Court File and Parties

COURT FILE NO.: CV-22-676263 DATE: 2022-04-06 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: HAMIDREZA RAHBAR and MARYAM ESMAEILI, Applicants AND: EHSAN PARVIZI and SAMIN SHOKRI, Respondents

BEFORE: Koehnen J.

COUNSEL: Romesh Hettiarachchi, for the Applicants Andrew Camman, for the Respondents

HEARD: March 29, 2022

Endorsement

Overview

[1] The applicants are the purchasing parties in an agreement of purchase and sale for the purchase of a residential property in Waterloo Ontario. The applicants submit that the respondents improperly terminated the agreement of purchase and sale based solely on the applicants’ request for an extension of the time to close. They seek an order for specific performance, punitive damages and, in the alternative relief from forfeiture and the return of their deposit.

[2] On my view of the entire record, the respondents did not terminate the transactions because the applicants had asked for an extension of the time to close but because the applicants were unable to and did not close.

[3] Although the respondents were able to re-sell the property at a higher price, that does not render it unconscionable for the respondents to retain the deposit. The record does not disclose any factors that make it unconscionable to apply the ordinary rule that would allow the respondents to retain the deposit of a defaulting purchaser. I therefore dismiss the application.

The Facts

[4] On September 21, 2021, the Applicants, Hamidreza Rahbar and Maryam Esmaeili, entered into an Agreement of Purchase and Sale with the Respondents, Ehsan Parvizi and Samin Shokri, for the purchase by the Applicants of a residential property at 429 Sauve Crescent in Waterloo, Ontario (the “Property”). The respondents are the vendors under the agreement of purchase and sale. The applicants paid a deposit of $50,000 on signing the agreement with the balance of the total purchase price of $1,105,000 due on closing.

[5] Closing was to occur by 6:00 PM on December 15, 2021.

[6] By December 8, 2021, the vendor’s lawyer, Mr. Joseph Campione had not received a requisition letter from the applicants’ lawyer, as a result of which his office wrote to the applicants’ lawyer, Ms. Felorin Rahi, advising her of this.

[7] On December 9, 2021, Mr. Campione’s office sent Ms. Rahi the respondents’ signed closing documents.

[8] The applicants were to obtain financing to purchase the Property from Scotiabank. On December 14, 2021, Scotiabank advised the applicants that it would not extend financing. The reasons for Scotiabank’s withdrawal are not contained in the record.

[9] At approximately 3:30 PM on December 15, Ms. Rahi phoned Mr. Campione and told him that her clients’ intended financing had fallen through and that the applicants would be requesting a short extension of the closing date. Mr. Campione asked her to put the request in writing with a new proposed closing date and said he would seek instructions. By 5:00 PM Mr. Campione still had not received a written request from Ms. Rahi.

[10] At 5:08 PM on December 15, 2021, Mr. Campione sent a further set of the vendor’s signed closing documents to Ms. Rahi.

[11] At 5:09 PM on December 15, 2021, Mr. Campione sent Ms. Rahi the following email:

I write to your further to the closing of the above referenced matter, which is scheduled to be completed Today.

I confirm that the time is now approximately 5:05pm and we have not received any funds or closing documents from your office. I also confirm that you have not completed the Transfer that was messaged to your office, as such we cannot sign for completion with respect to the same.

I also confirm that we have provided your office with all deliverables pursuant to the DRA. Our clients are ready, willing, and able to complete this transaction today.

Please immediately advise as to the status of this matter and when we can expect to receive the funds and signed documents in order to complete this transaction as scheduled. (emphasis in original)

[12] At 5:12 PM on December 15, 2021, Ms. Rahi wrote to Mr. Campione asking for an extension to January 10, 2022. Ms. Rahi could not explain why she waited over 90 minutes after the call to put her request in writing.

[13] At 5:16 PM on December 15, Mr. Campione’s law clerk acknowledged receipt of Ms. Rahi’s request to extend closing to January 10, advised that he had forwarded the request to his clients and that Mr. Campione would be in touch as soon as he receives instructions.

