Court of Appeal for Ontario

Date: 20220615 Docket: C69834

Judges: Doherty, Tulloch and Miller JJ.A.

Between:

Sative Yan-Ling Tsui and Jonathan Simon Levert Plaintiffs (Respondents)

And

Ye Zhuoqi and Re/Max Imperial Realty Inc. Defendants (Appellants)

Counsel:

Paul H. Starkman and Calvin Zhang, for the appellant Ye Zhuoqi N. Joan Kasozi and Margarita Dvorkina, for the respondents

Heard: June 9, 2022

On appeal from the judgment of Justice Mohan Sharma of the Superior Court of Justice, dated August 9, 2021 and reported at 2021 ONSC 5421.

Reasons for Decision

[1] The appellants (“vendors”) agreed to sell a residential property to the respondents (“purchasers”). The transaction did not close as a result of problems associated with water damage to the property that occurred shortly before closing. Attempts between the parties to resolve those problems by negotiations failed.

[2] The purchasers sued the vendors, seeking a declaration that the vendors had breached the agreement of purchase and sale, an order directing the return of the deposit and damages associated with the failure to close the transaction.

[3] The vendors, in addition to resisting the claims put forward by the purchasers, counterclaimed, seeking a declaration that the purchasers had repudiated the agreement of purchase and sale. The vendors also sought an order forfeiting the deposit.

[4] Both sides moved for summary judgment. With one exception, the outcome of the motions turned entirely on the factual findings made by the motion judge. The factual findings related to the seriousness of the damage to the property and the claims by both sides that the other side had not made good faith efforts to salvage the agreement after the damage occurred.

[5] The one exception to the factual nature of the dispute presented on the motion arose out of the vendors’ claim that the motion judge’s reliance on the terms of s. 18 of the Agreement of Purchase and Sale (“APS”) resulted in procedural unfairness. In essence, s. 18 provides that if there is substantial damage to the property after the parties enter into the APS, but before the closing date, the purchaser has the option to terminate the agreement and is entitled to the return of the deposit. The vendors claim that the purchasers did not plead s. 18 and, that consequently they did not have an opportunity to respond appropriately to the issues raised by the operation of that paragraph. The vendors argue that the motion judge erred in using s. 18 as a basis for finding in favour of the purchasers.

[6] The motion judge rejected the argument that s. 18 was not properly pleaded and made findings of fact in favour of the purchasers. He dismissed the vendors’ motion for summary judgment and granted the purchasers’ cross-motion. The motion judge awarded damages in the amount of $33,110.32 and ordered the return of the deposit. The vendors appeal.

[7] With the exception of a variation in the damages awarded, we would dismiss the appeal.

[8] The motion judge’s reliance on s. 18 of the APS worked no unfairness. As the motion judge observed (paras. 27-29), despite any shortcoming in the pleadings, the question whether the damages to the property should be characterized as “substantial”, thereby triggering s. 18, was at the centre of the dispute. The parties appreciated the significance of the nature and extent of the damage and fully put their respective cases forward on that issue.

[9] On the factual questions, the motion judge’s conclusions are entitled to deference. The motion judge found that:

• The purchasers acted in good faith after discovering the damage to the property the day before closing (paras. 33-39);
• The purchasers had good reason to be concerned that the water had caused substantial damage to the property (para. 35);
• Having regard to the nature, quality, and potential consequences of the damage to the property, that damage was properly characterized as “substantial” within the meaning of s. 18 (para. 36); and
• The vendors did not act in good faith in response to the purchasers’ discovery of the damage (para. 40).

[10] We do not accept that the factual findings were unreasonable or based on a palpable and overriding error. In considering whether the damage was “substantial”, the key factual finding, the motion judge was entitled to consider all of the evidence, including the evidence of the expert that the full extent of the water damage was likely not apparent from the limited inspections conducted on behalf of the vendors. It was open to the motion judge to conclude, based on all of the evidence, that the damage met the “substantial” standard. The vendors’ reliance on different findings made in another case based on different evidence does not advance their argument.

[11] The appellants’ arguments in respect of the good faith/bad faith findings made by the motion judge marshal the evidence in favour of a finding that it was the vendors and not the purchasers who acted in good faith. That argument was there to be made on the evidence and was made before the motion judge. In this venue, the vendors must convince this court that the motion judge made a clear and palpable error or came to an unreasonable finding in rejecting the vendors’ argument that the purchasers had acted in bad faith. The motion judge explained why he was satisfied the purchasers, and not the vendors, acted in good faith (paras. 37-40). That finding was available on the evidence.

[12] In oral argument, counsel for the vendors submitted that, under the terms of the APS, the purchasers were required to close the transaction on January 10, the scheduled closing date. The purchasers discovered what appeared to be extensive water damage only the day before closing when they attended at the property.

[13] Clearly, the purchasers had legitimate concerns about the nature and scope of the damage. In that circumstance, the vendors were required to afford the purchasers a reasonable opportunity to inspect the property and assess the damage: Bilotta v. Booth, 2020 ONCA 522, at para. 20. The motion judge properly held that the purchasers were not obliged to close the transaction on January 10. Instead, they were entitled to a reasonable opportunity to inspect the property (paras. 30-31).

[14] The vendors make two submissions in respect of the damages awarded by the motion judge. First, they argue that the rental costs awarded to the purchasers ($25,800) failed to offset the savings associated with not having to pay the costs of a mortgage. There is merit to the submission that at least some of the rental costs may have been offset by the absence of any mortgage-related costs. There was, however, no evidence that the purchasers had a mortgage or what the costs were associated with that mortgage. Absent that evidence, we are in no position to determine whether mortgage-related costs should have been offset from the rental costs claimed.

[15] The vendors also submit that the costs of the engineering report commissioned by the purchasers to assess the nature and extent of the water damage should not have been treated as damages by the motion judge. We agree.

[16] The engineering report was obtained by the purchasers so they would be in a position to assess the nature and extent of the damage to the property. That information was essential to the purchasers’ exercise of rights and obligations under the APS. The costs of the engineering report were not the consequence of any bad faith conduct by the vendors. The costs of the engineering report ($4,978.89) should be deducted from the damages awarded by the motion judge.

[17] The appeal from the Amended Judgment of Sharma J. is dismissed, save that the damages awarded in para. 4 are reduced by $4,978.89, leaving a damage award of $29,131.13.

[18] At the conclusion of oral argument, counsel advised the court that the parties had agreed that the winner of the appeal should have the costs of the appeal, fixed at $13,000. As it turns out, the results of the appeal are somewhat mixed. In our view, however, the very limited success enjoyed by the appellants is no reason to depart from the approach agreed upon by counsel. Costs of the appeal should go to the purchasers, fixed in the amount of $13,000, ‘all in”.

[19] The minor adjustment made in the damages awarded also provides no basis upon which to alter the costs order made by the motion judge. That order stands.

“Doherty J.A.”

“M. Tulloch J.A.”

“B.W. Miller J.A.”