1427814 Ontario Limited v. 3697584 Canada Inc., 2012 ONSC 156
Court File No. 03-CV-257901CM3
DATE: 20120106
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
1427814 ONTARIO LIMITED
Plaintiff
Maurice Neirinck, Michael McQuade for the Plaintiff
- and -
3697584 CANADA INC., RÉNO-DÉPÔT INC. and KINGFISHER FRANCE SAS
Defendants
Ken Prehogan, Hilary Book for the Defendants
HEARD: October 18-21, 25-29, November 1-5, 8, and 15, and December 13, 2010
M.A. SANDERSON J.
REASONS FOR DECISION
Introduction. 3
Evidentiary Matters. 4
The Facts. 4
September 30-December 30, 2002. 10
January – March 24, 2003. 12
Zoning and Official Plan Amendment Approvals – Draft Plan Approval Mar. 24, 2003. 13
Announcement of Sale of All Réno-Dépôt Shares to Rona-April 23. 16
142 Financing Attempts Post Draft Approval 17
May 2003. 17
Réno-Dépôt's Actions After the Injunction was Lifted. 17
The Marketing Process. 19
Horse Racing Analogies. 20
Entertaining And Handling Of Offers Received. 21
May 29, 2003 – First Emshih Offer 21
Due Diligence Demands. 23
Off Balance Sheet Due Diligence. 24
Further Contacts with Emshih. 24
June 2, 2003 – First Echelon Offer 24
Suspicion of a Link Between 142 and Echelon. 25
Off-Balance Sheet Due Diligence. 26
June 5-9, 2003 – Longboat 26
June 11, 2003. 26
Suspension of Active Marketing – June 11, 2003 Efforts. 26
June 12, 2003. 27
June 11-June 26, 2003. 27
June 26 - July 3, 2003. 29
Longboat's Continuing Interest in Purchasing the Lands Post June 26. 31
Dealings with Monterra. 31
Continuing Discussions with Longboat – July 7, 2003. 32
Extensions of the First Pro Offer to July 30, 2003. 32
July 30-31, 2003. 32
Réno-Dépôt's Offer to Longboat Offer – July 31. 33
August 1-August 18, 2003. 33
August 18. 35
August 19, 2003 – Acceptance of Longboat Offer for $12.5 Million. 35
Emshih Correspondence August 2003. 36
Closing August 27, 2003 with Longboat 36
Closing of Sale of Shares of Réno-Dépôt to Rona - September 11, 2003. 36
FINDINGS OF FACT. 37
Events September 2001-December 30, 2002. 37
January 1, 2003 - May 2003. 38
Findings re Retainer of Appraisers. 39
March 24, 2003. 39
Retainer of Warshafsky to Market the Lands. 40
Findings Re Retainer of Warshafsky. 43
Findings re the Listing Price. 43
Findings Re Kahn's Actions and Advice. 44
(1) Maltauro's, Kahn's and Warshafsky's Assumptions About Appropriate Buyers of the Lands 45
(2) Initial Contacts. 46
(3) Failure To Market During Currency of Conditional Sale Contracts. 47
(4) Réno-Dépôt's Stance on Due Diligence. 48
(5) Réno-Dépôt's Dealings with Emshih. 49
(6) Dealings with Echelon. 50
(7) Dealings With Monterra. 51
(8) August 1 – Insertion of Escape Clause in First Pro Agreement 52
(9) Warshafsky's August 11 Advice. 52
(10) Failure to Market Past August 19, 2003. 53
(11) Summary of Relevant Events Leading to Longboat Sale. 53
Findings re the Sale to Longboat and Overall Effect of the Manner in which the Sale and Marketing of the Lands were Conducted. 54
LAW... 56
Test – Improvident Sale. 56
Need for Evidence on Standard of Care. 57
Liability for Acts of Agents. 58
The Absolute Prohibition in the September 2001 Agreement prohibiting 142 from Selling Any Part of the Burloak Lands for Less than $150,000.00 Per Acre. 58
APPLICATION OF LAW TO FACTS. 60
The Listing Price. 60
The Marketing of the Lands. 60
Retainer of Broker 60
Article 14.01. 63
CONCLUSION RE LIABILITY.. 64
THE APPRAISAL EVIDENCE.. 64
The Direct Comparison Approach. 65
Highest and Best Use. 66
Stewart's Appraisal 70
Highest and Best Use of the Burloak Lands. 70
Stewart's Comparable 1. 70
Stewart's Comparable 2. 72
Stewart's Comparable 3. 73
Stewart's Comparable 4/Marsiglio's Comparable 9/Hicks Comparable 4. 73
Stewart's Comparable 5. 74
Findings re Stewart's Evidence and Comparables. 77
Marsiglio's Appraisal 78
Criticisms of Marsiglio's Independence. 78
Marsiglio's Comparable 1. 80
Marsiglio's Comparable 2. 81
Marsiglio's Comparable 3. 81
Marsiglio's Comparable 4. 82
Marsiglio's Comparable 5. 82
Marsiglio's Comparable 6. 83
Marsiglio's Comparable 7. 83
Marsiglio's Comparable 8. 84
Marsiglio's Comparable 9/Stewart's Comparable 4/Hicks' Comparable 4. 84
Conclusions re Marsiglio's Evidence and Appraisals. 85
Hicks' Appraisal 88
Hicks' Opinion on Value as of August 27, 2003. 88
The Value of the Unserviced Commercial Component of the Lands. 89
The Unserviced Industrial Component of the Burloak Lands. 91
Criticisms of Hicks. 94
Lack of Independence. 94
Specific Criticisms of Hicks' Methodology and Conclusions. 95
Conclusions on Criticisms. 97
General Observations on the Appraisal Evidence. 99
What was the Value of the Lands as of August 27, 2003?. 99
The Law Relevant To Damages. 100
Determination of Quantum of Damages / Application of the Law to the Facts. 102
DISPOSITION.. 104
Introduction
[1] This is a mortgage sale action.
[2] The Plaintiff, 1427814 Ontario Limited ("142" or "the Plaintiff") asserts that the Defendants 3697584 Canada Inc., Réno-Dépôt Inc. and Kingfisher France SAS improvidently sold approximately 125 acres of development land it owned at the southeast corner of Burloak Drive and the Queen Elizabeth Way ("the QEW") in Oakville (the "Burloak Lands" or "the Lands") for $12.5 million, $5,170,000 less than their market value.
[3] 142 submits that in selling the Lands, Réno-Dépôt failed to take reasonable precautions to obtain Fair Market Value and acted in bad faith. 142 claims punitive damages.
[4] Although the Defendant 3697584 Canada Inc. is the mortgagee/vendor, all three named Defendants have agreed that in the event liability is found against any of them, this Court should hold all of them liable. I shall hereinafter refer to them collectively as Réno-Dépôt in the singular.
Evidentiary Matters
[5] Although counsel for Réno-Dépôt contended otherwise, the marshalling of the evidence in this case was, in my view, unusual. Since he asserted that the onus was on 142 to prove the improvidence of the sale, he opted not to adduce the evidence of many of those with direct knowledge of the facts here, including Rivet, one of Réno-Dépôt's employees most directly involved in the matters before this Court. He chose not to call Kahn, the lawyer who provided advice to Réno-Dépôt on the sale, the appraiser Stewart, upon whom it relied in setting the Listing Price or the broker Warshafsky, whom it hired to market the Burloak Lands on its behalf.
[6] Counsel for 142 called Stewart, Kahn and Warshafsky to give evidence in chief. Counsel for Réno-Dépôt then followed up in cross-examination with leading questions obviously designed, where needed, to bolster or rehabilitate their evidence. At the same time, all of those witnesses acknowledged that they hoped or expected to be paid by Réno-Dépôt for their trial preparation and their time spent giving evidence.
[7] As fact finder in this unusual scenario, given the complex nature of the evidence, I found myself asking more questions than I would otherwise have done.
[8] Following conclusion of the trial, counsel made further submissions in writing on February 4, 8, 10, 17 and 22, 2011.
[9] I am grateful to counsel for being accommodating and cooperative throughout.
The Facts
[10] As of September 1, 2001, 142 held an option to purchase the then vacant Burloak Lands from Rehani Development Corporation ("Rehani") for $11,300,000. Its principal Pajak, who had a long history in project management, construction development, designing, developing and leasing commercial sites and office buildings, wanted to exercise 142's option to buy the Lands and to up-zone them to allow for a combination of big-box commercial, retail, office and industrial uses within a power centre and business industrial subdivision, to be known as the Burloak Signature Park. He intended to seek financing to buy, develop and service, then sub-divide and re-sell the individual blocks to retail, office and industrial end users.
[11] This was the last or almost the last large undeveloped site in Oakville in close proximity to the QEW. Pajak perceived it as a "great opportunity to turn the Lands into a power centre development site."
[12] Although 142's option agreement with Rehani included a vendor take-back mortgage on 75% of the purchase price, exercising the option, purchasing and developing the Lands would require substantial financing. 142 was not a large REIT or public company with comparatively easy access to the financing that would be needed to bring the Burloak Signature Park concept to fruition. Until the Lands were rezoned, serviced and severed into saleable blocks, they would not be revenue generating. Obtaining conventional bank financing would be relatively difficult.
[13] The site already had favourable Official Plan designations for its existing commercial and industrial components. However, up-zoning the commercial designations to allow for big box uses, obtaining a Subdivision Agreement, and providing the servicing needed to fully realize the value of the Lands would be a significant undertaking.
[14] In 2001, Réno-Dépôt was a Québec-based home improvement retailer seeking to break into the fiercely competitive big-box home improvement market in Ontario, in competition with Lowes, Home Depot, Rona and others. It was setting up offices and hiring staff [including Rivet] in Toronto and was seeking to acquire sites for big box stores known as the Building Box in Ontario. At about the same time [in addition to its Montreal lawyers], Réno-Dépôt was retaining the Aird & Berlis firm in Toronto, including a Mr. Norman Kahn ("Kahn"), a commercial real estate specialist. [Later, a Mr. Steve Zakem ("Zakem"), a planning specialist, and a Mr. William Chalmers ("Chalmers"), a litigator, also worked on the Réno-Dépôt file.]
[15] Pajak was introduced to Réno-Dépôt by a broker named Quigg. He gave evidence that initially his discussions were with representatives of Réno-Dépôt from Montreal including Daniela Maltauro, a Vice President.
[16] When giving her evidence, Maltauro denied that in Réno-Dépôt's view, Pajak was sufficiently experienced to undertake a development of this magnitude. However, she conceded in cross-examination that she did not remember the specifics of his development experience. I note she translated page 57 of exhibit 55, a report she prepared in French for her superiors in the fall of 2001, as follows:
Andrew Michaels Corp., developer with an expertise in developing regional centres and retail distribution centres. He's desirous to show his capacity to Réno-Dépôt to allow … to create other developments.
[17] Before he met Réno-Dépôt, Pajak had spoken to representatives of Wal-Mart and Home Depot about locating big box stores on the Lands.
[18] The parties negotiated an agreement dated September 7, 2001 (the "Agreement") that would have been favourable to all concerned had events unfolded as Pajak and Réno-Dépôt anticipated.
[19] Réno-Dépôt agreed to buy approximately 10 acres of the Lands, to build a Building Box big box store, and to assist 142 in exercising its option with Rehani by providing the funds needed to purchase all the Lands [$11.3 million, later renegotiated to $10.7 million], to be secured by a mortgage (the "Mortgage") upon which no interest would be payable from November 2001 to June 2002, then interest at prime + 3/4% to December 31, 2002 until it would come due on December 31, 2002.
[20] By the due date of the Mortgage, December 31, 2002, 142 was to have completed its large scale retail rezoning. By no later than June 30, 2003, 142 was to have transferred ten acres of severed, zoned and fully serviced lands to Réno-Dépôt. Réno-Dépôt agreed to pay $550,000 per acre and to build a Building Box store on the Lands.
[21] The Agreement [1.01 (hh) s. 14.02] and the Mortgage [Schedule A 1(5) and 111(5)] provided that so long as the loan was not in default, Réno-Dépôt would subordinate to 142 for servicing financing up to $5 million. The Servicing Loan was defined as "the loan to be arranged by the Chargor to fund costs and expenses in connection with the design, construction and installation of municipal, private and public utility services and facilities."
[22] Under the Agreement, the sale of the 10 acres was subject to a number of conditions, including Article 14.01 that provided in part as follows:
… All Net Sale Proceeds received by the Vendor in connection with the sale of any part of the Entire Property shall be paid by the Vendor to the Purchaser on the closing of the sale of any part of the Entire Property to be applied in reduction of the principal amount of the Acquisition Loan until such time as the Acquisition Loan has been repaid in full, provided further that in the event that the Acquisition Loan has not been repaid in full on Closing, the Purchase Price for the Property shall be satisfied in whole or in part by reducing the outstanding balance of the Acquisition Loan as at the Closing, and provided always that in no event shall the Vendor sell any part or parts of the Entire Property for less than $150,000.00 per acre (save and except for the approximately 5 acres of the Entire Property which Petro-Canada has an option to purchase for a total price of $357,524.)
[23] Pajak gave evidence [Oct. 18] as follows:
Q. …If you go back to paragraph 14.01. .. nine lines from the bottom of … paragraph 14.01, you'll see some wording starting with the words:
Provided always that in no event shall the vendor sell any part or parts of the entire property for less than $150,000 per acre.
And there's some wording above that that says that this is a:
-- provided that the acquisition loan has not been repaid.
Now, do you know, are you able to tell the court, where that provision comes from? Do you have personal knowledge of that?
A. Yes, it comes from Réno-Dépôt.
Q. From who at Réno-Dépôt?
A. Maltauro.
Q. And tell us when and what was said in that regard.
A. It was when she presented the Agreement to us.
Q. Who is us?
A. Myself and my lawyer.
Q. All right.
A. Phil McDonald at Gowlings, who was the lawyer representing us at Gowlings. I queried her on the $150,000 per acre, what it meant. And her exact words is that this $150,000 per acre is what we believe the land is worth. This is what I believe this land is worth, you can't sell for less than $150,000 per acre raw land. I said fine, I have no intention of selling it anyways at $150,000 an acre.
[24] Maltauro denied saying the Lands were worth at least $150,0000 per acre at the time the Agreement was signed [Nov. 2.] She said Article 14.01 was inserted to ensure repayment of the Mortgage/to prevent it from being left without adequate security. Réno-Dépôt chose the $150,000 figure because it was "padded enough" to provide the security it needed.
[25] There was disagreement about which of Réno-Dépôt's lawyers drafted Article 14.01.
[26] Kahn gave evidence that he did not. He said Réno-Dépôt's Montreal lawyer, Aubie Herscovitch, did. Kahn said he simply reviewed the Agreement to ensure it conformed with Ontario law [Oct. 25 and 27.]
[27] Maltauro gave evidence that she did not remember whether Kahn or Herscovitz drafted Article 14.01. However, she recalled discussing it with both of them [Nov. 2.]
[28] Kahn gave evidence [Oct. 27] that Article 14.01 prohibited 142 from selling the Lands for less than $150,000 per acre "assuming that the Mortgage is still outstanding."
[29] After delays Pajak attributed to the events of September 11, 2001, the deal closed on November 1, 2001. 142 exercised the Rehani option for $10,352,100, and became the registered owner of the Lands. Réno-Dépôt registered the Mortgage against the title to the Lands as security for repayment of the $10,700,000 loan. Like the Agreement, the Mortgage contained a prohibition against selling any of the Lands for less than $150,000 per acre and a clause requiring Réno-Dépôt to subordinate up to $5 million for servicing costs.
[30] Shortly after the November 1 closing, 142 hired Steven Popovich ("Popovich") as its lead consultant to coordinate the activities of all its 16+ consultants, and Pajak and Popovich began the process of developing the Lands, in part to be able to deliver the 10 acre site to Réno-Dépôt in accordance with the Agreement.
[31] They commissioned reports and attended meetings. Rivet [who was Pajak's main contact person at Réno-Dépôt after the Agreement was signed until the Power of Sale proceedings were commenced] was involved on a regular basis.
[32] Pajak gave evidence [Oct. 18] as follows:
Q. … would you tell the Court what you have to do to make a rezoning application?
A.. .. when you're going through a rezoning, you had to meet with staff members of planning and all the various other bodies that are at City Hall there. We had to go to the conservation authorities. We had to go to Ministry of Transport because of the intersection and the roads. We had to deal with ratepayers, the City Of Burlington. [The Lands were in Oakville but close to the Burlington boundary.] And they [Oakville] issued us a list of reports that had to be filed and submitted to the various departments and then they're circulated and then there's feedback from the departments. It's an ongoing process.
When you have a property of this size, everybody has a say in the property, you'll be surprised how many people … and what you can do or can't do.
So it's quite onerous. And then you have to deal with GO Transit because they have a railway line coming across. You have to deal with your neighbour, the neighbour next door was an astute developer too, so we were dealing with them how we could work together collectively on road patterns, how we were going to share on cost savings with roads, water, sewage.
And then you have to deal with the neighbours to the south of you, how it impacts on you.
...We were trying to follow the agreement we had with Réno-Dépôt with our financing. And at the same time we were submitting site plans for usage on the block that they wanted to acquire from us. So we were running everything parallel, we were running our plan of subdivision parallel with rezoning, parallel with changing the zoning to big box in the bylaw, trying to make sure that the footprint in the plan that Building Box [Réno-Dépôt] wanted to accomplish on the block that they would purchase from us would get approval, because it was impacting to the creek. We had to get into negotiations with the Town of Oakville to acquire -- if you see the hatched portion here, Your Honour...
That had an impact too on the property, that we'd have to put a value on that to acquire that from the City or from the Town of Oakville -- or the Town of Oakville because they don't like to be called a city.
So there's number -- going on all over the place, you're trying to make everybody happy, you're calling for meetings with the planning department, planning is calling, have you got this from conservation -- basically you're running like a courier from one department to get everybody that has a say in this rezoning and the plan of subdivision in one room. It's horrendous, it's just horrendous trying to get everybody together.
Q. All right. And of course there's service[ing], you also have to service the land if you manage to get through all that?
A. Well, there's a service agreement that engineering imposes on you and there's conditions to going forward with your plan of subdivision that you have to fulfill.
Q. … are you able to indicate to the court what the zonings were for the lands at the time, at the time that you made your deal here with Réno, that closed on November 1, 2001?
A. Under the official plan, lands were zoned E-1 along the front portion abutting the QEW, E2 in the corner portion of the property. That would be the far east corner, abutting this -- the Guglietti properties.
Q. Yes.
A. Near the GO Train tracks. And then there was a bubble showing that the lower southeast corner was C3A, which stood for commercial retail, small store development.
Q. All right. And as far as E1 is concerned, can you indicate to the court some examples of the kinds of uses you could make under an E1?
A. You could put office buildings, restaurants, automotive, car dealerships, place of worship, banks, fast food outlets. It's a whole list of items.
Q. E2?
A. E2 is a really rare zoning, hard to find, because you can -- you can put outside storage, you can have waste recycling plants. It's -- you can have a -- wreckers on there. It's an unfavourable eyesore which it's very hard to find this type of property.
...But what's really unique about this site that in today's market it's worth a fortune if you could find this type of site. But you'd have every ratepayer group after you. But that was unique.
MR. NEIRINCK:. ..C3A?
A. C3A, at the time we acquired the property, it was commercial zoning for small strip retail stores of approximately 1,000 square feet... we were looking, of course, to change the zoning from C3A to big box retail, because at that time, that was the norm, everybody was going to big box retail. And our loan agreement with Réno called for us to rezone the property to C3A, big box, and amend the bylaw.
Q. .. it's not in dispute,. .. the bylaw amendment that was marked as an exhibit, that bylaw changed or removed the limitation on the amount of retail space that you could have in the C3A area, is that correct?
A. That's correct.
Q. Enabling a big box store to go in?
A. Correct.
Q. But subject, of course, to these conditions.
A. That's right.
Q.. .. you've now got to go about doing what you have to do to put yourself in a position to sell the ten acres to Réno-Dépôt --
A. That's correct.
… We hired Stephen Popovich & Associates. He was our lead consultant who handled all the other consultants. You needed one person to spearhead all the reports and submit the reports to the various bodies of the region, at the town level, at the City of Burlington, and anyone who had a say in this property, who tried to have a say in this property. …
… There's the surveyors doing the topographical, there's the soil engineers doing the soil studies. There was Trafalgar Engineering doing their studies, there was traffic studies, there was acoustic studies, and had retained Price Waterhouse to do a market impact study. There was various studies. Like I told you before, I had to hire this gentleman who was an expert birder on the mating of certain birds, rare birds.
I had to deal with the conservation authorities. We had to have an arborist out there tagging trees and marking trees and their location and the calibre and size of the tree.
…A. It was in excess of 16 consultants.
