COURT OF APPEAL FOR ONTARIO DATE: 20210730 DOCKET: C67706

Pepall, Nordheimer and Thorburn JJ.A.

BETWEEN

Yong Kee Ching a.k.a. Richard Yong and Margaret Ng Yu Xiu a.k.a. Margaret Ng Plaintiffs (Appellants)

and

Pier 27 Toronto Inc. Defendant (Respondent)

David N. Vaillancourt and Jacob Millar, for the appellants Glenn R. Solomon, for the respondent

Heard: February 18, 2021 by video conference

On appeal from the judgment of Justice Mario D. Faieta of the Superior Court of Justice, dated October 18, 2019, with reasons reported at 2019 ONSC 6073, 13 R.P.R. (6th) 306, and from the costs order, dated December 9, 2019.

Pepall J.A. :

A. Introduction

[1] The appellants appeal from a judgment dismissing their claim for damages arising from the breach of an agreement of purchase and sale of a condominium and their request for relief from forfeiture of their deposit. For the reasons that follow, I would dismiss the appeal.

B. Facts

[2] The appellants, Yong Kee Ching a.k.a. Richard Yong, and his wife, Margaret Ng Yu Xiu a.k.a. Margaret Ng, decided to move from Singapore to Canada following their retirement. The appellants moved to Canada in March 2011, having obtained permanent residency status in 2008. While still in Singapore, they attended numerous workshops offered by a real estate agent and ultimately bought 10 residential properties in British Columbia, Quebec, and Ontario. They sold four, maintain four for investment purposes, live in one in B.C., and one is in issue in these proceedings.

[3] The agreement of purchase and sale (the “Agreement”) in this appeal was dated April 23, 2008 and was for a “presidential suite” located at 39 Queen’s Quay East in Toronto. The vendor was the respondent, Pier 27 Toronto Inc. [1] The appellants bought the unit for $1,347,000 and also acquired a parking spot for $37,500 and a locker for $4,500. The Agreement provided that time was of the essence. After signing the Agreement, they provided the respondent with a deposit of $134,700 and subsequently paid additional sums for a total deposit of $214,238.85.

[4] The appellants obtained mortgage financing of $883,200 for the purchase from the Canadian Imperial Bank of Commerce.

[5] The proposed Occupancy Date, also described as the Tentative Occupancy Date, as designated in the Agreement, was November 30, 2010, but it was not a firm date and simply represented an estimated completion date for the first unit in the Pier 27 project rather than the estimated occupancy date for all units including that of the appellants.

[6] On June 9, 2010, the respondent’s solicitors advised the appellants that the respondent was extending the Tentative Occupancy Date for the appellants’ unit to October 18, 2012, a delay just short of 24 months.

[7] After the appellants moved to Canada on March 15, 2011, they then tried to sell the unit or assign the Agreement and contacted a real estate agent for that purpose. In their correspondence to the agent, they noted: “We would prefer to market it on assignment and before the interim or final closing where we need not have to make further payments to the unit.” They stated that the final closing was scheduled for October 18, 2012 and that they had been told that there would most likely be a postponement. They listed the unit for sale for $1,699,000 on March 27, 2012.

[8] In 2012, the appellants came to Toronto for the first time and visited the Pier 27 Project sales office where they sought assistance in selling the unit. They were told that the developer was not permitting assignments.

[9] Meanwhile, the respondent established October 1, 2013 as the Confirmed Occupancy Date. However, this date was to come and go and the respondent ultimately extended the date on eight occasions to November 18, 2013, January 30, 2014, February 14, 2014, March 21, 2014, May 2, 2014, June 27, 2014, July 30, 2014, and finally, to August 20, 2014. In the letters, the respondent stated that in all other respects, the terms of the Agreement remained unchanged, and time would remain of the essence. On each occasion, the respondent provided a reason for the new date ranging from construction delays, strikes and extreme weather. The appellants did not complain of any of the delays on receipt of the notices of extension.

[10] In October 2013, the appellants came from Vancouver and met twice with the respondent’s décor consultant and selected finishes and upgrades for the unit. They signed an Order Form dated October 5, 2013 specifying their selections and agreeing to pay about $4,200 for the upgrades. The Form included an acknowledgement that January 30, 2014 was the Confirmed Occupancy Date subject to such further extensions required by the respondent under the Agreement and the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31.

[11] In November 2013, CIBC advised the appellants that the cancellation date for their mortgage approval was approaching and that updated information and the name of their solicitor were required. On December 9, 2013, Mr. Yong confirmed to CIBC that they had retained a lawyer, Boris Zayachkowski of the Minden Gross LLP firm, for the closing of the unit. He also advised that the builder had extended the scheduled Confirmed Occupancy Date a few times already and that provision should be made for possible future extensions of the February 14, 2014 Occupancy Date. Mr. Yong testified that on December 23, 2013, CIBC cancelled the mortgage approval. The appellants unsuccessfully applied to other banks for mortgage financing.

