Ashrafi v. Carraro, 2019 ONSC 6326

CITATION: Ashrafi v. Carraro, 2019 ONSC 6326

DIVISIONAL COURT FILE NO.: DC-18-00000080-0000

DATE: 2019 10 31

DIVISIONAL COURT

SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN

REZA ASHRAFI, EHSAN ASHRAFI, LYLA OWFI

Plaintiffs/Defendants by

Counterclaim

(Respondents)

v.

VIRGINIA ALISA CARRARO

Defendant/Plaintiff by

Counterclaim

(Appellant)

BEFORE: Bloom, J.

COUNSEL: Tristen Audet, Counsel for the Respondents

Virginia Alisa Carraro, self-represented

HEARD: September 20, 2019

REASONS FOR JUDGMENT

I. INTRODUCTION

[1] The Appellant appeals the judgement dated October 5, 2018 of Deputy Judge K. Twohig of the Small Claims Court granting the Respondents judgement against her for $ 25,000 together with prejudgement interest; and dismissing her counterclaim. She also appeals the trial judge’s costs order released November 16, 2018.

II. REASONS OF THE TRIAL JUDGE

[2] In her reasons released October 5, 2018 the trial judge addressed the merits of the claim and counterclaim.

[3] She found that the Respondents had established that the Appellant had breached an agreement of purchase and sale under which she was to purchase a condominium unit from them; and that, accordingly, they were entitled to damages flowing from the breach as well as to keep the deposit of $ 15,000.00. The trial judge quantified the damages as totalling $ 12,208.51. She reduced the total recovery to $25,000, as claimed by the Respondents for the purpose of keeping the claim within the monetary limits of the Small Claims Court. Further, she awarded pre-judgment interest from June 29, 2017 at the rate prescribed by the Courts of Justice Act.

[4] In her reasons the trial judge rejected the justifications given by the Appellant for her refusal to close the transaction, those being concealment by the Respondents of Kitec plumbing and stained carpeting in the unit.

[5] The trial judge also dismissed the Appellant’s counterclaim, since it was based on the concealment of the Kitec plumbing and stained carpet.

[6] In her Supplementary Reasons on Costs released November 16, 2018 the trial judge awarded the Respondents costs of $ 6150 on the main claim and $3850 on the counterclaim.

III. GROUNDS OF APPEAL

[7] In oral argument the Appellant organized the grounds of appeal in the following fashion:

1. Error by failure to recognize the concealment of the Kitec plumbing as a lawful basis for refusal to close the transaction;

2. Error by failure to recognize the concealing of the stained carpet as a lawful basis for refusal to close the transaction;

3. Error by failure to credit the deposit to damages awarded on the claim;

4. Error by failure to grant judgment on the counterclaim based on the concealment of the Kitec plumbing and stained carpet; and

5. Error regarding the costs award which was improper and contrary to principle.

IV. ARGUMENTS OF THE PARTIES

[8] The Appellant argues that the trial judge erred in failing to find that the Kitec plumbing was a latent defect hidden by the Respondents from her; erred in failing to find that its presence constituted a breach of a condition of the agreement of the purchase and sale (“APS”); and erred in failing to find that the Respondents committed either fraudulent or negligent misrepresentation by concealing the Kitec plumbing from her.

[9] She further argues that the trial judge erred in failing to find that the APS contained a warranty which was breached by the presence of the staining on the carpet; erred in failing to find that the stained carpet was a latent defect concealed by the Respondents; and erred in failing to find that the stained carpet was subject of actionable misrepresentation by the Respondents.

[10] She further argues that trial judge erred in failing to credit the deposit of $15,000.00 towards any damages awarded to the Respondents.

[11] She further argues that the trial judge erred in failing to grant her judgement for the fraudulent or negligent misrepresentation committed by the Respondents by concealing the Kitec plumbing and stained carpet.

[12] Lastly, she argues that the trial judge erred in principle in being punitive in her costs award without explaining the reasons for doing so; and in disregarding the Appellant’s good faith belief in her position in taking into account in her costs reasons an offer made by the Respondents.

[13] The Respondents argue that the trial judge’s findings in relation to absence of any legal impropriety committed by them regarding the disclosure of the Kitec plumbing are entitled to deference as findings of mixed fact and law. They argue, moreover, that the trial judge made no error of law in the legal principles she applied in making those findings.

[14] The Respondents argue that the trial judge correctly found that there was no breach of contract established by the Appellant regarding the carpet. The Respondents place particular reliance on the wording in Schedule A and para. 29 of the agreement of purchase and sale.

[15] The Respondents argue that the trial judge correctly held that they were entitled to retain the deposit as well as recover any damages they suffered for breach of contract.

[16] Given the Respondents’ positions on the Kitec and carpet issues, it is implicit that they take the position that the dismissal of the counterclaim was well founded.

[17] Finally, they support the order of costs made by the trial judge as neither clearly wrong nor containing an error of principle.

V. STANDARDS OF REVIEW

[18] At pages 1112 to 1116 of Paul M. Perell and John W. Morden, The Law of Civil Procedure in Ontario, 3d ed (Toronto: LexisNexis Canada 2017) the learned authors set out principles governing standards of review in appellate matters.