Q. What's the source of your knowledge for saying that?
A. They [Réno-Dépôt] were party to a lot of meetings in my office with consultants, because we were all working together to try and drive this as quick as we could to get them on the site to start construction.
[33] All the witnesses agreed that in the early stages of the business relationship, all involved made their best efforts to achieve their common goal.
[34] Zoning took longer than had been hoped. The initial deadlines under the Agreement were extended. Pajak's evidence [Oct. 18] contains the following:
Q. … did the company get rezoning approval for the Burloak Lands by June 30, 2002?
A. No, sir.
Q. And do you have personal knowledge as to why not?
A. There was just so many meetings that we had to attend trying to get on the council hearing, reports that we had to file, it just couldn't be achieved. And Réno-Dépôt knew that.
Q. Okay. So what occurred between you and Réno-Dépôt at that point with that deadline not having been met?
A. Well, they waived the condition and we notified them that we're not going to be able to hit the June date and they said that's okay, keep going, go as quickly as you can, we're behind you.
Q. And are you able to indicate to the court whether or not the rezoning approval was obtained by September 30, 2002?
A. No, it was not.
Q. Are you able to indicate to the court what the status of your attempts to further rezoning was as at September 30, 2002?
A. We were fully underway. We were trying to get on to meet with council, to get on the agenda, there was a public meeting held. And again I'd have to look for that date -- … there was a public meeting in which -- it was held at town hall in Oakville in which we were told that -- from the planning department's staff -- that they wanted some requirements from MTO as to the acceleration lanes going into the QEW and their comments were vis-a-vis the traffic patterns coming into this road.
Q. Were these matters discussed with Réno-Dépôt?
A. Yes. They were present.
Q. Who was present on behalf of Réno?
A. Mr. Rivet.
Q. … so …as you and your company are attempting to get the rezoning and get the draft plan through, are you able to indicate to the court what involvement any Réno-Dépôt representatives had with respect to what you and your company were doing in terms of being there, speaking with you, that kind of thing?
A. Well, they were constantly kept -- they were being updated on what we were doing with council, with the planning department, with engineering, with conservation. They were constantly in the loop with us.
…There were constantly meetings, because they were under pressure to get the site going too.
Q. And when meetings took place, who attended on behalf of Réno-Dépôt?
A. Sylvain Rivet and Maltauro. But on a day-to-day basis it was Mr. Rivet reporting to Maltauro in Montreal, because he was based in Toronto.
(Emphasis added.)
September 30-December 30, 2002
[35] On September 30, 2002, under Article 3.06 of the Agreement, the rezoning period was extended to December 31, 2002.
[36] Pajak's evidence [Oct. 18] contains the following:
Q. Okay. Your evidence is you were pursuing this, but you don't get the rezoning, as we all know, by September 30, 2002?
A. Correct.
Q. Do you stop at that point?
A. No. Keep pursuing.
Q. And were there any problems between you and Réno-Dépôt in that regard?
A. No. … None whatsoever.
Q. So now we come to this block of time between September 30 and December 31, '02. What are you doing during that period of time? Just generally?
A. We're driving the applications to get approval. We're trying to meet with various department heads, trying to meet with MTO, get their comments back, trying to get City of Burlington's comments back. We're dealing with the environmental, we're still trying to establish top of embankment with another group that came in with the conservation authority. Nothing changed. It's full steam ahead, let's get it to council for approval and a vote.
Q. And from your personal knowledge, what knowledge did Réno have of what you were doing during this period of time?
A. They were participating in it. They were at council meetings with us.
Q. Did you get zoning approval by December 31, 2002?
A. We were promised to be on the agenda, and again, no fault of our own, there were certain reports that had to come in from various departments, and I don't know if it was conservation, their final report, and we couldn't meet the agenda with Sally Stall, she hadn't received all the various reports.
Q. But the bottom line is you hadn't gotten the rezoning approval by then?
A. No.
[37] The evidence diverged about 142's continuing efforts to advance the development late in 2002.
[38] Pajak said that while Rivet continued to attend planning meetings and to assist in pushing the project forward, in retrospect he believes that Réno-Dépôt was pulling back.
[39] Under the Agreement, the Mortgage came due on December 30, 2002. Given the imminence of the hoped for approvals, Pajak sought an extension of the due date of the Mortgage.
[40] Pajak said he had hoped 142 would receive draft approval at the December 2002 Council Meeting. Some last-minute matters prevented Oakville Planning and Development Council from considering 142's application at their December meeting. Just as 142 was on the cusp of obtaining the needed approvals, he said Maltauro became uncommunicative and uncooperative. She told him the Company was for sale. Pajak now believes that the change in attitude stemmed from the belief that Réno-Dépôt might not want to build the Building Box store on the Burloak Lands after all.
[41] Pajak said the Mortgage payments were up to date as of December 30, 2002. However, the Agreement contained a provision allowing Réno-Dépôt to declare the Mortgage in default on that date. Pajak's evidence [Oct. 18] contains the following:
Q. So to even make it more specific, do you have any discussions with Ms. Maltauro in December of '02 regarding the forthcoming maturity date of the loan?
A. Yes.
Q. In person or by phone?
A. By telephone.
Q. How many, approximately?
A. Six, seven calls.
Q. Who called who?
A. I called Maltauro.
Q. What was the purpose of your calls?
A. For the extension on the mortgage and that we're close to rezoning, heading to council for rezoning.
Q. Okay. So you're making this request?
A. Yes.
Q. And what is her reply?
A. Deal with our lawyers.
[42] No extension was granted.
[43] Despite Réno-Dépôt's attitude, Pajak said he continued his all-out efforts to deliver the Building Box site as soon as possible, hoping Réno-Dépôt would accommodate the unavoidable delays. He had understood from its actions that Réno-Dépôt keenly wanted to build its big box store on the Lands immediately and 142 was to do everything possible to achieve that end as soon as possible.
[44] In December of 2002, the zoning, Official Plan amendment and Subdivision Agreement were imminent. He said once the Lands were rezoned, he expected that 142 would be able to obtain the financing it would need to pay out the Mortgage and cover servicing and other costs. A value justifying further financing would have been realized. The development could have proceeded. The 10 acre site could have been delivered to Réno-Dépôt.
[45] He said, in effect, he believes that had Réno-Dépôt's parent company not decided to sell the Réno-Dépôt shares, and had they not been sold in the spring of 2002, all would have been well. Instead of obstructing 142's progress by registering a Caution and taking steps to sell all of the Lands, Réno-Dépôt would have continued to cooperate in getting the rezoning and servicing completed as expeditiously as possible so their pressing mutual objectives could have been met.
[46] Maltauro presented a different version of the same events. She gave evidence that from the end of the summer of 2002, she perceived Pajak was easing off in his efforts to deliver under the Agreement, that 142 was no longer displaying a sense of urgency. She was concerned that the deadlines set out in the Agreement would not be met. When she spoke with Pajak, he told her he had others interested in the Lands. Maltauro felt that Pajak would be happy to see Réno-Dépôt walk away. She did not tell him that the shares of Réno-Dépôt were up for sale because she had not been told that they were.
[47] On December 19, 2002, Réno-Dépôt registered a Caution on title to the Lands to put potential purchasers on notice that 142 owed Réno-Dépôt an obligation under the Agreement inter alia to deliver the serviced and severed 10 acre building site to it.
[48] On December 30, 2002, Réno-Dépôt waived its rights to terminate the Agreement because the condition that the site had to be zoned in final form by that date had not been met. In a letter to 142 dated December 30, 2002 [Exhibit 19], Réno-Dépôt maintained that all of the other terms of the Agreement remained in full force and effect without amendment.
[49] Réno-Dépôt instructed its lawyers to protect its position under the Mortgage.
[50] Maltauro said Réno-Dépôt involved its Ontario lawyers [Kahn] at every turn.
[51] In her evidence [Nov. 2], Maltauro explained, "Every step of the power of sale was run through our lawyers at the time. We wanted to make sure we were doing everything by the book…"
[52] Pajak vociferously expressed his conviction that Kahn was running the show. He said Kahn was "taking no prisoners," giving 142 no breaks at all. He visibly and audibly scoffed at the suggestion made to him during cross-examination that had Réno-Dépôt been asked to do so, it would have waived the provision in the Agreement precluding a sale of any part or parts of the Lands for less than $150,000 per acre or that it would have lifted the Caution to allow 142 to sell or to refinance in order to redeem the Mortgage.
[53] In January of 2003, Réno-Dépôt continued to exercise its rights under the Mortgage, issuing a Notice of Intention to Enforce Security under the Bankruptcy and Insolvency Act and two Notices of Sale Under Mortgage [Exhibit 3A, tabs 7 and 9.]
[54] On January 15, 2003, a letter of demand for repayment of $11,051,385.06 was issued/received/delivered, advising that 142 had until February 24, 2003 to redeem.
[55] Pajak displayed palpable frustration about having come so close to the goal of re-zoning before December 31without having been afforded the opportunity to complete the process.
January – March 24, 2003
142's Attempts to Refinance/Sell To Redeem
[56] 142 was in a difficult position. He said that until a Plan of Subdivision was registered, the Lands could not be subdivided and sold. Under the Agreement, they could not be sold for less than $150,000 per acre. 142 was precluded from selling the whole parcel for less than 131 x $150,000 = $19,650,000. He needed rezoning to provide the value needed to obtain refinancing, but proceedings on the Mortgage and registration of the Caution preceded the granting of the needed approvals.
[57] Nevertheless, even before rezoning was achieved and Oakville approved the Draft Plan of Subdivision on March 24, 2003, Pajak/142 tried to obtain alternative financing in order to redeem the Mortgage.
[58] 142 was unable to raise the funds to pay off the Mortgage prior to the redemption date.
[59] Pajak's evidence [Oct. 19] contains the following:
Q. But as of January 1, 2003, and the months following that, into '03, prior to the listing of the property on May 21, 2003, did you make any attempts, sir, to try and get some financing with which to take out the Réno mortgage?
A. Yes. We made inquiries for refinancing. And to no avail because of the caution on title.
Q. Did the existence of that caution have any effect on what you did or did not do to try and get financing to take out the Réno mortgage?
A. It was just very difficult.
THE COURT: Can you tell us why, sir, please?
THE WITNESS: Because it took first position over prior financing, if I could obtain more financing to pay out the mortgage, but we[sic] were in first position because of this Caution.
[60] On February 11, 2003, counsel for 142 wrote to Aird & Berlis demanding that it discharge the Caution it had registered on December 19, 2002 against title to all the Lands.
[61] Pajak's evidence [Oct. 18] contains the following: "I was trying to look for financing once the rezoning was approved." After December 19, 2001 [but before rezoning], Réno-Dépôt registered a Caution against title to the whole parcel. "The problem I was having with the refinancing was that Réno-Dépôt had registered their Purchase and Sale Agreement on the Land."
[62] On February 12, 2003, Aird & Berlis responded in a letter to counsel for 142, taking the position that it was not obliged to discharge the Caution.
[63] On February 21, 2003, 142 served a motion returnable February 24, 2003, seeking an Order compelling Réno-Dépôt to remove the Caution and to prevent the Defendants from selling the Lands. The Mortgage had not been repaid by the February 24, 2003 redemption date. Pitt J. granted a temporary injunction on that date (Ex. 10.)
[64] Instead of temporarily holding off on Mortgage enforcement, Reno-Dépôt took steps to hire appraisers to value the Lands. Maltauro relied on Kahn to provide names of appropriate appraisers and Rivet interviewed the appraisers Stewart and Marsiglio before they were retained in early March 2003.
[65] Ex. 21 is an email dated February 28, 2003 from Rivet to Kahn about questions Marsiglio had asked him, including whether his appraisal should be based on the current zoning.
[66] On March 5, 2003, 142 received an offer from Greiner Pacaud Management Associates to provide financing of $6,300,000 on condition inter alia that Réno-Dépôt would agree to subordinate and Réno-Dépôt did not agree to do so.
Zoning and Official Plan Amendment Approvals – Draft Plan Approval Mar. 24, 2003
[67] Pajak gave evidence [Oct. 19] that in early 2003, while the injunction was still in effect [February 24-May 7, 2003], 142 continued to pursue the zoning and Official Plan amendments and approval of the Draft Plan of Subdivision. He was asked about steps taken by 142 between January 1 and March 24, 2003. His evidence includes the following:
A. Met with the councillors, met with Anne Mulvale, the mayor, on numerous occasions to help get us on the council list and started getting involved with Sally Stall and her boss in terms of the planning department because they had to file their own reports too.
Q. And I'd like you to describe for the court what it is that you were trying to get approval for in the way of rezoning. Yesterday day you told the court what the zoning was when you entered into your transaction with Réno-Dépôt and acquired the land November 1, '01.
A. Correct.
Q. So what was it you were looking to get approval of rezoning-wise, let's leave out the draft plan?
A. The block of land that Réno-Dépôt was to acquire from us.
Q. You were trying to get what rezoning?
A. Big box C3A that would accommodate their plan.
Q. … the areas of C3A that you were applying for unlimited size were which blocks?
A. Block 1, Block 7 and Block 6.
Q. … parallel to all of that, you were looking to get draft plan of subdivision approval?
A. That's correct.
Q. In accordance with the blocks that are set out in here?
A. That's correct.
[68] Approval was finally obtained on March 24, 2003 when the Town of Oakville approved Official Plan Amendment 227, including an area of 37.31 acres [31.93 developable net of roads] of large scale [big box] retail development. On the same day, 142's rezoning application was approved, having the effect of rezoning 12.75 acres formerly zoned industrial to large-scale retail, and permitting large scale retail uses on the balance of the 37.31 acres formerly zoned C3A (see Schedules A and B to By-Law 2003-02.)
[69] In addition to the Official Plan Amendment and rezoning, Oakville conditionally approved a Draft Plan of Subdivision allowing a variety of land uses on the Lands, including large scale retail to be developed in a "power centre" format, office commercial, prestige industrial, general industrial, highway commercial and future development. Oakville concluded the Burloak Signature Park would provide a suitable location for large scale retail uses as well as encouraging the growth of industrial and commercial uses within the Town. Outside agencies were supportive.
[70] Pajak's evidence contains the following: "We were approved, subject to the conditions for plan of subdivision, which is natural."
[71] After draft approval was obtained on March 24, 2003, Pajak said [Oct. 20] he believed the conditions affecting the Réno-Dépôt site could be cleared within 3-4 months.
[72] Pajak's evidence [Oct. 19] contains the following:
Q. …You tell us what the situation was?
A. Well, the services to service the C3A properties in the southeast corner servicing was available across the street at Harvester on the Burlington side.
Q. All right. And if you wanted to service the whole property, where would it come from?
A. Well, the water, the main water line, would come north of the QEW.
Q. Right.
A. And again it was the engineering sizing of pipe to bring across the QEW.
Q. Okay.
A. It was all part of -- it was in the overall scheme of the region anyways of their servicing plan for lands coming on stream for development. So it was already pre-engineered in the event that the lands itself, the water was there, and again it's a function of the engineers working with the region on the servicing size of pipe.
But if I wanted to start the Building Box and start part of this development, I have access to services from Burlington.
THE COURT: How long would this or these further steps that were the conditions in the -- or conditions in the bylaw, how long would you have anticipated that would probably take?
THE WITNESS: The holding?
THE COURT: Yeah, to get the holding status off.
THE WITNESS: Release? Everybody moving expeditiously probably within three months or so. Really what it is, Your Honour, is agreeing on the drawings, the engineering drawings, so you -- if you take the first one with conservation, they might want certain types of gabion walls to be put along the creek. They might want us to feather off the top of the embankment for them. In this particular case council wanted us to put a bicycle path and a walking path down there, so you would have to work out the design, would you use asphalt, Would you use interlocking brick, but once you've agreed to it you post a bond and you start development.
THE WITNESS:. .. In this particular case, what we were trying to do was get Building Block into Block 1, we knew the water was exactly across the street, it was stubbed, and to do the engineering so it was up to the engineers to start doing the engineering work to bring the water and sewer across with Metrix....
THE WITNESS: This bylaw was for the whole development but specifically pertaining to get Building Box in. It was very easy to fulfill these requirements. It was a matter of picking, okay, Metrix, we've got the approval, how much do we owe you for waste water to hook into your pipe which is right below the CN tracks?
THE COURT: So you say Metrix was -- I'm holding up, I'm looking at Exhibit 5, it was just to the south of Exhibit 5?
THE WITNESS: Yeah. That pipe, Your Honour, was almost exactly right here.
THE COURT: So in feet, how many feet would it have been from Block 1?
THE WITNESS: Couple hundred feet.
THE COURT: Okay. Thank you.
THE WITNESS: And the whole reason we did that it would kickstart the park immediately. You could put up a sign saying Building Box coming soon....
[Emphasis added.]
[73] Engineering and preliminary grading could be undertaken and servicing to allow the building of the Réno-Dépôt [Building Box] store could begin immediately thereafter.
[74] Pajak went through the conditions imposed on March 24 seriatum, starting with condition(a):
THE WITNESS: We had to prepare working drawings for the Sheldon Creek to the satisfaction of Conservation, we had already preliminarily agreed on what the top of the embankment was and if there was any re-channelization of the Creek. So we had already agreed in terms where the top of the embankment should be.
And now at that point we now go to work with the surveyors to put the top of embankment in place with Conservation beside us, because they had a representative there, and whatever other work we have to do along the Creek. So we start those and those drawings are submitted to the Region of Halton Conservation, we say yes this is what we've agreed to. Town of Oakville, they've satisfied condition A.
Q. Okay. And (b)?
A. Same thing:
The Town of Oakville has been advised by the Ministry of Transportation and the City of Burlington, that all transportation cost sharing, infrastructure staging issues, have been resolved to the satisfaction of the Ministry of Transportation, City of Burlington.
We have been going to council from the time we acquired the land to the time we go to council, engineers and planning staff and myself are involved with meetings, and we've come to an arrangement, this is how we're going to propose to go to site, do you concur with us? Yes. Start the engineer.
So now we have all of these minds and bodies involved with this transportation issue, with the City of Burlington and the MTO, have all agreed on the sale and terms of how we're going to develop this site, and now fine, thank you, engineers go to work and let's work collectively together to get this part done.
Q. And that latter part was yet to be done?
A. That's correct. Because once it's approved, then you start the engineering drawings.
Q. Okay.
A. The final drawings.
(c) The Town of Oakville is satisfied that all transportation issues have been resolved in the form of a phased development agreement executed by the owner and the town.
That's where the engineers again, and traffic, get together to start putting together an agreement we can all live with. But we've already agreed to certain terms and conditions prior to this.
Q. Okay. So that had to be done. And last?
A. (d) That the developer has made arrangements satisfactory to the region's development coordinator regarding waste water capacity for blocks 3(b), 4, 5 and 6 of the draft plan of subdivision, 24-01-008.
What that's referring to is the waste water removal from the site that we had to negotiate with Metrix to the south. Metrix to the south was the developer, and they had already increased the size of the pipe some years ago to accommodate their development and to accommodate any future developments to the north.
So for simplistic reasons, let's say the pipe was to be 40 inches, they increased it to 80 inches to accommodate the lands to the north.
Therefore, we had to meet with Metrix with our engineers and say okay, you've increased the pipe size by one foot to accommodate us, we will pay you the difference because you've paid for it to accommodate future development. It's standard everywhere that you work together and you can't say no, I'm not going to pay you. The region gets involved if it gets to that, but 90 per cent of the time, all developers work hand in hand together, it's in their best interest. And we had a relationship with Metrix, which is the De Gasperis family, they were partners with us on other projects.
Q. You've explained the situation. And after this bylaw goes through on March 24. .. going further into '03, do you continue to take steps to try and pursue the development of the property or not?
A. Yes, we do. Try and get the engineers moving on the project.
Q. All right. And for how long did you try to do that?
A. Up until the "For Sale" sign went up under the power of sale on the QEW [June 20].
[75] By April 14, Rivet had received a draft appraisal report from Stewart and forwarded it to Kahn. Rivet advised Kahn they had discussed the methodology: "… both of them had the same methodology. [Marsiglio] is going to give you a call to see what your thoughts are…"
[76] Kahn gave evidence that when Stewart had called him to discuss the methodology he should use, he refused to discuss the matter with him.
[77] In April 2003, Pajak received an appraisal report 142 had commissioned, appraising the Lands at $19,700,000. He forwarded it to Réno-Dépôt.
Announcement of Sale of All Réno-Dépôt Shares to Rona-April 23
[78] On April 23, 2003, Réno-Dépôt's parent company Kingfisher PLC made a public announcement that the shares in Réno-Dépôt had been sold to Rona for approximately $350,000,000. Counsel for 142 submitted that as of that date, if not beforehand, it should have been clear that Réno-Dépôt had no further interest in buying the 10 acre site or in protecting its interest in that site under the Agreement and should have removed the Caution from title to all the Lands.
