COURT OF APPEAL FOR ONTARIO DATE: 20230704 DOCKET: C70834
Roberts, Nordheimer and Thorburn JJ.A.
BETWEEN
9725440 Canada Inc.
Plaintiff (Respondent)
and
Markandu Vijayakumar and Mathivathana Vijayakumar
Defendants (Appellants)
Counsel: Patrick Summers and Star Deak, for the appellants James M. Wortzman and Catherine E. Allen, for the respondents
Heard: March 16, 2023
On appeal from the judgment of Justice Edward M. Morgan of the Superior Court of Justice, dated June 21, 2022, with reasons reported at 2022 ONSC 3689.
Roberts J.A.:
[1] This appeal involves the suitability and availability of specific performance as a remedy in a failed real estate transaction.
[2] While not disputing that they breached the parties’ June 8, 2017 agreement of purchase and sale (“the Agreement of Purchase and Sale”), the appellants appeal the trial judge’s order that the Agreement of Purchase and Sale be specifically performed. The respondent seeks leave to cross-appeal the trial judge’s costs award.
[3] For the reasons that follow, I would allow the appeal, dismiss the cross-appeal, and remit for trial the issue of damages.
Background
(a) Agreement of Purchase and Sale
[4] Since November 4, 2013, the appellants have been the owners of and resided at the subject property, municipally known as 3680 Westney Road, in Pickering, Ontario (“the Westney property”). The Westney property is about 10 acres in size with a home of over 3000 square feet, built in 1987. It was listed for sale with a sale price of $1,999,900 on May 29, 2017. On June 2, 2017, the appellants signed a second listing agreement, listing the property for $1,499,000.
[5] On June 8, 2017, Xiu Song Lin (“Mr. Lin”), the respondent’s 50% shareholder and then sole director and officer, his son, Chang Cai Lin (“Mr. Blanc [1] ”), and the respondent’s real estate agent, Samuel Zhou, met with the appellants and their agent. On that day, the parties entered into the Agreement of Purchase and Sale for the respondent’s purchase of the appellants’ family residence for $1,620,000.
[6] As its then sole director and officer, Mr. Lin signed the Agreement of Purchase and Sale on behalf of the respondent. On June 9, 2017, the respondent waived in writing the financing and home inspection conditions in the Agreement of Purchase and Sale. As a result of the delivery of this waiver, the Agreement of Purchase and Sale became binding on June 10, 2017.
[7] On June 10, 2017, the appellants advised their real estate agent that they decided not to sell the property, and they refused to complete the sale on September 28, 2017, the scheduled closing date.
(b) The proceedings
[8] On October 23, 2017, the respondent commenced an action seeking specific performance of the Agreement of Purchase and Sale.
[9] The respondent brought a motion for summary judgment which was dismissed on May 1, 2018 (see: 2018 ONSC 2757). As framed by the parties, the principal issue was Mr. Lin’s purpose in purchasing the property through the corporate respondent. The motion judge found that there was a significant credibility issue that could only be resolved by a trial. Specifically, he held that the key issue was whether Mr. Lin wanted the subject property for family purposes, including some members of his extended family, or as an investment opportunity.
[10] The motion judge held that the determination of the appropriate remedy would turn on this issue because, as he noted: “While specific performance may be granted even if Mr. Lin’s intended purpose for the house is as an investment property, Mr. Lin’s intended purpose has to be determined before the test for specific performance can be applied” (emphasis added). He noted that “the record raises substantial concerns about Mr. Lin’s credibility on this material issue ” and concluded that “ Mr. Lin’s credibility as a witness is a genuine issue for trial as it relates to the purpose for which he wishes to use the subject property ” (emphasis added). He therefore dismissed the motion and ordered a trial.
[11] On September 20, 2018, the respondent obtained leave to amend its statement of claim to include an alternative claim for damages arising out of the appellants’ breach.
[12] In the summer of 2019, Mr. Lin, who had come to Canada in 2010, returned to China. His wife and daughter followed in 2020. They have not returned to Canada.
[13] The trial was scheduled to begin on March 28, 2022.
