COURT OF APPEAL FOR ONTARIO

DATE: 20000419

DOCKET: C31519

FINLAYSON, ABELLA and O'CONNOR JJ.A

B E T W E E N :

) Paul N. Leamen
AAIDA OAKLEY ) for the appellant
)
Plaintiff )
(Respondent) )
)
–and– ) P. Donald Rasmussen
) for the respondent
CANADA TRUST REALTY INC. )
)
Defendant )
(Appellant) )
) Heard: March 21, 2000

On appeal from the judgment of Cunningham J. dated February 23,
1999.

FINLAYSON J.A.:

[1] Canada Trust Realty Inc. (“Canada Trust”) appeals from the
judgment of the Honourable Mr. Justice Cunningham awarding the
respondent Aaida Oakley payment of real estate commissions of
$59,133.37, together with prejudgment interest from July 1, 1992,
and costs.

[2] It is conceded by the appellant that real estate commissions
in the amount of the judgment were earned by the respondent. The
appellant claims a right of set-off, however, with respect to
what the trial judge found to be unrelated costs incurred by the
appellant as a result of a failed Asset Purchase Agreement. In
the alternative, the appellant submits that, in the circumstances
of this case, the respondent is estopped from asserting a claim
to the commissions. In order to understand the issues, a
chronology of events is necessary.

Chronology

[3] The respondent Aaida Oakley is a real estate agent and was
part owner, along with her husband, Robert Oakley, of Roboak Real
Estate Limited (“Roboak Real Estate”). Robert Oakley had also
developed properties through a company he owned called Roboak
Developments Limited (“Roboak Developments”). These properties
included a condominium structure on Bank Street in Ottawa. The
first floor, the one relevant to this action, was a commercial
condominium occupied by Roboak Real Estate. The Bank Street
properties were subject to mortgages that were in default and, in
October of 1990, Household Trust, the first mortgagee, commenced
power of sale proceedings.

[4] On October 22, Aaida and Robert Oakley met with Ronald
Crook, Regional Manager of Canada Trust. They reached an
agreement that Roboak Real Estate would cease business and allow
its real estate operations to merge with those of Canada Trust
under the Canada Trust name. Canada Trust was to purchase
furniture and equipment from Roboak Real Estate and lease roughly
4,000 square feet in the Bank Street property.

[5] As part of the arrangement, a new corporation, 914081
Ontario Limited (“Newco”), was to be incorporated, which was to
be owned by Aaida Oakley. The company was created for the
purpose of acquiring title to the commercial condominium unit on
Bank Street. Canada Trust, which was at the time the lessee of
property at the Billings Bridge Shopping Mall, was to sign a new
lease with Newco to occupy the Bank Street premises. The lease
was to contain a provision by which Roboak Real Estate, Newco,
and Robert Oakley would indemnify Canada Trust as against any
expense incurred in relocating from its location at Billings
Bridge to Bank Street.

[6] Finally, for the agreement to close, Newco was to acquire
title to the property on Bank Street and discharge any
encumbrances on it, so as to be in a position to enter into a
lease with Canada Trust. This required the Oakleys to obtain new
financing.

[7] The following dates and events are significant:

December 7, 1990 Newco was incorporated, with Aaida Oakley
listed as a Director and Officer.

December 12, 1990 The Asset Purchase Agreement was signed by
Canada Trust, Roboak Real Estate, Robert
Oakley, and Newco. The Agreement reflected the
parties’ arrangement of October 22. Canada
Trust was entitled to deduct or set-off from
the rental payments due to Newco the ongoing
rent at its Billings Bridge location until its
liability for that rent terminated.

Christmas 1990 Canada Trust moved its offices from Billings
Bridge to Bank Street. At this time, the deal
had not closed and there was no lease. The
owner at the time was still Roboak Developments
and the existing mortgages were still in
default. Canada Trust maintains that it was
unaware of the status of the mortgages. It
continued to pay rent at Billings Bridge until
February 1992.

First week, Jan. 1991 Canada Trust became aware of the Power of
Sale proceedings commenced by Household Trust.
It decided to remain at the Bank Street
location, anticipating that the Oakleys would
arrange new financing to allow Newco to acquire
the property and enter into a lease with Canada
Trust. However, according to the Oakleys,
Canada Trust paid the Bank Street rent directly
to the mortgagees of the property, and not to
the Oakleys or any company controlled by them.

January 8, 1991 Canada Trust retained the Oakleys as real
estate agents.

January to early
March 1991 The Oakleys attempted to refinance the Bank
Street property.

early March 1991 The Oakleys engaged in discussions to arrange
refinancing with Andridge Capital Corporation.

March 7, 1991 The Oakleys met with Ronald Crook of Canada
Trust. According to Crook, they advised him
that refinancing would be available soon. To
facilitate the new financing, the Oakleys
requested that Canada Trust not deduct its rent
at the Billings Bridge property from its
payments on the Bank Street lease. Crook did
not agree but passed the request on to his
supervisors.