142 Financing Attempts Post Draft Approval
[79] After March 24, Pajak continued to attempt to arrange for financing to redeem the Mortgage and to service the Lands.
May 2003
[80] There was uncontradicted evidence that Réno-Dépôt advised Marsiglio that as of May 1, 2003, the effective date of his appraisal, its purchase of 10+ acres from 142 for $550,000 per acre was no longer "in play."
[81] Nevertheless, Réno-Dépôt did not remove the Caution from the title of the Burloak Lands.
[82] On May 17, 2003, 142 received an offer from Embee Development Corporation.
[83] Pajak's evidence [Oct. 19] contains the following:
Q. … the [May 17, 2003] offer to purchase, in the form of an agreement of purchase and sale at Tab 15 of Exhibit 3A - an offer by Embee Development Corporation dated May 17, 2003, for $14 million with some conditions in it?
A. Yes.
Q. And, sir, do you have personal knowledge as to how this offer to purchase came to be delivered to you, or given to you?
A. … I went to Mr. Mike Weir, who's a lawyer in Mississauga, who was the lawyer for Mr. … Manny Baker, who's the father of Michael Baker, for financing. It was well known in the development community that the Bakers were extremely wealthy and they participated in mortgage financing.
… I told him the problem I've got with Réno-Dépôt and could he help me obtain financing from the Baker family …. And he said by all means, I'll set this up for you. And we met.
Q. … The purpose of the meeting was what?
A. To obtain financing. … And at that point, Mr. Baker said … [t]hey had retired from that financing business… They were more interested in acquiring …
…At the time I was trying to meet with the Baker family to pay with no default out of the first mortgage and also to get them involved in the overall financing required for servicing.
… I was very candid upfront with Michael, here's my dilemma. He says Andrew, we're really now on a different path, we like to just own and operate. And he said can you give me material? So I presented him with material. And he said leave it with me and I'll get back to you.
… I received a phone call, could I meet him Saturday morning, he'd like to present an offer to start the ball rolling, were his words. And we met…
And he said here's my offer … his first shot at it was $14 million. … I went back to the office that Saturday, compiled as much documentation as I could to give him an overview of what he was looking at, soil tests, environmentals, everything that a developer or purchaser would require, and a couple of days later, I received a phone call from Michael, he says by the way, Andy, I hate to tell you this, but you're under power of sale, it's being listed at 14 million …
[Emphasis added.]
Réno-Dépôt's Actions After the Injunction was Lifted
[84] On May 7, 2003, Coo J. lifted the temporary injunction and gave Réno-Dépôt permission to proceed to enforce its mortgage.
Setting the Listing Price at $14 Million – May 21
[85] By May 7, Réno-Dépôt had received the appraisal commissioned earlier from Stewart and a draft appraisal from Marsiglio. [On April 29, 2003, Metrix/Stewart had delivered an appraisal valuing the Lands, including the Petro-Canada lands, at $14.2 million as of March 25, 2003.]
[86] On May 20, 2003, Rivet and Maltauro discussed setting the listing price at $14 million, using Stewart's appraisal of $14,216,880 less the $357,524 received from Petro-Canada, rounded to $14 million. Rivet sent an email to Kahn:
Daniela and I spoke about setting the sale price for the Burloak Lands, and it is based on the following $14,216,880. $14,216,880, highest of our two appraisals less the Petro-Canada lands …
[87] On May 21, Kahn received the voice mail message from Rivet saying Réno-Dépôt had decided to list the Lands for $14,000,000.
[88] The appropriateness of the $14 million listing price will be dealt with in the section of these Reasons dealing with the appraisal evidence.
Retainer of Broker Warshafsky -May 21
[89] In early May Réno-Dépôt took steps to retain a selling broker.
[90] Maltauro gave evidence [Nov. 2] that Réno-Dépôt sought recommendations for an appropriate broker from its lawyers.
[91] Kahn gave evidence that the name of Neil Warshafsky ("Warshafsky") was raised by Zakem, another lawyer in his office, during a conference call among Kahn, Zakem, Chalmers, Maltauro and (possibly) Rivet [Oct. 25.]
[92] Rivet interviewed Warshafsky [who had nothing in his file that appeared to be a written presentation or proposal made to Réno-Dépôt].
[93] On May 21, 2003, Réno-Dépôt entered into a listing agreement for the Burloak Lands with Warshafsky at Re/Max Commercial Focus Inc. ("Re/Max") at a listing price of $14 million and agreed to pay him commission of 3% of the purchase price, i.e., if the Lands had sold for $14 million, he would have received a commission of $420,000. If the Mortgage were redeemed he was to receive payment of $200 per hour.
May 23, 2003
[94] On May 23, 2003, Marsiglio left Kahn a voicemail message, Ex. 30, as follows:
Hi Norman, it's Paul Marsiglio. We are just finalizing the Building Box reports. I want to speak to you about an issue that I have talked to Sylvain a number of times about it and it's this whole difference in hard costs with the Lebow reports. We are of the thought at this stage that, and I know you don't want us to reference it, which is fine and keep the reports independent that maybe we should be and actually the more I think about it, the more I feel more and more strongly about leaving out our residual approach entirely. As I understand it, the other appraiser who did the appraisal for Building Box also didn't do a residual and really Lebow hasn't really done one – he's done a partial. I don't think there is much downside in doing that, in fact the upside is that in a critique or in any kind of potential litigation, we can adopt their numbers and say, here you provided the numbers, now let's add our revenues and any other soft costs and we can show that using their numbers in part that the value is even lower than we had suggested if anything, not higher. So let me know what you think of that. I don't think it makes a big difference. You know I think in fact our report becomes more bullet proof then in the sense that I am still concerned that somebody is going to discount it once... a cross-examining lawyer looks at our hard costs and say you are off by a 100% here are the real hard costs and we are going to say ya because we didn't have engineered drawings – We didn't have access to the developer and their plans and their own engineer We had to make guesstimates and obviously there is a bunch of extraordinary costs in there that you could account for. So let me know on that 979-2023. Thanks.
[Emphasis added.]
[95] Marsiglio also requested that the earlier drafts of his appraisal be returned to him.
[96] Kahn's evidence [Oct. 25] regarding Exhibits 31-33 includes the following:
Q. …There's one [message from Marsiglio] at 8 a.m. … there's one… no time on it. The 7:58 message, third line:
… Can you return the draft. .. to me for some good reasons which we can talk about off line.
Q. Are you able to inform the court of what the good reasons were for the return -- requested return of the draft report?
A. I don't recall a specific "good reason" why he wanted the reports back.
Q. All right. You mean you've forgotten?
A. Yeah.
Q.. .. are you able to inform the court as to whether or not the draft report was returned...
A. I believe at the request I did return them, either I or Bill, someone returned them.
Q. To Mr. Marsiglio?
A. I believe so.
Q. Are you able to inform the court as to what the estimated value of the Burloak Lands were in the draft report?
A. No, I wouldn't know that. Or I can't recall that.
[97] On May 23, Integris/Marsiglio delivered its final report appraising the Lands at $13.2 million as of May 1, 2003.
The Marketing Process
[98] Warshafsky gave evidence [Oct. 20 + 21] that he had a "national brokerage database" of contacts, brokers and others containing 2500-3500 names, including those of qualified purchasers, large brokerage houses and their research departments, corporate REITs, and other corporations that he used when he contacted potential purchasers and forwarded material about the Lands. His dockets [Ex. 3, tabs 109 and 122] purporting to set out those he contacted, and Exhibit 75 reflect (i) a large mailout on May 26 and (ii) the sending of packages (Ex. 16) to various brokers and individuals.
[99] Warshafsky provided a report to Réno-Dépôt about his marketing of the Lands with a recommendation for further marketing in a letter dated August 11, 2003 with dockets enclosed, including the following, indicating he had contacted:
Each of the dominant and logical players who would have an interest in this type of property, Orlando, Marco Muzzo, Fred DeGasperis and Palletta International --
Goes on to say:
-- which can be identified on the attached time docket.
Are they mentioned on your time docket, sir?
A. I believe so. If I missed them, it's human error [Warshafsky evidence Oct 21].
[100] Warshafsky gave evidence [Oct. 21] that he placed advertisements in the Globe and Mail and the National Post between May 26 and June 3, 2003.
[101] About a month after the execution of the Listing Agreement, on about June 20, 2003 (Ex. 3C, Tab 109), he placed a "For Sale" sign on the Burloak Lands.
[102] Warshafsky gave evidence [Oct. 21] that he ensured the Burloak Lands were mentioned on various international websites. However, he said he thought it unlikely that an international buyer would purchase the Lands.
Q. … in your opinion, … what was the likelihood of selling this property to somebody who was not a -- not resident in Canada or located in Canada?
A. In my opinion, if they had never bought here in the past, and I tell off-shore investors all the time, if you've not bought in the past you're not going to buy in the future. They don't have the relationships with the tenants, they don't have the relationships with lawyers, with council, with the city. It's very unlikely, especially a daunting property like this, of this size and stature.
Q. So the problem is that if somebody's in a foreign country, might have a lot of money and want to invest it, they wouldn't have the ability to develop this property?
A. Correct.
Q. And that's why it would be unlikely that they would invest here?
A. That's correct.
Q. But would it be possible or is it possible that if they didn't invest here they would invest through either Longboat or Rio Canada or First Pro or one of those?
A. They'd find a local partner.
Q. Would the local buyer be one of the qualified buyers we talked about?
A. Correct. The inner circle group.
Horse Racing Analogies
[103] Warshafsky, Kahn and Maltauro all used horse-racing analogies in describing the process they used on behalf of Réno-Dépôt to qualify potential buyers. All suggested that Réno-Dépôt needed to choose the right horse. "We have to qualify the buyers and make sure the horse we're going to ride is going to cross the finish line" [Warshafsky, Oct. 20.]
[104] Warshafsky gave evidence [Oct. 20] that "A lot of people think they can be buyers." He was looking for a buyer who could develop the lands. His evidence [Oct. 21] contains the following:
Q. Now, yesterday you said buyers for a property like this are few and far between. Can you elaborate on that?
A. A property of this size and stature and scope requires a lot of expertise at a lot of levels, not just money. I mean, money's easy out there. But there's a lot of acumen on how to rightly plan the property, there's a lot of acumen on how to redevelop the property.
And there's also special relationships you might have with tenants who would lease the property out. They just don't come along every day, and they don't come to every single site. Sometimes there's relationships that help these sites grow. And within our small little country, there aren't that many developers that have this type of ability to transpire this type of transaction. (Emphasis added.)
[105] Warshafsky's evidence [Oct. 21] also contains the following:
A. So we have to qualify the buyers and make sure that the horse we're going to ride is going to cross the finish line, or else what is going to happen is the currency of my listing might come due, it didn't sell, another broker gets it and I invested all this time for nothing. Remember, I get remunerated. I eat what I kill, right, so...
Q. Now, and you did, in fact, qualify the various potential purchasers with whom you dealt in this case?
A. Correct. Each one.
Q. Did you qualify all of them.
A. Each one I would ask the right questions to, yes.
Q. You asked some questions about Echelon?
A. I asked the questions about each one, it doesn't mean I got all the right answers, or I would have said to my client unequivocally, go ride this horse.
THE COURT: You would have gone with Echelon?
THE WITNESS: No, I said I wasn't necessarily convinced to say to Echelon, I would ride this horse.
[106] He said Rio Can was his horse.
[107] Maltauro's evidence [Nov. 2] contains the following:
A. We also wanted to make sure that the developer, the purchaser, had the capacity to get through all the hurdles that remained in terms of the approvals from the Ministry of Transportation, the conservation authority, and so on, and so forth, because otherwise they would not have been able to actually close on the property and we would have had to start again from square one.
Q. Who do you think gave you the best chance of meeting these hurdles?
A. Well, certainly Rio Can.
Q. And why is that?
A. Because they've done projects of this type many, many times before and have both the financial and development capacity to get it to the finish line.
Q. Were there any other suitors or potential purchasers you were dealing with at that time that you can recall?
A. I don't think so at this time I can't recall.
Q. And why did you choose to go with First Pro?
A. Because we felt it had the capacity to close the transaction and do whatever they needed to do from a development point of view to get to a closing.
Entertaining And Handling Of Offers Received
May 29, 2003 – First Emshih Offer
[108] Early in the sale process, Kahn drafted a form of offer to be sent to potential purchasers that included a short due diligence period of 15 days and an escape clause that would have allowed Réno-Dépôt not only to continue to market the Lands during the period when any conditional offers were in effect, but also to continue to negotiate with other purchasers and entertain offers from them. If a party whose conditional offer was outstanding was not prepared to immediately buy the Lands, Réno-Dépôt would be free to sell to the new offeror.
[109] Warshafsky's dockets indicate the first offer he received was on May 29, 2003 from Emshih Developments Inc. ("Emshih") (Ex. 3A, Tab 25.) He forwarded it to Kahn and/or Maltauro the same day.
[110] Counsel for 142 submitted Réno-Dépôt should have recognized Emshih to be a qualified potential purchaser and afforded it an adequate opportunity to conduct due diligence in order to make an informed competitive offer.
Assessment as to Whether Emshih was a Qualified Purchaser
[111] Before responding to the Emshih Offer, Réno-Dépôt asked Kahn [who in turn asked Warshafsky] to obtain information about Emshih. Warshafsky called a broker who had recently sold Burlington Power Centre for $60 million. Warshafsky gave evidence [Oct. 21] he concluded Emshih was a qualified buyer (Ex. 3A, Tab 28.)
[112] Maltauro conceded receiving the information from Kahn that Warshafsky had obtained and recorded in Ex. 3A Tab 28. She denied that Warshafsky had advised her that Emshih was a qualified purchaser [Nov. 2.]
[113] Maltauro's cross-examination [Nov. 2] contains the following:
Q. And just so I'm clear about it, are you saying Mr. Warshafsky never told you otherwise, that he thought Dr. Shih was a good and qualified purchaser?
A. I never had that discussion with Mr. Warshafsky.
Q. … The document here at Tab 28, from Mr. Warshafsky, and it's sent to Mr. Rivet, and it appears to contain information about Emshih..
A. The information came to me, yes.
Q. And what did it tell you about Emshih?
A. It told me that it was someone who had done smaller sized developments and was not necessarily -- there's one development in here that's of a larger size, but that he had just, from what I can see, started working on it at the time, didn't have real experience with this type of large-format development from what I saw here.
[114] Pajak's evidence [Oct. 19] contains the following:
Q. And are you able to identify certain projects that Emshih was involved in in Burlington, or elsewhere in Ontario?
A. Sure. They have large shopping centres along the QEW, north of the QEW. That's probably one of their signature parks. But they were very well known, they were in the what we call the west end of Oakville-Burlington, but they were well known and did some lovely developments.
Q. And, sir, did, again, in 2003, did you know who the principal or principals of Emshih Developments Inc. was?
A. No. No, I had heard of this Dr. Michael Shih, I'd never met him, heard a lot about him. He was a dentist that syndicated among the Chinese community. That's all I knew. They were a very low-key developer.
Suspicion of a Link between 142 and Emshih
[115] Tab 42 of Exhibit 3B, a note written by an unidentified scribe, in referring to Emshih called it "Pajak's stooge."
[116] Maltauro's evidence [Nov. 2] contains the following:
Q. I'm putting to you that a counter-offer wasn't made because it was your view or perception that Dr. Shih was a stooge for Mr. Pajak, do you accept that?
A. No, like I said, we had our suspicions that there was some link there and we also had other interests at the time as well so all things being equal, we prepared to go with a known entity. [Emphasis added.]
[117] Kahn said [Oct. 25]: "Once the reports of other acquisitions and landholdings with the Emshih company or Dr. Shih had was revealed to the client, at that point I think they were dissuaded from the notion that there was a direct connection between Mr. Pajak's company and that proposed purchaser Emshih."
[118] Kahn's evidence [Oct. 25] contains the following:
Q. The Item 1 says -- and I appreciate it's not your handwriting -- says:
Emshih offer -- Pajak's stooge.
A. Right.
Q. Do you have any information to that effect?
A. No, I do recall the client mentioning that they were concerned that some offers may be from people who are connected to the borrower, which was 14 -- sorry; the name of the company, we'll call it Mr. Pajak's company.
Q. All right. But subsequently you found out information about Emshih and Dr. Shih, right?
A. Yes.
Q. And did you discuss that information with the client?
A. Yes.
Q. Did -- as far as you're aware, if you know, do you know one way or another whether or not that comment that is not yours that I just read played any role in your client's decision not to pursue a sale of the property with Emshih?
A. I think it may have. I think it did initially. I think once the information came out, I don't think it did anymore.
Due Diligence Demands
[119] Maltauro gave evidence that after speaking to Kahn, Réno-Dépôt decided to limit to 15 days the due diligence periods in any conditional agreement it would enter into:
Q. And these are offers that were either treated by you or signed by your company in various stages. How did you decide on 15 days?
A. Fifteen days is not an unusual time period for an experienced developer to have due-diligence on these types of sites. It's by no means lengthy, but it's not unusual.
Q. Do you feel that was reasonable for a property of this type?
A. We felt it was under the circumstances, yes.
Q. … What circumstances? …
A. This was a property that had been through a rezoning that we had a whole bunch of documentation... on available for any potential purchaser,. .. that – experienced developers who knew Réno-Dépôt would know that we had done that kind of due-diligence work. There was a whole bunch of information that was a matter of public record with the town. So an experienced developer would have been able to gather that information within the 15 days.
[120] When someone representing Emshih and someone representing Réno-Dépôt talked after Emshih submitted its offer, the representative of Réno-Dépôt demanded (i) a 10 day due diligence period; (ii) a 10 day closing; and (iii) an escape clause (Ex. 3A, Tab 31, pp. 2 and 9 and Tab 34.)
[121] Warshafsky was concerned about the 10 day due diligence demands made by Réno-Dépôt in response to the Emshih Offer. He sent an email to Kahn on June 5: "Dr. Shih is concerned over … the short timing. He is apparently rethinking his offer and will get back to us. Let me know how you feel we should proceed." He suggested to Kahn and/or Rivet that the due diligence period demand was too tight (Warshafsky, Oct. 21.)
[122] Kahn conceded [Oct. 25] that Warshafsky told him that he thought prospective purchasers thought Réno-Dépôt's due diligence period demands were too onerous (i.e., too short.)
[123] Kahn gave evidence [Oct. 26] that he provided advice to Réno-Dépôt about the appropriate due diligence period for the Lands. He said due diligence periods are chosen based on a number of factors, including the difficulty of discovering information about a property and the extent of information that exists. Kahn gave evidence [Oct. 26] that "In this case, the Land was vacant land, and there were issues no doubt about the costs of development and costs of servicing the Lands, and there were some struggles."
[124] Maltauro did not ask for advice on an appropriate due diligence period from Warshafsky. She said she already knew brokers liked longer due diligence periods: "We knew 15 days due-diligence was not necessarily going to make a broker happy, but wouldn't have been something that would have stood out" [Nov. 2.]
[125] Maltauro's evidence [Nov 2] contains the following:
Q. … … as to the short timing issue, and Dr. Shih or Emshih, today do you have independent memory of being notified of this concern by Mr. Warshafsky?
A. I'm quite sure that Norman Kahn would have brought it to my attention, but I don't have any direct recollection of it.
Q. Do you, in this whole period of time, this broker that you hired to market and sell your property, did you seek advice from him regarding what to do with these various offers or was it strictly advice from Mr. Kahn that you asked for?
A. I strictly asked advice from Mr. Kahn.
Q. Why didn't you go to the broker who you were paying this 3 per cent fee to?
A. Because we knew that this was litigious and we wanted to make sure that everything we did was by the book so the person we would ask would be our lawyer.
[126] Khan said [Oct. 26] he thought sophisticated purchasers of real estate would know that extensions are possible. He specifically instructed Warshafsky to make potential buyers aware of the potential for extensions:
But in each case, when there was an offer, I told the broker, Neil Warshafsky, that I'd be prepared to talk to any purchaser's lawyer and suggest to them that if the 15 day -- you know, they were coming close to the end of the 15-day period and weren't satisfied with certain aspects, they could get back to me, and we would discuss the particular issues that they had with due-diligence, and if they were fair and legitimate reasons, that they needed more time and we could assist them.
And very often, by the way, we had information to assist them on file. Steve Zakem and others would get on the phone and talk to them about what their concerns were. And sometimes we could address them and put them in a position to find the answers to their questions. And if not, we would be prepared to consider extending the transaction beyond 15 days.
But we didn't want to give any particular purchaser an ability to take the property off the market for a considerable period of time when there were other purchasers who were are also, we were told, especially interested in buying the property.
Off Balance Sheet Due Diligence
[127] Warshafsky gave evidence [Oct. 21] that certain materials were available for review in his boardroom if anyone, including Emshih, asked to see them.
