COURT OF APPEAL FOR ONTARIO DATE: 20210325 DOCKET: C68187
MacPherson, Gillese and Nordheimer JJ.A.
BETWEEN
Melissa Magnotta as the Representative of the Estate of Joseph Magnotta and Melissa Magnotta Plaintiffs (Respondents)
and
Xiaozeng Yu , Xiahong Mao and Sutton Group-Admiral Realty Inc. Defendants ( Appellants )
Sean Dewart and Mathieu Bélanger, for the appellants Alfred J. Esterbauer, Arleen Huggins, and Sydney Hodge, for the respondents
Heard by videoconference: February 26, 2021
On appeal from the judgment of Justice Paul B. Schabas of the Superior Court of Justice, dated February 18, 2020 with reasons reported at 2020 ONSC 1049.
Gillese J.A.:
Overview
[1] This proceeding stems from a failed real estate deal. Offers to settle flowed between the parties. The respondents purported to accept an outstanding offer but the appellants claimed there was no offer capable of being accepted. The respondents moved to enforce settlement.
[2] The motion judge found the respondents had accepted a valid offer made pursuant to rule 49 of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194. While he had the discretion to not enforce the settlement, he chose not to exercise it.
[3] The issue on appeal is whether the motion judge erred in refusing to exercise that discretion. For the reasons that follow, in my view, he did not. Consequently, I would dismiss the appeal.
Background
[4] On March 8, 2017, Xiaozeng Yu entered into an agreement of purchase and sale for a residential property in Richmond Hill, Ontario (the “Property”) owned by Melissa Magnotta and the late Joseph Magnotta (the “Respondents”). [1] The purchase price was $2,662,000 and July 7, 2017, was the scheduled closing date. Ms. Yu made a deposit of $65,000.
[5] Ms. Yu waived conditions on March 13. She had until June 23 to inspect title and make requisitions. On June 29, Ms. Yu’s real estate agent sought a two-week delay in closing so Ms. Yu could obtain financing because she had been unable to sell her own home. The following day, the Respondents received a letter from Ms. Yu’s lawyer with many requisitions, the most significant of which concerned the conversion of the house’s garage into a master bedroom, apparently without building permits and in contravention of zoning by-laws.
[6] The Respondents answered the requisitions even though they were out of time. Ms. Yu’s lawyer was not satisfied with the Respondents’ answer on the garage conversion. He asserted that good title could not be conveyed in the absence of the Respondents delivering a valid building permit, Ms. Yu would not close the transaction, and the agreement was at an end. The sale did not close on July 7, 2017.
[7] In September 2017, the Respondents sued Ms. Yu and her mother, Xiahong Mao (the “Appellants”). Ms. Mao was named because she had placed a mortgage on Ms. Yu’s property in the amount of $900,000 on July 4, 2017 (three days before the closing date). The statement of claim alleged that the mortgage was registered as a fraudulent preference or conveyance.
[8] The Respondents subsequently sold the Property for $900,000 less than what Ms. Yu had agreed to pay for it. They filed a summary judgment motion that was to be heard on June 24, 2019.
[9] In March 2019, the Appellants changed legal counsel.
[10] In late May 2019, counsel for the parties exchanged several offers to settle. For the purposes of this appeal, the relevant offer is one made by counsel for the Appellants in writing on May 29, 2019 (the “Offer”). The Offer set out two options for acceptance. Option A offered the immediate release of the $65,000 deposit, a payment of $200,000 within 15 days, and a further payment of $235,000 within 30 days. Option B offered the immediate release of the $65,000 deposit, a payment of $200,000 within 15 days, and a further payment of $285,000 in 90 days.
[11] Counsel for the Respondents responded that same day. She said the Offer was “insufficient” and confirmed that she would cross-examine Ms. Yu the following morning. Later that day, counsel for the Appellants advised counsel for the Respondents that the Appellants had retained new counsel.
[12] The Appellants retained new counsel – not counsel on this appeal – on May 30, 2019, at which point her former lawyers ceased to be involved in this matter.