[14] At 6:33 PM Mr. Campione responded refusing the extension, confirming that his clients were “treating your request for an extension as an anticipatory breach of the Agreement of Purchase and Sale thereby discharging us of the obligation to tender.” Mr. Campione also stated that the agreement was terminated, that the respondents would retain the applicants’ deposit and that the respondents would hold the applicants liable for any damages.

[15] Ms. Rahi responded two minutes later at 6:35 PM with a further request for an extension, this time to January 20, 2022.

[16] Mr. Campione responded at 6:37 PM stating that his clients’ instructions were to grant no extension of any kind and confirming that the agreement was terminated.

[17] Ms. Rahi wrote back at 4:28 AM on December 16 advising that the applicants had arranged for private financing and were now able to close on December 16. Apart from a statement in the affidavit of the applicant, Maryam Esmaeili, that that applicants had financing, I was not directed to any further evidence that financing was available to the applicants on December 16 or what conditions, if any, attached to it.

[18] On December 22, 2021, the Respondents entered into a second agreement to sell the Property to new purchasers for a price that was $130,000 more than the agreement with the applicants. The new agreement was scheduled to close on February 25, 2022, but was amended to bring the closing date forward to February 11, 2022. That agreement has not closed because a certificate of pending litigation was registered against the Property pending resolution of this application.

The Issues

[19] The following issues arise out of the foregoing facts:

i. Did the respondents improperly terminate the agreement of purchase and sale? ii. Were the respondents in a position to close on December 15, 2021? iii. Are the applicants entitled to the return of their deposit?

Did The Respondents Improperly Terminate the Agreement?

[20] The applicants’ argument that the respondents improperly terminated the agreement turns on two legal concepts: anticipatory breach and bad faith.

(a) Anticipatory Breach

[21] The applicants rely heavily on the email that Mr. Campione sent at 6:33 PM on December 15, 2021, in which he stated that the respondents were:

treating your request for an extension as an anticipatory breach of the Agreement of Purchase and Sale thereby discharging us of the obligation to tender.

[22] The applicants rely on 1179 Hunt Club Inc. v. Ottawa Medical Square Inc., 2019 ONCA 700 for the proposition that a mere request for an extension does not amount to an anticipatory breach. While that is an accurate statement of law, the full passage in Hunt Club that articulates this proposition also contains additional nuances that are applicable here. The full paragraph reads:

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.

[23] As in Hunt Club, the conversation here did not end with a mere request for an extension. The extension was sought because the applicants could not close. As in Hunt Club, the inability to close put the applicants into a position of anticipatory breach when Mr. Campione insisted, at 5:09 PM on December 15, that the transaction close as scheduled.

[24] An anticipatory breach arises when one party, whether by express language or implied conduct, repudiates the contract or evinces an intention not to be bound by the contract before performance is due. Nutzenberger v. Mert, 2021 ONSC 36 at para. 51; Spirent Communications of Ottawa Limited v. Quake Technologies (Canada) Inc., 2008 ONCA 92, at para. 37. To determine whether conduct amounts to a repudiation, the Court looks to whether a reasonable person would conclude that the breaching party no longer intends to be bound by the contract before performance is due. Spirent Communications of Ottawa Limited v. Quake Technologies (Canada) Inc., 2008 ONCA 92, at para. 37. It is clear on the record that the applicants had no ability to close the purchase before 6:00 PM on December 15, 2021. Where a purchaser’s lawyer undeniably communicates to a vendor’s lawyer that the purchasers are not able to close on the scheduled closing date, that communication amounts to an anticipatory breach. Spiridakis v. Li, 2020 ONSC 2173 at para. 65. The anticipatory breach here lay not in the request for an extension but in the communication that the vendor’s financing had fallen through. The ultimate proof of that was that the applicants were not able to close by 6:00 PM as required.

[25] The applicants further submit that, even if the request at 3:30 PM had amounted to an anticipatory breach, it would not have terminated the agreement because an innocent party must respond to the anticipatory breach before it can be determined whether the contract is at an end. Brown v. Belleville (City), 2013 ONCA 148 at paras. 41-48. This is so because the innocent party may wish to affirm the contract and encourage continued performance, perhaps on different terms, or either affirm or disaffirm the contract and sue for damages.