[128] Réno-Dépôt did not give Warshafsky instructions to release any material in his possession to Emshih [Warshafsky, Oct. 21.]
Further Contacts with Emshih
[129] Kahn said Emshih never did submit a revised offer or counter-offer. Réno-Dépôt did not further pursue Emshih.
June 2, 2003 – First Echelon Offer
[130] Echelon's first offer on June 2, 2003, for $14,000,000.00 was open for acceptance until June 4, 2003 (Ex. 3A, Tab 29.)
Assessment as to Whether Echelon Was a Qualified Buyer
[131] After Warshafsky received Echelon's offer, Maltauro asked Kahn for information on Echelon. Maltauro's evidence [Nov. 2] contains the following:
Q. At Tab 34 is an e-mail from Mr. Ribeiro to Mr. Warshafsky dated June 4, 2003…
A. Yes.
Q. So this is information that Mr. Ribeiro, a president of Echelon, is providing to Mr. Warshafsky. Do you know if that's because you requested information about Echelon?
A. We requested information through Norman Kahn, yes.
Q. All right. Mr. Kahn. Did you speak to Mr. Warshafsky about Echelon?
A. I did not, no.
[132] Just as he had done with Emshih, Kahn asked Warshafsky to provide it. Warshafsky, who had never heard of Echelon, emailed its president, Mr. Ribeiro. Ribeiro replied by a June 4, 2003, e-mail (Ex. 3A, Tab 34.)
[133] Warshafsky also "Googled" Echelon.
[134] It appears that no further investigation of Echelon was done on Réno-Dépôt's behalf.
[135] Maltauro's evidence [Nov. 2] contains the following:
Q. … Do you have any recollection of discussing uncertainty about whether … Echelon was real?
… In this document, the words "not certain are real players" appears to the right of the words Echelon offer?
A. Mm-hmm.
Q. That's what it says.
Do you have, to go back to my question about this, do you have any recollection of discussing the question of whether or not Echelon was a real player with either Mr. Warshafsky or Mr. Kahn?
A. I do remember we had a discussion about it.
Q. Right.
A. With Mr. Kahn and possibly Sylvain Rivet.
Suspicion of a Link Between 142 and Echelon
[136] Maltauro's evidence [Nov. 2] contains the following:
Q. And did you make any inquiry about who was behind this company?
A. Yes, we asked our lawyers.
Q. … And what did you learn?
A. We learned -- we had reason to believe that this company was somehow affiliated or attached to Mr. Pajak.
A. We asked our lawyers to look into further who's behind Echelon and who they are.
Q. Did they?
A. I believe so.
Q. What information did they provide you as a result of that?
A. The information that we got back was that there were some clear ties between Echelon and Mr. Pajak.
[137] Kahn agreed he had no evidence in 2003 of a connection between Pajak/142 and Echelon.
[138] Pajak was not cross-examined on any connection between 142 and Echelon.
Off-Balance Sheet Due Diligence
[139] Although Warshafsky said he would have made certain materials available to Echelon had he been asked to do so, he never supplied such materials to Echelon.
June 5-9, 2003 – Longboat
[140] On June 5, 2003, the same day the Emshih and Echelon offers were due to expire, Longboat [ascertained by Warshafsky to be affiliated with RioCan, a large REIT known to be one of the "inner circle"] first contacted Warshafsky (see Warshafsky dockets, Ex. 3C, Tab 109, p. 2 and Ex. 3A, Tab 36.) It submitted an offer for $14,000,000.00 with a 30 day due diligence period and no escape clause (Ex. 3A, Tab 35.)
[141] Instead of forwarding the draft offer Kahn had prepared earlier including an escape clause to all of Echelon, Emshih and Longboat with a request that if interested they submit an offer in the form provided to the attention of Warshafsky, on June 9, 2003, Réno-Dépôt submitted a counter-offer (Ex. 3A, Tab 40) to Longboat that did not include an escape clause [which would have permitted it to continue to negotiate with other buyers, even to accept an unconditional offer from another buyer in the event the conditional offeror of the offer already in place was not prepared to make it unconditional.]
[142] Maltauro was cross-examined [Nov. 2] as follows:
Q. … you didn't go to Echelon and say, "Hey, with we've got somebody else interested in here, we're considering their offer, do you want to make a better offer or a different offer, or repeat an offer?"
You didn't do that at all, did you?
A. We didn't.
Q. And was that because you did not want to deal with Echelon?
A. No, that's because we had a serious buyer that we knew could close and we were dealing with him.
Q. Was that the only reason?
A. And also like I said we had reason to believe that there was a connection between Echelon and Mr. Pajak
[143] On June 9, 2003, 5 acres of the Lands were transferred to Petro-Canada for $357,524 pursuant to its December 1, 1998 option.
June 11, 2003
[144] A conditional agreement between Réno-Dépôt and Longboat was entered into on June 11, 2003 (Ex. 3B, Tab 46.) It was in effect until June 26, 2003.
[145] As noted earlier, Réno-Dépôt had not requested an escape clause from Longboat and none was included.
Suspension of Active Marketing – June 11, 2003 Efforts
[146] Kahn [Oct. 26] said he instructed Warshafsky not to market the Lands after June 11:
Once an agreement of purchase and sale is accepted by both parties, both the vendor and purchaser, he would have been instructed not to market the property during the due-diligence period.
June 12, 2003
[147] On June 12, First Pro made an offer directly to 142/ Pajak for $17,250,000.
[148] Pajak's evidence [Oct. 19] contains the following:
A. … that offer came to me through First Pro because I had sent drawings to Wal-Mart Canada... for Block 6. And First Pro was the developer of record really for Wal-Mart. And it was brought to their attention that there was a large box site being developed in Oakville, and they approached me if I would be willing to sell.
Q. … 3B, Tab 48, is a letter from First Pro to yourself dated June 12, 2003. And there's a -- an enclosed offer for $17,250,000?
A. Yes, sir.
Q. You received that offer?
A. Yes, I did.
Q. Okay. And just so we're clear about it, with respect to the amount of that offer, did you have any discussions at all with anybody at First Pro regarding the amount of that offer before it hit your desk?
A. No, I did not. …They… came by, are you willing to sell, we know you're dealing with Wal-Mart, obviously we did all the Wal-Marts, we would like to acquire your property. Okay, give me an offer.
Q. Did you accept that offer?
A. No, we did not.
[149] 142 counter-offered for $20,700,000:
Q. …Would you turn to Tab 57 of Exhibit 3B, is a letter from yourself to First Pro dated June 18, and there's an attached offer, at $20,700,000?
A. That's correct.
Q. Is that the response that you made?
A. Yes, it is.
Q. Okay. Now, at this point in time, the property is under power of sale and it's listed for sale?
A. That's correct.
Q. And did you receive, sir, any response to this from First Pro? An acceptance or rejection, counteroffer, anything?
A. No, I was told, Andy, you're under power of sale and we're offering 14 million, we're dealing with the lawyers for Réno-Dépôt.
June 11-June 26, 2003
Longboat Does Due Diligence
[150] Longboat did due diligence between June 11 and June 26, as was evident from the evidence of Paul Cifoni mentioned later in these Reasons.
June 16, 2003 – Second Echelon Offer
[151] On June 16, 2003, Echelon made a second offer for $14,000,000.00, containing a 30 day due diligence clause and an escape clause [which would have allowed Réno-Dépôt to actively continue to market and even entertain competing offers for the Lands during any due diligence period specified in the conditional agreement.]
[152] Kahn emailed Warshafsky on June 17, 2003: "Neil, unfortunately the attached offer has a due-diligence period of 30 days. As previously discussed, our client cannot deal with offers with a due-diligence period which exceeds 15 days."
[153] Maltauro's evidence [Nov. 2] contains the following:
Q. …Tab 53 is the second offer by Echelon but in this case with some handwriting on there. Do you recognize that handwriting?
A. No, I don't.
Q. It says on the left-hand side:
We can't accept offers with condition periods of more than 15 days.
Was that Réno's position at the time?
A. It was our position that we wanted a 15-day due-diligence period.
[154] Réno-Dépôt did not present a written counter-offer, although it appears from the documentary record that Kahn made demands to Echelon's lawyer, including a 15 day due diligence period (Ex. 3B, Tabs 54-56 and 65) and an escape clause.
[155] On June 17, 2003 at 4:23 p.m., Echelon's lawyer left a message for Kahn: "my client would just find it near impossible to do due diligence in 15 days."
June 24, 2003 - Longboat Unconditional Offer $12,000,000
[156] On June 24, two days before the Conditional Agreement with Longboat dated June 11 was to expire, Longboat's lawyer called Kahn and made an unconditional offer of $12 million, with a $1 million downpayment, the balance to be payable by way of vendor take-back mortgage (Exhibit 3B, tab 62.)
[157] Kahn and Maltauro gave conflicting evidence about Réno-Dépôt's instructions to Kahn about responding to that offer.
[158] Kahn said Maltauro instructed him to respond by asking Longboat's lawyer whether RioCan would provide its covenant in addition to Longboat's. He did so. Because RioCan declined to provide the requested backing, nothing further occurred [Kahn, Oct. 26; Ex. 3B, Tab 63.]
[159] Maltauro [Nov. 2] could not recall considering the acceptance of the $12 million offer at that time. She gave evidence as follows:
Q. So here … the lawyer on behalf of his client is making a without-prejudice proposal with a $12 million price, a million down and a one year VTB.
Ms. Maltauro, was the issue here the covenant on the mortgage, or was there some other issue?
A. The issue here was the whole thing. It was -- we were looking for someone to buy the property and be done with this. We weren't looking for any vendor take-back or anything more complicated than that.
Q. Did you indicate to Mr. Kahn that … was prepared to consider an offer like this if be Rio Can was prepared to give its covenant for the mortgage in addition to that of Longboat?
A. I don't recall having that conversation.
Q. Do you say it didn't happen --
A. No, I just don't remember.
[Emphasis added.]
[160] She later denied that at that time Réno-Dépôt was considering accepting a $12 million offer.
June 26 - July 3, 2003
June 26, 2003-First Longboat Agreement expires
[161] On June 26, 2003, the First Longboat Agreement expired (Ex. 3B, Tab 64) [Kahn, Oct. 26.] Counsel for neither party called a representative of Longboat to give evidence as to why Longboat allowed the Agreement of Purchase and Sale dated June 11 to lapse.
[162] The Lands were not under contract between June 26 and July 3. It is therefore relevant to review events that occurred in the interim.
June 26, 2003 - First Pro Contact
[163] Maltauro gave evidence [Nov. 2] that on June 26, 2003 [a few days after 142's June 18 counter-offer to 142 for $20,700,000], an agent of First Pro first approached Warshafsky.
[164] The next day, June 27, Taras, an executive of First Pro, personally approached Maltauro and advised her that First Pro was interested in buying the Lands. On that day, First Pro submitted an Offer to Purchase the Lands for $14,000,000.00 (Ex. 3B, Tab 66), which included a 30 day due diligence period and no escape clause. It was open for acceptance until June 30, 2003.
June 27, 2003-3rd Echelon Offer
[165] On June 27, despite its earlier expressions of concern about the shortness of a 15 day due diligence provision, Echelon made a third offer, again for $14,000,000.00, but this time containing the demanded 15 day due diligence period and an escape clause (para. 9), open for acceptance until June 30, 2003 (Ex. 3B, Tab 68.)
[166] Without informing Echelon of First Pro's interest in the Burloak Lands, Réno-Dépôt asked Echelon to extend the date for acceptance of its third offer to July 3, 2003. Echelon did.
June 30, 2003
[167] On or before June 30, 2003, Réno-Dépôt did not waive the servicing deadline in the Agreement.
[168] Counsel for 142 submitted it was clear after June 30, 2003 that Réno-Dépôt had no intention or right to buy the 10 acres. However, it did not remove the Caution it had registered against the title to all of the Lands on December 19, 2002. By June 30, 2003 at the latest, it was crystal clear that keeping the Caution on title to protect its interest under the Agreement was no longer necessary or appropriate. Its failure to remove the Caution is evidence of Réno-Dépôt's continuing bad faith after that date.
[169] That said, Réno-Dépôt was clearly entitled to exercise its rights under the Mortgage that also contained the provision that 142 could not sell all or any portion of the Lands for less than $150,000 per acre.
July 2-3, 2003
[170] On July 2, 2003, Réno-Dépôt received a revised offer from First Pro for $14,100,000.00 with a 15 business day due diligence period and no escape clause.
[171] On July 3, 2003, Réno-Dépôt (see Ex. 3B, Tab 73 and Ex. 3C, Tab 78,), slightly revised, re-dated and executed it ("the First Pro Agreement") (Ex. 3C, Tab 79.)
[172] Neither Kahn nor Maltauro could recall the details of the negotiations with First Pro during that timeframe [Kahn, Oct. 26 and Maltauro Nov. 2.]
[173] Although Echelon had relented and offered $14 million with an escape clause and a 15 day due diligence period, Kahn said Réno-Dépôt did not request an escape clause in First Pro's offer. Had it done so, it could have concurrently marketed to Emshih and Echelon including allowing them to do due diligence and could have entertained competitive offers from them even during the currency of the First Pro Agreement.
[174] Had Réno-Dépôt accepted the Echelon offer [which did contain an escape clause], it could have continued to market the Lands to First Pro and entertained offers from it during the currency of the Echelon conditional agreement.
[175] After entering into the conditional agreement with First Pro on July 3, Réno-Dépôt summarily advised Echelon it had not accepted its June 27 offer (Ex. 3B, Tabs 71 and 74; Ex. 3C, Tabs 81 and 82.) [On July 4 after Warshafsy wrote Kahn advising that Echelon was still pursuing answers as to why Réno-Dépôt was not entertaining its offers, Maltauro replied to Warshafsky: "We do not owe them any further explanation. Their incessant requirement to get information leads me to believe they are in cahoots with Pajak."]
[176] Réno-Dépôt did not advise Echelon it would consider an offer with "no escape clause" [Maltauro, Nov. 2] or having more than a 15 day due diligence period.
[177] Kahn admitted that he did not ask First Pro to include an escape clause in the conditional agreement dated July 3, 2003, or even ask whether the inclusion of an escape clause would bother it. He said [Oct. 27]: "In a completely rational model… an escape clause should not be that big a problem … rationally it doesn't make a lot of sense." However, he said purchasers have a real reluctance to become involved where an escape clause is on the table. He said he was concerned that First Pro would have walked away if Réno-Dépôt had requested an escape clause in the July 3 conditional agreement. It appears from that answer he may have been concerned First Pro would have refused to negotiate if it had already accepted an offer from Echelon containing an escape clause.
[178] Counsel for Réno-Dépôt submitted Réno-Dépôt acted reasonably in not accepting the Echelon offer even though it contained an escape clause, because it was not satisfied that Echelon was a qualified buyer. Entering into an agreement with Echelon "would have given Echelon an option to buy the Lands." He did not explain how that would have been an unfavourable result if Echelon had been prepared and able to pay Fair Market Value for the Lands.
Longboat's Continuing Interest in Purchasing the Lands Post June 26
[179] Even after Longboat's unconditional offer of $12 million lapsed and Longboat had allowed its conditional offer for $14 million dated June 11 to expire on June 26, it remained interested in purchasing the Lands and continued its negotiations with Warshafsky and Kahn.
July 3, 2003
[180] On July 3, Longboat's agent called Warshafsky, offering to purchase the Burloak Lands for $13,500,000.00 subject to a 30 day due diligence period (see Warshafsky e-mail to Maltauro, Ex. 3C, Tab 80.)
[181] Warshafsky sent the following email to Maltauro (Joint Document Brief Vol. 3, tab 80):
I just spoke to the agent for Longboat … They have proposed that Ed Sonshine take carriage of the offer thru RioCan. Change the purchase price to $13.5M. Have a further conditional period of 30 days. I suggested that this may not be acceptable but they insisted I officially propose same." [Emphasis added.]
[182] From 142's engineer Cifoni's evidence, it is clear that by the date of that email, July 3, Longboat had already seen Cifoni's estimate of the development costs of the Lands (Ex. 3C, Tab 123.)
Dealings with Monterra
[183] Monterra Capital Corporation ("Monterra") first contacted Warshafsky on June 30 before June 3,when the First Pro Agreement containing no escape clause was entered into (Warshafsky dockets, Ex. 3C, Tab 109.)
[184] Warshafsky opined that Monterra was a qualified buyer (Ex. 3C, Tab 87, e-mail and Warshafsky, Oct. 21.)
[185] On July 7, 2003, Monterra made a formal offer for $12 million with a 45‑day due diligence period.
[186] Maltauro instructed Warshafsky to tell Monterra that Réno-Dépôt would not consider the offer "since it is nowhere near the asking price, and since we have other interest."
[187] Warshafsky advised Monterra on July 9, 2003 that the price it had offered was too low and "should be increased" and that "the due diligence period... [was] far too long."
[188] Like Emshih, Echelon and Longboat, Monterra objected to Réno-Dépôt's 15 day due diligence demand (Ex. 3C, Tab 89.)
[189] Monterra requested a meeting, telling Warshafsky that Monterra "firmly believe that a deal will result" (Ex. 3C, Tabs 90 and 92.)
[190] Warshafsky was instructed to tell Monterra that Réno-Dépôt was not interested in a meeting. No meeting was ever arranged [Warshafsky, Oct. 21.]
Continuing Discussions with Longboat – July 7, 2003
[191] On July 7, 2003, David Bailey ("Bailey") of Longboat left a message for Kahn discussing reviving Longboat's offer. Bailey protested that a 2 week due diligence period was simply not enough time for full due diligence (Ex. C, Tab 85), as follows:
Norman, it's David Bailey calling…Regrettably we ended up having to waive our deal after the 2 week due diligence period that we had gone through. Anyhow, I was calling you to see whether or not there wasn't some way we could revive this thing. I mean, we've got the best, the largest and the best, retailer, retail shopping centre owner and developer in Canada, in ourselves and Rio Can here who would really like to take a hard shot at this property and I think that we are the best to do, to make this thing happen. But things don't happen in this business overnight and two weeks due diligence period just isn't enough to get things done to the point where you know we can be comfortable with making that kind of 13 million dollar investment. Anyhow, I thought and I've spoken to the agent to let them know that I have bypassed by calling you directly and I apologize for not following protocol here but it just seems that it would make whole lot of sense for us to try to find a way to make this deal work. …
[Emphasis added.]
[192] There is no documentation in evidence of the discussions that occurred between Kahn and Longboat's lawyer, other than a number of transcriptions of voice mail messages received by Aird & Berlis during that timeframe.
[193] On July 15, 2003, Bailey and Kahn exchanged voicemail messages. Bailey said Longboat would "sit tight" until he heard from Kahn.
Extensions of the First Pro Offer to July 30, 2003
[194] As noted earlier, the First Pro offer dated July 3 was initially conditional for 15 business days. By letter agreement dated July 24, 2003, Réno-Dépôt agreed to extend the due diligence period until July 29, 2003. On July 29 it agreed to extend it again to July 30, 2003. (see Ex. 3C, Tabs 83, 98 and 100.)
[195] In a transcript of a July 29, 2003 voicemail message to Kahn (Ex. 3C, Tab 101), Maltauro referred to the possibility that Longboat would come back with a firm offer.
[196] Maltauro gave evidence [Nov. 2] that Kahn had been negotiating with Longboat leading up to July 31 because she had asked him to do so.
[197] Therefore, it appears that despite the absence of an escape clause in the First Pro Agreement, Kahn felt free to have ongoing negotiations with Longboat during that time period.
July 30-31, 2003
[198] At the time that the First Pro offer was about to expire, Maltauro gave evidence that she instructed Warshafsky "via Norman" to contact known prospective purchasers and to inquire whether they had any continuing interest in purchasing the Lands. She had no memory of instructing him to seek unconditional offers. Her [Nov. 2] cross-examination includes the following:
.A... As I said...after the First Pro offer fell apart, we did ask via Norman for people to be contacted, purchasers, and see if there was any more interest on the site.
Q. Right. And I've put to you already that that was for interest in making an unconditional offer, I said that to you already.
A. Yes. And I have absolutely no memory of ever having said unconditional offer.
Q. But whatever was said to either parties, to the extent something was said, you don't have personal knowledge of that?
A. No.
[199] Warshafsy's dockets indicate that on July 30 and 31, he contacted Echelon and Monterra to enquire whether they were prepared to submit unconditional offers.
Réno-Dépôt's Offer to Longboat Offer – July 31
[200] On July 31, 2003, Kahn drafted an Agreement of Purchase and Sale on Réno-Dépôt's behalf for $13,000,000 for presentation to Longboat (Ex. 3C, Tabs 105 and 106.)
[201] Maltauro gave the following evidence [Nov. 2]:
Q. Do you know why Mr. Kahn was doing this?
A. Well, we had asked him to. Longboat had shown some interest again, and we had asked him to keep negotiating with them as well, even though because we now had this so-called escape clause with First Pro.