[19] The appellate standard of review where the ground of appeal is that the trial judge erred in law is correctness. In contrast the standard of review for findings of fact is that the error must be a “palpable and overriding error”, meaning plain to see and affecting the result.

[20] Errors of mixed fact and law, where the question of legal principle is not readily extricable, are subject to the test of palpable and overriding error.

[21] The learned authors additionally note at para. 12.225 of The Law of Civil Procedure in Ontario, 3d ed, supra:

Other than standard form contracts, the exercise of applying the principles of contractual interpretation is a question of mixed fact and law because contracts are to be interpreted in a …[factual] matrix; however, the standard of appellate review for standard form contracts is the correctness standard for issues of law.

VI. THE UNDISPUTED FACTS

[22] A number of facts are uncontested.

[23] The Appellant and the Respondents, who are related as father, son, and mother respectively, entered into an agreement of purchase and sale dated March 31, 2017 for a condominium unit at 3939 Duke of York Boulevard in Mississauga. The purchase price to be paid by the Appellant was $610,000.00 with a $15,000.00 deposit which was paid.

[24] Further, the closing date was to be June 14, 2017.

[25] Schedule A to the APS provided in capital letters, “THE BUYER UNDERSTANDS AND ACCEPTS THAT THERE IS KITEC PLUMBING IN THE BUILDING & IN THE SUBJECT PROPERTY.” The Appellant initialled this term.

[26] On November 2, 2016 the issue of Kitec piping in the condominium units had been discussed at the annual general meeting of the condominium. The condominium corporation asked the unit holders after that meeting to hire a licensed plumber to replace all Kitec plumbing in the units at their own expense before March 31, 2017.

[27] On April 4, 2017 the Appellant by amendment to the APS waived the term that provided that the APS was “conditional upon the Buyer and the Buyer’s lawyer reviewing the Status Certificate…and finding the Status Certificate… satisfactory….” The purchase price was also revised to $607,000.00.

[28] The lawyer for the Appellant by letter dated April 5, 2017 confirmed to his client that he and she had spoken by telephone on April 4, 2017; that he had reviewed the status certificate relating to the condominium purchase; that, in his view, the only item of concern was the potential cost of replacing Kitec piping in the unit she was purchasing; and that she had negotiated a $3000.00 purchase price reduction to cover such a cost.

[29] At paras. 10 and 11 of her reasons in factual findings which were not the subject of dispute in oral argument, the trial judge further chronicled the events of the transaction. She noted that by a letter dated May 12, 2017 the Appellant’s lawyer informed the Respondents’ lawyer that the Appellant had not sold her own house, and would, therefore, not be able to close the transaction; that on May 18, 2017 in correspondence between the lawyers for the parties, the Respondents referred to what they alleged was the Appellant’s anticipatory breach of contract, and stated that they would hold the Appellant liable for damages, as well keep the deposit; that on May 19, 2017 the Appellant requested that the Respondents reinstate the APS with a closing date of June 29, 2017; and that the Respondents agreed to this proposal.

[30] In a letter of June 7, 2017 the Appellant’s lawyer informed the lawyer for the Respondents that she would not close the purchase of the condominium unit. The letter cited as the reasons for her position the presence of Kitec plumbing in the unit and the financial obligation she would assume to replace it, both contended to be known to the Respondents and hidden from her, before she entered into the APS.

[31] The letter also asserted that the Respondents had hidden from the Appellant by staging furniture, prior to her entering into the APS, permanent severe stains on carpeting; and that the carpet would have to be replaced at considerable expense.

[32] The Respondents re-listed and resold the unit for $ 598,000, a transaction which closed on July 5, 2017.

[33] The undisputed facts relating to the carpet issue also require examination.

[34] The listing of the unit indicated that all carpets had been steam cleaned.

[35] The Respondents had a receipt for the steam cleaning dated March 28, 2017 which stated that the carpet had “ extremely bad filtration thoughout,…best it will clean up.”

[36] Schedule A to the APS stated, “ The Seller represents and warrants that the chattels, fixtures and equipment as included in this Agreement of Purchase and Sale will be in good working order…on completion….The Parties agree that this representation and warranty…apply only to the state of the property at completion of this transaction.”

[37] Paragraph 29 of the APS stated:

AGREEMENT IN WRITING: If there is conflict or discrepancy between any provision added to this Agreement (including any Schedule attached hereto) and any provision in the standard pre-set portion hereof, the added provision shall supersede the standard pre-set provision to the extent of such conflict or discrepancy. This agreement including any Schedule attached hereto, shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein.

VII. GOVERNING PRINCIPLES OF LAW

A. Applicable Remedies

[38] In my discussion of remedies I am drawing heavily on the very helpful text, Paul M. Perell, Real Estate Transactions, 2^nd ed (Toronto: Canada Law Book 2014). I am setting out the remedies that may have application in the case at bar; I am not attempting to make an exhaustive list of all remedies in a sale of land situation or all remedies for any particular kind of problematic conduct, such as breach of a warranty.

(i) Fraudulent Misrepresentation

[39] A representation is a statement in respect of which the parties do not have a contractual intent made by one contracting party to the other before or at the time of the formation of the contract about a matter relating to the contract.