[12] Mr. Yong testified that with each letter of postponement of the Confirmed Occupancy Date, he nonetheless “strongly” believed that the deal was ongoing and that, until they contacted the lawyers, Miller Thomson LLP, he and his wife had to honour the Agreement. The last two letters of postponement dated May 16, 2014 and June 27, 2014 for Confirmed Occupancy Dates of July 30, 2014 and August 20, 2014, respectively, were sent to the appellants’ lawyer, Mr. Zayachkowski, and to the appellants. Both letters stated that, other than the Confirmed Occupancy Dates, in all other respects, the terms of the Agreement remained unchanged and time would remain of the essence.

[13] The appellants continued to try and assign the Agreement by contacting many real estate agents. On November 29, 2013, Mr. Yong contacted one realtor, another in February 2014, another on June 25, 2014, and he would periodically contact Shelley Shapiro about assignments. She was described by Ms. Florian, the developer’s director of sales and marketing, as a sales agent who worked at the site and sold Pier 27 units, and by Mr. Yong, as the developer’s appointed realtor from Sotheby’s. The trial judge stated at para. 81 of his reasons that Mr. Yong testified that the respondent permitted the assignment “somewhere near the closing date”. [2]

[14] On July 3, 2014, the appellants received an email from Ms. Shapiro asking when they would be taking occupancy and advising that she had someone who she would be talking to about their suite. According to Mr. Yong, Ms. Shapiro advised that she might have two prospective purchasers, but they wished to view the unit before making an offer. He told Ms. Shapiro to arrange a viewing with the developer. The appellants offered to pay the respondent’s cleaning expenses associated with such access. They sought and were refused permission by the respondent for an inspection. Apparently, there were logistical and liability issues associated with permitting purchasers to walk through a partially completed 700-unit building.

[15] On August 7, 2014, the appellants’ new lawyer, Odysseas Papadimitriou of Miller Thomson LLP, wrote to the respondent’s lawyer, Sheldon Spring of Goldman, Spring, Kichler & Sanders LLP, stating that he had been retained to review and respond to Mr. Spring’s June 27, 2014 correspondence. He noted the numerous extensions of the Confirmed Occupancy Date and that the respondent’s repeated delays and extensions suggested that it had failed to act in good faith and to set bona-fide closing date estimates. He asked the respondent on a without prejudice basis to advise whether it was agreeable to terminating the Agreement and returning all deposits. He stated that he believed it was incumbent on the respondent to permit rescission of the Agreement.

[16] On August 19, 2014, Mr. Spring responded saying that the appellants did not have the right to terminate the Agreement.

[17] The appellants did not take possession of the unit on August 20, 2014, and the transaction did not close. Mr. Yong said that without mortgage financing, he had no funds to pay and thus had no intention of taking occupation of the unit. As a result, he instructed Mr. Zayachkowski that he would seek a litigation lawyer to approach the developer for a return of the monies that they had paid to the respondent.

[18] On August 29, 2014, Mr. Papadimitriou again wrote to Mr. Spring asking the respondent to reconsider their offer. In addition, he took the position that the respondent did not have the right to unilaterally extend the Confirmed Occupancy Date beyond the 24 months permitted by the Agreement, and that by failing to provide occupancy by November 30, 2012, the respondent had breached the Agreement thereby entitling the appellants to terminate the Agreement with a return of deposits. Absent an amicable resolution, the appellants’ lawyer had instructions to commence a claim against the respondent.

[19] Mr. Spring responded on September 3, 2014. He stated that the appellants were in default of the Agreement as they had failed to complete the transaction on August 20, 2014 but as a courtesy and without prejudice, the respondent would permit the appellants to complete the transaction on September 8, 2014. He confirmed that the unit was ready for occupancy on August 20, 2014.

[20] The appellants did not take possession on September 8, 2014. On September 9, Mr. Spring wrote to Mr. Papadimitriou advising that the Agreement was terminated due to the appellants’ failure to complete the transaction on August 20, 2014.

[21] The appellants did not tender on July 30, 2014, the date set in the May 16, 2014 notice, or on August 20, 2014, the new date set in the June 27, 2014 notice. The respondent kept the deposit funds paid by the appellants.

[22] The appellants brought an action for breach of the Agreement and sought return of their deposit of $214,238.85, the increase in value of the unit as of the date the Agreement was terminated, and punitive damages of $100,000 for dishonest performance of the Agreement. In the alternative, they sought relief from forfeiture of their deposit.

[23] The respondent subsequently sold the unit in 2016. The parties agreed that $93,000 represented the increase in value of the unit as of August 7, 2014.