Q. The point is there was nothing stopping you from trying to get a competitive offer for more from somebody else?
A. Mm-hmm.
Q. But you didn't do that?
A. No.
Q. Ms. Maltauro, was the $13 million offer sent to Longboat? Do you know, one way or another?
A. I don't know.
Q. What we do know is that Longboat came back at $12 million? And that's at Tab 110.
A. Yes.
[202] Kahn gave evidence he did not know whether the $13,000,000 Agreement of Purchase and Sale was sent to Longboat. He could not recall what his instructions were although he thought that the offer was not made to Longboat (Maltauro, Nov. 2 and Kahn, Oct. 26.)
[203] In another portion of her evidence, Maltauro said, "It started at 12. We tried for 13. It came back at 12.5."
August 1-August 18, 2003
August 1
[204] The First Pro Agreement terminated on July 30, 2003. On the same day, First Pro's lawyer advised Réno-Dépôt of its continuing interest in purchasing the Lands (Ex. 3C, Tab 109.)
[205] On August 1, First Pro and Réno-Dépôt agreed to revive the First Pro Agreement to August 15, 2003.
An Escape Clause is Inserted in the First Pro Agreement
[206] Despite his expressed hesitancy to ask First Pro for an escape clause, Kahn finally did request an escape clause from First Pro. When he did, First Pro did not walk away.
[207] For the first time, on August 1, an escape clause was included to allow Réno-Dépôt to entertain offers from others during its currency. If others made an offer, First Pro would still be able to buy the Lands (Ex. 3C, Tab 107.) If it did not, Réno-Dépôt would be at liberty to finalize the other offer.
Continuing Negotiations with Longboat August 1-18, 2003
[208] At that juncture Réno-Dépôt could have not only through Kahn or Warshafsy or Maltauro negotiated with others but also could have entertained offers from them. Again, [with or without an escape clause] it could have provided due diligence to others so they could have been in a position to knowledgeably bid on the Lands, i.e., enter into offers on the Lands.
[209] It did not offer or afford Echelon or Monterra any opportunity to do any due diligence. Warshafsky asked them only whether they were prepared to make unconditional offers. Réno-Dépôt did not contact Emshih.
August 11, 2003 - Warshafsky Recommendations
[210] As noted earlier, Warshafsky wrote to Maltauro on August 11, recommending that if First Pro's offer had not firmed up by August 15, a further advertising campaign be undertaken.
[211] Maltauro's evidence [Nov. 2] contains the following:
Q. Now -- now, you didn't follow that recommendation, did you?
A. My understanding of his contingency plan is if there's no one left at the table and there's no offers, this is what I recommend we do.
Q. Where does it say that in there?
A. That was my understanding of it.
Q. Does it say that in there?
A. No, but that's what I understand by contingency plan.
Q. It says (Reading)::
--In the event that the current deal ... does not firm up on August 15, 2003, a contingency plan is recommended --
And then it's set out there:
-- including more advertising.
That's what it says, yes?
A. The assumption being that if that deal falls through, there was not another one around the corner.
Q. That was your assumption.
Did you speak to Mr. Warshafsky to find out what he meant by this?
A. No, I didn't.
August 14, 2003 - Longboat Offer for $12 million
[212] On August 14, 2003, the day before expiry of the conditional extended First Pro Agreement, Longboat made an offer for $12,000,000 with a nominal two business day due diligence period and a closing date of five business days thereafter (Ex. 3C, Tabs 110, pp. 2 and 10 and Tab 113.)
August 15
[213] On August 15, 2003, First Pro and Réno-Dépôt agreed to a further extension to 3:00 p.m. August 18, 2003 (Ex. 3C, Tab 114)
[214] After Réno-Dépôt received the $12 million Longboat offer, Kahn spoke with Mr. Iczkovitz, Longboat's lawyer. Kahn's evidence [Oct. 27] contains the following with respect to his ongoing negotiation with Longboat:
In this case I had conversations with both my client, Daniela Maltauro and Steve Iczkovitz. And he said his client was not prepared to go more than $12 million. And I said that was -- that just wasn't going to happen, after just with Daniela, she was not prepared to accept an offer at 12 million. There was some other conversation I had with Daniela. And he came back to me, Steve Iczkovitz came back to me, being the "he," and said that they're prepared to make a $12,500,000 purchase price offer and close with a significant deposit and close almost immediately. But that's it. If we were prepared to accept that offer, he would be prepared to put it to me. And I got instructions from Daniela that we would be -- that she would be prepared to accept that offer...
Q. Did you provide any advice to your client about accepting the Longboat offer for $12.5 million?
A. Certainly discussed it, yes.
Q. What advice did you provide and what discussions did you have with them?
A. I discussed the fact that this was an unconditional offer, that it was going to be closed immediately, that this would bring the matter to closure, and that it looks like all of the other interested parties at any price range had pretty well fallen away and we had sort of come to, after spending a lot of time marketing and going through offers and counteroffering and having discussions. This was the only party that was prepared to actually complete a transaction at a price that was close to the asking price, although lower than the asking price.
And we talked that out a bit. And she decided that yeah, we should go for it. And so she instructed me to tell them we would accept such an offer if it was put forward.
August 18
[215] As agreed, Longboat forwarded another offer on August 18, 2003, for $12,500,000.00 with an unconditional closing date five business days following acceptance.
[216] On August 18 the First Pro offer expired.
August 19, 2003 – Acceptance of Longboat Offer for $12.5 Million
[217] Maltauro signed and sent back the fully executed agreement at 11:04 am on August 19, 2003, prior to Kahn's receipt of written confirmation from First Pro that its agreement had terminated.
[218] Maltauro gave the following evidence about Réno-Dépôt's reasoning in accepting Longboat's $12.5 million offer:
A. At this point, First Pro had dropped the offer. In the meantime we had asked before that even happened, we had asked Warshafsky to go back and talk to all interested parties and see if there was anybody else at this point who was willing to make an offer at the original asking price. The answer he got back was no. And this was the offer we had on the table. I believe it started at 12 million, we tried for 13. It came back at 12.5. No more conditional, period, this was the best offer we had in hand.
Q. And what decision did you make with respect to that offer?
A. I spoke to my superior about it who was the CFO, who then spoke to Kingfisher about it. It wasn't the listing price but we all felt it wouldn't be prudent to let it go, given that there was no other interest in the site at this point. So the decision was made to go ahead.
[Emphasis added.]
[219] Maltauro was pressed in cross-examination [Nov. 2] about Réno-Dépôt's decision to accept the Longboat offer:
Q. So what was the haste, Maltauro, what was the haste in entering into this… closing on August 27…?
A. We had an offer in our hands that was now unconditional, all the other parties had left and were no longer interested in the property, so in our view, to let this one drop with no idea what's going to happen in the market next, we have no idea. So to us it was prudent to take that offer.
Q. You had no indication the value of the property was dropping in the marketplace, did you?
A. We had indication that everybody that we knew of that had the potential to do a transaction had been contacted and had at this point walked way.
Q. All right. Well, we've already discussed your knowledge of these people. There was nothing stopping you from continuing to market this property as recommended by Warshafsky for up to six to twelve months, was there?
A. We would have potentially lost Longboat.
Q. That was your concern, wasn't it? Selling this property to Longboat for 12.5?
A. No, our concern was that the only buyer left would walk away and then we'd be left with no buyers.
Q. So you keep marketing the property, what's the problem with that?
A. No one's at the table, no one's at the table.
Q. Yes. I put it to you that the only reason you accepted this offer was to sell this property and get back the moneys you were owed on the loan at the time. Do you accept that?
A. Certainly one of our concerns was to get our money back on our loan. But that wasn't the reason we took this offer is because we took -- because this is an offer, a bona fide offer from somebody who could do -- close the transaction and nobody else was knocking on the door anymore.
[Emphasis added]
Emshih Correspondence August 2003
[220] Counsel for 142 submitted that Emshih's non-binding letter of intent forwarded to Pajak in August 2003 evidences that at all material times Emshih had an interest in purchasing the Lands.
[221] Counsel for Réno-Dépôt submitted that "…if any conclusion can be drawn about Emshih, it is that Emshih was driven away from the Lands by the uncertain cost of developing them, and the early stage of development that the Lands were at in the summer of 2003, rather than by anything Réno-Dépôt did or did not do." Emshih's letter of intent did not contain even a conditional purchase price. Instead, it referred to a purchase price "mutually agreed upon once criteria for infrastructure costs are known."
Closing August 27, 2003 with Longboat
[222] The sale of the Lands to Longboat closed on August 27, 2003.
Closing of Sale of Shares of Réno-Dépôt to Rona - September 11, 2003
[223] On September 11, 2003, the sale to Rona closed.
[224] In the meantime, the funds owing and paid on the Mortgage to 3697584 Canada Inc. were forwarded to Réno-Dépôt's parent company Kingfisher France SAS.
[225] Counsel for 142 submitted that the August 19, 2003 agreement to hastily sell the Lands to Longboat was patently motivated by Kingfisher's desire to complete the deal and receive the funds before the scheduled September 11, 2003 closing date.
[226] Counsel for Réno-Dépôt submitted that since the magnitude of the overall deal exceeded $300 million, this Court should consider a $12 million recovery to be immaterial.
FINDINGS OF FACT
Events September 2001-December 30, 2002
[227] I reject Pajak's evidence that in the fall of 2001 during the negotiations leading to the Agreement, Maltauro told him that Réno-Dépôt believed the Lands were worth at least $150,000 per acre.
[228] I accept Maltauro's evidence that in assessing whether or not to enter into the Agreement with 142 dated September 7, 2001, Réno-Dépôt followed the procedures mandated by its parent, which did not include a valuation of the Lands on a per acreage basis. In making this finding I refer specifically to Exhibit 55, the memo prepared and used in the evaluation process, "Developpement 18 Octobre 2001."
[229] Between November 2001 and the fall of 2002, I find that 142 and Réno-Dépôt acted diligently in pursuit of their common goal, to get a Large Scale Retail Official Plan Designation and Large Scale Retail zoning for Block One as soon as possible, so Réno-Dépôt could immediately build its Building Box store on the Lands.
[230] I accept Pajak's evidence that 142 wanted to use the Building Box store to kick-start the Burloak Signature Park.
[231] I find 142 and its consultants were pressing forward as quickly as possible. I reject Maltauro's evidence on the point.
[232] Although there were delays, I find that Réno-Dépôt's attitude until late 2002 was "keep going as quickly as you can. We are behind you."
[233] I find in the fall of 2002 something caused Réno-Dépôt to start to withhold its unconditional support of 142's efforts.
[234] There is no direct evidence as to what caused Réno-Dépôt's change in attitude. Pajak said Maltauro told him the company was for sale. Maltauro said she was unaware of the sale at the time.
[235] Whether or not Maltauro knew about the sale, and whether or not it was the potential sale that caused Réno-Dépôt's change in attitude, from its actions, it is clear that by December 2002, Réno-Dépôt was hedging its bets. On December 19, 2002, Réno-Dépôt registered a Caution against title to all the Lands.
[236] By December 31, 2002, Réno-Dépôt was no longer sure it wanted the 10 acre site for a Building Box store. Had it known for certain it wanted its store built as quickly as possible, it seems unlikely that it would have thrown up the obstacles that it put in 142's way.
[237] It did not actively support Pajak's continuing attempts to drive the development forward nor did it accede to 142's requests to hold off on Mortgage enforcement until Oakville Council had dealt with the applications before it.
[238] Maltauro stopped speaking directly to Pajak. I accept Pajak's evidence that she advised him to deal directly with Réno-Dépôt's lawyers.
[239] At the same time, Réno-Dépôt did not simply let the Agreement lapse as of December 31, 2002 because 142 had failed to achieve the necessary zoning amendments by that time, as it would have done had it known for certain that it did not want to buy and build its store on Block One of the Lands. It waived the deadline in the Agreement requiring rezoning by December 30, 2002.
[240] It is understandable that Pajak was extremely frustrated by Réno-Dépôt's abrupt change in attitude from supportive to obstructive, and by its refusal, at a time when their mutual objective was well in sight, to hold off on Mortgage enforcement.
[241] I accept Pajak's evidence that as of December 2002, the parties believed that the approvals they needed from Oakville Council to proceed with the development were imminent.
[242] On the surface, there would seem to have been little downside for Réno-Dépôt if it had agreed to defer enforcement until after the approvals had been obtained. All or most of the interest payments under the Mortgage were up to date. Approvals would enhance the value of the Lands and logically would make redemption funds more readily available.
[243] Réno-Dépôt took steps to sell the Lands at the earliest possible juncture.
[244] However frustrating Réno-Dépôt's actions were for Pajak, it was entitled after December 30 to refuse to extend time for payment under the Mortgage as it did.
[245] At the same time, Réno-Dépôt would have known that its lack of cooperation was putting 142 in a very vulnerable "catch 22." It would have appreciated that until the Plan of Subdivision was in place, the Lands could not be subdivided and sold to achieve the values inherent in their highest and best use, mixed large scale retail, commercial, office and industrial uses in a power centre/ industrial park setting. It would have known that once it had declared the Mortgage in default, it would no longer be obliged to subordinate to servicing financing. 142 could not sell the overall parcel [as of December 2002, 131 acres including the Petro-Canada lands] for less than $150,000 per acre ($19,650,000.) It would have known that the Caution it had registered on title to all of the Lands on December 19 could be of concern to any potential lender of funds needed to bring the development to the point where severance and sale of individual blocks could occur.
January 1, 2003 - May 2003
[246] I accept Maltauro's evidence that from the beginning of the sale process, Réno-Dépôt relied on Kahn. She sought advice from him on and at every step of the sale process.
[247] I accept Pajak's evidence that from 142's perspective, Kahn was making the decisions. It appeared to Pajak that Khan was "taking no prisoners."
[248] In January of 2003, Kahn gave the requisite notices making the sale possible at the earliest possible date. Réno-Dépôt resisted 142's request for an injunction during this timeframe.
Findings re Retainer of Appraisers
[249] Kahn recommended that two appraisers be retained and passed Stewart's and Marsiglio's names on to Réno-Dépôt.
[250] Although we know nothing about the interview process, including whether Rivet interviewed any appraisers other than Stewart and Marsiglio, there was evidence that Kahn obtained recommendations from an institutional client of his, after describing the type of property to be sold. He was given the names of Metrix and Integris, and he passed those names on to Réno-Dépôt (Kahn, Oct. 26.) Both appraisers, Paul Stewart of Metrix and Paul Marsiglio of Integris, were accredited by the Appraisal Institute of Canada.
[251] In my view, their retainer per se was reasonable.
[252] I shall comment on their opinions in detail later in the section of these Reasons dealing with the Appraisal evidence.
March 24, 2003
[253] Final approval of the Draft Plan of Subdivision was granted by Oakville Planning and Development Council on March 24, 2003, subject to a number of conditions that Pajak believed could be fulfilled within a period of 3-6 months. He thought the Building Box site could be serviced (for water) from Burloak Road and (for waste water) the Metrix site immediately to the south. Servicing of the Réno-Dépôt site could be completed immediately and of the rest of the site in phases.
[254] I accept Pajak's evidence that Block One could have been more easily serviced than the rest of the Lands. Pajak believed if Réno-Dépôt had cooperated, servicing on the Réno-Dépôt big box lands could have commenced within 3-4 months of receipt of draft plan approval.
[255] On April 23, 2003 the sale of Réno-Dépôt was announced.
[256] Marsiglio's uncontradicted evidence was that Réno-Dépôt instructed him as of May 1, 2003 that its purchase of the 10 acres pursuant to the Agreement was no longer "in play." Nevertheless, Réno-Dépôt did not remove the Caution from the title to all the Burloak Lands.
[257] On May 7, 2003 Coo J. lifted the temporary injunction that had been in place since February 23 and ordered that Réno-Dépôt was at liberty to pursue a sale of the Lands.
[258] In the meantime, 142 continued to try to move forward with the development and/or to sell or refinance the Lands to redeem the Mortgage and bring the Burloak Signature Park to fruition.
Retainer of Warshafsky to Market the Lands
[259] Réno-Dépôt interviewed Warshafsky, a potential selling broker, on May 9, 2003, and retained him on May 21, 2003.
[260] Counsel for 142 criticized its retainer of Warshafsky on four grounds: (1) Kahn's relationship with him; (2) he was not a member of a "national" firm; (3) his retainer was in the form of an exclusive listing, not a multiple listing agreement; (4) he lacked the requisite expertise to sell the Lands.
(1) Warshafsky's Relationship With Kahn
[261] 142 alleged that Warshafsky was retained because Kahn, his friend and business partner, wanted him to receive the 3% commission [e.g. on $14 million = $420,000] even though he knew or should have known that Warshafsky was an inappropriate choice.
[262] Kahn's evidence [Oct. 25] contains the following:
Q. Do you know Mr. Neil Warshafsky?
A. Yes, I do.
Q. And how long have you known Mr. Warshafsky, approximately?
A. Since about 1998, 1999.
Q. By 2003, how would you describe your personal relationship, if any, between yourself and Mr. Warshafsky?
A. We were -- we were good friends. Our families knew each other, we attended the same synagogue, I was very active, we attended usually Sabbath morning services together, we had gone out, our children attended the same schools so our families were certainly friends and we lived in proximity of each other, within ten blocks of each other.
[263] At the time Réno-Dépôt retained Warshafsky, Warshafsky and Kahn along with four others] were partners in the ownership of a commercial property in Toronto.
[264] Kahn gave evidence [Oct. 25] about the partnership in question:
Q. Now, in May of 2003, were you involved in business affairs with or involving Mr. Warshafsky?
A. … I think I know where you may be going and I want to try to assist you on this, there was a company called Malca Mizrachi Inc., which owned -- which was the registered owner of a property on Queen Street East … the corner of Hammersmith in the Beach.
…So Malca Mizrachi Inc. was a trustee nominee -- was a company which was the trustee nominee title holder of the property to which Mr. Neirinck refers.
It held title for a joint venture, which consisted of six companies who were the beneficial owners of that land.
One of those companies, I believe, although I can't confirm for certainty, but I really believe is a company which -- in which Neil Warshafsky or members of his family had an interest, may have entire interest, I don't know.
A. The company where I think Neil Warshafsky signed but he signed as president is Jebrax Holding Company. And I believe that is a company in which Neil Warshafsky and/or members of his family were shareholders. There were five other companies. …
One of those companies that had a one-sixth interest in this joint venture tenancy in common was a company called NorJack Investments Inc., may have been NorJack Investments Limited, I can't recall. That company the shareholders were members of my family.
… I was not a shareholder in that company, although I was, I believe, an officer of that company.
Q. And you signed this mortgage as a guarantor?
A. I did.
… The bank requested that there be guarantors from each of the beneficial owners. And they asked for my personal guarantee. And given the fact that the guarantee was rather limited, very low risk, rather than involve my family, I just signed the guarantee.
A. We purchased the property in 2002. In 2003 -- again I can't recall precise dates, matters came up, leasing and re-leasing portions of the property where some decisions had to be made.
Q. Was there a mortgage against --
A. There certainly was a mortgage. This mortgage.
Q. The CIBC property for $1,007,500?
A. That's right.
Q. And was there any activity involving any payments other than the monthly payments on this mortgage set out therein in 2003?
A. … the six companies, were very conservative in holding this property. So there would be times where there would be a pre-payment of some of the principal of this mortgage to decrease the amount owed to the bank. I don't know if that took place in 2003 or not. … the owners were allowed to pay up to 10 per cent of the principal amount originally owing under the charge every year, without penalty or bonus.
A. … There was a time during the ownership of this property, and I can't recall if it was 2003, where remedial work was required for the roof. And funds were used, expended for that purpose. I don't recall if the owners were actually required to put up money or if the money was taken from revenue. I believe it was taken from revenue, but I can't recall.
[Emphasis added.]
[265] Prior to Warshafsky's retainer, Kahn did not advise Réno-Dépôt of their business relationship. It wasn't "top of mind" at the time.
[266] Counsel for Réno-Dépôt submitted that Kahn's and Warshafsky's business relationship was "limited to one partnership with four other investors." There was no evidence that "Warshafsky was retained because of his joint investment with Mr Kahn."
(2) Local or National Firm
[267] Kahn gave evidence [Oct. 25] that he explained to Réno-Dépôt the "pros" of using Warshafsky and of using a national broker. The "pros" of using Warshafsky were that he was a senior broker who had been in the business for a long time; he had done very satisfactory work for some of Kahn's other clients; he would give the sale his personal attention and would be "hands-on" in marketing the Lands. A national firm might shuffle the listing to a more junior person/ not give it the time and attention that Réno-Dépôt wanted. The "pros" of using a national broker were that it would have a depth of research facilities; it could market the Lands more widely; it would be better "window dressing" if this matter were to be litigated.