[40] A fraudulent misrepresentation gives rise to two remedies. First, there is damages for the tort of deceit or fraudulent misrepresentation, the elements of which are stated in Real Estate Transactions, 2^nd ed, supra at 14 to be:

(a) a false statement by the defendant; (b) the defendant knowing that the statement is false or being indifferent to the statement’s truth or falsity; (c) the defendant having an intent to deceive the plaintiff; (d) the false statement being subjectively material; (e) the false statement having induced the plaintiff to act; and (f) the plaintiff suffering damages.

[41] Second, there is the equitable remedy of rescission. This remedy is available for fraudulent, negligent, and innocent misrepresentation. However, if the misrepresentation is not fraudulent or does not amount to a failure of consideration, the innocent party must object before the closing of the transaction. Moreover, the equitable remedy of rescission requires the following to be proven according to Real Estate Transactions, 2^nd ed, supra at 13: “(a) a false statement; (b) …the false statement…must be of a type that would influence the contracting party’s decision to enter the contract; [and] (c) the statement must have induced the contracting party to enter into the contract.”

(ii) Negligent Misrepresentation

[42] For negligent misrepresentation, in addition to rescission as discussed above, the innocent party may sue for the tort of negligent misrepresentation, which, according to Real Estate Transactions, 2^nd ed, supra at 15, requires proof of:

(a) A duty of care based on a special relationship between the plaintiff and the defendant; (b) a false statement by the defendant; (c) the defendant being negligent ( breaching his or her duty of care) in making the false statement: (d) the plaintiff reasonably relying on the false statement: and (e) the plaintiff suffering damages as a consequence.

(iii) Innocent Misrepresentation

[43] Rescission is the only remedy for innocent misrepresentation.

(iv) Breach of Condition

[44] A statement in the contract which is a condition allows the innocent party on proof of breach of it to choose to terminate the contract and to claim damages for the loss of bargain and consequent losses.

(v) Breach of Warranty

[45] Breach of a warranty entitles the innocent party to damages, but does not relieve that party from complying with the contract. Obviously, a condition is a more important promise than a warranty.

(vi) Latent and Patent Defects of Quality

[46] At pages 113 to 117 the author of Real Estate Transactions, 2^nd ed, supra considers the difficult area of latent and patent defects of quality. The author states,”[T]he vendor is not responsible to the purchaser for a defect, be it patent or latent, unless he or she conceals that defect, or her or she knows of a latent defect that renders the premises unfit for habitation or dangerous.” The author points out that the law of fraudulent misrepresentation also must be applied.

[47] The Appellant relies upon the decision of LaForme J., as he then was, in Swayze et al. v. Robertson, [2001] O.T.C. 186 (Sup Ct). Justice LaForme contextualizes his analysis of the effect of latent defects as follows at paras. 25 and 26:

25 Generally, it is accepted law that in a purchase and sale of real property the notion of caveat emptor applies in respect of the physical amenities and condition of the property. And, absent fraud, mistake or misrepresentation, a purchaser takes existing property as he or she finds it unless the purchaser protects himself or herself by contract terms.2

26 In the within case, Dr. Swayze and Dr. Wall in essence claim that because of "false and/or negligent [representations]"3 on the part of Mr. Robertson, they were induced to purchase the subject property that contained a material latent defect that caused them to suffer damages.

[48] At paras. 31 and 32 Justice LaForme explicates the meaning of fitness for habitation:

31 Furthermore, I am of the opinion that the term "premises unfit for habitation" does not mean that the defect must be such that the entire residence must be rendered uninhabitable. Rather, in cases such as this I am of the view that application of the principle can, and must mean something more qualified.

32 I take the position that any decisions regarding habitability of the premises must be made on a common sense and reasoned approach based on the facts of each case. It seems to me that the correct approach must be to consider it in the context of whether the latent defect has caused any loss of use, occupation and enjoyment of any meaningful or material portion of the premises or residence that results in the loss of enjoyment of the premises or residence as a whole. That, I find has been established in the case at bar.

[49] Further, there are other statutory and common law principles which may impose liability, but they are not applicable to the case at bar.

(vii) Damages on Repudiation

[50] At pages 340 to 353 of Real Estate Transactions, 2^nd ed, supra the author discusses the innocent party’s remedy for repudiation of a contract of purchase and sale of real estate by the other party. If that other party repudiates the contract by clearly stating that he or she does not intend to perform his or her obligations under the contract, and time is of the essence (not an issue in the case at bar), the innocent party may accept the breach and treat the contract as at an end. The author further notes that the innocent party may also claim common law damages for loss of bargain and out-of-pocket expenses.

[51] The measure of damages for loss of bargain is “the difference between the market value of the land and the contract price at the date…when the innocent party should have mitigated.” Additionally, “the onus is on the defendant to prove any failure to mitigate, but the plaintiff must prove his or her calculation of damages.”

B. The Effect of Entire Agreement Clauses

[52] In Soboczynski v. Beauchamp, [2015] O.J. 2055 (Ont CA) at paras. 38 to 68 Justice Epstein for the Court considered the principles applying to entire agreement clauses:

38 The appellants submit that the entire agreement clause, which expressly stated that there are no representations affecting their agreement other than as expressed in the APS, precludes the respondents from advancing a claim in tort based on representations in the SPIS. The appellants point out that the respondents could have avoided the consequences of the entire agreement clause by incorporating the SPIS into the APS, but did not do so.