March 8, 1991 Aaida Oakley wrote to Crook stating:

… we are in the position of placing
new financing on the above location
[Bank Street] and anticipate funding
to be completed by the 15th of March,
1991, wherein the Power of Sale
will be removed.

The new Lenders require an Assignment
of the Canada Trust lease, therefore,
we are not able to have the Billings
Bridge lease payments deducted from
our monthly rent. We require your
assistance in paying the Billings
Bridge lease and not deducting it
from our lease at this premises (sic).

We ask that you take a portion of our
commissions and we will provide you
with our personal guarantees until
such time as this matter is
finalized.

March 1991 Crook met with Robert Oakley and advised him
that Canada Trust would waive its right to set-
off its Billings Bridge rental payments from
its payments under the Bank Street lease. The
Billings Bridge property remained vacant.
Attempts by the Oakleys to market and sublease
the property were unsuccessful.

May 15, 1991 Household Trust, the existing first mortgagee
of the Bank Street property, sold the premises
under power of sale to an independent third
party, 927614 Ontario Limited. Canada Trust
entered into a lease with 927614 Ontario Ltd.

May 21, 1991 Gary Hockey, Branch Manager of Canada Trust,
testified that he met with the Oakleys. Aaida
Oakley denies being at the meeting.

May 24, 1991 Hockey wrote an internal memo to Ronald Crook.
The memo stated that the Oakleys agreed at the
May 21 meeting to personally guarantee the
balance of the Billings Bridge lease and
authorized deduction of 10% from each of their
commissions until that debt was retired.
Hockey testified that in June he gave a copy of
this memo and a repayment agreement to Robert
Oakley and that Robert Oakley later returned it
stating that Aaida Oakley was not prepared to
sign the repayment agreement.

June 1991 Robert Oakley declared bankruptcy.

February 1992 Canada Trust’s rental commitment at Billings
Bridge ended. Canada Trust had paid roughly
$4,700 per month in rent from January 1991 to
January 1992.

June 5, 1992 Canada Trust deducted roughly $59,000 from a
commission cheque of $78,000 earned by Aaida
Oakley.

July 7, 1992 Aaida Oakley’s employment with Canada Trust
ended.

Issues

1. Does the appellant Canada Trust have a contractual
   or equitable right to set-off the commissions
   earned by the respondent Aaida Oakley during her
   employment with Canada Trust against its rental
   and other costs incurred with respect to the
   Billings Bridge premises?

2. Is the respondent Aaida Oakley estopped from
   claiming her commissions in all the circumstances
   surrounding her “commitment” of March 8, 1991 to
   guarantee the balance of the Billings Bridge
   rentals and her “authorization” to Canada Trust to
   deduct the amounts guaranteed from future commissions.

Analysis

[8] Counsel for the appellant advances the doctrines of set-off
and estoppel as if they were variations of some equitable theme
directed to the consolidation of debts arising out of a failed
relationship. As to set-off, counsel argues that the courts have
recognized the need to be flexible, where an overriding equity is
present, in allowing some form of relief that results in a
balancing of credits between the parties. He relies on Telford
v. Holt (1987), 1987 18 (SCC), 41 D.L.R. (4th) 385 (S.C.C.), and particularly
what was said by Wilson J. at p.394:

The distinction between set-off at law and set-off
in equity was canvassed by the British Columbia Court
of Appeal in C.I.B.C. v. Tuckerr Industries Inc.,
supra, at p. 175 D.L.R., p. 605 W.W.R.: “Such a set-
off has its origin in equity and does not rest on the
statute of 1728. It can apply where mutuality is lost
or never existed. It can apply where the cross-
obligations are not debts.” Equitable set-off is
available where there is a claim for a money sum
whether liquidated or unliquidated…. More importantly
in the context of this case, it is available where
there has been an assignment. There is no requirement of
mutuality….

[9] However, whether the discussion relates to a claim as
opposed to a debt, to a liquidated amount as opposed to an
unliquidated one, to a claim arising from contract as opposed to
one in tort, to the presence of mutuality or otherwise, the
authorities all insist that there must be cross-obligations
before a right of set-off can arise. Flexibility is limited to
whether one obligation can be set-off against a cross-obligation,
not whether there is an obligation in the first place: see
Telford v. Holt, supra, at 393-4.

[10] In the case in appeal, there is no obligation by the
respondent Aaida Oakley in her personal capacity to the appellant
Canada Trust. The trial judge found that the pivotal letter of
March 8, written by the respondent, did not amount to an
unconditional agreement by the respondent to guarantee the
appellant’s Billings Bridge rental payments out of her future
commissions. Although he acknowledged that Aaida Oakley was less
than candid about the firmness of the proposed financing, the
trial judge held:

I have concluded on the evidence before me and after
carefully considering the circumstances of the plaintiff
writing the letter of March 8, 1991, that any proposed
commitment on the part of the plaintiff to either have
Canada Trust deduct moneys from her commissions or to
provide personal guarantees was entirely dependent upon
new financing being arranged for Bank Street which would
have permitted the Oakley’s continued ownership of that
property. Clearly, once the Bank Street property had
been sold under Power of Sale there was absolutely no
reason for Mrs. Oakley to provide Canada Trust Realty
with a personal guarantee and, in fact, she never did.