C. Trial Judge’s Decision

[24] The trial judge found that the respondent breached the Agreement by extending the Confirmed Occupancy Date pursuant to notices dated May 16, 2013, November 1, 2013, December 13, 2013, May 16, 2014 and June 27, 2014. The June 27, 2014 notice established August 20, 2014 as the Confirmed Occupancy Date. He reasoned that there was nothing in the Agreement that permitted the respondent to arbitrarily extend the Confirmed Occupancy Date absent certain defined circumstances or a cause beyond the respondent’s control. Neither of these had arisen and he rejected the respondent’s submission that the causes of the extensions were beyond its control. The finding that the respondent breached the Agreement by extending the Confirmed Occupancy Date is not in issue on this appeal. He also found that the appellants terminated the Agreement on August 7, 2014. The parties do not take issue with this finding either. Furthermore, it is consistent with the parties’ agreement fixing the increase in value of the condominium as of the date of termination, namely August 7, 2014.

[25] The trial judge concluded that the issue of whether the respondent was dishonest in its performance of the Agreement was moot but addressed it nonetheless, finding that the respondent had conducted itself honestly. He also made findings of credibility against the appellants, describing them as often being argumentative, overstated, and inconsistent.

[26] The trial judge then considered whether the appellants had accepted the respondent’s repudiation of the Agreement. He set out the governing legal principles as described in Ali v. O-Two Medical Technologies Inc., 2013 ONCA 733, 118 O.R. (3d) 321, at para. 24:

Once the counterparty shows its intention not to be bound by the contract, the innocent party has a choice. The innocent party may accept the breach and elect to sue immediately for damages – in which case, the innocent party must “clearly and unequivocally” accept the repudiation to terminate the contract: Brown v. Belleville (City), at para. 45. Alternatively, the innocent party may choose to treat the contract as subsisting, “continue to press for performance and bring the action only when the promised performance fails to materialize”; by choosing this option, however, the innocent party is also bound to accept performance if the repudiating party decides to carry out its obligations: S.M. Waddams, The Law of Contracts, 6th ed. (Toronto: Canada Law Book 2010), at para. 621.

[27] He recognized that in the face of the respondent’s breach, the appellants could accept the breach and sue for damages, but they had to “clearly and unequivocally” accept the repudiation to terminate the Agreement. He found that they had not. Rather, they had continued to press for performance. He stated at para. 104 of his reasons:

However, the [appellants] continued to press for performance of the [Agreement] after each of the five extensions of the Confirmed Occupancy Date. Rather than treat the [Agreement] as at an end, the [appellants] attended the [respondent]’s office to select finishes and upgrades for the Pier 27 Unit in October, 2013. Further, the [appellants] attempted to assign the Pier 27 Unit on many occasions through numerous real estate agents from November, 2013 until July, 2014. In July, 2014 the [appellants] sought and were refused permission by the [respondent] to have two prospective purchasers inspect the Pier 27 Unit. [Emphasis added.]

[28] The trial judge was accordingly satisfied that the appellants had treated the Agreement as subsisting. Exercising his discretion, and considering all of the circumstances, he also declined to grant relief from forfeiture.

D. Grounds of Appeal

[29] The appellants raise four grounds of appeal. They submit that the trial judge erred:

(i) in his repudiation analysis: (a) in considering irrelevant factors to conclude that the appellants had affirmed the Agreement, and (b) in failing to consider the appellants’ lack of knowledge of the facts and their legal rights to terminate the Agreement;

(ii) in his quantification of damages;

(iii) by failing to grant relief from forfeiture of the deposit; and

(iv) in his assessment of costs.

[30] The respondent contests the appellants’ submissions, arguing that it was only when it became clear that they could not assign the unit at a profit and it would be necessary to close the purchase that the appellants decided the respondent had repudiated the Agreement.

E. Analysis

(1) No Acceptance of Respondent’s Repudiation

(a) General Principles

[31] In considering the issue of repudiation, it is helpful to address the governing principles.

[32] As noted by Cronk J.A. in Brown v. Belleville (City), 2013 ONCA 148, 114 O.R. (3d) 561, at para. 42, a repudiatory breach does not, in itself, terminate the contract. If the non-repudiating or innocent party [3] does not accept the repudiation, then the repudiation has no legal effect. In his text, The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011), Professor Gerald Fridman explains as follows, at p. 595:

From the time that this kind of termination was recognized, it was accepted that there could be no such thing as unilateral repudiation. Just as the making of a contract requires the joint participation of both parties, an offeror and an acceptor, so the discharge of a contract, even where the discharge is by repudiation, in advance of the time for performance, also requires the conformity and acquiescence of both parties. [Emphasis in original.]

[33] Accordingly, the consequences of a repudiation are stated to depend on the election made by the innocent party. If the innocent party accepts the repudiation, the contract is terminated (sometimes referred to as disaffirmation). Alternatively, the innocent party may treat the contract as subsisting (sometimes referred to as affirmation). See Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423, at para. 40.

(i) Disaffirmation (Acceptance of the Repudiation of a Contract)

[34] In Brown, at para. 45, Cronk J.A. explained that:

[T]he election to disaffirm the contract must be clearly and unequivocally communicated to the repudiating party within a reasonable time. Communication of the election to disaffirm or terminate the contract may be accomplished directly, by either oral or written words, or may be inferred from the conduct of the innocent party in the particular circumstances of the case. [Citation omitted.]