[13] In June 2019, the Appellants’ new counsel obtained expert opinion evidence from a land use planning consultant and a real estate lawyer. The former opined that the garage conversion was non-complaint with the zoning by-laws and the building code. The latter opined that the conversion was not discoverable by a title search and either went to the root of title or was a requisition that could be made up to five days prior to closing and, therefore, was timely. The expert reports were served on counsel for the Respondents on June 25, just as counsel was leaving on vacation. [2]
[14] Beginning on June 26, counsel for the Respondents was out of the country on a prescheduled vacation.
[15] On July 3, counsel for the Respondents wrote to the Appellants’ new counsel advising that her clients accepted Option B of the Offer. Two days later, the Appellants’ counsel responded that there was no offer to settle capable of being accepted and, in any event, the Offer was no longer open for acceptance.
[16] The Respondents moved to enforce settlement based on their acceptance of the Offer.
The Motion Judge’s Reasons
[17] The motion judge found that the Offer complied with r. 49: it was made in writing; by a person with authority to make it; effectively served on the opposing party; capable of acceptance; not time limited; and not withdrawn. Citing York North Condominium Corp. No. 5 v. Van Horne Clipper Properties Ltd. (1989) , 70 O.R. (2d) 317 (C.A.) at para. 10, the motion judge observed that even if the Offer had been rejected, it remained open for acceptance because it had not been withdrawn.
[18] As the Offer complied with r. 49, the motion judge stated that it should be presumptively enforced. He gave comprehensive reasons for why the Appellants had failed to rebut the presumption.
[19] The motion judge next considered whether he should exercise his discretion to not require compliance with the settlement. He set out the Appellants’ position at para. 47 of his reasons:
Essentially, the [Appellants] submit that the expert evidence obtained in June 2019 completely changed the case such that it would be unjust to hold them to an offer that pre-dated that change and of which their counsel was unaware. To this, they also argue that it was unreasonable for [Respondents’] counsel to think that the Offer was still open for acceptance given the new evidence, and it is suggested that she took advantage of an Offer mistakenly left open by the [Appellants].
[20] He concluded that this was not “one of those rare cases” where an injustice would result if the settlement was enforced. He gave three reasons for this conclusion.
[21] First, the motion judge felt it was not appropriate for him to assess the strength of the case for either side. He said that, apart from being unable to do so adequately, allowing a party to avoid an outstanding offer on the basis that its case had improved would create uncertainty and defeat the purpose of r. 49. He acknowledged that the Respondents sold the Property for approximately $900,000 less than what Ms. Yu had agreed to pay and that might have been the result of the alleged title issues, but he had no evidence of that. Further, he did not have any expert evidence that the Respondents might have led in response to the Appellants’ new evidence. He said that, if he were to rely on that new evidence, it would open the door to permitting parties to avoid what, in retrospect, may have been an improvident offer.
[22] Second, the motion judge found that this was not a case in which the Respondents’ lawyers knowingly took advantage of a mistake by counsel for the Appellants.
[23] Third, the motion judge did not accept that it was unreasonable for the Respondents’ counsel to have thought the Offer was still open despite the expert evidence served on her at the end of June. He acknowledged that the case “looked different” and that counsel for the Respondents had indicated that a summary judgment motion was no longer viable. However, counsel for the Respondents did not concede that their case was “hopeless”, and he could not so conclude. The motion judge also stated that he would not speculate as to why the Respondents chose to accept the Offer which, he noted, compromised the case at about 50% of the amount of the loss claimed. He said that this compromise made it difficult to conclude that one party would be unduly prejudiced.
The Issue
[24] The Appellants do not take issue with the motion judge’s conclusion that the Offer complied with r. 49 and the Respondents validly accepted it. The sole issue they raise on appeal is whether the motion judge erred in refusing to exercise his discretion to not enforce the settlement.
The Governing Legal Principles
[25] There is no dispute about the legal principles that govern this appeal.