39 It is well-settled that contract and tort duties may arise concurrently. In BG Checo International Ltd. v. British Columbia Hydro & Power Authority, 1993 145 (SCC), [1993] 1 S.C.R. 12, the Supreme Court wrote, at p. 26"where a given wrong prima facie supports an action in contract and in tort, the party may sue in either or both, except where the contract indicates that the parties intended to limit or negative the right to sue in tort." The Court continued, at p. 27"In so far as the tort duty is not contradicted by the contract, it remains intact and may be sued upon."

40 Accordingly, the key question is whether the entire agreement clause in the APS negatives the respondents' right to sue in tort based on misrepresentations made in the SPIS -- a document completed after the APS was entered into.

41 In my view, the answer to the question is that, in the circumstances of this case, any consequences flowing from representations made in the SPIS were outside the reach of the entire agreement clause. The entire agreement clause in the APS operates retrospectively, not prospectively. In other words, the application of the clause is restricted to limit representations, warranties, collateral agreements, and conditions made prior to or during the negotiations leading up to the signing of the APS. When the appellants made representations in the SPIS, a document completed after the APS had been signed by all parties, the entire agreement clause was spent.

42 This conclusion is supported by the general purpose of entire agreement clauses, jurisprudence from this court, the plain meaning of the entire agreement clause at issue in this case, and the post-contractual conduct of the parties.

General Purpose of Entire Agreement Clauses

43 An entire agreement clause is generally intended to lift and distill the parties' bargain from the muck of the negotiations. In limiting the expression of the parties' intentions to the written form, the clause attempts to provide certainty and clarity.

44 In Inntrepreneur Pub Co. Ltd. v. East Crown Ltd., [2000] 41 E.G. 209 (U.K. Ch.), Lightman J. colourfully described the purpose of an entire agreement clause as follows:

The purpose of an entire agreement clause is to preclude a party to a written agreement threshing the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty... For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere. [Emphasis added.]

45 Legal commentators appear to be united in their view that entire agreement clauses are, generally speaking, retrospective in nature. According to Angela Swan"An "entire agreement" clause deals only with what was done or said before the agreement was made and seeks to exclude those statements and acts from muddying the interpretation of the agreement; it is a contractual invocation of the parol evidence rule": Canadian Contract Law, 3d ed. (Markham: LexisNexis Canada, 2012), at p. 600 (emphasis in original); see also John D. McCamus, The Law of Contracts, 2d ed. (Toronto: Irwin Law Inc., 2012), at p. 733.

46 Justice P.M. Perell agrees. He says that "[t]he parol evidence rule then directs that the written contract may not be contradicted by evidence of the oral and written statements made by the parties before the signing of the contract. The entire agreement clause is essentially a codification of the parol evidence rule": "A Riddle Inside an Enigma: The Entire Agreement Clause" (1998) The Advocates' Q. 287 at 290-91 (emphasis added).

47 And according to Professor M.H. Ogilvie, entire agreement clauses are "patently not applicable... where the representation postdates the contract": "Entire Agreement Clauses: Neither Riddle Nor Enigma" (2009) 87 The Canadian Bar Review at 642 (emphasis added).

Jurisprudence From This Court

48 While there appears to be little jurisprudence on the effect of an entire agreement clause on representations made after the contract containing the clause is entered into, some assistance can be found in this court's decision in Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 52151 (ON CA), 64 O.R. (3d) 533 (C.A.), subsequent proceedings, (2006) 2006 13954 (ON CA), 19 B.L.R. (4th) 19 (Ont. C.A.).

49 Shelanu involved a contractual dispute in which the question was whether an entire agreement clause in a written agreement rendered unenforceable a subsequent oral agreement between the parties. Justice Weiler, writing for the court, concluded it did not.

50 Shelanu clarified certain points about entire agreement clauses.

51 First, an entire agreement clause does not prevent the parties from amending the terms of their agreement. In other words, post-contract events can affect both the enforceability of the obligations in the agreement and add new obligations to those imposed by its terms.

52 Second, and relatedly, entire agreement clauses do not apply prospectively unless the wording expressly so provides. In the words of Weiler J.A., at paras. 49-50:

[A]n exception to the parol evidence rule is the existence of any subsequent oral agreement to rescind or modify a written contract provided that the agreement is not invalid under the Statute of Frauds: Ellis v. Abell (1884), 10 O.A.R. 226 (Ont. C.A.) at para. 85.

Clauses such as the entire agreement clause in issue here are normally used to try to exclude representations made prior to the signing of the written agreement. See P.M. Perell"A Riddle Inside an Enigma: The Entire Agreement Clause" (1998) The Advocates' Q. 287. Nothing in [the entire agreement clause] suggests that an oral agreement to surrender the franchise several years later would be of no effect. It cannot be said the entire agreement clause was clearly intended to cover any and all future contractual relations between Shelanu and Print Three. [Emphasis added.]