[35] Thus, the acceptance of the repudiation must be clearly and unequivocally communicated. That communication must be within a reasonable time. And, the communication may be express or inferred from conduct. The contract is terminated if the innocent party accepts the repudiation.

(ii) Affirmation (Treating the Contract as Subsisting)

[36] A failure to accept a repudiation does not necessarily mean that the innocent party has affirmed the contract. As with disaffirmation, the affirmation may be express or inferred from conduct. A party who “presses for performance” will be found to have affirmed the contract: Ali, at para. 24. The test is an objective one – what would a repudiating party reasonably understand from the words or conduct of the innocent party. For instance, in Dosanjh v. Liang, 2015 BCCA 18, 380 D.L.R. (4th) 137, Mr. Dosanjh’s lawyer sent a letter that Mr. Dosanjh was “ready, willing and able” to complete the transaction on the scheduled date. The British Columbia Court of Appeal noted that the letter was not consistent with an acceptance of repudiation, and the court concluded that Mr. Dosanjh had made an election to affirm the contract.

[37] The court in Dosanjh also stated that “[a] court will not find that an innocent party has affirmed a contract in the absence of clear evidence leading it to that conclusion”: at para. 35 (emphasis added). This is the flip side of the rule that the election to disaffirm a contract must be clear and unequivocal. However, what then does a court do if the innocent party does not clearly disaffirm the contract and does not clearly affirm the contract? This question is particularly vexing given that, as discussed, a repudiation does not terminate the contract. In my view, rather than asking whether the evidence is “clear”, the proper question to ask is whether, in the circumstances of the case, a person in the shoes of the repudiating party reasonably would have understood that the innocent party was electing to keep the contract alive until the date of performance.

[38] This approach is also consistent with the Supreme Court’s commentary in Gordon Capital. In that case, the court suggests that something less than actively “pressing for performance” may amount to affirmation of the contract. At para. 40, the court notes that “[i]f [the innocent party] treats the contract as still being in full force and effect, the contract ‘remains in being for the future on both sides’” (emphasis added). I read this as saying that conduct consistent with the contract still being in force may amount to affirmation, whether or not it can be said that the innocent party actively pressed for performance.

(iii) The Middle Way

[39] An innocent party need not make its election immediately and may be given a reasonable period of time to decide whether to affirm the contract or accept the repudiation: Dosanjh, at para. 37; Abraham v. Coblenz Holdings Ltd., 2013 BCCA 512, 53 B.C.L.R. (5th) 94, at para. 28; and Canada Egg Products Ltd. v. Canadian Doughnut Co. Ltd., [1955] S.C.R. 398, at p. 407. As stated in Dosanjh, at para. 37, “at least until that reasonable period of time has elapsed, a court should be slow to treat equivocal statements or acts as affirmations of the contract.”

[40] A leading text (Hugh Beale, ed., Chitty on Contracts, 33rd ed. (London, UK: Sweet & Maxwell, 2018)) puts it this way, at para. 24-002:

There is a sense in which there is a middle way open to the innocent party in that he is given a period of time in which to make up his mind whether he is going to affirm the contract or terminate. This point was well-expressed by Rix L.J. in Stocznia Gdanska SA v. Latvian Shipping Co. (No. 2) when he stated: “In my judgment, there is of course a middle ground between acceptance of repudiation and affirmation of the contract, and that is the period when the innocent party is making up his mind what to do. If he does nothing for too long, there may come a time when the law will treat him as having affirmed. If he maintains the contract in being for the moment, while reserving his right to treat it as repudiated if his contract partner persists in his repudiation, then he has not yet elected. As long as the contract remains alive, the innocent party runs the risk that a merely anticipatory repudiatory breach, a thing ‘writ in water’ until acceptance, can be overtaken by another event which prejudices the innocent party’s rights under the contract—such as frustration or even his own breach. He also runs the risk, if that is the right word, that the party in repudiation will resume performance of the contract and thus end any continuing right in the innocent party to elect to accept the former repudiation as terminating the contract.” [Citations omitted.]

[41] Depending on the circumstances, inaction may be read either as a failure to elect or affirmation of the contract. For instance, in his text, The Law of Contracts, 2nd ed. (Toronto: Irwin Law, 2012), Professor John D. McCamus states, at pp. 703-4:

[A] mere failure to communicate an election to disaffirm to the repudiating party will not preclude a subsequent election to disaffirm unless the passage of time has resulted in significant prejudice to the repudiating party or, in the circumstances, the silence of the innocent party is reasonably interpreted as evidence of a decision to affirm the agreement.

(b) Application of Principles

[42] As mentioned, the trial judge found that the respondent breached the Agreement by extending the Confirmed Occupancy Date. The last breach occurred on June 27, 2014, which had extended the Confirmed Occupancy Date from July 30, 2014 to August 20, 2014. He also found that the appellants treated the Agreement as subsisting and terminated it on August 7, 2014. There is no suggestion that the appellants accepted the repudiation at any time prior to August 7, 2014.

