Court of Appeal for Ontario

Date: 20220330 Docket: C68832

Lauwers, Harvison Young and Sossin JJ.A.

Between

Akelius Canada Ltd. Appellant

and

2436196 Ontario Inc. and B’Nai Fishel Corporation Respondents

Counsel: Daniel S. Murdoch and Isabelle Eckler, for the appellant Mark A. Ross and Eric Brousseau, for the respondents

Heard: September 27, 2021 by video conference

On appeal from the order of Justice Edward M. Morgan of the Superior Court of Justice, dated October 13, 2020, with reasons reported at 2020 ONSC 6182.

Harvison Young J.A.:

Overview

[1] What remedies are appropriate for an innocent purchaser of real property when a breaching vendor fails to close on the date pursuant to the agreement of purchase and sale? In particular, is the purchaser entitled to claim the profits that the vendor made two and a half years later when the vendor sold the property for $56 million more than its value on the closing date? As the motion judge put it, “[c]an a Europe-based, worldwide real estate investor whose contract was breached by a seller in Toronto be awarded damages based on lost opportunity to cash in on the local real estate boom?”

[2] Akelius Canada Ltd. (“Akelius”) appeals from the motion judge’s finding that it was not entitled to such damages but was restricted to its damages as at the closing date. The respondents cross-appeal the motion judge’s award to Akelius of its costs thrown away, and both parties appeal from the motion judge’s decision not to award costs to either party.

Factual Background

[3] The factual context giving rise to this appeal is straightforward.

[4] On August 25, 2015, the parties entered into an agreement of purchase and sale under which the appellant agreed to buy from the respondents seven residential apartment buildings for an overall purchase price of $228,958,320 (“the APS”). The buildings were all in the Parkdale neighbourhood in Toronto. It is common ground that this was the market value of the properties as of the date of breach.

[5] The deal did not close as contemplated on January 7, 2016 because of the vendors’ breach in failing to remove certain encumbrances from title which, as of December 15, 2015, totalled $48,855,474.32. The appellant had paid the deposits required pursuant to the APS in the total amount of $10 million, with the outstanding balance payable on closing.

[6] When the deal did not close, the deposits were returned to the appellant which returned the funds to its parent company, a Sweden-headquartered investment corporation with international holdings in various countries including Scandinavia, the United Kingdom, central Europe, the United States, and Canada.

[7] Two and a half years later, in September 2018, the respondents sold the properties to a new purchaser. According to Land Transfer Tax affidavits filed by the new purchaser at that time, the properties were sold for 25% more than the purchase price, some $56,544,318. This is the amount the appellant claims as its loss of the value of the transaction.

Decision Below

[8] The matter proceeded on a motion for summary judgment. Neither party disputes the appropriateness of summary judgment in this case.

[9] The motion judge found that the respondent vendors breached the APS, and he awarded the appellant $775,855.46, finding that these were costs reasonably incurred and thrown away by the appellant as a result of the respondents’ breach of the APS.

[10] The lion’s share of the damages claimed by the appellant arose out of the fact that more than two years after the breach of the APS, the respondent vendors resold the properties to another purchaser for approximately $56,544,318 more than its market value on the date of breach. In assessing damages, the motion judge stated, at para. 22:

First, in assessing damages, the basic principle is that damages should put the injured party as nearly as possible in the position it would have been in had the contract not been breached. In the ordinary case of an aborted purchase and sale of real estate, this principle is put into effect by assessing damages at the date that had been set for closing: 100 Main Street Ltd. v. W.B. Sullivan Construction Ltd. (1978), 20 O.R. (2d) 401 (Ont CA). There is, however, flexibility in this approach. As Laskin JA observed in 6472047 Ontario Ltd. v. Fleischer (2001), 56 O.R. (3d) 417, at para. 42 (Ont CA), “The date for the assessment of damages is determined by what is fair on the facts of each case.”

[11] The motion judge observed that the appellant had been clear that it was not in the business of flipping apartment buildings and had no intention of re-selling the properties for a quick capital gain. Rather, it is in the apartment investment and rental business and looks to purchase income-producing properties for long-term holds, typically seeking a seven percent return. Akelius did not seek damages for lost income, but only for the lost capital gains. The motion judge rejected this manner of measuring damages, finding it to be “directly contrary to the express guidance of the Court of Appeal in Fleischer” and citing Laskin J.A.’s direction in that case, at para. 41, that “[w]here…the vendor retains the property in order to speculate on the market, damages will be assessed at the date of closing.” The motion judge continued to say that if the respondents had breached in order to deprive a speculator (which the appellant was not), the measure of the appellant’s damages would have to be measured as of the closing date or date of breach.