53 Both the general purpose of entire agreement clauses set out above and the approach to their application evident in this court's decision in Shelanu support the conclusion that, subject to express wording to the contrary, these clauses do not apply to agreements or representations that post-date the contract in which the clause is found.

54 I now turn to the specific circumstances in this case.

Specific Words Used in the Entire Agreement Clause in the APS

55 A consideration of the precise words the parties used to record their bargain is central to the interpretation of the entire agreement clause in the APS. For convenience, I again set out the text of the entire agreement clause in issue:

This Agreement including any Schedule attached hereto, shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein.

56 The clause is worded in the present tense -- "[t]here is no representation" affecting the APS (emphasis added). On their face, the words of the clause do not preclude an action for negligent misrepresentation based on a representation made post-contract. The words that reflect the parties' bargain are therefore consistent with the general legal principles animating entire agreement clauses.

57 This interpretation of the clause is also consistent with the Divisional Court's analysis in Dzourelov -- a case relied upon by the Divisional Court in this case. In Dzourelov, the entire agreement clause was very similar to the one in this case. It read: "The parties acknowledge that there is no representation, warranty, collateral agreement or condition, affecting the Agreement except as contained in this agreement. This agreement may not be amended other than in writing" (emphasis added). In interpreting this clause, Dawson J. wrote:

The exclusive agreement clause in question consists of two sentences. I agree with the appellant's submission that the first sentence deals with the situation at the time the agreement was signed. It has the effect of excluding the possibility of any representation, warranty or collateral agreement at that time, that was not included in the written agreement. [Emphasis added.]

58 Thus, Dzourelov confirms that entire agreement clauses drafted in the present tense look backwards, not forwards.

59 The entire agreement clause in this case is saying"These are the terms of our agreement and nothing that was said beforehand is relevant. You have no basis for relying on anything other than the terms of the agreement. The agreement stands on its own".

Post-Contractual Conduct of the Parties

60 Finally, Canadian courts often look to the post-contractual conduct of the parties to shed light on what they intended the words enshrined in their written agreement to mean. The trend in Canada toward analyzing the subsequent actions of the parties is captured by G.H.L. Fridman in The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011), at pp. 450-51:

Canadian courts have adopted the view that subsequent conduct can be a useful guide to the interpretation of a written contract... In one case, concerned with whether a restrictive covenant in a contract was personal to the parties or went with the land, Thomson J. of the Supreme Court of Saskatchewan, said that in cases involving an ambiguity in an agreement"there is no better way of determining what the parties intended than to look to what they did under it [Bank of Montreal v. Univ. of Saskatchewan (1953), 1953 166 (SK QB), 9 W.W.R. (N.S.) 193 (Sask. Q.B.), at 199]. There is much to be said for this approach, as many Canadian judges since 1970, have declared. In Canada it seems clear that the subsequent actions of the parties may be admissible to explain the true meaning and intent of their agreement. [Citations omitted.]

61 An examination of the conduct of the parties to the APS after they entered into their agreement supports the conclusion that they intended that the appellants' obligations under the SPIS would be enforceable.

62 It was not necessary for the appellants to complete the SPIS. If one contracting party asks, post contract, for a representation or warranty, the other does not have to give it: he or she can say"No, the contract expresses the limit of my obligations". But that is not what transpired in this case. The fact that the appellants completed the SPIS, after consulting their lawyer, provides insight into their intentions in relation to the entire agreement clause. It reveals that the appellants considered the SPIS seriously.

63 Moreover, in the SPIS, the appellants undertook to inform the respondents of any "important changes" to the information they provided in the document. This ongoing obligation to which the appellants committed themselves indicates that all parties considered the SPIS as affecting their relationship.

64 For these reasons, I agree with the Divisional Court that the entire agreement clause, properly interpreted, does not preclude the respondents' claim for damages based on negligent misrepresentation. In my view, the appellants should be held to any consequences that flow, in law, from the representations they made in the SPIS. To conclude otherwise would render the entire SPIS exchange meaningless.

The Doctrine of Caveat Emptor

65 Before proceeding, I pause to briefly address the doctrine of caveat emptor ("let the buyer beware").

66 The appellants submit that circumventing the parties' intentions as expressed by the entire agreement clause in the APS erodes the doctrine of caveat emptor. I disagree with the premise of this submission. Having concluded that the entire agreement clause in this case operates retrospectively, not prospectively, it cannot be said that the respondents' claim for negligent misrepresentation has the effect of circumventing the parties' intentions or the entire agreement clause.

67 At para. 38 of its reasons, the Divisional Court quoted from Killeen J.'s decision in Kaufmann, at para. 119, for the proposition that"once a vendor "breaks his silence" by signing the SPIS, the doctrine of caveat emptor falls away as a defence mechanism and the vendor must speak truthfully and completely about the matters raised in the unambiguous questions at issue". Although the SPIS at issue in Kaufmann was expressly incorporated into the agreement of purchase and sale, I agree with the thrust of Killeen J.'s remarks. So long as a purchaser's action is not precluded by the agreement of purchase and sale, the vendor cannot hide behind the doctrine of caveat emptor if he or she breaks the silence by signing a SPIS.