[26] I do not see that proposition as advancing the applicants’ case. Ninety minutes after Ms. Rahi advised of an absence of financing and raised the extension, Mr. Campione wrote her at 5:09 PM affirming the contract and stating clearly that the agreement had to close that day in accordance with its terms. That was an implicit rejection of the request for an extension.

[27] The applicants argue that the respondents should not be able to rely on Mr. Campione’s email of 5:09 PM because Mr. Campione admitted in cross-examination that he did not receive instructions to reject the request for the extension until after 6 PM.

[28] The fact that Mr. Campione may have written the 5:09 PM email without specific instructions from his clients is a matter between Mr. Campione and his clients. It is not a matter that the applicants can complain about. In my view, Mr. Campione acted entirely appropriately and fairly in sending the email at 5:09 PM. He was faced with a conundrum. The applicants had done nothing to advance the closing but had requested an extension only two and a half hours before the closing deadline. Mr. Campione was unable to get in touch with his clients before the closing deadline. The appropriate thing for counsel to do in those circumstances is to advise the counterparty that the contract must proceed on its terms. To do otherwise would risk having Mr. Campione’s clients lose the benefit of the contract and be subject to a renegotiation. In advising Ms. Rahi that the contract must close on its terms, Mr. Campione retained optionality for his clients. If it turned out that his clients were prepared to grant an extension, they could do so. If his clients chose not to grant an extension, they could still rely on the contract. The email of 5:09 PM could not have lulled the applicants into any false sense of security.

[29] The applicants next argue that Ms. Rahi sent a further response at 5:12 PM with a request for an extension to January 10, 2022. The applicants submit that the respondents were obliged to respond to that request before they could terminate the agreement. The response to this new request came at 5:16 PM. It was not a rejection but a commitment to revert once Mr. Campione had received instructions. Mr. Campione did not respond to the request for an extension to January 10 until 6:33 PM, more than 30 minutes after the deadline for closing. Since Mr. Campione did not respond before closing, the applicants submit that they should be afforded a reasonable time to close after receiving Mr. Campione’s email of 6:33 PM and that they were able to close the next day.

[30] I do not view the facts in quite the same way. The applicants did not close on December 15 because they had no money; not because they were waiting for a response to their request for an extension to January 10. They had already been told at 5:09 PM that the transaction had to close according to its terms. The applicants cannot ignore that clear statement by asking for a different extension and argue that each new extension request somehow freezes the closing deadline until Mr. Campione receives instructions and communicates the answer back to the applicants, at which time a new “reasonable time” to close would be established. That may indeed have been the applicants’ strategy. They first asked for an extension orally without a fixed date. When rejected, they ask for a different extension to January 10. When that was rebuffed at 6:33 PM they asked for still another extension to January 20. Presumably that could go on indefinitely. That would be far too easy a way to eviscerate a time is of the essence clause which the agreement of purchase and sale included.

(b) Bad Faith

[31] The applicants make two arguments in respect of bad faith.

[32] First, they suggest that Mr. Campione had given Ms. Rahi some level of comfort that the extension would be granted. It is fair to say that the applicants did not push this point too strongly. In my view, the record does not support any level of comfort on Ms. Rahi’s part. Although the applicants assert that that Ms. Rahi had the impression that the extension would be granted, when cross-examined about what gave her that impression, she said it was just the way she and Mr. Campione spoke. When pressed for specifics, she could not recall any. In any event, she conceded that Mr. Campione had not agreed to the extension and would need instructions on the point.

[33] It is also noteworthy with respect to any sense of comfort that, after Mr. Campione sent his email at 6:33 PM terminating the transaction, Ms. Rahi did not respond with any suggestion that there had been an understanding that the extension would be granted or that additional time to close would be granted if the extension were not refused before 6 PM.

[34] The appellant’s second bad faith argument is that they were able to close on December 16 and that it was inappropriate for the respondents to refuse to grant a one-day extension.

[35] While that result may seem harsh at first blush, it is a position that the law generally allows and is one that is not unfair to the applicants.