[12] In conclusion on this issue, the motion judge, referring to authorities on the issue, stated, at para. 30, that the fact that the respondents ultimately made a speculative profit does not give the appellant such profit as a measure of damages:

The “measure of damages for failure to complete a purchase of land is the difference between the contract price and the market value of the land – which is intended to represent the lost benefit of the bargain to the vendor”: Marshall, at para 12. The same principled approach applies to the purchaser where it is the party that lost what it bargained for. The damages must make up what the purchaser lost in value on the closing date, not what a property speculator standing in the purchaser’s shoes would have lost.

[13] According to the motion judge, an innocent purchaser cannot access a measure of damages that has been specifically denied by this court, in particular, the profit that it would have made had it purchased the properties as a speculator intent on flipping them to a new purchaser two and a half years later.

[14] With respect to the appellant’s duty to mitigate its loss, the motion judge found that, given the circumstances of the appellant’s business and the fact that the appellant had returned the deposit to its parent corporation, it had either mitigated its damages in full or had failed to mitigate. He noted that the appellant refused to disclose information relating to the buildings acquired subsequent to January 2016, which would have assisted with determining whether the appellant had mitigated its loss.

[15] The motion judge declined to order costs in favour of either party in light of the mixed success on the motion.

The Issues on Appeal

[16] The appellant argues that the motion judge committed reversible error on three issues. Its submissions are discussed further below, but in brief, it first argues that the motion judge erred in finding that he was bound by the case of Fleischer to assess damages as of the date of breach. Second, it submits that the motion judge erred in finding that the respondent vendors succeeded in showing that the appellant purchaser failed to mitigate or had, in fact, mitigated its damages (other than the costs thrown away). It lastly argues that the motion judge erred in failing to award the appellant its costs.

[17] The respondents cross-appeal on two points. First, they argue that the motion judge erred in awarding Akelius “every dollar of its sunk costs”. Second, they argue that they ought to have been awarded their costs given their success defending the majority of the appellant’s claim for damages.

[18] For the following reasons, I would dismiss both the appeal and the cross-appeal. I will address the issues in turn.

(1) The Measure of Damages

(a) The Parties’ Positions

[19] The appellant submits that the motion judge misapplied 6472047 Ontario Ltd. v. Fleischer (2001), 56 O.R. (3d) 417 (Ont. C.A.). According to Fleischer, it argues, the date for the assessment of damages is to be determined on what is fair on the facts of each case. Fleischer arose from a breach by a purchaser in a declining market. There, unlike the present facts, the vendor was innocent. The appellant, in its factum, states that Fleischer is clear that “the decision to assess damages at the date of closing is driven by the innocent vendor’s decision not to mitigate its damages by selling the property as quickly as possible following the breach”. The appellant argues that the application of Fleischer to the circumstances of an innocent purchaser, having appropriate regard to justice and fairness, supports assessing damages on the date that a defaulting vendor resells the subject property at a premium to what it would have received from the innocent purchaser.

[20] In addition, the appellant argues that the motion judge’s assessment of damages failed to put it in the position that it would have been in had the contract been performed. Rather, the motion judge’s award wrongly put the appellant in the position that it would have been in had the contract never been performed.

[21] The respondents submit that the motion judge was correct in his application of Fleischer and that the date of closing is the appropriate date upon which to assess the damages. They further submit that in this case, the damages sought by the appellant for lost capital appreciation were not the type of damages that were in the reasonable contemplation of the parties at the time the APS was signed. The appellant intended to hold the buildings as a long-term investment, and while it may have eventually sold the buildings for a profit, its own evidence shows that it likely would not have sold the buildings in 2018. Thus, the motion judge was correct in finding that the appellant is not a property speculator and could not recover damages on that basis.

(b) Law and Analysis

[22] It has long been the case in the real estate context that the starting point for the assessment of damages for breach of contract is the date of breach. This principle was set out in 100 Main Street Ltd. v. W.B. Sullivan Construction Ltd. (1978), 20 O.R. (2d) 401 (Ont. CA) and reaffirmed in Fleischer. In Fleischer, at para. 41, Laskin J.A. summarized the six propositions articulated by Morden J.A. in Main Street as follows:

(1) The basic principle for assessing damages for breach of contract applies: the award of damages should put the injured party as nearly as possible in the position it would have been in had the contract been performed.

(2) Ordinarily courts give effect to this principle by assessing damages at the date the contract was to be performed, the date of closing.

(3) The court, however, may choose a date different from the date of closing depending on the context. Three important contextual considerations are the plaintiff's duty to take reasonable steps to avoid its loss, the nature of the property and the nature of the market.

(4) Assessing damages at the date of closing may not fairly compensate an innocent vendor who makes reasonable efforts to resell in a falling market. In some cases, the nature of the property -- for example an apartment building-- hampers the vendor's ability to resell quickly. Thus, if the vendor takes reasonable steps to sell from the date of breach and resells the property in some reasonable time after the breach, the court may award the vendor damages equal to the difference between the contract price and the resale price, instead of the difference between the contract price and the fair market value on the date of closing.