[14] Approximately two weeks before trial, respondent’s counsel advised appellants’ counsel by email on March 15, 2022 that the respondent no longer sought specific performance of the Agreement of Purchase and Sale as a remedy and that damages would be the sole remedy sought by the respondent at trial. The respondent’s election was included in the parties’ Agreed Statement of Facts dated March 24, 2022 (“the Agreed Statement of Facts”).
[15] On the eve of trial on March 27, 2022, respondent’s counsel wrote to appellants’ counsel and, contrary to her earlier advice, now advised that specific performance would be pursued after all, with damages sought in the alternative. On March 27, 2022, appellants’ counsel responded, objecting to the respondent’s change in position. The trial judge ultimately determined that he would disregard the paragraph in the Agreed Statement of Facts that referenced the respondent’s election and admission to claim only damages.
[16] Mr. Lin did not testify at trial. The trial judge referenced in his reasons Mr. Blanc’s opinion that it would have been difficult for Mr. Lin to attend trial either virtually or in person. He also accepted Mr. Blanc’s beliefs that Mr. Lin purchased the Westney property as a family home and not as an investment and that the particular features of the property were of “peculiar and special value” to the purchaser, that, as the respondent’s real estate expert, Barry Lebow, opined, could not be readily duplicated elsewhere.
[17] Specifically, after outlining the governing principles related to the remedy of specific performance, the trial judge set out his conclusion in para. 41 of his reasons as follows:
The evidence supports the conclusion that the Plaintiff would have been hard put to find duplicated elsewhere the features of the Property that attracted it in the first place. In coming to this conclusion, I have taken into account the Supreme Court of Canada’s warning in Southcott Estates Inc. v. Toronto Catholic District School Board, [2012] 2 S.C.R. 675, 2012 SCC 51, at para. 41, that, “A plaintiff deprived of an investment property does not have a ‘fair, real and substantial justification’ or a ‘substantial and legitimate’ interest in specific performance unless he can show that money is not a complete remedy because the land has ‘a peculiar and special value’ to him.” But in that case, unlike the case before me, the disappointed purchaser “was engaged in a commercial transaction for the purpose of making a profit. The property’s particular qualities were only of value due to their ability to further profitability”. [Citations omitted.] [Emphasis added.]
[18] The trial judge granted the respondent specific performance of the Agreement of Purchase and Sale. He also awarded to the respondent its costs in the all-inclusive amount of $150,000.
Issues
[19] The appellants concede that they breached the Agreement of Purchase and Sale. However, they submit that the trial judge made the following reversible errors that warrant a new trial on the issue of damages:
i. the trial judge erred in allowing the respondent to resile from its election to claim only damages at trial;
ii. in any event, the trial judge erred in concluding that specific performance was available or appropriate in the circumstances of this case.
[20] In my view, the appeal turns on the issue of the availability and appropriateness of specific performance as a remedy in this case, so it is not necessary to determine the issue of the election.
Analysis
Did the trial judge err in granting specific performance?
(a) The parties’ positions
[21] The appellants submit that the trial judge erred in finding that there was relevant evidence to support an order of specific performance. In particular, they contend that as Mr. Lin did not testify, there was no admissible evidence of the property’s uniqueness nor of the respondent’s intent to purchase the property other than for investment purposes. Finally, they argue that the trial judge erred in failing to address whether damages were an adequate substitute for the loss of the land.
[22] The respondent maintains that the appellants’ submissions amount to an impermissible invitation for this court to undertake afresh the fact-finding process. Absent error, which the respondent submits is not present here, the trial judge’s factual findings are owed considerable deference on appeal. The respondent says that the trial judge applied the correct legal tests and that the evidentiary record amply supports the trial judge’s findings.
[23] Throughout the case, the parties had treated Mr. Lin’s intentions in purchasing the Westney property as representing the respondent’s intentions for the purpose of determining the property’s uniqueness. This characterization was followed by the motion judge and the trial judge. However, in assessing the property’s uniqueness, the trial judge erred by relying on inadmissible hearsay evidence from Mr. Blanc with respect to Mr. Lin’s intentions and the property’s uniqueness to the purchaser as a family home. As I shall explain, since Mr. Lin did not testify, there was no evidentiary basis for the trial judge’s finding that the property was sufficiently unique to Mr. Lin and the respondent to justify granting the remedy of specific performance. Damages were therefore an adequate remedy.