[26] Rule 49.09(a) is permissive. If a party to an accepted offer does not comply with the terms of the offer, the other party can move for judgment in the terms of the accepted offer and the judge “may” grant judgment accordingly. Thus, the judge has discretion whether to enforce the settlement.
[27] The standard of review of the judge’s exercise of discretion to enforce a settlement was articulated by this court in Milios v. Zagas (1998) , 38 O.R. (3d) 218 (C.A.), at para.19:
In determining whether to enforce a settlement under R. 49.09, all of the relevant factors disclosed by the evidence must be taken into account. When that is done, an appellate court will not generally interfere with the motion judge’s decision to grant, or not grant, judgment in accordance with an accepted offer.
[28] At para. 21 of Milios, Osborne J.A., writing for the court, stated that the motions judge erred “by not taking into account manifestly important factors”, including:
- since no order giving effect to the settlement had been taken out, the parties’ pre-settlement positions remained intact;
- apart from losing the benefit of the impugned settlement, the defendant would not be prejudiced if the settlement was not enforced;
- the degree to which the plaintiff would be prejudiced if judgment was granted in relation to the prejudice that the defendant would suffer if the settlement was not enforced;
- the fact that no third parties were, or would be, affected if the settlement was not enforced.
[29] In Srebot v. Srebot Farms Ltd. , 2013 ONCA 84, this court reiterated the deferential approach it is to take when reviewing such decisions. At para. 5, this court stated that the motion judge’s “appreciation of the evidence and her related factual findings attract great deference”. And, at para. 6, it stated that the discretionary decision to not enforce a concluded settlement should be reserved for “rare cases where compelling circumstances establish that the enforcement of the settlement is not in the interests of justice”.
The Parties’ Positions
[30] The Appellants submit that the motion judge referred to the factors set out at para. 21 of Milios but failed to consider them. They say that failure is a legal error and, consequently, this court owes no deference to the motion judge’s discretionary decision to not enforce the settlement. The Appellants make four arguments in support of this position.
[31] First, there is clear evidence of an error. Ms. Yu’s uncontradicted evidence was that she believed there were no offers that could be accepted by the Respondents and her new counsel were unaware of the outstanding Offer. While the Offer ought to have been withdrawn before it was accepted, this mistake by counsel ought not to be visited on the Appellants.
[32] Second, no order giving effect to the settlement had been taken out.
[33] Third, the motion judge did not carry out a meaningful analysis of the relative prejudice to the parties because he failed to consider the possibility that Ms. Yu was correct that the Respondents could not convey good title. If correct, she did not breach the agreement of purchase and sale and yet, because of the enforcement of the settlement, as the blameless party she would have to pay $485,000 to the at-fault Respondents because of a lawyer’s slip. Further, while there was compelling evidence of potential prejudice to Ms. Yu, including being deprived of having the issues decided on the merits at a trial, there was no evidence of prejudice to the Respondents apart from the loss of the settlement.
[34] Fourth, no third parties would be affected by the non-enforcement of the settlement.
[35] The Respondents submit that there is no basis on which to interfere with the motion judge’s discretionary decision and that the Appellants are seeking to relitigate the motion by asking this court to engage in its own assessment of the evidence. They contend that the motion judge considered all the relevant legal principles, made factual findings that withstand scrutiny on the “palpable and overriding standard”, and reasonably concluded that this was not one of those rare cases in which it would not be in the interests of justice to enforce the settlement.
Analysis
[36] I accept the Respondents’ submissions. The motion judge’s factual findings are wholly justified on the record and the Appellants do not suggest otherwise. The motion judge also clearly and correctly articulated the governing legal principles. Again, the Appellants concede this. The Appellants sole quarrel is with the motion judge’s exercise of discretion. However, I am satisfied that the motion judge took into consideration all relevant factors when exercising his discretion and, consequently, there is no basis for this court to interfere with his decision.
[37] The Appellants’ foundational proposition is that the motion judge erred in law by failing to take into account the factors set out at para. 21 of Milios. I reject this proposition for four reasons.