(5) Therefore, as a general rule, in a falling market the court should award the vendor damages equal to the difference between the contract price and the “highest price obtainable within a reasonable time after the contractual date for completion following the making of reasonable efforts to sell the property commencing on that date”

(6) Where, however, the vendor retains the property in order to speculate on the market, damages will be assessed at the date of closing.

[23] As Laskin J.A. explains in Fleischer, at para. 42, “underlying these propositions is the simple notion of fairness.” In determining the appropriate date for the assessment of damages, the court must have regard to what is fair in the circumstances.

[24] In Fleischer, the innocent vendors claimed damages arising from the purchaser who refused to close when they realized that the market was falling. The trial judge found that the closing date in November 1990, the date of breach, was the appropriate date for the assessment of the vendors’ damages, at which point the property in issue was worth $1,130,000. On appeal to this court, the vendors argued that their damages should be assessed as at the date of trial some four years later, by which point the property in question had decreased in value to $410,000. This court disagreed. In finding that the date of breach was the correct date, Laskin J.A. stated, at para. 44, that the innocent vendors

…cannot pick a date at random, nearly four years after the closing date, when the market was likely at its lowest, and reasonably expect the court to choose that date to measure their loss.

[25] There are cases that support the view that, in some instances, it might be appropriate to move the date somewhat later; however, this has been done in cases where the plaintiff established that it was not in a position to re-enter the market as at the date of breach. In Asamera Oil Corporation Ltd. v. Sea Oil & General Corporation et al., [1979] 1 S.C.R. 633, the defendant was in breach of an agreement between the parties which required the return of Asamera shares that had been loaned to the defendant. The value of the shares fluctuated considerably from the date of the breach and the trial. The innocent plaintiff argued that the date of the assessment of damages should have been the dates those shares were at their highest prices. This view was rejected by the Supreme Court. Rather, the starting point continued to be the date of breach, and the damages were found to have crystallized at the earliest date upon which the plaintiffs could reasonably have re-entered the market.

[26] In Domowicz v. Orsa Investments Ltd. (1994), 20 O.R. (3d) 722 (S.C.), varied on other grounds, (1998), 40 O.R. (3d) 256 (C.A.), a case cited by the appellant, the innocent vendor plaintiff sought specific performance of an agreement to purchase an apartment building. The plaintiff filed detailed evidence as to its damages in light of its planned use for the property, including its loss of revenue. The trial judge noted that the plaintiff must prove its loss. He recognized that it may have taken some time to find a replacement property but rejected the argument that it could reasonably have taken the time the plaintiff was claiming, which was the date of trial some three years later. At the end of the day, the appropriate date for the assessment of damages was found to have been only three months later than the date of breach.

[27] In all these cases, the date of breach remains a starting point for the assessment of loss, modified only to the extent that the innocent party satisfies the court that a later date is appropriate on the grounds that it is the first date upon which the party could reasonably have been expected to re-enter the market and mitigate its damages.

[28] The appellant argues that the motion judge misapplied Fleischer because, in that case, the vendor was innocent. It further argues that when a vendor defaults on a real estate transaction in a rising market, the date of assessment of damages should be varied from the date of breach because an innocent purchaser such as the appellant may have difficulty attempting to purchase a comparable portfolio of properties in a rising real estate market. It relies on the case of Domowicz as authority for the proposition that assessing damages as at the date of breach would not satisfy the general principle that the non-breaching party should be put in a position in which he or she would have been in had the contract been performed.

[29] I do not agree with the appellant’s interpretation of these cases. First, in Fleischer, the innocent vendors had retained the property and re-leased it, speculating that the market would eventually go back up. Laskin J.A. rejected the argument that because the vendors were innocent, they were entitled to deviate from the usual measure of damages as of the date of breach. He found that the appropriate date was the date of breach. I see no principled reason for the suggestion that the date should be different when the purchaser is the innocent party. Put another way, the fact that a party is innocent does not displace the date of breach as the presumptive date for the measure of damages in a real estate case.

[30] Second, Domowicz does not assist the appellant. Unlike the plaintiff in Domowicz, the appellant did not provide evidence of its loss of revenue, claiming that it was not necessary because it was choosing not to claim its loss of revenue. However, in order to prove what it had actually lost, the appellant would have had to show not only what it lost in capital appreciation but also, as in Domowicz, what it would have made in capital appreciation had it sold in April 2018 when the respondents did.

[31] Even if the appellant could have shown that it could not have bought other buildings that would have appreciated as much over the next two and a half years, the appellant has not established why it could not have re-entered the market over that period or why, for the purpose of mere capital speculation, it was necessary to purchase six buildings close to one another in Parkdale.