(b) Discussion
General principles
[24] The ordinary remedy for breach of contract is damages. The exceptional equitable remedy of specific performance is available as a potential remedy where damages may not serve as an adequate remedy in the particular circumstances of the case. Specific performance is not to be ordered for breach of contract unless damages are inadequate: Erie Sand & Gravel Limited v. Tri-B Acres Inc., 2009 ONCA 709, 97 O.R. (3d) 241, at para. 110.
[25] In cases involving land, damages may be inadequate where the subject property is subjectively and objectively unique having regard to the purchaser’s intended use for the property and the property’s particular characteristics. The overarching consideration is whether “the plaintiff has shown that the land rather than its monetary equivalent better serves justice between the parties”: John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd. (2001), 56 O.R. (3d) 341 (Sup. Ct.), at para. 55, aff'd (2003) 63 O.R. (3d) 304 (C.A.), leave to appeal refused, [2003] S.C.C.A. No. 145; Lucas v. 1858793 Ontario Inc. (Howard Park), 2021 ONCA 52, 25 R.P.R. (6th) 177, at paras. 70-71.
[26] There is no categorical presumption that all real estate is unique and that damages for the breach of an agreement of purchase and sale of real estate will be inadequate in all cases: Semelhago v. Paramadevan, [1996] 2 S.C.R. 415, at paras. 20-21. As this court stated in Lucas, at para. 69, citing to Semelhago, at para. 22, “specific performance should not be granted as a matter of course absent evidence that ‘the property is unique to the extent that its substitute would not be readily available’”.
[27] This consideration requires an analysis of the uniqueness of the subject property to the purchaser at the time of contracting, including the purchaser’s subjective interests or intentions in purchasing the property, the property’s physical attributes, and the circumstances of the underlying transaction. As this court explained in Lucas, at paras. 74-75:
Uniqueness does not mean singularity or incomparability. Instead, it means that the property has a quality (or qualities) making it especially suitable for the proposed use that cannot be readily duplicated elsewhere…. The court should examine the subjective uniqueness of the property from the point of view of the plaintiff at the time of contracting. The court must also determine objectively whether the plaintiff has demonstrated that the property or the transaction has characteristics that make an award of damages inadequate for that particular plaintiff. [Citations omitted.] [Emphasis added.]
[28] The objective and subjective uniqueness of the property informs the question of whether damages are an adequate remedy. Courts should be “reluctant to award specific performance of contracts for property purchased solely as an investment, since money damages are well-suited to satisfy purely financial interests”: Lucas, at para. 78; Southcott, at paras. 40-41. The analysis of a property’s objective and subjective uniqueness was further explained by Lax J. in Dodge, at para. 59:
There is both a subjective and objective aspect to uniqueness. While it is difficult to be precise about this, it strikes me that normally, the subjective aspect will be less significant in commercial transactions and more significant in residential purchases, unless the motivation in the latter case is principally to earn profit. In terms of the subjective aspect, the court should examine this from the point of view of the plaintiff at the time of contracting … The court will determine objectively whether the plaintiff has demonstrated that the property has characteristics that make an award of damages inadequate for that particular plaintiff. Obviously, investment properties are candidates for damages and not specific performance. [Notes omitted.] [Emphasis added.]
[29] A further helpful discussion of the juxtaposition between the question of a property’s uniqueness and the adequacy of damages was provided by Barry J. Reiter and Robert J. Sharpe (as he then was) in “Wroth v. Tyler: Must Equity Remedy Contract Damages?” (1978-79) 3 Can. Bus. L.J. 146 at pp. 154-55:
[I]f the only available investments are less attractive, damages can be awarded to “compensate” the plaintiff for the diminished quality of his investment. The argument that all land is somehow “unique” should not be allowed to obscure the fact that it is not “unique” in any contract-remedial sense to a commercial purchaser, in respect of whom the land is little more unique than fungible chattels. Its only “uniqueness” to him rests in its unique market value, but market value assessment of real estate is usually available.