He concluded on this issue:

Having found that no agreement existed between the
plaintiff and Canada Trust Realty as a result of her
letter of March 8, 1991, given the context in which it
was written, I cannot accept that this is a situation
where the doctrine of equitable set-off ought to apply….

[11] These findings are fully supported by the evidence and are
fatal to the claim to set-off. There is no contract by Aida
Oakley to indemnify Canada Trust. Accordingly, equity does not
enter the picture at all. An appeal to equity only arises where
there are cross-obligations without a contractual right of set-
off. In these circumstances, and only then, the court may embark
upon an enquiry into whether there is an additional connection or
relationship between the cross-claims that invites the
intervention of equity.

[12] Moreover, the appellant does not come into court with clean
hands. As the trial judge found:

Canada Trust and its representatives knew that the minute
they started deducting anything extra from the plaintiff’s
real estate commissions, she would in all likelihood leave
and take with her some of the better agents. It is
undisputed that once it became apparent to Canada Trust that
Mrs. Oakley was not going to provide her personal guarantee,
they simply waited until she earned a significant commission
and then they pounced and deducted from it what they had
paid to the end of their obligation on the Billings Bridge
lease.

[13] This brings us to the issue of estoppel. Estoppel has been
defined in Greenwood v. Martin’s Bank, Ltd., [1932] All E.R. 318
at 321:

… Now the essential factors giving rise to an estoppel are,
I think: (i) A representation, or conduct amounting to a
representation, intended to induce a course of conduct on the
part of the person to whom the representation is made; (ii) An
act or omission by the person to whom the representation is made
resulting from such representation or conduct; (iii) Detriment to
such person as a consequence of the act or omission. Mere
silence cannot amount to a representation, but when there is a
duty to disclose deliberate silence may become significant and
amount to a representation.

[14] The factual basis for this claim is, if anything, of less
substance than that for set-off. The appellant makes a vague
claim of unfairness arising out of Aaida Oakley’s participation
in the merger and relocation without acknowledging that the
failed Asset Purchase Agreement, under which all the parties were
operating from the outset, did not contemplate any personal
liability on her part. Further the significant actions taken by
Canada Trust all preceded Aaida Oakley’s letter of March 8, 1991,
which now looms so important in the proceedings. Canada Trust
moved to Bank Street over Christmas of 1990 on the strength of
the Asset Purchase Agreement, notwithstanding that the
transaction had not closed. It deducted the amount of rent it
continued to pay at the vacated Billings Bridge premises from its
rental obligations at Bank Street. While Canada Trust now
asserts that it relied upon the letter of March 8 in committing
to no longer deduct the Billings Bridge rental payments from its
Bank Street rent, it is obvious that Canada Trust had no such
reliance at the time. If Canada Trust had relied on the March 8
letter, there would have been no point in the meeting of May 21,
1991, followed by the failed attempt to have Aaida Oakley sign a
fresh agreement.

[15] In any event, at some point in time, Canada Trust recognized
that the arrangements with the Oakley companies had fallen
through but decided to stay at Bank Street, rather than return to
Billings Bridge, in spite of the change in circumstances. Canada
Trust protected itself and its right of occupancy at Bank Street
by paying the first mortgagee directly. Eventually, on May 15,
1991, it entered into a lease of the Bank Street property with
the new owner of the premises which had acquired title under the
power of sale of the first mortgagee.

[16] At the highest, the alleged reliance of Canada Trust on
Aaida Oakley’s letter of March 8, 1991 with respect to the
Billings Bridge rentals could not have covered more than a
limited period of time. This time period commenced when Canada
Trust stopped deducting the Billings Bridge rental payments from
its Bank Street rent under the Asset Purchase Agreement,
following the March 8 letter, and concluding when Canada Trust
started making payments to the first mortgagee directly or, at
the very latest, when it entered into the new lease on May 15,
1991. Nevertheless, Canada Trust claimed a right of set-off of
the Billings Bridge rental payments until they terminated in
February of 1992, a full nine months after Canada Trust had
entered into the new lease. It then purported to set-off the
total rentals against a $78,000 commission that was not payable
to Aaida Oakley until June of 1992.

[17] Accordingly, these facts fail the definition of estoppel in
two respects. First, Canada Trust did not act on any
representation of Aaida Oakley. Second, it did not do so to its
detriment. The trial judge was not prepared to find an estoppel
on these facts and he was more than justified in so doing.

[18] For the reasons given, I would dismiss the appeal with
costs.

Released: GDF APR 19 2000 Signed: “G.D. Finlayson J.A.”
“I agree R.S. Abella J.A.”
“I agree Dennis O’Connor J.A.”