[32] Moreover, the appellant argues that it is entitled to the loss of capital appreciation, but it has not explained why the loss of capital profit has to be assessed where all the “synergies” of the lost properties related to the long-term investment purpose. The evidence suggested that the desire to acquire the properties had to do with the synergies in having close buildings, with a view to maximizing the rental returns. No doubt, the ultimate return on the properties is part of the long-term planning, but the capital appreciation in and of itself some two and a half years later does not, in these circumstances, prove the appellant’s loss or the earliest date it could have re-entered the market. The capital appreciation of the properties would be relevant to the extent that it was in the reasonable contemplation of the parties at the time of the agreement: see for example Kipfinch Developments Ltd. v. Westwood Mall (Mississauga) Limited, 2010 ONCA 45, at paras. 14-15. However, all the evidence indicates that, based on its business model, the appellant was not a property speculator but a long-term investor, and this would have informed the parties’ reasonable contemplation at the time of the agreement.

[33] In effect, the appellant here is seeking to do what was rejected by the court in Asamera: begin with the amount that would represent the high point in the assessment of damages between the date of breach and the date of trial (or, as here, when the respondents sold the property). Such an approach would undermine the advantages of certainty and predictability arising from a long line of established and stable case law that presumes the date of breach for the assessment of damages for breach of contract.

[34] Moreover, and as was also the case in Asamera, the appellant’s position presumes it would have sold at the high point. In Asamera, that made sense because in a fluctuating market for shares bought at different times, it would be assumed that the innocent party would have the perspicacity to sell at the high point for the shares. Here, it makes no sense because all the appellant’s own business plans reflected a pattern of keeping buildings as rentals for much longer periods of time.

[35] For all the above reasons, it would not be fair in the circumstances to shift the date of the assessment of damages beyond the date of the breach. In short, the trial judge correctly found that there was no genuine issue requiring a trial on the date upon which the damages should be assessed. On that date, the market value and the contract price were the same; there was no loss. The appellant has not proven its loss, and the date it has chosen as the “crystallization” of its loss is not sufficiently connected to the date of breach or to the objectively understood purpose of the contract.

[36] As the appellant failed to prove its losses, I would also not give effect to its mitigation argument because, having failed to establish that it suffered a loss as of the date of breach, there were no losses to be mitigated.

(2) The Cross-Appeal

[37] The respondents cross-appeal on two issues. First, they argue that the motion judge erred in awarding Akelius its costs thrown away (reliance damages) trying to pursue the aborted transaction in the amount of $775,855.46. Second, the respondents argue that they should have been awarded their costs, given their proportional success in defending against the appellant’s claim. The appellant agrees that the trial judge erred in not awarding costs to either party but argues that it should have been awarded costs, given its partial success at trial.

[38] With respect to the claim of the costs thrown away, the trial judge clearly found that the respondents breached the APS. The appellant was entitled to these damages and I am not persuaded that the motion judge committed any reversible error in this respect, either in principle or in terms of the quantum.

[39] The appeal of the order that there should be no costs must also fail. Costs awards are within the discretion of the court: Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131(1). In Przyk v. Hamilton Retirement Group Ltd. (The Court at Rushdale), 2021 ONCA 267, at paras. 9-10, this court explained the threshold to be met before an appellate court may set aside a costs award:

[9] An appellate court takes a deferential approach when reviewing a discretionary award of costs by a trial court (including a discretionary decision to deny costs). A costs award will only be set aside on appeal “if the trial judge has made an error in principle or if the costs award is plainly wrong”: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27.

[10] This deferential approach requires that attention be paid not only to the nature of any error affecting a costs decision, but also to its extent. It is insufficient to identify an error in principle in the course of the trial judge’s reasons without considering whether there is an independent basis to uphold the order. An appellate court should be reluctant to interfere with “the exercise of discretion by a trial judge who had a much better opportunity to acquaint himself with, and have a feeling for, all of the factors that formed the basis for the award of costs”: Bell Canada v. Olympia & York Developments Ltd., 111 D.L.R. (4th) 589 at para. 41. Even where a trial judge has relied on a factor that is unsupported by proper legal principles or considerations to deny costs to a successful party, an appellate court should not intervene unless it can “find nothing in the factual circumstances or argument to support the order”: Bell Canada at para. 42.

[40] Success was divided at trial. It was within the trial judge’s discretion to decline to award costs. I am not convinced that appellate intervention is warranted.

(3) Conclusion

[41] For these reasons I would dismiss both the appeal and the cross-appeal.

(4) Costs

[42] Costs of the appeal to the respondents in the agreed amount of $25,000.

Released: March 30, 2022 “P.L.”

“A. Harvison Young J.A.”

“I agree P. Lauwers J.A.”

“I agree L. Sossin J.A.”