[30] The time for determining whether a property is unique and whether damages are inadequate is at the time of entering into the agreement of purchase and sale: Lucas, at para. 75. The party seeking the remedy has the onus of demonstrating entitlement to specific performance: Lucas, at para. 70; Dodge, at para. 57.
Principles Applied
[31] Ordinarily, a trial judge’s determination that specific performance is an appropriate remedy would be subject to appellate deference because it is rooted in the facts of the case: Matthew Brady Self Storage Corporation v. InStorage Limited Partnership, 2014 ONCA 858, 125 O.R. (3d) 121, at para. 32, leave to appeal to SCC refused, [2015] S.C.C.A. No. 50. The fundamental difficulty here, however, is the absence of the requisite evidentiary foundation to support the trial judge’s conclusion that specific performance was the appropriate remedy in the circumstances of this case. Mr. Lin did not testify and there was no basis to accept Mr. Blanc’s hearsay evidence as to Mr. Lin’s intentions with respect to the particular qualities of the Westney property that supported its uniqueness as a family home. Nor was there other evidence from which Mr. Lin’s intentions could properly be inferred.
[32] The respondent’s framing of this case drives the outcome on this issue. While the respondent is a corporation, it is a closely held family corporation. As a result, the respondent’s intentions for the purpose of determining the uniqueness of the Westney property to the respondent purchaser were the intentions of Mr. Lin, who was the respondent’s sole officer and director and majority shareholder at the time the respondent entered into the Agreement of Purchase and Sale. It was Mr. Lin’s intentions in purchasing the property that also informed the experts’ opinions on the property’s uniqueness and whether it was especially suitable for Mr. Lin’s proposed use on behalf of the respondent such that it could not be readily duplicated elsewhere. Without Mr. Lin’s evidence about the property’s particular qualities that supported its uniqueness to him and the inadequacy of damages, the expert opinion lacked the necessary evidentiary foundation.
[33] The trial judge recognized the significance of these issues. At the beginning of his reasons, he stated that “the entire controversy raised” to be determined at trial was whether “the residential property that was the subject of an aborted agreement between the parties [was] of ‘peculiar and special value’ to the disappointed purchaser,” or whether it was “a business purchase and a matter of money alone”.
[34] The trial judge accepted the characterization of the issues for trial articulated by the motion judge, including that they turned on the respondent’s intention for purchasing the property which involved an assessment of credibility:
As Nakatsuru J. observed, the real issue here is whether the remedy for breach of the [Agreement of Purchase and Sale] is damages or specific performance. To make the [respondent] whole, does it deserve money or the Property? That question, according to the Supreme Court [in Southcott], turns on the [respondent’s] intention in contracting for the Property in the first place. And that, according to Justice Nakatsuru once again, turns on an assessment of credibility. [Emphasis added.]
[35] However, the only credibility in issue was Mr. Lin’s credibility. The appellants’ counsel objected at the beginning of Mr. Blanc’s examination in chief to his testifying about “what the family wanted” because those were matters that were hearsay and not within his personal knowledge. The trial judge sustained this objection and directed that Mr. Blanc only testify about “what’s in his personal knowledge, not what he’s guessing was in other family members’ knowledge”. This was a correct ruling. Mr. Blanc was not an officer or director of the respondent at the time the respondent entered into the Agreement of Purchase and Sale; he did not become a director until August 2019. Mr. Blanc’s opinions about his father’s intentions for purchasing the Westney property were inadmissible hearsay and could not sustain a finding that the property was uniquely suited to Mr. Lin’s and, by extension, to the respondent’s particular needs.
[36] Contrary to his ruling and without conducting the necessary hearsay analysis, the trial judge nevertheless appears to have accepted the evidence of Mr. Blanc with respect to his father’s intention to purchase a personal residence in which Mr. Lin and his wife could live and family members could visit. The trial judge concluded: “In totality, the evidence does not support a suggestion that Mr. Lin was looking for somewhere new to do business or even to park his business and investment funds; rather, it supports Blanc’s view that the Lin family was looking for somewhere to park itself ” (emphasis added).