68 I would not give effect to this argument.

C. Return of a Deposit

[53] At page 292 of Real Estate Transactions, 2^nd ed, supra the author discusses the law regarding the role of the purchaser’s deposit in a sale of land:

If the purchaser breaches the agreement, then his or her deposit is forfeited. The vendor may retain the deposit without proof of actual damages. The deposit is compensation for the fact that his property was taken off the market for a time as well as for his loss of bargaining power resulting from the revelation of an amount that the vendor would be prepared to accept. If the vendor’s losses exceed the deposit, the deposit is a credit toward any damages award.

[54] The author is clear, however, that the vendor must credit the deposit to any damages he or she may have suffered. This point was recently re-affirmed in Azzarello v. Shawqi, 2019 ONCA 820 at paras. 42 to 55.

D. Costs in the Small Claims Court

[55] The applicable legislation is as follows:

S. 29 of the Courts of Justice Act, R.S.O. 1990, c. C.43

Limit on costs

29 An award of costs in the Small Claims Court, other than disbursements, shall not exceed 15 per cent of the amount claimed or the value of the property sought to be recovered unless the court considers it necessary in the interests of justice to penalize a party or a party’s representative for unreasonable behaviour in the proceeding. R.S.O. 1990, c. C.43, s. 29; 2006, c. 21, Sched. C, s. 105 (2).

Rules 14 and 19 of the Small Claims Court

RULE 14 OFFER TO SETTLE

14.01 A party may serve on any other party an offer to settle a claim on the terms specified in the offer. O. Reg. 258/98, r. 14.01.

Written Documents

14.01.1 (1) An offer to settle, an acceptance of an offer to settle and a notice of withdrawal of an offer to settle shall be in writing. O. Reg. 78/06, s. 28.

Use of Forms

(2) An offer to settle may be in Form 14A, an acceptance of an offer to settle may be in Form 14B and a notice of withdrawal of an offer to settle may be in Form 14C. O. Reg. 78/06, s. 28.

Terms of Settlement

(3) The terms of an accepted offer to settle may be set out in terms of settlement (Form 14D). O. Reg. 78/06, s. 28.

Time for Making Offer

14.02 (1) An offer to settle may be made at any time. O. Reg. 78/06, s. 29.

Costs Consequences

(2) The costs consequences referred to in rule 14.07 apply only if the offer to settle is served on the party to whom it is made at least seven days before the trial commences. O. Reg. 78/06, s. 29.

Withdrawal

14.03 (1) An offer to settle may be withdrawn at any time before it is accepted, by serving a notice of withdrawal of an offer to settle on the party to whom it was made. O. Reg. 78/06, s. 29.

Deemed Withdrawal

(2) If an offer to settle specifies a date after which it is no longer available for acceptance, and has not been accepted on or before that date, the offer shall be deemed to have been withdrawn on the day after that date. O. Reg. 78/06, s. 29.

Expiry When Court Disposes of Claim

(3) An offer may not be accepted after the court disposes of the claim in respect of which the offer is made. O. Reg. 78/06, s. 29.

No Disclosure to Trial Judge

14.04 If an offer to settle is not accepted, no communication about it or any related negotiations shall be made to the trial judge until all questions of liability and the relief to be granted, other than costs, have been determined. O. Reg. 78/06, s. 29.

Acceptance of an Offer to Settle

14.05 (1) An offer to settle may be accepted by serving an acceptance of an offer to settle on the party who made it, at any time before it is withdrawn or before the court disposes of the claim in respect of which it is made. O. Reg. 78/06, s. 30.

Payment Into Court As Condition

(2) An offer by a plaintiff to settle a claim in return for the payment of money by a defendant may include a term that the defendant pay the money into court; in that case, the defendant may accept the offer only by paying the money into court and notifying the plaintiff of the payment. O. Reg. 258/98, r. 14.05 (2).

(3) If a defendant offers to pay money to a plaintiff in settlement of a claim, the plaintiff may accept the offer with the condition that the defendant pay the money into court; if the offer is so accepted and the defendant fails to pay the money into court, the plaintiff may proceed as provided in rule 14.06. O. Reg. 258/98, r. 14.05 (3).

Costs

(4) If an accepted offer to settle does not deal with costs, the plaintiff is entitled,

(a) in the case of an offer made by the defendant, to the plaintiff’s disbursements assessed to the date the plaintiff was served with the offer;

(b) in the case of an offer made by the plaintiff, to the plaintiff’s disbursements assessed to the date that the notice of acceptance was served. O. Reg. 258/98, r. 14.05 (4).

Failure to Comply With Accepted Offer

14.06 If a party to an accepted offer to settle fails to comply with the terms of the offer, the other party may,

(a) make a motion to the court for judgment in the terms of the accepted offer; or

(b) continue the proceeding as if there had been no offer to settle. O. Reg. 258/98, r. 14.06.