[268] In her evidence, Maltauro parroted Kahn's evidence about the" pros" of retaining Warshafsky. Her evidence [Nov. 2] about Réno-Dépôt's decision to retain Warshafsky includes the following:
And it was our decision that Warshafsky would probably do a better job, this was an important mandate for him, he had all the capacities and all the experience to deal with it, but it was significant enough that he would give it his full and undivided attention, whereas some of the national brokerage firms, this would have been just yet another cog in a big wheel and they might not give it the attention it required. Further, we needed someone who would document it carefully and would keep a log and because this was litigious, and we felt that Warshafsky would give it proper attention. [Emphasis added.]
[269] It is not clear to whom she was referring in mentioning "our" decision.
[270] Although Kahn and Maltauro referred to their discussion about possible pros of retaining a national firm, Rivet interviewed only Warshafsky.
(3) Exclusive or MLS Listing
[271] Counsel for 142 submitted that Réno-Dépôt should not have entered into an exclusive listing agreement with Warshafsky but should have entered into a multiple listing agreement to gain broader exposure for the sale of the Burloak Lands.
[272] Ex 3A Tab 20, a letter from Marsiglio to Kahn dated May 26, 2003, contains the following:
Large urban development properties,such as the subject are often listed exclusively...However, having regard for potential litigation, it is recommended that the selected broker consider marketing the proprty on the Toronto Real Estate Board's Multiple Listing Service. The exposure afforded by the MLS can confirm a vendor's commitment to best efforts in marketing.
[Emphasis added.]
[273] Maltauro discussed the advisability of a multiple listing as opposed to an exclusive listing with Kahn. She did not discuss the matter with Warshafsky.
[274] Although he did not advise Maltauro on the matter, Warshafsky gave evidence as to his view on the advisability of an exclusive versus a multiple listing. He opined that "No broker in his right mind would list this type of property on the MLS system." He knew who was in the market. Qualified buyers would not be looking for lands like these on the MLS.
[275] Maltauro said [Nov. 2] that Réno-Dépôt believed an exclusive listing would allow it to have better control over the sale process and over communications. Her evidence is suggestive that she may have misunderstood the nature of a multiple listing agreement. She may have believed that under a multiple listing agreement, inquiries about the Lands would be directed to selling brokers other than Warshafsy.
(4) Expertise/Lack of Expertise
[276] Kahn gave evidence he was not specifically aware and therefore did not apprise Réno-Dépôt of Warshafsky's experience in selling lands of this nature/handling similar transactions. He gave the following evidence [Oct. 25] about his knowledge of Warshafsky's qualifications to sell the Lands:
Q. Do you know whether or not he had been involved in any listings for the sale of properties under development while he was operating his brokerages?
A. I don't recall when that information may have come to me.
Q. Forgetting about listings and looking at the other side of the coin, did you have any information with respect to whether or not he was involved in the purchase of any properties under development involving more than a hundred acres prior to May 2003?
A. I wouldn't have known the acreage, no.
Q. All right. Well, let's forget about the acreage then. Did you have any knowledge as of May 2003 as to whether or not Mr. Warshafsky had been involved in the acquisition of any properties under development or for development while he was in the brokerage business?
Again, this is as of May 2003.
A. No...
[Emphasis added.]
Findings Re Retainer of Warshafsky
[277] It is not surprising that under the circumstances here, Pajak expressed concerns about the relationship between Kahn and Warshafsky, including a concern that Kahn would prefer to see his friend and business partner collect a $400,000+ commission rather than to see 142 redeem the Mortgage causing Warshafsky not to collect such a commission.
[278] Whether it was Kahn or Zakem who originally suggested Warshafsky's name, I find Kahn had a close friendship and business relationship with Warshafsky. I find Warshafsky did not have any experience in selling properties under development.
[279] Kahn did not disclose his business relationship with Warshafsky or Warshafsky's lack of experience in selling properties under development to Réno-Dépôt.
[280] I find on Maltauro's evidence that Réno-Dépôt decided to retain Warshafsky without interviewing any other prospective brokers, including any national brokers.
[281] It is clear that Rivet did not interview any candidates for broker other than Warshafsky.
[282] Since Rivet did not give evidence, it is not clear whether or not Rivet and Warshafsky discussed Warshafsky's lack of experience in selling properties under development.
[283] Marsiglio recommended an MLS listing. Warshafsky's evidence on the point, i.e., that qualified buyers of lands like these, i.e. members of "the inner circle" would not view MLS as a likely source of information, was predicated on his assumption that the field of qualified buyers was narrow, i.e., the members of the inner circle could be counted on one hand.
[284] Given Warshafsky's, Kahn's and Maltauro's mindset about the short list of potential buyers for the Lands, i.e. they wanted to negotiate only with "inner circle" buyers, their decision to list exclusively was predictable.
[285] Réno-Dépôt understood when it hired Warshafsky that he was not a national broker with a national research department and nation-wide contacts. Yet it did nothing to compensate for those "cons."
Findings re the Listing Price
[286] For reasons outlined later in these Reasons I have found that the Fair Market Value of the Burloak Lands as of August 27, 2003 was $16 million. [To compare apples and apples it must be borne in mind that the effective date of Marsiglio's values was May 1, 2003 and of Stewart's values was March 25, 2003.]
[287] I have found the listing price of $14 million was inordinately low, in itself some evidence of Réno-Dépôt's failure to take reasonable precautions to achieve Fair Market Value.
Findings Re Kahn's Actions and Advice
[288] I find Kahn advised Maltauro/Réno-Dépôt on all aspects of the sale. Maltauro said she followed his advice.
[289] Since his advice to Réno-Dépôt was privileged, it is impossible to know the content of Kahn's advice and whether or not Réno-Dépôt acted on it.
[290] Based on the actions that were taken and not taken by Réno-Dépôt and their timing, and based on his relationship with Warshafsky, I find Pajak had good reason to fear that Kahn would not have recommended to Réno-Dépôt that any concessions be provided to 142.
[291] At the same time, from Réno-Dépôt's actions, including enforcing the Mortgage at the earliest possible juncture, its short due diligence demands, its requests for unconditional offers and almost immediate closing dates, it seems it was determined to sell the Lands as quickly as possible. It may not have been inclined to grant any concessions to 142 even if Kahn had recommended that they be given.
[292] I find that either Kahn did not advise Réno-Dépôt to deal with Emshih [even though at trial, Warshafsky said he thought it was a qualified buyer] or Réno-Dépôt ignored his advice.
[293] I find that either Kahn recommended dealing only with Longboat and First Pro or if he recommended dealing with others, Réno-Dépôt ignored his advice and limited its dealings regardless of his advice.
[294] I find that either Kahn did not ask Longboat or First Pro for the inclusion of an escape clause [although he had included one in the offer he drafted for use by purchasers shortly after the Lands were listed] or despite his advice that an escape clause be included, Réno-Dépôt insisted that there be no escape clause.
[295] Kahn negotiated only with Longboat and First Pro. Either he did not recommend that any other potential purchasers be afforded the opportunity to do due diligence, or Réno-Dépôt insisted on that despite his advice.
[296] I have found, based on Maltauro's evidence that "we tried for 13," that on about July 30 or August 1, Kahn sent an offer to Longboat to sell the Lands to it for $13 million, signalling that Réno-Dépôt would accept significantly less than the $14 million listing price.
[297] Even after June 30, 2003, after Réno-Dépôt had clearly allowed the Agreement to lapse, and was no longer relying on 142 or the purchaser to complete the development and deliver the store site to it, Réno-Dépôt did not remove the Caution from the title to all the Lands.
[298] In their evidence, Kahn and Maltauro clearly articulated that even after June 30, 2003, when it was clear that Réno-Dépôt was no longer relying on 142 to immediately deliver a serviced 10 acre big box building site to it pursuant to the Agreement, they maintained and acted upon the viewpoint that the buyer had to be a member of the inner circle capable of single-handedly bringing the project to fruition.
Findings re the Marketing Process
[299] Warshafsky used his day timer to make dockets of his marketing activities (Ex. 3, Tab 109.) Réno-Dépôt had specifically asked him and Warshafsky had agreed to keep a detailed log of all of his activity because Réno-Dépôt needed someone to carefully document the sale process. Warshafsky would have wanted to keep a complete record because he had agreed to be paid $200 per hour instead of a commission in the event that 142 redeemed the Mortgage.
[300] In making factual findings as to marketing activities undertaken on Réno-Dépôt's behalf by Warshafsky, Kahn and Maltauro, I have considered evidence including Warshafsky's dockets, emails, correspondence, Exhibit 75 and Exhibit 3 at Tabs 109 and 122, Kahn's voice mails and correspondence and the viva voce evidence of Warshafsky, Kahn and Maltauro.
[301] As outlined earlier in these Reasons, I find that Réno-Dépôt failed generally to solicit and seek competitive offers from all entities capable of paying Fair Market Value for the Lands.
[302] Warshafsky said in effect and I find that there were other buyers who could have come up with a purchase price representing Fair Market Value, when he said, "Money's easy out there."
(1) Maltauro's, Kahn's and Warshafsky's Assumptions About Appropriate Buyers of the Lands
[303] Counsel for 142 submitted that they failed to take reasonable steps to obtain Fair Market Value by failing to cast their nets broadly enough or long enough to obtain Fair Market Value. They negotiated exclusively and preferentially only with those they knew. They made and screened contacts selectively and unreasonably. They were dismissive of capable buyers they did not know, who would have been willing and able to pay more.
[304] Warshafsky conceded those outside the "inner circle" could bring in finance, joint venture or equity partners.
[305] Warshafsky's evidence [Oct. 21] includes the following:
A. A property of this size and stature requires a lot of expertise at a lot of levels, not just money.I mean,money's easy out there …and within our small little country, there aren't that many developers that have this type of ability to transpire this type of transaction.
Q. … How short is that list?
A. Probably count them on one hand.
[306] I find that Kahn, Warshafsky and Maltauro all concluded that having enough money to pay Fair Market Value for the Lands was not enough. Only an "inner circle" of potential buyers, who could be counted on one hand, should be targeted. Negotiations should only take place with members of that group.
[307] I have accepted Marsiglio's evidence that in May 2003 or earlier, he was instructed to remove mention of Réno-Dépôt's purchase of 10 acres of the Lands being appraised at a price of $550,000 per acre.
[308] Even after Réno-Dépôt needed only to recoup for itself its Mortgage investment, interest and costs and to take reasonable precautions to obtain Fair Market Value for 142, Maltauro, Kahn and Warshafsky conducted the sale as if Réno-Dépôt still needed to ensure that whomever purchased the Lands would be capable of completing the zoning, servicing and complete redevelopment of the Lands and delivering the 10 acres to it immediately so it could build its Building Box store.
[309] Both Kahn and Warshowsky touted their relationships as the key to success. They said financing, selling and leasing are fostered by relationships. For them, doing business depends on whom you know. I find they prefer to do business with those with whom they have already developed relationships.
[310] Maltauro either accepted or promoted the narrow view that only a limited number of potential buyers, members of the inner circle, were qualified to buy the Lands and that it was only necessary to reach out to that inner circle of buyers.
[311] I do not accept Warshafsky's evidence that all out-of-province buyers without a local presence, i.e., a relationship with a member of the inner circle, would have had no interest in buying the Lands.
[312] I do not accept his assumption that any out-of-province investor who wanted to invest in the Lands would have done so through an affiliation with a member of the inner circle and would have already learned about the sale of the Lands through Warshafsky's marketing campaign.
(2) Initial Contacts
[313] Neither Warshafsky nor Kahn identified the members of the inner circle. They did identify large REITS, First Pro, and RioCan.
[314] I find in late May of 2003, Warshafsky did a mailing to a large number of brokers listed on his data base. [See also Exhibit 75.]
[315] Warshafsky's dockets reveal that he did not personally contact all of the entities he did identify as logical potential purchasers of the Lands.
[316] Specifically, he did not contact First Pro. I reject his evidence that he contacted a representative of First Pro soon after the Lands were listed for sale. I find that on June 12, when it made an offer for $17,250,000 directly to 142, First Pro, an acknowledged "player," a member of the inner circle, was unaware that the Lands were for sale by Réno-Dépôt at a listing price of $14 million. Had Warshafsky already contacted it [as he claimed he had done], it would not have been dealing directly with 142 or offering a price higher than $14 million.
[317] His letter of August 11 mentioned that he had contacted "each of the dominant and logical players who would have an interest in this type of property who can be identified on the attached time docket."
[318] I find Warshafsky did not directly contact "major players" other than those specifically mentioned in his dockets at Exhibit 3 Tabs 109 and 122. He did not contact all of the 20 or so REITs in Canada. Other than the major players listed on his dockets, he only contacted brokers or agents. He did not follow up with them except as noted on his dockets.
(3) Failure To Market During Currency of Conditional Sale Contracts
[319] The limited advertising and emails that Warshafsky sent initially created a flurry of interest in the Lands. I find Réno-Dépôt did not take full advantage of that interest.
[320] Instead, Réno-Dépôt treated all but inner circle potential buyers shoddily, denying them any opportunity to do due diligence and refusing to negotiate with them in any meaningful way.
[321] It is clear on the evidence that from the time Longboat came on to the scene on June 5, 2003, Réno-Dépôt concentrated its efforts on Longboat and after First Pro came on the scene on June 26, on Longboat and First Pro.
[322] I find that between June 11 and August 18, 2003 during the due diligence periods set out in the conditional agreements of purchase and sale between Réno-Dépôt and Longboat, and Réno-Dépôt and First Pro, Warshafsky continued to respond to enquiries directed to him but did not otherwise take active steps to locate other potential buyers or sell the Lands.
[323] I accept Kahn's evidence [Oct. 26] that he directed Warshafsky not to market the Burloak Lands for sale during those periods.
[324] I accept Warshafsky's evidence that from June 11 when the first conditional Longboat agreement was signed, he as broker would not have recommended considering any offers from anyone else. Between June 11 and June 26, "We can't legally at that point deal with anything."
[325] At the same time, Warshafsky and Kahn both agreed there was nothing legally preventing the marketing of the Lands for sale [that would logically include affording opportunities to do due diligence] during the currency of those agreements.
[326] While they were not precluded from marketing to others, they said that during the currency of a conditional contract they could not entertain and accept offers from others [even subject to the rights of the conditional offeror] unless that contract contained an escape clause.
[327] It is clear from Kahn's conduct that he understood it was permissible to market to others during the currency of a conditional sale contract because he continued discussions with Longboat during the currency of the First Pro agreement, even before the escape clause was inserted in it on August 1, 2003.
[328] On August 1, 2003, I find that Kahn negotiated the inclusion of the escape clause in the First Pro agreement because he wanted to make a competing offer for $13 million to Longboat. He forwarded the $13 million offer he had already prepared to Longboat and he extended the First Pro Agreement with an escape clause.
[329] I find that after August 1, 2003, Kahn had discussions only with First Pro and Longboat.
[330] Even after an escape clause was inserted in the First Pro agreement on August 1, 2003, allowing Réno-Dépôt to entertain and accept an offer from Longboat subject to First Pro's rights under the conditional agreement, as is evident from his dockets, Ex. 3C, Tab 109, I find Warshafsky did little to market the Lands to anyone else.
[331] I accept Warshafsky's evidence that after the first Longboat offer terminated [on June 26], "the client was riding the First Pro horse."
[332] Warshafsky conceded [Oct. 21] that almost continually between June 5 and August 5, the dealings with RioCan and First Pro "pretty much shut out other offers:"
Q. And if any other offers are received from and after this date, they would either not be seriously considered or considered at all because the client is trying to make a deal with First Pro?
A. That's correct.
Q. … So almost continually from June 5 to August 19, this property is either being seriously considered or under contract to Rio Can and First Pro?
A. Absolutely
Q. And in that period of time that pretty much shut out all other offers?
A. That's correct
[333] Kahn, not Warshafsky, was conducting most of the negotiations with Longboat and First Pro.
[334] Although Maltauro said the Lands were always on the market, I find she was not specifically apprised about what Warshafsky was or was not doing. She generally did not speak to him directly but relied on her frequent communications with Kahn.
(4) Réno-Dépôt's Stance on Due Diligence
(a) Period to be Allowed Potential Purchasers
[335] I have already quoted Maltauro's evidence [Nov. 2] touching on Réno-Dépôt's reasoning in limiting the due diligence period to 15 days:
A. This was a property that had been through a rezoning that we had a whole bunch of documentation on available for any potential purchaser, developers that -- experienced developers who knew Réno-Dépôt would know that we had done that kind of due-diligence work. There was a whole bunch of information that was a matter of public record with the town. So an experienced developer would have been able to gather that information within the 15 days.
[336] Warshafsky said it was unrealistic to expect buyers to commit to purchase a property of this sort without allowing them to do adequate due diligence.
[337] Maltauro did not seek Warshafsky's advice on the matter.
[338] Kahn acknowledged there were issues, no doubt "some struggles," about development and costs of servicing.
[339] I note that all of Emshih, Echelon, Monterra, Longboat, First Pro and Warshafsky protested that 15 days was too short, given the nature of the Lands, its state of development and its uncertain costs and that First Pro sought and required more than 40 days to conduct due diligence.
[340] I also note that without 142's permission, Longboat sought and received confidential information on costs from Cifoni, 142's engineering consultant.
[341] Either Kahn did not advise Réno-Dépôt about Warshafsky's concerns about the unreasonableness of a 15 day due diligence period or Réno-Dépôt refused to follow that advice.
[342] I find 15 days for due diligence was unduly short.
[343] I find Réno-Dépôt's demands concerning due diligence periods are suggestive/another indicator of Réno-Dépôt's desire to complete and close a sale as hastily as possible.
(b) Off the Table Due Diligence
[344] The only two potential purchasers to whom Réno-Dépôt allowed any access to documentation pertinent to the development were Longboat and First Pro.
[345] I reject Warshafsky's evidence that he would have allowed others access to documentation in his office.
[346] I do not accept that Warshafsky would have allowed Emshih or Echelon or any other potential purchasers who were not members of the inner circle to do off the table due diligence had they asked to do so. There was nothing preventing Warshafsky from offering them that opportunity. No such offer was made.
[347] Given the complexity of the due diligence that would have been required on a complex property such as the Lands, in my view, off balance sheet due diligence would have been insufficient in any event.
(5) Réno-Dépôt's Dealings with Emshih
[348] I find, based on Pajak's and Warshafsky's evidence at trial, that Emshih was a qualified buyer. Its interest in purchasing the Lands continued throughout the relevant period.
[349] Counsel for Réno-Dépôt submitted it acted reasonably in doubting Emshih's ability to complete a deal.
[350] Warshafsky's evidence was inconsistent on the subject of qualified purchasers and therefore on whether Emshih was a qualified purchaser.
[351] On the one hand, he said the only qualified purchasers were members of the "inner circle." On the other hand, he said at trial that Emshih was a qualified purchaser [even though it was clearly not a member of the inner circle.] It may be that at the time of trial, Warshafsky was having second thoughts about his "inner circle" evidence, and that he believed that Emshih had in fact been a qualified buyer, or it may be that he did not think Emshih had ever been a qualified buyer.
[352] Logically he must have either believed that Emshih was a qualified buyer or that only "inner circle" members were qualified.
[353] If Warshafsky did tell Kahn that he thought Emshih was a qualified buyer, either Kahn did not communicate that view to Maltauro or she disregarded it.
[354] Alternatively, if he thought Emshih was qualified [did not subscribe to the inner circle rationale for qualifying purchasers], then that would not be helpful to Réno-Dépôt's argument "that Réno-Dépôt acted reasonably in doubting Emshih's ability to complete a deal."
[355] I do not accept the submission of counsel for Réno-Dépôt that it had sufficient reason to conclude that Emshih not a qualified purchaser. Nor do I find that it had an adequate basis to conclude that Emshih was improperly associated with Pajak or was "Pajak's stooge."
[356] In my view, Réno-Dépôt and its agents excluded Emshih from the purchasing process without sufficient reason to do so. Those acting on Réno-Dépôt's behalf furnished Emshih with no reasonable opportunity to do due diligence. They had no reasonable basis to exclude Emshih from doing the due diligence it would have needed to be in a position to knowledgeably make an offer for the Lands.
[357] I find that Emshih was driven away not simply because Réno-Dépôt made unreasonable due diligence period demands, i.e., it improperly imposed an overly short due diligence period on potential buyers, but because it was afforded no opportunity at all to do any due diligence.
[358] As Warshafsky said [Oct. 21], "Well, nobody's going to buy something without due diligence."
[359] Neither Warshafsky nor Kahn contacted Emshih between July 5 and August 1, 2003 to enquire whether Emshih were still interested in the Lands. There was no legal impediment preventing it from doing so.
[360] Neither approached it after August 1 after the escape clause had been inserted in the First Pro agreement because they said Emshih was already gone from the table.