[36] My starting point is that the applicants were in control of their own financing. They appear to have received some sort of commitment from Scotiabank in that regard. That financing was withdrawn the day before closing. As noted, there is no material in the record to explain why the financing was withdrawn. As a rule, mortgage financing with a larger institutional lender is arranged sometime before closing on terms and conditions that are well understood between the lender and the borrower. If the lender refuses to provide financing at the last minute, it is generally because the borrower has defaulted on some condition that is critical to the lender. Given that the applicants had substantially more control over their relationship with Scotiabank than did the vendor, any risk in that regard should be for the applicants to bear.

[37] The absence of any explanation for why Scotiabank withdrew funding at the last minute leads me to infer that it was caused by something within the applicants’ control and that might not cast them in a favourable light.

[38] Section 20 of the agreement of purchase and sale contains a typical time is of the essence clause which provides:

Time shall in all respects be of the essence hereof provided that the time for doing or completing of any matter provided for herein may be extended or abridged by an agreement in writing signed by Seller and Buyer or by their respective lawyers who may be specially authorized in that regard.

[39] As the Ontario Court of Appeal noted in Di Millo v. 2099232 Ontario Inc., 2018 ONCA 1051, a time is of the essence clause “means that a time limit in an agreement is essential such that breach of the time limit will permit the innocent party to terminate the contract.”

[40] The fact that the applicants missed the purchase by only a day is of no moment. As Morgan J. noted in 2336574 Ontario Inc. v. 1559586 Ontario Inc., 2016 ONSC 2467:

The Purchaser missed the closing date by a day. That is enough to put an end to the contract. His failure to come up with the funds for closing on the date set for closing effectively terminated the agreement at a time when the [Purchaser] was not ready, willing and able to close.

[41] It is not an act of bad faith to insist that the closing of a transaction take place on the date set out in the agreement. Wilson v. Upperview Baldwin Inc., 2019 ONSC 4013 at paras. 34-39. As Morgan J. noted in 2336574 Ontario Inc. v. 1559586 Ontario Inc., 2016 ONSC 2467,

…good faith meant sticking to the contract, not bending the contract – even just a little bit – to one side’s will.

[42] While this may seem harsh at first blush, it is not on closer examination. Real estate closings often have a domino effect. Funds received on closing are often required immediately for other purposes. The failure to close can have untold downstream effects. That is one reason for including a time is of the essence clause.

Were the Respondents in a Position to Close on December 15, 2021?

[43] The applicants submit that the respondents were themselves not in a position to close on December 15 because they had not sent any tender documents to the plaintiff.

[44] As a starting point, there was no obligation on the respondents to tender given that the applicants had already communicated that they could not close on December 15. Where a party communicates that it cannot close, the counterparty is released from any obligation to tender to prove that it was ready willing and able to close. Di Millo v. 2099232 Ontario Inc., 2018 ONCA 1051 at para. 49; Spiridakis v. Li, 2020 ONSC 2173 at para. 62.

[45] Mr. Campione says his firm sent copies of closing documents to Ms. Rahi by email on December 9, 2021 at 8:11 PM. A further copy was sent on December 15, 2021 at 5:08 PM. Ms. Rahi says her firm never received these documents. Ms. Rahi’s firm was, however, having significant problems receiving electronic documents at the time. As a result of a computer hacking incident, it had implemented additional security measures which resulted in many emails going into spam or junk folders. Mr. Campione says his firm never received any bounce back emails with respect to the closing documents he sent. Moreover, there is no dispute that Mr. Campione’s email of 5:09 PM on December 15 was received by Ms. Rahi. That email confirmed that Mr. Campione had provided Ms. Rahi with all deliverables and that his clients were ready willing and able to close. Ms. Rahi never contested Mr. Campione’s statement that he had provided all deliverables for the closing. In saying this I do not intend to cast any aspersions on the integrity of Ms. Rahi. Rather, it goes to the point that it did not matter to Ms. Rahi whether Mr. Campione had sent deliverables because her clients were unable to close the transaction in any event.