[43] This appeal turns on whether the trial judge erred in finding that the appellants affirmed the Agreement, or put differently, treated it as subsisting.

[44] At the time of the breach by the respondent on June 27, 2014, the appellants had various alternatives available to them including:

(i) treating the Agreement as subsisting and insisting on closing on July 30, 2014 or implicitly or expressly agreeing to close on the new closing date of August 20, 2014;

(ii) accepting the repudiation which would put the Agreement at an end and would release the appellants from closing on July 30, 2014; or

(iii) doing nothing and taking a reasonable time to consider their options. However, as stated in Chitty, if the innocent parties do nothing for too long, the law may treat them as having affirmed the contract.

[45] The appellants submit that the trial judge erred in treating the individual repudiations cumulatively rather than separately. As a result, he conflated the appellants’ conduct to ascertain whether they had pressed for performance when instead, he should have relied on evidence of their conduct following the last repudiation by the respondent.

[46] I do not agree with this submission. It is the case that each time the respondent committed an act that amounted to a repudiation, the appellants were entitled to affirm the Agreement and treat it as subsisting or accept the repudiation. Just because they had previously affirmed the Agreement following the respondent’s acts of repudiation did not mean that they were disentitled from accepting the latest repudiation on June 27, 2014: see Dosanjh, at para. 42.

[47] However, the trial judge’s discussion of the appellants’ conduct before and after June 27, 2014 must be considered in context. Before the trial judge, the appellants argued that the Agreement had been breached on each of the occasions that the trial judge addressed, that is, with each notice of extension. This was for the most part consistent with their fresh as amended statement of claim. He accordingly commenced his analysis of this issue by asking whether any of the respondent’s extensions of the Confirmed Occupancy Date constituted a breach of the Agreement. He then proceeded to discuss the appellants’ conduct that succeeded each of the breaches. I see nothing wrong in this approach and it explains why he addressed all of the notices of extension and not just that of June 27, 2014.

[48] Second, he did not treat the repudiations cumulatively nor did he conflate the appellants’ conduct. Rather, he addressed each of the repudiations and culminated with a discussion of the final repudiation. This is evident from the language he used at para. 104 of his reasons: the appellants “continued to press for performance of the [Agreement] after each of the five extensions of the Confirmed Occupancy Date” (emphasis added). It is also evident from his reliance on post-June 27, 2014 conduct to sustain his conclusion. This conduct included attempting to assign the unit in July 2014 and seeking and being refused permission from the respondent to have two prospective purchasers inspect the unit. Although not relied upon by the trial judge, the appellants also offered to pay for the cleaning of the unit following the inspection and Mr. Yong testified that they were open to realtors at that time. Once affirmed, there was no additional breach by the respondent that gave rise to an election, and therefore the appellants were precluded from relying on their lawyer’s August 7, 2014 letter as constituting clear and unequivocal communication of acceptance of the respondent’s June 27, 2014 repudiation.

[49] Third, none of the appellants’ conduct is consistent with acceptance of the respondent’s repudiation but is consistent with affirmation of the Agreement. Certainly, there was no clear and unequivocal communication of termination until at best, August 7, 2014. Even when the appellants’ counsel wrote the August 7, 2014 letter, the language sought permission to rescind the Agreement. Moreover, a disaffirmation of the Agreement must be communicated within a reasonable time. The last notice of extension of the Confirmed Occupancy Date was sent on June 27, 2014, but the correspondence from the appellants’ lawyer terminating the Agreement was sent on August 7, 2014, a week after the penultimate closing date of July 30, 2014. By August 7, 2014, the appellants’ conduct was consistent with an affirmation and an agreement to close on August 20, 2014. Quite apart from the affirmatory conduct relied upon by the trial judge, additionally, the appellants did nothing for too long and the trial judge legitimately treated them as having affirmed the Agreement.

[50] It was open to the trial judge to find that the appellants continued to press for performance of the Agreement after the June 27, 2014 extension of the Confirmed Occupancy Date. Based on the evidence before him, the trial judge made the requisite finding of conduct post June 27, 2014 and it was open to him to look to the appellants’ previous conduct to assist in interpreting their later behaviour, recognizing as he did that each extension of the Confirmed Occupancy Date required affirmation.

[51] The trial judge identified and applied the correct legal test and made no palpable and overriding errors in finding that the appellants treated the Agreement as subsisting notwithstanding the respondent’s repudiation of the Agreement. I would dismiss this ground of appeal.