[38] First, in determining whether to enforce the settlement, the motion judge’s task was to consider all “relevant factors”: Milios, at para. 19. The factors identified at para. 21 of Milios were important in the circumstances of that case. That does not mean that they are relevant in all cases and that a failure to advert to them on the part of the motion judge is an error in law.
[39] Second, at para. 49 of his reasons, the motion judge quoted para. 21 of Milios, showing that he was alive to a consideration of those factors. There was no need to mention that no order giving effect to the settlement had been taken out and no third-party rights were affected because the parties did not contend otherwise.
[40] Third, the motion judge fully addressed the relevant factors as identified by the Appellants. One of those factors was the Appellants’ submission that a mistake had been made which warranted the motion judge’s exercise of discretion. The motion judge disagreed. He found that this case was not like Fox Estate v. Stelmaszyk (2003) , 65 O.R. (3d) 846 (C.A.), in which the plaintiffs’ lawyer knowingly took advantage of a mistake by counsel for the defendants. On the contrary, the motion judge found that counsel for the Respondents did not take advantage of a mistake on the part of new counsel for the Appellants because she was unaware that new counsel did not know that the Offer was outstanding. What she did know was that new counsel had the Appellants’ full file for a month before she accepted the Offer. The fact that Ms. Yu believed there were no outstanding offers does not undermine the motion judge’s finding that there was no mistake of the sort found in Fox Estate which justified judicial refusal to enforce the settlement.
[41] Fourth, the motion judge meaningfully considered the Appellants’ arguments based on the relative prejudice to the parties if the settlement were enforced. He acknowledged that the Appellants’ case appeared to have been strengthened as a result of the expert evidence. However, on the record before him, the motion judge said that he could not adequately assess the parties’ relative positions on the underlying merits of the case and that it “would not be appropriate in any case”. To the extent that the quoted words suggest that it would never be appropriate to assess the underlying merits of the case, I disagree because there may be situations in which it would be appropriate to make that assessment. However, I agree with the motion judge that, in the circumstances of this case, it would not have been appropriate to engage in such an assessment.
[42] The motion judge gave further reasons on the question of the relative prejudice the parties would suffer if the settlement were enforced. He said that allowing a party to avoid an outstanding offer on the basis its position had improved would create uncertainty and defeat the purpose of r. 49. He also noted that he did not have evidence before him that it was the title issues that led to the Respondents selling the Property for $900,000 less than what Ms. Yu had agreed to pay for it. Further, he did not have any expert evidence that the Respondents might have introduced in response to that of the Appellants and stated that relying on the latter as the basis for exercising his discretion would “open the door” to permitting parties to avoid what, in retrospect, may have been an improvident offer.
[43] Finally, as the motion judge noted at para. 54 of his reasons, the fact that the Offer reflected a compromise approaching 50% of the amount of the loss claimed made it “difficult to conclude that one party or the other would be unduly prejudiced” in the circumstances.
[44] In short, contrary to the Appellants’ assertion, the motion judge fully considered their arguments relating to the “interests of justice” and the degree of prejudice that would be suffered by the respective parties.
[45] The motion judge considered all relevant factors before concluding that this was not one those “rare cases” in which the interests of justice favoured the exercise of his discretion to refuse to enforce the settlement. I see no basis on which to interfere with the motion judge’s decision.
Disposition
[46] Accordingly, I would dismiss the appeal with costs to the respondent fixed at $7,500, all inclusive.
Released: March 25, 2021 “J.C.M.”
“E.E. Gillese J.A.”
“I agree. J.C. MacPherson J.A.”
“I agree. I.V.B. Nordheimer J.A.”
[1] Unfortunately, Mr. Magnotta passed away during the litigation. Ms. Magnotta continued with the litigation both on her own behalf and as representative of Mr. Magnotta’s estate.
[2] There is some confusion in the record on when the expert reports were served on counsel for the Respondents. I have followed the motion judge’s statement on this matter at para. 18 of his reasons.