[46] A second reason for which the applicants say the respondents were unable to close is that they had not agreed on a document registration agreement. A document registration agreement is an agreement that addresses closing procedures and the release of documents delivered in escrow for real estate transactions that are closed electronically. The applicants submit that this is a critical document which is negotiated between the parties.

[47] I do not find the applicants’ argument in this respect persuasive. The applicants themselves had not proposed a document registration agreement to Mr. Campione. Although Ms. Rahi thought she had sent one, and stated in her affidavit that she had, she later volunteered that she was mistaken. Ms. Rahi thought that her firm had sent Mr. Campione a full set of closing documents, including a document registration agreement but the person responsible for doing so never actually sent them.

[48] The document registration agreement is, in any event, a non-issue. Section 11 of the agreement of purchase and sale addresses it and provides:

Section 11. The exchange of closing funds, non-registrable documents and other items (the “Requisite Deliveries”) will not be released by the lawyer receiving the Requisite Deliveries except in accordance with the terms of a document registration agreement. The Seller and Buyer irrevocably instruct the said lawyers to be bound by the document registration agreement which is recommended from time to time by the Law Society of Ontario.

[49] The last sentence of clause 11 makes it clear that the parties will be bound by the document registration agreement recommended by the Law Society of Ontario unless they agree otherwise. There was therefore nothing to negotiate.

[50] When I put this proposition to counsel for the applicants during oral argument, he disagreed saying that it was commercially unreasonable to bind people to a standard form if that is not what they want. I agree with that submission but that is not what section 11 does. Section 11 allows the parties to negotiate whatever document they want; the default provision of section 11 only takes effect when the parties are unable to agree on a document registration agreement. Put another way the last sentence of section 11 prevents a party from avoiding a transaction by taking an unreasonable position on the form of the document registration agreement. That is an advisable provision to include given that a document registration agreement would be negotiated well after the agreement of purchase and sale is entered into. Section 11 ensures that people cannot avoid agreements at the last minute based on a manufactured excuse of not being able to agree to a document registration agreement.

Are the Applicants Entitled to the Return of Their Deposit?

[51] The applicants seek, as an alternative remedy, the return of their deposit by invoking the equitable concept of relief from forfeiture which has been incorporated into section 98 of the Courts of Justice Act, RSO 1998, c C.43.

[52] The analytical starting point of the law concerning deposits was usefully summarized by the Ontario Court of Appeal in Benedetto v. 2453912 Ontario Inc., 2019 ONCA 149, as follows:

The deposit stands as security for the purchaser’s performance of the contract. The prospect of its forfeiture provides an incentive for the purchaser to complete the purchase. Should the purchaser not complete, the forfeiture of the deposit compensates the vendor for lost opportunity in having taken the property off the market in the interim, as well as the loss in bargaining power resulting from the vendor having revealed to the market the price at which the vendor had been willing to sell.

[53] This is well-established law. It does not constitute bad faith for a party to retain a deposit when the contract is not performed.

[54] The only authority that the applicants referred me to on the issue of relief from forfeiture was the Court of Appeal’s decision in Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282. On my reading, that case does not assist the applicants.

[55] In Redstone, the Court of Appeal confirmed that to obtain relief from forfeiture, the purchaser must establish:

1. That the proposed forfeited sum is out of proportion to the damages suffered by the claimant, and
2. That it would be unconscionable for the vendor to retain the deposit.

[56] With respect to the deposit being out of proportion to any damages suffered by the vendor, there is no evidence of damages suffered by the respondents. Although the evidence indicates that the respondents were intending to use the proceeds of sale of the Property to purchase other investment properties, there is no evidence of any loss of opportunity to do so before me. The only evidence before me is that the respondents were able to sell the Property for approximately $130,000 more than the applicants had agreed to pay within approximately two weeks. On that record, I can infer that the forfeited deposit was out of proportion to the damages suffered.

[57] That does not, however, mean that it would be unconscionable for the respondents to retain the deposit.