[52] I would also add that, though not argued by the parties, even if there was no election to affirm and no election to disaffirm, by default, at law, there would be no election. Accordingly, on the July 30, 2014, closing date, the Agreement continued. Neither party was ready, willing or able to close on that date. As such, the rule in King v. Urban & Country Transport Ltd. (1973), 1 O.R. (2d) 449 (C.A.) was applicable. This rule was explained in Domicile Developments Inc. v. MacTavish (1999), 45 O.R. (3d) 302 (C.A.) as follows:

In King v. Urban the purchaser was not in a position to close on the closing date; but the vendor was also in default and not entitled to rely on the time of the essence provision in the contract. Arnup J.A. resolved the stalemate by applying two propositions:

1. When time is of the essence and neither party is ready to close on the agreed date the agreement remains in effect.
2. Either party may reinstate time of the essence by setting a new date for closing and providing reasonable notice to the other party. [Footnote omitted.]

[53] In the case under appeal, the respondent proposed August 20, 2014, as the new date but despite reasonable notice, the appellants did not close. The appellants’ attempt to terminate the Agreement on August 7, 2014 was ineffective because there was no repudiation in play that could be accepted at that time. Thus, even if there were no affirmation by the appellants, the result would be the same.

[54] In conclusion, on any analysis, the first prong of the appellants’ ground of appeal based on repudiation must fail.

(2) Alleged Lack of Knowledge

[55] The appellants also submit that the trial judge erred in failing to consider that the appellants had insufficient knowledge to make an election. They argue that for an effective affirmation, the innocent party must have knowledge of both the facts and the legal right to choose between affirmation and termination of an agreement in the face of a repudiation. They submit that the appellants had neither.

[56] For the following reasons, I would not give effect to this ground of appeal.

[57] First, I note that this issue was not referenced in the appellants’ pleading which may explain why it was not expressly addressed by the trial judge.

[58] Second, and more substantively, there can be no question that the appellants had knowledge of the underlying facts. All of the extension letters, which clearly described the cause and effect of each of the extensions, were sent to the appellants. Moreover, it is evident from the appellants’ evidence at trial that they were familiar with the factual state of affairs. As the closing was quickly approaching, they were attempting to assign the Agreement and were still open to all realtors. Mr. Yong testified that he never told the appellants’ real estate lawyer, Mr. Zayachkowski, how unhappy he was, to get him out, or to get his money back. It bears repeating that the appellants were not ingenue real estate purchasers. Unquestionably, the appellants had knowledge of the facts giving rise to the breaches described in Mr. Papadimitriou’s letter of August 7, 2014.

[59] The appellants also allege that they had no knowledge of their legal rights and in support, particularly rely on Peyman v. Lanjani, [1984] 3 All E.R. 703 (C.A.).

[60] As noted by this court in Samson v. Lockwood, [1998] O.J. No. 2471, the facts of Peyman were unusual in that the plaintiff’s lawyer was a party to the misrepresentations that grounded the plaintiff’s legal rights. In addition, the court in Peyman relied on Coastal Estates Pty Ltd. v. Melevende, [1965] V.R. 433 (Austl. (Vic.) (S.C.)), which involved a case of fraudulent misrepresentation. In Samson, Rosenberg J.A. wrote, at para. 51:

In many cases, especially cases of fraudulent misrepresentation, it may be that proof of knowledge of the legal right to rescind should be a prerequisite to affirmation. However, I cannot accept that proof of knowledge of legal rights was necessary in the circumstances of this case. By August 1989, Mr. Lockwood was aware of the facts that gave him the right to rescind. He had access to any number of lawyers and his own real estate agent. He chose not to seek their opinion or advice.

[61] In the case under appeal, the trial judge found that there was “no basis in the evidence for suggesting that the [respondent] did not conduct itself honestly throughout this transaction”, and he also found that the respondent believed that its extensions of the Confirmed Occupancy Dates were made for reasons permitted by the Agreement and the Act. As such, there is no room for the appellants to assert any fraudulent misrepresentations.

[62] Moreover, the appellants had access to lawyers and indeed other real estate professionals throughout the real estate transaction. By December 9, 2013, they had retained Mr. Zayachkowski to act for them and his continued involvement is evident from the letters sent to him by the respondent advising of the last two extensions of the Confirmed Occupancy Date. Mr. Yong advised Mr. Zayachkowski that they were going to seek the assistance of a litigation lawyer to approach the developer for a return of the monies they had paid to the respondent and this resulted in the August 7, 2014 letter from Mr. Papadimitriou. The appellants did not call either lawyer as witnesses at trial.

[63] As in Samson, the appellants had the opportunity to ascertain their legal rights from professional advisors but, to the extent they may not have had knowledge of their legal rights, exhibited total recklessness and indifference to the need to inquire into their legal rights. This is so particularly given that they had access to their real estate lawyer, Mr. Zayachkowski. Although in Samson, Rosenberg J.A. left open the issue of whether affirmation by conduct and something less than recklessness would deprive a party of a right to rescind, the principles he articulated are applicable to the facts of this case.

[64] I conclude that the trial judge did not err in determining that the appellants had affirmed the Agreement. The appellants had knowledge of the underlying facts and their affirmation of the Agreement is not rendered ineffective as a result of any other legal infirmity.