[361] I find at that time Emshih was still interested in purchasing the Lands [as evidenced by its Non-Binding Letter of Intent to 142 dated August 29, 2003 (Ex. 3C, Tab 121.)]
(6) Dealings with Echelon
[362] After it submitted its first offer, Echelon received no response from anyone acting on Réno-Dépôt's behalf for several days.
[363] Counsel for Réno-Dépôt submitted that Warshafsky, "an experienced broker with many contacts in the brokerage and development community," was unable to find information about Echelon that would qualify it as a purchaser of the Lands.
[364] I have reviewed Warshafsky's evidence about the enquiries he made about Echelon including "Googling" it. In my view they were cursory to say the least, and do not provide any reasonable basis for Réno-Dépôt's shoddy treatment of Echelon.
[365] After Réno-Dépôt had conditionally accepted an offer from Longboat, Warshafsky replied to Echelon's first offer by a cursory and dismissive message that Maltauro approved after the fact.
[366] Even after Echelon reluctantly complied with its demands for a 15 day due diligence period and an escape clause, Réno-Dépôt continued in effect to refuse to deal with Echelon.
[367] I reject the submission of counsel for Réno-Dépôt based on the evidence of Maltauro that Réno-Dépôt's refusal to deal with Echelon was justifiable because it was suspicious that Echelon was connected with Pajak and was wary of dealing with it for that reason. Accepting its conditional offer would have allowed Echelon to tie up the Lands.
[368] I doubt that Maltauro had that concern in 2003. I find that if she were concerned about Echelon's ties with Pajak, it was a concern without any solid basis.
[369] Réno-Dépôt alleged it learned in 2003 that Fischer, a lawyer, had been acting both for Echelon in its dealings with Réno-Dépôt and for 142 in its dealings with First Pro. However, on the evidence, I have concluded that Réno-Dépôt obtained that information during the course of this litigation, well after 2003.
[370] Kahn agreed he had no evidence in 2003 of a connection between Pajak/142 and Echelon.
[371] I note that Pajak was not cross-examined at trial about any possible connection between himself or 142 or his lawyers and Echelon or its lawyers.
[372] In my view, Réno-Dépôt had no reasonable basis upon which it could have concluded that Echelon was connected with Pajak in 2003.
[373] In any event, I do not accept Réno-Dépôt's submission that it needed to refuse to negotiate altogether with Echelon to prevent it from tying up the Lands.
[374] It would have been open to Réno-Dépôt to accept Echelon's offer that did include an escape clause, which offer would not have allowed Echelon to tie up the Lands.
[375] Again, Echelon was never afforded any or an adequate opportunity to do due diligence in respect of the Lands. As Warshafsky said, "Nobody's going to buy anything without due diligence."
(7) Dealings With Monterra
[376] I find based on the evidence of Warshafsky at trial, that Monterra was a qualified purchaser.
[377] Réno-Dépôt, Warshafsky, Khan and Maltauro ignored Monterra's request for a meeting to discuss a possible purchase.
[378] After the First Pro agreement was terminated at the end of July 2003, but before the August 1 amendment to that agreement, Warshafsky asked Monterra if it was prepared to make an unconditional offer. In reaching this conclusion, I have also referred to Ex. 3C, Tab 109, Warshafsky's dockets, which mention only unconditional offers.
[379] I find that Réno-Dépôt's request for an unconditional offer was unrealistic, given that to that point in time, Monterra had not been furnished with any opportunity to do any due diligence.
[380] Apart from the request for an unconditional offer, Réno-Dépôt, Warshafsky, Khan and Maltauro did not solicit any competitive bid from Monterra.
[381] I find that at the end of July, Réno-Dépôt was only interested in unconditional offers.
(8) August 1 – Insertion of Escape Clause in First Pro Agreement
[382] On July 30, Kahn drafted an unconditional $13,000,000 offer for immediate presentation to Longboat on the expiry of the First Pro conditional agreement then due to expire on July 30.
[383] I find Kahn requested the inclusion of the escape clause in the First Pro agreement as of August 1, because he wanted to present to Longboat the $13 million offer he had just prepared.
[384] I find he did so immediately after the First Pro agreement expired on July 30 and/or the extended agreement was amended to include an escape clause on August 1, 2003.
[385] Réno-Dépôt never acceded to Monterra's earlier request for a meeting, despite Monterra's statement that it believed a deal would result from a meeting [Warshafsky, Oct. 21.]
[386] I find Warshafsky did little to market the Lands even after August 1, 2003, as is evident from his dockets, Ex. 3C, Tab 109. He did not cast the net more broadly, or actively pursue other purchasers.
[387] After August 1, Kahn only spoke to Longboat and First Pro.
(9) Warshafsky's August 11 Advice
[388] When Warshafsky recommended a new advertising campaign to address the contingency that the First Pro offer did not firm up [a contingency that occurred], Réno-Dépôt did not follow his advice.
[389] I reject the submissions of counsel for Réno-Dépôt that Warshafsky's recommendation of a "contingency plan" was not suggestive of a need for future marketing.
(10) Failure to Market Past August 19, 2003
[390] All appraisers agreed that the property needed to be exposed for at least six months.
[391] Maltauro admitted Réno-Dépôt knew that its appraisers had advised that obtaining Fair Market Value would require continuous and reasonable marketing efforts over 6-12 months to achieve Fair Market Value.
[392] Réno-Dépôt did not follow that advice.
[393] I reject the following evidence of Maltauro on her understanding of Réno-Dépôt's obligation to expose the Lands for 6-12 months :
The exposure period in my mind means how long you're going to expose it before you have any interest in it. Like, in other words, what I understood from that is expect to have it on the market for six months and before you get some interest on it, not keep it on the market after you actually have an offer in hand.
[394] In my view, the clear wording of Stewart's and Marsiglio's advice on exposure times contained in their reports does not allow for that interpretation.
[395] I have already quoted Maltauro's statement that at the time of Longboat's first unconditional offer of $12 million on June 24, Réno-Dépôt was already looking for somebody to buy the property and wanted to "be done with this."
(11) Summary of Relevant Events Leading to Longboat Sale
[396] The following is a thumbnail sketch of the events in May-September 2003 relevant to Réno-Dépôt's negotiations with Longboat, Longboat's knowledge of (a) Réno-Dépôt's demands during the ongoing negotiations; (b) the identity of its competition in the bidding process, Longboat's and other offers made and received:
(i) May21-$14 million listing price set;
(ii) June 11: Réno-Dépôt accepts first Longboat conditional offer in effect June 11-24;
(iii) June 18: Longboat receives 142's confidential engineering consultants development costs estimates from Cifoni;
(iv) June 24. Longboat makes virtually unconditional offer of $12 million.
(v) July 2: First Pro makes offer of $14.1 million with 15 business day due diligence and no escape clause;
(vi) July 3: First Pro offer accepted with no escape clause;
(vii) July 3: continuing negotiations with Longboat- Longboat's agent proposes to Warshafsky that it submit a conditional offer with purchase price of $13.5 million and a 30 day due diligence period;
(viii) Extension of First Pro agreement to July 31;
(ix) August 1: extension of First Pro agreement with escape clause for the first time
(x) July 31 or August 1 Réno-Dépôt offer to Longboat of $13 Million with short closing Longboat would have been aware that Réno-Dépôt would now accept $13 million on a quick closing ;
(xi) August 14: Continuing negotiations with Longboat-Longboat offer of $12 million with 2 business day due diligence and closing date 5 days thereafter;
(xii) About August 17-18: Discussion between Kahn and Longboat about acceptability of a $12.5 million offer;
(xiii) August 18: First Pro agreement expires;
(xiv) August 19: Réno-Dépôt accepts Longboat offer already made for $12.5 million, closing date five business days following acceptance
(xv) Longboat closing - August 27;
(xvi) August 27-September 11-transfer of repaid/collected Mortgage funds to Kingfisher
(xvii) September 11 closing - Kingfisher sale to Rona.
Findings re the Sale to Longboat and Overall Effect of the Manner in which the Sale and Marketing of the Lands were Conducted
[397] I have found, for reasons outlined in the Appraisal section of these Reasons that the listing price of $14 million was $2 million less than the Fair Market Value of the Lands.
[398] Once Réno-Dépôt set the low listing price, Longboat would have known it was unlikely that any purchaser would offer more than $14 million.
[399] Initially the advertising of the sale for $14 million produced a flurry of interest. However, Réno-Dépôt did not take full advantage of that interest.
[400] I find that recognizing only First Pro and Longboat/RioCan as worthy potential purchasers had the effect of keeping down the quantum of the offers and the purchase price ultimately paid for the Lands.
[401] When Réno-Dépôt accepted Longboat's first conditional offer in effect June 11-24, it had not sought additional competitive offers for the Burloak Lands from Emshih or Echelon;
[402] I find as of June 18 Longboat had been aware of Cifoni's estimated costs of development.
[403] After Longboat's $12 million offer dated June 24, I accept Kahn's evidence and find that Maultaro instructed Kahn to enquire of Longboat whether RioCan would guarantee Longboat's commitments made in that offer. RioCan refused to do so. As early as June 24, after it made a lowball offer for $12 million, Longboat knew that Réno-Dépôt was prepared to discuss that offer if RioCan would stand behind it. I find if RioCan had been prepared to guarantee payment of Longboat's $12 million offer, Réno-Dépôt would have considered accepting an offer at that time but would probably have also sought to negotiate an upward price adjustment. At any rate, Longboat knew by late June that the $14 million purchase price was negotiable.
[404] On July 3, at a time when it was already aware of the estimated development costs, Longboat's agent called Warshafsky seeking to make a conditional offer of $13.5 million.
[405] When on or about July 30 or August 1, Kahn forwarded the $13 million offer he had prepared, Longboat knew Réno-Dépôt would accept $13 million for the Lands.
[406] I find that by July 30 at the latest [and probably as early as June 24], Longboat was aware that Réno-Dépôt was anxious to close as soon as possible and that it was seeking an unconditional offer with an early closing date.
[407] I find that well before August 14, Longboat knew that Kahn was only dealing seriously with it and First Pro.
[408] By the end of July, Longboat knew that if First Pro was not prepared to proceed, effectively, it would be the only party left at the negotiating table. I find that given First Pro's repeated requests for extensions, Longboat knew that First Pro might not be prepared to close.
[409] Maltauro and Kahn gave evidence that Longboat claimed that its late discovery of the magnitude of development costs for the Burloak Lands was the reason it lowered its offer to $12,000,000.00 on August 14, 2003.
[410] I question whether Longboat did make that claim. Development costs had been a topic of negotiation from the outset. It is clear from the evidence of Cifoni that he had provided a confidential list of estimated costs of development prepared for 142 to Longboat on June 18, and that he provided no further costs information to Longboat between June 18 and August 19, 2003. As of June 26, 2003, Longboat was already dealing with Oakville with respect to, inter alia, possible credits (Ex. 69.) I find if Longboat claimed in mid August that it had just discovered infrastructure costs, that claim was false.
[411] I find that Longboat's lowering of its offers as time passed, resulted from its natural desire to buy the Lands for the lowest possible purchase price and from its knowledge of all the facts already mentioned, including that Réno-Dépôt wanted an immediate unconditional closing and that it was the only bidder left.
[412] When Maltauro said there were no other purchasers left at the table, she meant that of the two purchasers with whom meaningful negotiations had taken place, only one was left.
[413] I find Kahn and Réno-Dépôt knew they had limited the field of potential purchasers to two. They had virtually ignored other qualified purchasers who had come forward and had thus far refused to deal with them as if they were real players in the purchase.
[414] Réno-Dépôt decided to sell to Longboat despite the advice of its broker that a further advertising campaign should be undertaken to further canvass the Market/ test the waters of saleability and despite the advice of its appraisers sufficient exposure time had not yet passed.
[415] It knew from the redemption figures contained in Kahn's January 2003 correspondence to 142 (about $11,051,000 as of January 15, 2003), and from the amounts that had been offered for the Lands up to August 18, that waiting at least until the end of the recommended Exposure Period to finalize a sale would not likely put Réno-Dépôt's principal and accruing interest at risk. There was no urgency to sell to protect its investment.
[416] The sale to Rona was scheduled to close on September 11, 2003. By selling unconditionally to Longboat when it did, with a closing on August 27, 2003, its parent company could [and did] recover the amount owed before the September 11, Rona closing date.
LAW
1. Test – Improvident Sale
[417] All parties agree on the legal test to be applied here.
[418] A mortgagee exercising a power of sale is under a duty to take reasonable precautions to obtain the Fair Market Value of the mortgaged property at the date on which it decides to sell it: Bank of Nova Scotia v. Barnard (1984), 46 O.R. (2d) 409 (H.C.) at Westlaw paras. 25-30; [1971] 2 All E.R. 633 (C.A.) at p.646; Lay v. 1222055 Ontario Inc. (2005), 35 R.P.R. (4th) 79 (Ont. Sup.Ct.) at Westlaw paras. 31 and 33; Canadian Imperial Bank of Commerce v. Haley (1979), 100 D.L.R. (470) (N.B.C.A.) at Westlaw para. 18.
[419] The difficulty here was not in articulating the correct test, but in applying it in the specific circumstances of this sale.
[420] "The determination of whether this duty has been met is highly contextual and dependent on the facts of the particular case." Manufacturers Life Insurance Co v. Huang & Danczkay Properties, [2003] O.J. No. 3061 at paragraphs 35-36.
[421] In Broos v. Robinson, 23 A.C.W.S. (2d), Gray J. set out the following steps that a mortgagee should follow, or at least consider, in discharging its duty to its mortgagor "to take reasonable precautions to obtain the true market value of the mortgaged property." All steps may not be necessary in every case. The list includes the following:
"1. Act bona fides in the exercise of the power of sale;
Attempt to realize fair market value in the sale;
Give some consideration to the interests of the mortgagor as well as the mortgagee's own interests;
Do not conduct the sale in bad faith (which is the reverse of (1);
See that the property comes to the attention of a wide segment of the market;
Obtain proper appraisals;
Advertise the property for sale;
Place "For Sale" signs on the property;
Place the property with the Multiple Listing Service; and
Ensure that efforts are conducted over a reasonable period of time."
[422] In Oak Orchard Developments Ltd v Iseman, [1987] O.J. No. 361 (Sup. Ct.), aff'd [1989] O.J. No. 2394 (Ont. C.A.) at 5, Saunders J. summarized the law relating to duties of a mortgagee selling under power of sale as follows:
A mortgagee selling under power of sale is under a duty to take reasonable precautions to obtain the true market value of the mortgaged property at the date on which he decides to sell it. This does not mean that the mortgagee must, in fact, obtain true value.
The duty of the mortgagee is only to take reasonable precautions. Perfection is not required. Some latitude is allowed to a mortgagee.
In deciding whether a mortgagee has fallen short of his duty, the facts must be looked at broadly and he will not be adjudged to be in default of his duties unless he is plainly on the wrong side of the line.
The mortgagee is entitled to exercise an accrued power of sale for his own purposes whenever he chooses to do so. It matters not that the moment may be unpropitious and that by waiting, a higher price could be obtained.
The mortgagee can accept the best price he can obtain in an adverse market provided that none of the adverse factors are due to fault on his part.
[Emphasis added.]
See also Manufacturers Life Insurance Company v. Granada Investments Ltd. 2001 CanLII 2708 (ON CA), 44 R.P.R. (3d) 197.
2. Need for Evidence on Standard of Care
[423] Counsel for Réno-Dépôt submitted that in the absence of expert evidence on the applicable standard of care, this Court cannot find that any of Warshafsky, Kahn, Stewart, or Marsiglio failed to take reasonable precautions to obtain Fair Market Value. Since counsel for 142 did not call any expert evidence on the standard of care, it is not open to this Court to make any finding of negligence.
[424] Counsel for 142 submitted that the meaning of "reasonable precautions to obtain true market value" is sufficiently defined in the caselaw. No expert evidence is required. He referred to numerous cases in which courts have found liability in the absence of expert evidence.
[425] In Canada Mortgage and Housing v Canplex Corp. 66 R.P.R. (4th) 67, Lederer J reviewed marketing efforts and the list in Broos v Robinson set out above. He referred to Lay, supra at para 31:
...The court set out a list of specific "duties" that should be followed or at least considered by the mortgagee…The list is helpful to flesh out the scope of the mortgagee's duty to obtain true market value.
[426] He continued at paragraph 44: "The list may provide assistance … but is not determinative of whether the standard has been met in any case."
[427] In Sterne v Victoria and Grey Trust (1984), 49 O.R. (2d) 6, Rutherford J. wrote at paragraphs 38-40:
[38] Turning now to the facts of the case before me. The defendant says that it was not negligent. It secured two appraisals of the property, listed it with an experienced local realtor who specialized in rural properties and accepted an offer that was within the range of its appraised value. But while this procedure might well describe in principle the efforts of a prudent man, the facts do not support the defendant's position. First, as I have already found, the appraisals were not, in fact, accurate estimates of the true market value of the property at that time. The negligence of the defendant's agent is its own: Bank of Nova Scotia v. Barnard, supra, at p. 421 O.R., p. 586 D.L.R.
[39] Secondly, the defendant knew, or should have known, that the property was a hobby farm; it was characterized as such by the Heynen appraisal. The value of this property would, accordingly, be most likely recognized in a somewhat more specialized market than the rural one in the vicinity of Milton. Yet neither the defendant nor its agent took any steps to ascertain how a hobby farm could be sold to the best advantage. In my opinion, advertising it in the local papers and treating it simply as another rural property were not calculated to reach the market that would be most interested in such a property. That potential market would more likely have been found in the large urban centres of Toronto and Hamilton. This failure itself constitutes negligence: Aldrich v. Canada Permanent Loan, supra, at p. 196 and Bank of Nova Scotia v. Barnard, at p. 421 O.R., pp. 586-7 D.L.R.
[40] In the result, I find the defendant to have been negligent in failing to ascertain the true market value of the property and in failing to take the steps necessary to ensure that the best price possible was achieved. I calculate the plaintiff's damages to be $25,000, this being the difference between the property's market value and its sale price. The sale price was adjusted in favour of the vendor on February 28, 1984, by $304.92 (ex. 14) and I allow that as a credit to the defendant.
[428] In that case, Rutherford J. held in effect that expert evidence was not necessary on the standard of care to be applied to the appraisers. He reviewed two appraisals obtained by the mortgagee, and weighed the evidence, including the comparables the appraisers had used and he reached his own value conclusions. He held the appraisers had not accurately estimated the true market value of the property being sold. See also Bank of Nova Scotia v. Barnard 46 O.R. 409; Continental Trust Co v. Yorkario Investments (1989) 67 O.R.(2d).
[429] Counsel for 142 submitted in any event, there is ample evidence upon which this Court can find Réno-Dépôt, the appraisers, Kahn and Warshafsky did not take reasonable precautions to obtain true value for the Lands. Its own experts provided advice on the steps necessary to obtain Fair Market Value that Réno-Dépôt did not follow. For instance, Réno-Dépôt did not follow Warshafsky's recommendations about a new advertising/marketing campaign to be undertaken after August 15, 2003 if the First Pro offer did not materialize. Despite Warshafsky's evidence that he viewed Emshih and Monterra to be qualified purchasers, Réno-Dépôt did not negotiate meaningfully with either. In the case of the appraisers, Réno-Dépôt did not follow their advice, for example, as to the Exposure Period for the Burloak Lands needed to obtain Fair Market Value.
3. Liability for Acts of Agents
[430] Counsel for Réno-Dépôt submitted Réno-Dépôt was entitled to rely on its experts. Kahn told Réno-Dépôt they had beaten the bushes for buyers. There was no one left at the table and its decision to sell the Lands to Longboat for $12.5 million was reasonable, based on that information.
[431] Counsel for 142 submitted that in and during the exercise of a power of sale, a mortgagee is responsible for the actions of its agents, including solicitors, appraisers and real estate agents: Wilf Rieck Inc. v. Gordon J. Holdings Ltd. (1994), 42 R.P.R. (2d) 311 (Ont. Gen. Div.) at Westlaw para. 16; Bank of Nova Scotia v. Barnard, supra, para. 31; Sterne v. Victoria & Grey Trust Co., supra, paras. 37 and 40. Their conduct in exercising a power of sale is attributable to the mortgagee.
4. The Absolute Prohibition in the September 2001 Agreement prohibiting 142 from Selling Any Part of the Burloak Lands for Less than $150,000.00 Per Acre
[432] Counsel for Réno-Dépôt submitted that because counsel for 142 failed to mention it in its pleadings, 142 is precluded from referring to Article 14.01 of the Agreement or the alleged discussions at the time the Agreement was negotiated about sale of any portion of the Lands for less than $150,000 per acre. He made a similar argument about reference to the effect of the Caution registered against title on December 19, 2002.