[58] In Redstone, the Court of Appeal summarized various principles on the law of deposits as follows:

(i) The concept of a deposit is an exception to the ordinary rule that a sum forfeited on the breach of a contract is an unlawful penalty unless it represents a genuine pre-estimate of damages. (ii) Deposits are designed to motivate contracting parties to complete their bargains. (iii) It is import that parties know with certainty that the terms of their contract will be enforced, particularly where it makes provision for something to happen if the contract is breached. (iv) A finding of unconscionability must be exceptional and strongly compelled on the facts of the case.

[59] While the categories of unconscionability are never closed, one common measure would be the proportionality of the deposit to the overall purchase price. Here, the deposit was 5% of the purchase price. That is a standard sized deposit for a residential real estate purchase. In many cases, a purchaser who wishes to make a strong offer will provide a larger deposit. Redstone refers to deposits as large as 10% and 20% being upheld.

[60] Unconscionability is not governed solely by the proportionality of the deposit to the price or damages. Other relevant factors include inequality bargaining power, a substantially unfair bargain, the relative sophistication of the parties the existence of good faith negotiations, the nature of the relationship between the parties the gravity of the breach and the conduct of the parties.

[61] There is no evidence before me to suggest that any of those factors create unconscionability here. I was not directed to any evidence of inequality of bargaining power. This appears to have been a standard residential real estate purchase albeit in a heated real estate market. Simply because vendors may have more bargaining power in a heated real estate market is not, however, the sort of inequality of bargaining power that leads to findings of unconscionability. There was no evidence before me about the relative sophistication of the parties other than the fact that the vendors had owned the house as an investment property. There was no relationship between the parties that led to any abuse of power or other factor that might lead to a finding of unconscionability.

[62] The most potentially pertinent of the factors set out in Redstone are the gravity of the breach and the conduct of the parties. If in fact the purchasers were able to close on December 16, their breach would have been relatively minor in that the delay would have been less than 24 hours.

[63] With reference to the conduct of the parties, the applicants focus on the respondents’ refusal to extend the closing by potentially as little as a day. In my view, this might, as the Court of Appeal put it in Redstone, be described as “hard bargaining” but it was not unconscionable. The respondents were doing what they were legally entitled to do under the contract. As noted earlier, there is no obligation on the vendor to extend closing even by as little as one day. 2336574 Ontario Inc. v. 1559586 Ontario Inc., 2016 ONSC 2467.

[64] The conduct of the parties should not, however, focus solely on the respondents. The applicants’ conduct must also be looked at. As noted, the applicants were told on December 14 that Scotiabank would no longer provide financing. They waited until 3:30 PM on December 15 to begin exploring the concept of an extension with the respondents and did not put that into writing until 50 minutes before the closing deadline. As noted earlier, when a large bank withdraws mortgage financing the day before closing, it is usually attributable to some problem on the side of the purchaser over which the purchaser had control.

[65] In the circumstances, I can see no unconscionability in allowing the vendor to retain the deposit. While this might seem harsh in circumstances where the vendor has resold the Property at a higher price, cases of that nature were also referred to by the Court of Appeal in Redstone as not justifying relief from forfeiture. As sympathetic as I may be to the misfortune of the purchasers, there are also larger systemic issues to consider. If purchasers were allowed to reclaim their deposits in a rising real estate market simply because the vendors resold the Property at a higher price, it would eviscerate the legal concept of a deposit, render contractual terms relating to the deposit meaningless and would remove any incentive that a deposit gives a purchaser to close the transaction. All that would inject considerable uncertainty into the residential real estate market. That is a market that benefits more from relatively clear rules that are well known in advance so parties can plan around them than it would benefit from highly individualized rules tailored on a case-by-case basis based on the sympathies of a particular judge. That is not to say that courts should not apply an individualized analysis tailored to the individual case when the facts warrant but, as the Court of Appeal noted in Redstone, those circumstances must be exceptional and strongly compelling.

Conclusion and Costs

[66] For the reasons set out above, I dismiss the application. Any party seeking costs may make writing submissions not exceeding 5 pages (plus a bill of costs or any settlement offers) within 10 days of the release of these reasons. Responding submissions should follow 7 days later with a further 4 days for reply.

Koehnen J. Date: 2022-04-06