[65] For these reasons, I would dismiss this component of the appellants’ first ground of appeal. It follows that it is unnecessary to address damages. However, the appellants claim relief from forfeiture in the alternative to which I will now turn.

(3) Relief from Forfeiture

[66] Under s. 21 of the Agreement, the deposits paid by the appellants were forfeited to the respondent. Among other things, s. 21 provided that the deposits were expressly deemed to be deposit monies only and not partial payments.

[67] In Azzarello v. Shawqi, 2019 ONCA 820, 439 D.L.R. (4th) 127, at para. 45, leave to appeal refused, [2019] S.C.C.A. No. 521, Feldman J.A. briefly summarized the law relating to repudiation and real estate deposits stating:

It is well-established by case law that when a purchaser repudiates the agreement and fails to close the transaction, the deposit is forfeited, without proof of any damage suffered by the vendor: see Tang v. Zhang, 2013 BCCA 52, 359 D.L.R. (4th) 104, at para. 30, approved by this court in Redstone Enterprises Ltd., v. Simple Technology Inc., 2017 ONCA 282, 137 O.R. (3d) 374. Where the vendor suffers no loss, the vendor may nevertheless retain the deposit, subject to relief from forfeiture.

[68] Under s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43, a court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.

[69] In his reasons, the trial judge described the factors to be considered for the purposes of relief from forfeiture as: whether the conduct of the party seeking relief from forfeiture was reasonable, whether the object of the right of forfeiture was to secure the payment of money, and whether there was a substantial disparity between the value of the property forfeited and the damage caused by the breach. The property forfeited in this case is of course the deposit.

[70] In describing the factors, the trial judge relied on Scicluna v. Solstice Two Limited, 2018 ONCA 176, 421 D.L.R. (4th) 675, which drew on Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490, an insurance case.

[71] Other authorities that have examined relief from forfeiture in the context of real estate deposits have applied an arguably different test. See for example: Varajao v. Azish, 2015 ONCA 218; Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, 137 O.R. (3d) 374; and Azzarello. This test for relief from forfeiture, which is based on the English Court of Appeal decision of Stockloser v. Johnson, [1954] 1 Q.B. 476 (C.A. (Eng.)), poses two questions: (i) is the forfeited deposit out of all proportion to the damages suffered; and (ii) would it be unconscionable for the vendor to retain the deposit?

[72] In Redstone, this court examined both questions. Lauwers J.A., writing for himself, Sharpe and Hourigan JJ.A., referred with approval to the five-person panel in Tang v. Zhang, 2013 BCCA 52, 359 D.L.R. (4th) 104. In Tang, the vendor had been able to resell a $2 million property for more than the original purchase price and had suffered no loss. Citing the principles that underlie a deposit, the British Columbia Court of Appeal overturned the relief from forfeiture of the $100,000 deposit granted by the trial judge. One such principle identified in Tang, and approved by Lauwers J.A., was that:

A true deposit is an ancient invention of the law designed to motivate contracting parties to carry through with their bargains. Consistent with its purpose, a deposit is generally forfeited by a buyer who repudiates the contract, and is not dependant on proof of damages by the other party. If the contract is performed, the deposit is applied to the purchase price.

[73] Following upon that decision, and mindful of the recognition of the advantages of allowing parties to define for themselves the consequences of breach and the need for contractual certainty, in Redstone, Lauwers J.A. reasoned that the fact that the vendor suffered no damages did not in itself render the forfeiture of the entire deposit of $750,000 unconscionable. He stated at para. 25 that the finding of unconscionability must be an exceptional one, strongly compelled by the facts of the case and noted, at para. 30, that the list of the indicia of unconscionability is never closed. Ultimately, this court concluded that the vendor was entitled to retain the full deposit paid by the purchaser in the face of no evidence of any damages.

[74] As neither party to this appeal challenged the trial judge’s description of the applicable test, it is unnecessary to determine which test applies. The resolution of that issue is best left for another time and another case where the subject is fully argued and briefed.

[75] On this appeal, the appellants make two submissions. First, they submit that the trial judge failed to consider his own finding that the respondent repudiated the Agreement on five separate occasions. I accept that the trial judge did not expressly address his earlier finding in this regard. However, the trial judge did describe the appellants’ argument to this effect and, that being so, I do not see any reason to conclude that he did not take that finding into account in reaching his conclusion on this issue. I also note that the trial judge did say that he was considering all the circumstances in reaching his conclusion and his summary of the appellants’ position preceded this statement by a mere three paragraphs.

[76] Second, the appellants say that by improperly concluding that almost all of the amount of the appellants’ deposit covered the damages suffered by the respondent, he erred in not granting relief from forfeiture.

[77] I do not agree.