Costs Consequences of Failure to Accept

14.07 (1) When a plaintiff makes an offer to settle that is not accepted by the defendant, the court may award the plaintiff an amount not exceeding twice the costs of the action, if the following conditions are met:

1. The plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer.

2. The offer was made at least seven days before the trial.

3. The offer was not withdrawn and did not expire before the trial. O. Reg. 258/98, r. 14.07 (1).

(2) When a defendant makes an offer to settle that is not accepted by the plaintiff, the court may award the defendant an amount not exceeding twice the costs awardable to a successful party, from the date the offer was served, if the following conditions are met:

1. The plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer.

2. The offer was made at least seven days before the trial.

3. The offer was not withdrawn and did not expire before the trial. O. Reg. 258/98, r. 14.07 (2).

(3) If an amount is awarded under subrule (1) or (2) to a self-represented party, the court may also award the party an amount not exceeding $500 as compensation for inconvenience and expense. O. Reg. 78/06, s. 31.

RULE 19 COSTS

Disbursements

19.01 (1) A successful party is entitled to have the party’s reasonable disbursements, including any costs of effecting service or preparing a plaintiff’s or defendant’s claim or a defence and expenses for travel, accommodation, photocopying and experts’ reports, paid by the unsuccessful party, unless the court orders otherwise. O. Reg. 78/06, s. 38 (1); O. Reg. 440/10, s. 3 (1).

(1.1) For greater certainty, subrule (1) includes costs associated with the electronic filing or issuance of documents under these rules. O. Reg. 44/14, s. 13.

(2) The clerk shall assess the disbursements in accordance with the regulations made under the Administration of Justice Act and in accordance with subrules (3) and (4); the assessment is subject to review by the court. O. Reg. 258/98, r. 19.01 (2); O. Reg. 440/10, s. 3 (2).

(3) The amount of disbursements assessed for effecting service shall not exceed $60 for each person served unless the court is of the opinion that there are special circumstances that justify assessing a greater amount. O. Reg. 258/98, r. 19.01 (3); O. Reg. 78/06, s. 38 (2); O. Reg. 440/10, s. 3 (3).

(4) The amount of disbursements assessed for preparing a plaintiff’s or defendant’s claim or a defence shall not exceed $100. O. Reg. 440/10, s. 3 (4).

Limit

19.02 Any power under this rule to award costs is subject to section 29 of the Courts of Justice Act, which limits the amount of costs that may be awarded. O. Reg. 78/06, s. 39.

19.03 Revoked: O. Reg. 440/10, s. 4.

Representation Fee

19.04 If a successful party is represented by a lawyer, student-at-law or paralegal, the court may award the party a reasonable representation fee at trial or at an assessment hearing. O. Reg. 440/10, s. 5; O. Reg. 230/13, s. 15.

Compensation for Inconvenience and Expense

19.05 The court may order an unsuccessful party to pay to a successful party who is self-represented an amount not exceeding $500 as compensation for inconvenience and expense. O. Reg. 440/10, s. 5.

Penalty

19.06 If the court is satisfied that a party has unduly complicated or prolonged an action or has otherwise acted unreasonably, the court may order the party to pay an amount as compensation to another party. O. Reg. 78/06, s. 39.

[56] In Marvin A. Zuker and Sebastian Winny, Ontario Small Claims Court Practice 2018 (Toronto: Thomson Reuters Canada Limited, 2017) at 59 to 60 the authors discuss the principles governing the application of those provisions:

Subject to the limitation imposed by section 29, costs are fixed pursuant to the Small Claims Court Rules.

The representation fee under rule 19.04 is the largest single costs item in most cases where the party entitled to costs is represented by a …[lawyer].

If the plaintiff is entitled to cost consequences under rule 14.07(1), the court may award the plaintiff up to double the costs of the action.

Where double costs are awarded under rule 14.07, it is the fees but not the disbursements which are doubled.

If an award of double costs under rule 14.07 would produce an award in excess of the prima facie limit [under s. 29 of the C.J.A.], the court must decide whether there is a proper basis to apply the penalty costs proviso. In the absence of such grounds, the double costs award under rule 14.07 would offend the statutory limitation on costs.

A number of cases have held that a party’s failure to accept an offer to settle, which triggers rule 14.07 cost consequences , can itself constitute unreasonable behaviour within the meaning of s. 29 and support the application of the penalty costs proviso. If so the double costs award under rule 14.07 can be made in tandem with a penalty costs award under section 29 and there is no contravention of the statutory limitation….Any party seeking rule 14.07 cost consequences which would result in more than the prima facie limit on costs, and any court considering such an award, should address whether there has been unreasonable behaviour within the meaning of section 29. In the absence of such behaviour, the prima facie limit applies.

[57] In The Law of Civil Procedure in Ontario, 3d ed, supra at para. 10.161 the authors note that a “costs award is discretionary and an appellate court will set aside or vary a costs award only if the judgment making the order made an error in principle or the costs award is clearly wrong.”

VIII. ANALYSIS

[58] I will now address the grounds of appeal raised by the Appellant. In my analysis I have had regard to the arguments of the parties, the evidentiary record, my earlier discussion of standards of review, the undisputed facts, and the governing legal principles.

A. The Kitec Plumbing

[59] The trial judge in her reasons released October 5, 2018 at para. 21 found:

The existence of Kitec plumbing in the condominium unit which Ms. Carraro agreed to purchase was kown to her when she signed the APS. It was set out in the APS in bold letters, initialled by her, and could not have been clearer. …Ms. Carraro negotiated a reduction in the price of the unit precisely because she anticipated having to pay the cost of replacing the plumbing.