[37] Mr. Blanc’s “view” about what the “Lin family” was looking for was irrelevant and inadmissible. Unlike Mr. Lin, Mr. Blanc was not a director, officer or shareholder of the respondent at the time of contracting and could not speak to the respondent’s intentions at the relevant time.
[38] By sustaining the appellants’ objection, the trial judge accepted that Mr. Blanc’s testimony beyond his own personal knowledge was hearsay. As hearsay evidence, Mr. Blanc’s evidence could only be admissible in place of Mr. Lin’s evidence of the respondent’s intention at the time of contracting if it were admissible under one of the established exceptions or the principled exception to the hearsay rule.
[39] None of the established exceptions apply here. To be admissible under the principled exception to the hearsay rule, the evidence in question had to be necessary and reliable: R. v. Khelawon, 2006 SCC 57, [2006] 2 S.C.R. 787, at para. 2. To satisfy the necessity requirement, Mr. Lin had to be truly unavailable to testify at trial either in person or by videoconference or teleconference as permitted under the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 1.08(1). A mere reluctance to testify does not constitute necessity: R. v. Vickers, 2020 ONCA 275, at para. 45; R. v. F.(W.J.), [1999] 3 S.C.R. 569, per McLachlin J. (for the majority), at para. 44.
[40] In my view, the respondent could not demonstrate that Mr. Lin was unavailable to attend trial.
[41] The respondent should have known that it was important for Mr. Lin to testify as the motion judge had previously made it clear that “ Mr. Lin’s credibility as a witness is a genuine issue for trial as it relates to the purpose for which he wishes to use the subject property ”. The fact that the motion judge highlighted that there were genuine issues for trial with respect to Mr. Lin’s intentions and his credibility required, in my view, a cogent explanation as to why Mr. Lin did not appear to testify.
[42] The trial judge did not make a finding that Mr. Lin was unavailable to attend trial. And the evidence would not have supported such a conclusion. Mr. Blanc testified and respondent’s counsel submitted that Mr. Lin could not return to Canada because of the COVID-19 pandemic and did not give evidence at trial by teleconference or videoconference because he was 70 years old and did not understand how to use Zoom. Mr. Blanc testified that it would have been very difficult for his father to attend virtually because there is a 12-hour time difference between China and Toronto. There was no evidence from Mr. Lin supporting these submissions.
[43] Mr. Blanc’s views as to why Mr. Lin did not appear are irrelevant; to the extent they purport to repeat Mr. Lin’s views, they are inadmissible hearsay. In any event, taken at its highest, the explanation proffered for Mr. Lin’s absence did not support the conclusion that Mr. Lin was unavailable for trial, especially as he could have appeared by videoconference.
[44] That it may have been difficult for Mr. Lin to have attended trial should not have been the end of the analysis. There was no explanation as to why Mr. Lin’s family could not have assisted him to use Zoom or other technology or why he could not have accessed such technology through a lawyer’s office or a court office. There was no dispute that Mr. Lin had access to a computer and that his wife and children were computer literate. With respect to the time difference, the court is able to accommodate time differences, for example, by beginning the proceedings earlier or later than usual: see, e.g., Guest Tek Interactive Entertainment Ltd. v. Nomadix, Inc., 2020 FC 860, at para. 32; R. v. Belem, 2017 ONSC 2213, at para. 11. Further, it would not have been necessary for Mr. Lin to find an interpreter in China to assist with his evidence; he could have sought a court-appointed interpreter here who could have assisted through Zoom or telephone. Finally, there was no evidence that Mr. Lin was ill or otherwise unavailable to attend trial.
[45] The trial judge did not explain why he was prepared to admit the hearsay evidence given by Mr. Blanc. Given that Mr. Lin was not unavailable to attend trial, there appears to be no basis for him to have accepted the hearsay evidence offered by Mr. Blanc. It was not necessary to have done so.
[46] In the absence of Mr. Lin’s testifying at trial, what then was the admissible evidence available to the trial judge as to Mr. Lin’s/the respondent’s intentions at the time of purchase?
