Court File and Parties

COURT OF APPEAL FOR ONTARIO DATE: 20220321 DOCKET: C69556

Feldman, Tulloch and Miller JJ.A.

BETWEEN

Biao Liu Plaintiff (Respondent)

and

Dong Jin Qiu Defendant (Appellant)

Counsel: Sara J. Erskine and Adrienne Zaya, for the appellant Ran He and Christopher Tan, for the respondent

Heard: February 28, 2022 by video conference

On appeal from the judgment of Justice Breese Davies of the Superior Court of Justice, dated May 14, 2021, with reasons at 2021 ONSC 3461, and from the costs order, dated July 19, 2021, with reasons at 2021 ONSC 5047.

Reasons for Decision

[1] The parties are two young men who agreed to enter into a joint venture partnership where they would purchase a residential property in Toronto for $1.2 million plus closing costs, knock down the home on the property, build a new home, and sell it. The financial terms were that each partner would contribute half the purchase price, which amounted to $621,203.01 including closing costs, and then share the profits 50/50.

[2] At trial and on appeal, the appellant disputed that an agreement had been reached. However, the trial judge found that the essential terms of the agreement were as described above, and were sufficient to form a binding partnership agreement. We would not interfere with this finding.

[3] The parties met through the respondent’s business. The respondent had a car detailing business and also sourced high-end cars for purchase. The appellant was a university student from China who had paid the respondent a $40,000 deposit for a Lamborghini sports car the respondent agreed to locate for him to purchase.

[4] Their partnership agreement was reached by text and audio message discussion. The appellant authorized the respondent to take his portion of the deposit for the property from the $40,000 the appellant had given for the Lamborghini. However, the day after the respondent made an offer to purchase the agreed property, including a $60,000 deposit, the appellant advised that he no longer wished to be part of the joint venture. The offer to purchase was made and accepted by the vendor on December 6, 2016, with a closing date of January 16, 2017.

[5] After the appellant repudiated the contract, the respondent found a new partner for the project, Zhen Yang. However, the terms of the partnership agreement had changed. Mr. Yang contributed $410,000, for a 50% share of the profit of the venture, instead of the $621,203.01 that the appellant had agreed to contribute.

[6] The respondent financed the purchase with a mortgage for $710,000. The property and the mortgage were held in his wife and father’s names. The respondent proceeded with the construction of a new home on the property. He decided to move into the home with his family for at least one year in order to make it his principal residence for income tax purposes, thereby incurring no capital gains tax obligation when the home is eventually sold. By the time of trial, and this appeal, the respondent had not sold the new home.

[7] Having found that the appellant and respondent entered into a binding agreement, and that the appellant breached the agreement, the next issue was the measure of damages. The trial judge found that because the respondent “paid $211,203.01 more for his 50 percent interest in the assets and profits of the partnership than he would have paid under the agreement with [the appellant]”, she was “satisfied that [the respondent] suffered damages in the amount of $211,203.01 because [the appellant] breached their partnership agreement.”

[8] The appellant submits that the trial judge erred in fact and in law in her finding regarding the measure of damages. The respondent’s position is that the trial judge’s approach to the assessment of damages is correct. We agree with the appellant that the trial judge erred in her approach to the assessment of damages.

[9] While it is true that the respondent was required to contribute an extra $211,203.01 to purchase the property, that amount was not a payment that he lost, but rather, it was part of the investment that he will recover when the property is sold.

[10] He financed his portion of the investment through a mortgage. The amount of the mortgage he was obliged to take was increased by $211,203.01 because of the new deal he made with Mr. Yang, where Mr. Yang was contributing more than $200,000 less than the appellant would have contributed. However, when the home is eventually sold, the original capital investment by both the respondent and Mr. Yang will be recouped, the mortgage will be discharged, and the profits on the sale after all expenses will be shared 50/50.

[11] Therefore, the trial judge erred in fact and law in concluding that the respondent suffered damages in the amount of the extra capital he became responsible for investing in the project.

[12] The appellant further submits that the respondent in fact suffered no damages as a result of the appellant’s breach. We reject that submission. The respondent was obliged to incur the cost of borrowing the extra $211,203.01. [1]

[13] The next issue is how to properly quantify the respondent’s damages, since he has not yet sold the house and therefore the cost of financing through the mortgage is ongoing.

[14] It is clear from the record that it was not part of the parties’ agreement that the respondent would live in the home for one year or any other period of time after it was constructed. In our view, therefore, a reasonable cut-off date for the respondent’s damages period should be the date of trial.

[15] The damages are therefore to be quantified by multiplying $211,203.01 by the mortgage rate obtained by the respondent for the period beginning on the date of the mortgage and ending on the first day of trial. We leave the calculation to the parties. As the trial judge did, we reduce the calculated amount by $40,000, the amount of the deposit for the Lamborghini car that the appellant paid the respondent, and that he retained.

[16] The appellant also appeals the costs awarded by the trial judge in the amount of $45,757.27, including substantial indemnity costs from the date of an offer to settle. We will address the issue of costs of the trial once we know the amount owing for damages from the appellant to the respondent, if any.

[17] The parties are requested to calculate the amount of the damages and provide it to the court within two weeks of the release of these reasons. If the parties are unable to agree on the costs of the trial, they may make written submissions of up to three pages, also within two weeks of the release of these reasons.

[18] The appeal is therefore allowed with costs to the appellant in the amount of $10,706.42, inclusive of disbursements and H.S.T.

“K. Feldman J.A.”

“M. Tulloch J.A.”

“B.W. Miller J.A.”

[1] The court was told that the issue of mitigation of damages and whether the arrangement the respondent made with Mr. Yang met his onus to take all reasonable steps to mitigate his damages was not raised at the trial.