[60] In my view, those findings of fact are owed deference in accordance with the applicable standard of review. Moreover, they are in accordance with the undisputed facts that I have outlined above.

[61] Having regard to those findings of fact I see no basis in the principles of the law of tort or the law of contract, as reviewed above, which would have excused non-performance of the APS by the Appellant.

B. The Carpet

[62] The issue of the carpet is more complicated. The Appellant has raised the terms regarding fixtures in Schedule A of the APS set out above; and the Respondents have raised those provisions and the entire agreement clause in para. 29 of the APS.

[63] For purposes of my analysis I have assumed a standard of review of correctness regarding these provisions, both because they were standard form clauses in the APS, and because that standard of review favours the Appellant.

[64] The clause in Schedule A to the APS bearing upon fixtures applied to the carpet. However, based on the principles of law respecting entire agreement clauses reviewed above, what was represented to the Appellant about the carpet prior to the making of the APS on March 31, 2017, including the statements in the listing, is excluded from my consideration by para. 29 of the APS, the entire agreement clause.

[65] The Schedule A provision uses the language “represents and warrants” as to the fixtures. The trial judge found at para. 24 of her reasons released October 5, 2018 that “there was…[neither] evidence that …[the Appellant] had informed anyone involved with the transaction that the condition of the carpet was important to her, nor [evidence] …that the …[Respondents] had deliberately attempted to hide the stains” in the carpet.

[66] In light of those findings of fact, I cannot find that the Schedule A provision was a condition, which, upon breach, would have allowed the Appellant to refuse to perform the contract Further, I am not satisfied that on the record before me that the carpet was proven by the Appellant to be not “in good working order” contrary to the Schedule A provision.

[67] The Appellant’s contention that she was entitled to a remedy for a latent defect in respect of the stains in the carpet, fails in light of the trial judge’s finding that there was no evidence that the Respondents had attempted to conceal the stains.

C. The Deposit

[68] Applying the principles set out above with respect to the crediting of a deposit to damages suffered by a vendor, I am satisfied that the trial judge erred in failing to credit the deposit to the damages claimed. Since the deposit exceeded the damages claimed, the Respondents were entitled only to keep the deposit of $15,000.00 and not to further damages.

D. The Counterclaim

[69] In view of my conclusions regarding the Kitec plumbing and carpet issues, I must find that there is no merit in the Appellant’s arguments regarding the trial judge’s dismissal of the counterclaim.

[70] I need not consider the Appellant’s motion to adduce fresh evidence, since the only relevance the evidence could have would be to establish damages on the counterclaim. Since the counterclaim fails on the issue of liability, I need not address the motion.

E. Costs in the Small Claims Court

[71] The trial judge in her Supplementary Reasons on Costs released November 16, 2018 made the following order:

(a) She found that $ 3000 would have been appropriately awarded to the Respondents under Rule 19.04 on the claim; she increased that sum under Rule 14.07(1) to $ 5000, and awarded $ 1150 in disbursements for a total of $6150.

(b) She found that the appropriate sum to be awarded to the Respondents under Rule 19.04 on the counterclaim would have been $2000; she increased that sum under Rule 14.07(2) to $3500, and awarded disbursements of $350 for a total of $3850.

[72] I have reviewed the offer upon which the trial judge’s application of Rules 14.07(1) and 14.07(2) was based. Even with my reduction of the amount awarded on the claim, the offer still supports the application of Rule 14.07 (1).

[73] Nevertheless, the trial judge exceeded the 15 % threshold set out in s. 29 of the C.J.A. in respect of the fee amount awarded on the claim. I am satisfied that in doing so she erred in principle, since she provided in her reasons no explanation of why she considered “it necessary in the interests of justice to penalize…[the Appellant] for unreasonable conduct in the proceeding.”

[74] I, therefore, reduce the fees sum awarded on the claim to 15% of the claim, being $3,750, a sum I find just and in accordance with law.

IX. DISPOSITION

[75] To summarize, I vary the judgment of the trial judge by reducing the monetary award on the Respondents’ claim from $ 25,000 to $ 15,000; and by reducing the costs awarded to them on that claim to $ 4900, which reflects the reduction in fees explained above. In all other respects, including pre-judgment interest, I leave in place the judgment of the trial judge.

X. COSTS

[76] I shall receive written submissions as to costs on this appeal. The submissions shall be limited to four pages, excluding a bill of costs.

[77] The Respondents shall serve and file their submissions within 14 days of release of these reasons. The Appellant shall serve and file her submissions within 14 days from service of the Respondents’ submissions. There shall be no reply.

Bloom, J.

DATE: October 31, 2019

CITATION: Ashrafi v. Carraro, 2019 ONSC 6326

DIVISIONAL COURT FILE NO.: DC-18-00000080-0000

DATE: 2019 10 31

SUPERIOR COURT OF JUSTICE – ONTARIO

REZA ASHRAFI, EHSAN ASHRAFI, LYLA OWFI v. VIRGINIA ALISA CARRARO

BEFORE: Bloom, J.

COUNSEL: Tristen Audet, Counsel for the Respondents

Virginia Alisa Carraro, self-represented

REASONS FOR JUDGMENT

Bloom, J.

DATE: October 31, 2019