[47] With respect to Mr. Lin, the available admissible evidence of his intentions does not support that he intended to purchase the Westney property as a family home and that the particular qualities of the Westney property made the property unique to him and the respondent. With respect to the other evidence referenced by the trial judge, the mortgage approval documentation from the Industrial and Commercial Bank of China (Canada) (“ICBC”) for the Westney property is equivocal as to Mr. Lin’s intention in purchasing the Westney property. The trial judge noted that the internal documentation stated that, “The borrower is holding the land for appreciation”, but also that the property would be Mr. Lin’s “future principal residence”. Moreover, as confirmed by Clarence Cho, the ICBC witness who testified at trial, the “future principal residence” comment was an internal note that the ICBC had requested a declaration from Mr. Lin that the Westney property “will be his future principal residence in Canada”. It was not a confirmation that the Westney property was to be Mr. Lin’s future principal residence. The ICBC documentation that the trial judge referenced thus does not assist in elucidating Mr. Lin’s intention to purchase the property for either personal use or as an investment.
[48] We are left to infer the respondent’s intent from its corporate structure and the expert opinion.
[49] The respondent’s corporate structure supports the proposition that the respondent’s intention was to purchase the property for investment purposes. Mr. Blanc testified that the purpose of the respondent’s incorporation was for estate planning for the Lin family. This purpose is evident from the respondent’s structure: it is a closely held corporation whose officers and directors are family members and whose corporate shareholders are wholly owned by Mr. Lin and various family members.
[50] Specifically, the respondent’s shares are owned by four companies: 2575940 Ontario Inc., whose sole officer and director is Mr. Lin; 2426772 Ontario Inc., whose sole officer and director is Qiao Ying Wang; 9675507 Canada Inc. whose sole director is Jian Wei Liu; and 10321044 Canada Inc. whose sole director is Ze Chao Lin. 2575940 holds 50% of the respondent’s shares; the other shareholders own the remaining 50% of the respondent’s shares. 2426772, 9675507 and 10321044 are owned by two of Mr. Lin’s daughters-in-law and one of his sons. This structure supports the premise that the respondent’s purpose is for estate planning for the Lin family.
[51] As a corporation, the respondent obviously cannot live in a family home. It cannot “fall in love” with a property, as Mr. Blanc testified. It can purchase and hold assets, including real estate, for estate planning purposes. In particular, the purpose of acquiring and holding onto assets that will increase in value is consonant with the respondent’s objectives as a corporate structure. These objectives are investment objectives that can be compensated for in terms of damages.
[52] Additionally, the expert evidence given by Mr. Lebow is consistent with the purchase of the property as an investment to earn a profit or capital gain. His testimony suggested that the most unique aspect of the Westney property was its commercial development potential in several years’ time. This is consistent with the respondent’s estate planning objectives, as demonstrated by its corporate structure. The uniqueness of the Westney property as an investment opportunity was not argued in support of an order for specific performance.
[53] In the absence of the necessary evidentiary foundation, the trial judge should have concluded that the respondent failed to demonstrate that specific performance was an appropriate remedy in the circumstances. In my view, the Westney property’s “particular qualities were only of value due to their ability to further profitability”: Southcott, at para. 41. Given the respondent’s investment objectives and availability of funds to close another transaction, damages are an adequate substitute for the respondent’s loss, and best serve justice between the parties in this case.
[54] For the above reasons, I would allow the appeal of the order for specific performance and substitute an order for the assessment of damages.
Cross Appeal
[55] Given my proposed disposition of the appeal, the costs award should be set aside and the respondent’s cross-appeal of the trial judge’s costs disposition therefore falls away.
Disposition
[56] Accordingly, I would allow the appeal and dismiss the cross-appeal.
[57] The trial judge did not determine the issue of damages because he ordered specific performance as a remedy. As a result, I would remit the issue of damages for determination at trial or a trial of an issue before a different judge of the Superior Court.
[58] I would grant the appellants their partial indemnity costs of the appeal in the amount of $35,000, inclusive of disbursements and applicable taxes. I would set aside the trial judge’s costs order and reserve the issue of the costs of the first trial to the disposition of the trial of the issue of damages.
Released: July 4, 2023 “L.B.R.” “L.B. Roberts J.A.” “I agree. I.V.B. Nordheimer J.A.” “I agree. Thorburn J.A.”
[1] I have adapted the trial judge’s short form.