovani, 2019 ONSC 4105, 307 A.C.W.S. (3d) 653, at para. 30. The addition of the occupancy fees, which is a little more than 1% of the purchase price, also does not make the total amount so grossly disproportionate as to be unconscionable.

[41] Nor are there other indicia of unconscionability here. There is no evidence of any inequality of bargaining power, or of a substantially unfair bargain. Wang is a licensed paralegal and is not unsophisticated. If anything, the gravity of the breach and the conduct of the Applicant points very much away from this being an “exceptional” case that would justify relief.

Conclusion

[42] The Application is dismissed. If the parties cannot agree on costs, the Respondent shall provide me with written submissions not exceeding 3 pages, not including supporting documents, within three weeks of the release of these Reasons, and the Applicant may respond in materials of similar length two weeks later.

Schabas J.

Date: May 29, 2020