[78] As the Supreme Court stated in Saskatchewan River, relief from forfeiture is an equitable and discretionary remedy. Absent a legal or palpable and overriding error, it is not for this court to substitute its discretion for that of the trial judge. Based on the record before him, he reasonably concluded that the respondent incurred expenses of approximately $227,544.24 consequent on the appellants’ breach. [4] The trial judge considered these expenses, the quantum of the deposit, and the increased proceeds of disposition received by the respondent on the resale of the property but chose not to exercise his discretion in favour of the appellants. Relief from forfeiture is not simply a mathematical formula; it is an exercise of discretion. Although the respondent ultimately may have gained approximately $100,000 from the transaction, I am unable to conclude that the trial judge’s refusal to grant relief from forfeiture of the appellants’ deposit was infected with error.

[79] I would also add that the retention of the deposit by the respondent vendor in this case is consistent with the objective of a deposit and the prospect of its forfeiture as described in Benedetto v. 2453912 Ontario Inc., 2019 ONCA 149, 86 B.L.R. (5th) 1, at para. 14: “a forfeited deposit does not constitute damages for breach of contract, but stands as security for the performance of the contract.” See also Benedetto, at paras. 6-7; Tang, at paras. 20-24, 30.

[80] However, I would add two important caveats to my conclusion on the issue of relief from forfeiture. First, it is of significance that the appellants did not challenge the quantum of the damages that the respondent said arose from the appellants’ failure to close the transaction nor did they challenge any of the constituent elements of the respondents’ damages. In other words, the appellants did not argue that any of these elements should not be considered as proper heads of damage in light of the respondent’s prior breaches.

[81] Second, because the decision on relief from forfeiture is an inherently discretionary one based on the specific facts of a particular case, developers who act in a manner, such as the respondent did here, by which they do not honour their contractual obligations, should not expect that such a favourable outcome will necessarily be the result in future cases.

[82] For these reasons, I would not interfere with the trial judge’s refusal to grant relief from forfeiture.

(4) Costs

[83] The appellants argue that particularly if the respondent is permitted to retain the deposit, the costs award of $68,713.62 inclusive of disbursements and tax in favour of the respondent should be replaced with no order for costs. In their submissions, the appellants rely upon this court’s decision in Payer v. Peerless Plating Rack Co. (1998), 37 O.R. (3d) 781 (C.A.) and argue that the respondent obtained a windfall which should have been reflected in the costs award.

[84] Absent an error in principle or an award that is plainly wrong, a trial judge’s exercise of discretion in the award of costs is entitled to deference: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27.

[85] The oral costs reasons given by the trial judge were summary in nature and mainly focused on the respondent’s request for substantial indemnity costs which he properly dismissed. He touched upon Payer but considered it to be inapplicable because in the context of his forfeiture analysis, he had found that the respondent had not obtained a windfall.

[86] Payer involved claims by an estate against various parties. Due to an inadvertent failure to cancel an insurance policy, the company in which the deceased had formerly held an interest, but which had no insurable interest, received a windfall upon the deceased’s death. Even though the company was successful on the appeal, this court concluded that it would be inappropriate for it and the deceased’s former business partner to recover any costs on the appeal or the trial because they had received a windfall.

[87] In the case under appeal, the conclusion that the respondent did not receive a windfall sufficient to invoke relief from forfeiture is not determinative of the costs award, and the trial judge erred in principle in treating the finding as such. Although not disproportionate or unconscionable for the purposes of forfeiture, based on the Payer decision, the $100,000 ought not to have been disregarded simply due to its characterization in the forfeiture analysis. This was an error in principle.

[88] Although the respondent breached the Agreement on five occasions, the appellants lost their mortgage approval as a result, and the respondent ultimately earned a net profit of approximately $100,000, the respondent was successful in the action and arguably should be entitled to its costs. That said, even though this court is extremely reluctant to interfere with a trial judge’s award of costs, in the unusual circumstances of this case where the respondent ultimately gained approximately $100,000, it is fair and reasonable for the parties to bear their own costs of both the trial and the appeal and I would so order.

F. Disposition

[89] For these reasons, I would dismiss the appeal, grant leave to the appellants to appeal the costs award, vacate the costs award of $68,713.62 in favour of the respondent, and order the parties to bear their own costs of the trial and the appeal.

Released: July 30, 2021 “S.E.P.”

“S.E. Pepall J.A.”

“I agree. I.V.B. Nordheimer J.A.”

“I agree. Thorburn J.A.”

Footnotes

[1] The developers were Cityzen Development Group and Fernbrook Homes.

[2] In fact, Mr. Yong testified that the developer granted the assignment.

[3] Rather than repeating the “non-repudiating or innocent party” formulation, I will use the words “innocent party” throughout.

[4] The trial judge calculated the respondent’s costs as including occupancy fees ($82,686.35), a staging fee ($55,223.10), the listing commission ($12,594), and the real estate commission on sale ($121,400). To avoid double counting, he deducted a notional commission of $38,485.71 plus taxes, which was due to the brokerage firm, and a listing commission of $5,873.50 to account for the respondent’s expenses had the appellants closed in August 2014.