[433] Counsel for Réno-Dépôt submitted counsel for 142 did not raise the terms of the Agreement "as an issue" until the first day of trial. Réno-Dépôt would be "severely and irreparably prejudiced" were any findings of liability or damages to be made based on 142's allegations about Article 14.01 of the Agreement and the effect of the Caution. It has been deprived of the opportunity to conduct discoveries and investigations on the point.
[434] The Ontario Court of Appeal has held in Kalkinis (Litigation Guardian of) v Allstate Insurance Co. of Canada (1998), 41 OR (3d) 528 (CA) at para 12:
It has long been established that the parties to a legal suit are entitled to have a resolution of their differences on the basis of the issues joined in the pleadings: see Rule 25.06. The trial judge cannot make a finding of liability and award damages against a defendant on a basis that was not pleaded in the Statement of Claim because it deprives the defendant of the opportunity to address that issue in the evidence presented at trial.
See also Garfin v. Mirkopoulos (2009), 2009 ONCA 421, 71 C.P.C. (6th) 210 (Ont. C.A.) at para 20 and TSP-INTL Limited v Mills (2006), 81 O.R. (3d) 266 (C.A.) at paras 29-39.
[435] Counsel for 142 submitted 142 can rely on (1) Pajak's evidence about Maltauro's representations during the negotiation of the Agreement on the value of the Lands and (2) Article 14.01 of the Agreement itself.
[436] Kalkanis, Garfin and TSP, supra are distinguishable as they all involve a failure to plead causes of action. Here, there is no unpleaded cause of action.
[437] There is no prejudice. Réno-Dépôt cannot be prejudiced or surprised by reference to a provision in an Agreement to which it was a party. The Agreement was mentioned in the pleadings. Its content was clearly known to Réno-Dépôt. The Agreement speaks for itself. No evidence as to its meaning or interpretation is needed.
[438] Prior to trial, Réno-Dépôt was specifically apprised of the evidence in question, i.e., Pajak's evidence about a discussion with Maltauro and its intention to rely on Article 14.01 of the Agreement. At trial, Maltauro, the alleged maker of the representation on which Pajak was attempting to rely, gave evidence refuting Pajak's assertions.
[439] Counsel for 142 submitted he is relying on Article 14.01 as evidence of Réno-Dépôt's view of the value of the Lands in 2001, i.e., that they were worth at least $150,000 x 131 acres = $19,650,000. The evidence was not adduced to establish an unpleaded cause of action.
[440] Registration of the Caution against title to all of the Lands on December 19, 2002 effectively precluded 142 from obtaining financing to redeem the Mortgage or to service the Lands. Further, despite the expiration of the zoning and financing periods under the Agreement, the assertion by Réno-Dépôt that 142's obligations were continuing under it, had the effect of precluding 142 under Article 14.01 from selling the Lands for less than $150,000 per acre.
[441] Except for a partial discharge of the Caution to accommodate the exercise of a pre-existing option to Petro-Canada, Réno-Dépôt waived neither the Caution (arguably relevant only to the obligation of Réno-Dépôt to buy the 10 acres) nor the prohibition in Article 14.01 about selling all or any portion of the Lands for less than $150,000 per acre at any time before it contracted to sell the Burloak Lands to Longboat on August 19, 2003.
[442] In response to 142's submission that Réno-Dépôt never waived the prohibition in Article 14.01, counsel for Réno-Dépôt submitted that 142 never asked for a waiver of the prohibition against selling the Lands for less than $150,000 per acre (Kahn, Oct. 26.)
[443] Counsel for Réno-Dépôt submitted Article 14.01 has no relevance to the only issue to be decided in this case, i.e., whether the sale was improvident. The Agreement is relevant only as background to the pleaded allegations in paragraphs 4-8 of the Statement of Claim.
APPLICATION OF LAW TO FACTS
The Listing Price
[444] Having considered all of the appraisal evidence, I have found that the market value of the Lands as of the sale date was $16 million. I am of the view that the $14 million listing price was inordinately low, in itself a basis for a finding that Réno-Dépôt failed to take reasonable precautions to obtain Fair Market Value.
[445] The law is clear that in fulfilling its duty to take reasonable precautions to obtain Fair Market Value for the Lands, Réno-Dépôt could not shelter behind the incorrect conclusions of their appraisers. Vis-à-vis 142, Réno-Dépôt must bear the consequences of relying on its agents Stewart and Marsiglio in listing the Lands at $14 million.
[446] If I am incorrect in that regard, for reasons detailed in the section of these Reasons on the appraisal evidence, I find that on their face, the appraisals on which Réno-Dépôt relied were patently unreliable. Réno-Dépôt should not have relied on them in setting the listing price at $14 million.
The Marketing of the Lands
Retainer of Broker
[447] Réno-Dépôt interviewed only Warshafsky.
[448] I find taking reasonable precautions to obtain true value, even of lands of this type, need not have necessarily involved retaining a national broker. However, Réno-Dépôt expressly recognized that if Warshafsky, not a national broker, were retained, he would not automatically have the same marketing scope as a national broker. He would not have access to the research that a national research department would have given a national broker.
[449] Marsiglio recommended the use of an MLS listing saying "The exposure afforded by the MLS can confirm a vendor's commitment to best efforts in marketing"
[450] In Broos, Gray J. held that a seller should see the property comes to the attention of a wide segment of the market. He suggested that the property be placed on a Multiple Listing Service.
[451] I find to take "reasonable precautions" it was not necessary, per se, for Réno-Dépôt to use the M.L.S.
[452] However, because it did not retain a national broker or use the MLS, reasonable precautions to obtain Fair Market Value for the Lands should have included other steps to ensure broad coverage.
[453] I have not accepted Warshafsky's evidence that any out-of-province buyer without a local presence would have had no interest in buying the Lands unless it was affiliated with a member of the "inner circle." I have found it was not reasonable for Warshafsky or Réno-Dépôt to simply to assume that potential buyers outside Ontario need not be contacted, either because they wouldn't be interested in buying the Lands, or because, if they were, they would make any purchase in conjunction with a local member of the "inner circle". Even if his assumption were correct that an out-of-province buyer would want a local partner, it would not automatically follow that that partner would necessarily be a member of the "inner circle" and as such would already have learned that the Lands were for sale through the marketing already undertaken.
[454] Initial Contacts. I have found Warshafsky, the broker Réno-Dépôt chose to market the Lands, did not make adequate efforts initially to provide information to a sufficiently broad group of potential buyers.
[455] He did not even directly contact all of the acknowledged members of the "inner circle," including First Pro.
[456] The contacts he did make initially did create a flurry of interest in the Lands. Réno-Dépôt should have taken advantage of that interest, not ignored much of it.
[457] Assumptions Re Potential Purchasers. It was unreasonable for all of Warshafsky, Kahn and Maltauro to assume that the "real players" could be counted on the fingers of one hand.
[458] It was not reasonable to assume, as Maltauro said she did, that if a potential purchaser could not single-handedly complete the development it would not close.
[459] It was not reasonable to limit the field of potential buyers as they did.
[460] Once Réno-Dépôt no longer wanted or needed the Building Box site for itself, it had no reasonable basis to exclude possible purchasers because they might not have the expertise to single-handedly bring the Burloak Signature Park to fruition.
[461] Warshafsky admitted that "Money was easy out there." I find if a buyer could pay Fair Market Value for the Lands, it should have been none of Réno-Dépôt's concern whether the purchaser could single-handedly complete the development. The duty of the Mortgagee was to take reasonable steps to achieve Fair Market Value, not to find a buyer who could necessarily complete the development.
[462] Warshafsky recognized that some buyers would need to seek partners or financing from others to complete the development. If those buyers were prepared to pay Fair Market Value, then their ability to weather the storms to completion should have been considered irrelevant.
[463] Failure to Market Continuously. I have found that between June 11 and August 18 Warshafsky did not take active steps to market the lands, Kahn having instructed him not to do so.
[464] Even without an escape clause, there was nothing precluding ongoing marketing and a sale should have been actively pursued with every buyer that had the funds to pay Fair Market Value.
[465] During that time frame, the marketing being done was targeted at only two buyers, Longboat and First Pro.
[466] Due Diligence. I find the 15 day due diligence period chosen by Réno-Dépôt and demanded of Emshih, Echelon and Monterra was unrealistic and indicative of undue haste on Réno-Dépôt's part.
[467] Moreover, apart from First Pro and Longboat, Réno-Dépôt did not afford any potential purchaser any opportunity to do any due diligence at all.
[468] As Warshafsky admitted, no-one would buy without adequate due diligence.
[469] Dealings with Emshih,Echelon and Monterra. I have found that Réno-Dépôt failed to deal reasonably with Emshih, Echelon and Monterra.
[470] Escape Clause. It was not reasonable to omit to include an escape clause in all of the conditional agreements.
[471] Failure to Market after August 18. In exercising a power of sale, a mortgagee should ensure that the property is exposed for sale for a reasonable period of time and comes to the attention of a wide segment of the market: Bank of Nova Scotia v. Barnard, supra, para. 31.
[472] Warshafsky's opinion, set out in his letter to Réno-Dépôt dated August 11, was that if the First Pro offer did not firm up, a new advertising campaign should be undertaken. More marketing was needed.
[473] Both of its appraisers had opined that more exposure time was needed to obtain Fair Market Value. Réno-Dépôt was well aware of those opinions.
[474] Réno-Dépôt did not take reasonable precautions to obtain Fair Market Value when it failed to follow that clear and correct advice.
[475] I find that Reno-Dépôt should have continued to expose the property after August 19, 2003, advertising and marketing it broadly.
[476] It was not reasonable to fail to expose the property for the recommended period, especially given that its investment was not at risk. There was no urgency to sell the Lands for $12.5 million to protect its own investment.
[477] By failing to adequately expose the Lands, Réno-Dépôt was in breach of its duty to take reasonable precautions to achieve Fair Market Value.
[478] Hausman v. O'Grady is distinguishable on its facts. While perfection is not required, it is clear that the exposure here was unreasonably short. A reasonable amount of time was not allowed to find a purchaser. Réno-Dépôt cannot shelter behind its own failure to adequately expose and market the Lands.
[479] Undue Haste. Réno-Dépôt acted with undue haste in all the circumstances here, in entering into an Agreement with Longboat on August 19 to close on August 27.
[480] The sale to Rona was closing on September 11. By reason of the closing with Longboat on August 27, its parent company was able to recover in excess of $11 million out of the sale price before that closing date.
[481] Acting in Good Faith. In Broos, supra, one of the items on Gray J's list of "duties" was acting in good faith.
[482] Except for a partial discharge of the Caution to accommodate the sale of about five acres of the Burloak Lands to Petro-Canada, Réno-Dépôt kept the Caution registered against title to the Burloak Lands until discharging it to permit the sale of the Lands to Longboat (see letter dated November 4, 2003, Ex. 35, p. 3, last paragraph.)
[483] In my view, the continued registration of the Caution against title to the Lands was in bad faith. It not only encumbered the title to the Burloak Lands, it also impaired their marketability and value.
Article 14.01
[484] I have not accepted the submission of counsel for 142 that in the fall of 2001 Réno-Dépôt assessed the value of the Burloak Lands at no less than $150,000.00 per acre.
[485] I do not accept the submission of counsel for 142 that having contractually prohibited 142 from selling any part of the Burloak Lands for less than $150,000.00 per acre and thereafter maintaining that prohibition, the Defendants are bound by the same prohibition.
[486] Both Kahn [Oct. 27] and Maltauro [Nov. 2] gave evidence they understood 142 was absolutely prohibited from selling any part of the Burloak Lands for less than $150,000.00 per acre, at least so long as the Mortgage was outstanding. That provision was never waived by Réno-Dépôt (Maltauro, Nov. 2.)
[487] This Court must interpret the legal effect of Article 14.01 in the Agreement. I find it means what it clearly says: 142 could not sell any portion of the Lands for less than $150,000 per acre.
[488] Réno-Dépôt was entitled to rely on that Article. At the same time, it would have been obvious to Réno-Dépôt that that provision would make 142 particularly vulnerable if it exercised its rights under the Mortgage before the redevelopment process was sufficiently complete to allow for a favourable refinancing of all the Lands and/or the sale of individual lots.
CONCLUSION RE LIABILITY
[489] I have concluded for all the reasons set out above that even considering the facts broadly, Réno-Dépôt did not take reasonable precautions to obtain the Fair Market Value of the Lands. Its conduct of the sale was plainly on the wrong side of the line.
[490] For reasons detailed in the next section, its listing price was two million dollars too low.
[491] Its marketing efforts were insufficient, conducted over too short an Exposure Period and directed towards an overly narrow field of potential buyers.
[492] Réno-Dépôt unreasonably limited the field of potential purchasers to two. It should have been obvious to Réno-Dépôt that First Pro and Longboat were not the only realistic possibilities; other qualified purchasers were interested and insufficient efforts were made to locate and follow up with others.
[493] It did not reach or court potential purchasers who could have paid Fair Market Value for the Lands or involve them in a process designed to achieve Fair Market Value.
[494] It precluded due diligence by all but two potential purchasers for insufficient reasons.
[495] By conducting the sale as it did, including restricting the field of buyers, refusing to ask Longboat and First Pro for escape clauses as included by Kahn in the draft he prepared for use by purchasers shortly after the Lands were listed for sale, it created and perpetuated many of the conditions that led to Longboat's lowball offer of $12.5 million that Réno-Dépôt accepted on August 19, 2003.
[496] Réno-Dépôt was in too much of a hurry to sell, especially given that its principal and interest were not in jeopardy. There was a substantial cushion between the money owed to it and the offers being made. See Wood v. Bank of Nova Scotia 1979 10 R.P.R. 1565.
[497] Réno-Dépôt is responsible to 142 for the conduct of its agents.
[498] In any event, Réno-Dépôt was well aware of their actions. It either mandated or encouraged and condoned them.
THE APPRAISAL EVIDENCE
[499] Since I have compared and analyzed all of the appraisal evidence together, I have set out my factual conclusions only once. However, I have set out my legal conclusions based on the appraisal evidence in each of the Liability and Damages sections of these Reasons.
[500] All the appraisers who gave evidence before this Court valued the Lands after March 24, 2003, when 142 received conditional approval of the zoning, Official Plan designation and Draft Plan of Subdivision for the Burloak Signature Park.
[501] The reports and evidence of the appraisers Stewart of Metrix Appraisals and Marsiglio of Integris Appraisals, valuing the Lands as of March 25 and May 1, 2003 at $14.2 and $13.2 million, respectively, are relevant to 142's allegation that Réno-Dépôt did not take reasonable precautions to obtain true value when it listed the Lands on May 20, 2003 for $14 million.
[502] The appraisal and evidence of Hicks, valuing the Lands as of August 27, 2003 at $17,670,000, are directly relevant to the issue of damages.
The Direct Comparison Approach
[503] The appraisers met prior to trial and prepared a chart setting out their areas of agreement and disagreement. They all used the same approach to valuation, the Direct Comparison Approach. It involves reviewing and using the values of comparable properties to arrive at the value of the land being appraised. If ideal comparables [i.e., those having exactly the same characteristics] are not available, adjustments are made to reflect the differences.
[504] Stewart's report, Ex. 38, contains the following at pp 64-65 :
Method of Valuation
The traditional approaches to a vacant land value, namely the Direct Comparison Approach and the Land Residual Technique have been considered in estimating the market value for the subject property. Based upon the available market data and the likely motivations of the typical purchaser, the Direct Comparison Approach is developed and solely relied upon.
Direct Comparison Approach
The unit of comparison relied upon in this section is the price expressed on a per acre basis. Following is a Summary of the Most Comparable Vacant Land Sales as well as an analysis of the data and a conclusion as to an estimate of market value.
[505] Marsiglio's appraisal, Ex. 64, contains the following at pp. 72-73:
ESTIMATE OF VALUE BY THE DIRECT COMPARISON APPROACH
Explanation of the Approach
As noted previously the Direct Comparison Approach is a method by which a property is valued by comparison with sales and listings of other similar properties. However, since no two properties are identical, it may be necessary to consider adjustments to the comparable property sale prices to properly reflect the conditions of the subject property. Some of the major elements of comparison that may merit consideration for adjustment are discussed briefly below.
[506] He listed the following elements: Property Rights Conveyed, Financing Terms, Conditions of Sale, Market Conditions, Location, Development Timing, Physical Characteristics and Use. He said given the estimated highest and best use, his comparable sales analysis and research concentrated on locating and analyzing recent sales of industrial and commercial development lands.
[507] Hicks' report, Ex. 54, contains the following at p. 29:
- The Direct Sales Approach is generally the preferred approach to site valuation. This method reflects typical buyer and seller reactions in the marketplace and also the principle of substitution. It requires the gathering, recording and comparing of similar land sales at times concurrent with the date of appraisal and under comparable conditions. Through a process of adjustment for differences between the comparable sales and the subject property, each comparable sale becomes a basis for indicating the value of the site being appraised.
Application It is the Direct Sales Approach which we have applied and which is deemed the
most relevant approach for the valuation of the subject land.
[508] All three appraisers agreed that they could value the Burloak Lands using a development or residual approach, because they did not have sufficient reliable information on development costs.
[509] In an early draft of his appraisal report, Marsiglio used a development approach in addition to the Direct Comparison Approach.
[510] He gave evidence [Nov. 4] that he recommended to Réno-Dépôt that he remove the development approach from the draft because "there were too many assumptions…we did our best to get some clarity and reliability on the costs but there wasn't enough."
Highest and Best Use
[511] The appraisers agreed on the highest and best use of the property.
[512] Stewart's appraisal, Ex. 38, contains the following at pp 61-63:
Highest and Best Use Real estate is valued in terms of its highest and best use. Highest and best use is defined as:
The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability
Source: The Dictionary of Real Estate Appraisal, Third Edition, 1993, Appraisal Institute
To properly analyse the highest and best use, two determinations must be made. First, the highest and best development of the site as though vacant and available for use is made. Second, the highest and best use of the property as improved is analysed and estimated. The highest and best use of both the land as though vacant and the property as improved must meet four criteria: physically possible, legally permissible, financially feasible, and maximally productive. Of the uses that satisfy the first three tests, the use that produces the highest price or value consistent with the rate of return warranted by the market is the maximally productive use.
Subject Property
Physically Possible. Analysis of the site characteristics and nearby improvements in the area indicates the subject site could adequately support physical development should municipal services be extended to the lot line.
Legally Permissible The newly approved zoning classification permits the following uses:
The foregoing table details that which is permitted under the approved Draft Plan of Subdivision. Final municipal approval must await a subdivision agreement and the town's satisfaction with the plan as to the installation of services including water, storm water management, on and offsite road improvements, etc.
Financially Feasible Retail development is clearly financially feasible in this location, as The Building Box has optioned a 10±-acre parcel for the future construction of a large format retail use. Office and industrial uses will require a reversal in the current market trends, as leasing activity in the office sector likely does not support new construction at this time. Industrial development is more location specific as there are still pockets of new construction occurring throughout the GTA.
Maximally Productive
The subject property is located at the southeast corner of Burloak Drive & Queen Elizabeth Way on South Service Road in the Town of Oakville, Regional Municipality of Halton. In our view, the maximally productive use of the subject site is mixed retail, office and industrial uses in a business park setting.
Commentary. Based on the foregoing, those uses that are legally permissible and that appear financially feasible, namely the proposed retail, office and industrial uses would likely provide the greatest return to the land and therefore represent the highest and best of the property.
[513] Marsiglio's Report, Ex. 64, contains the following at pp. 66-68:
HIGHEST AND BEST USE
The principle of "Highest and Best Use" is fundamental to the valuation of real estate. Highest and Best Use is defined by the Appraisal Institute of Canada as
"that use which, at the time of appraisal, is most likely to produce the greatest net return, in money or amenities, over a given period of time".
A highest and best use analysis involves a consideration of various development control, site and market characteristics, which can generally be summarized into four criteria. The highest and best use must be (i) legally permissible, (ii) physically possible, (iii) financially feasible and (iv) maximally productive.
[514] He outlined the following criteria: (i) Legally Permissible; (ii) Physically Possible; (iii) Financially Feasible; (iv) Maximally Productive. He noted in Exhibit 64:
• The subject lands are located on the southeast corner of Burloak Drive and South Service Road, just south of the QEW, on the western limit of the Town of Oakville, adjacent to the eastern border of the City of Burlington. The subject property enjoys excellent exposure to QEW traffic, both east and westbound;
• The property comprises an area of 131.00 acres (53.02 hectares) and has approximately 2,297 feet of frontage (700 metres) on South Service Road and 787 feet of frontage (240 metres) on Burloak Drive. Developable acreage is calculated to be 120.11 acres.
• Development occurring within the subject neighbourhood include 300 new homes that are proposed to be built in the area south of Rebecca Street east of Burloak Drive in 2004 after Great Lakes Boulevard is complete. The vacant site immediately east of the subject property is proposed for development with six industrial buildings. The two in the first phase are proposed with a total floor area of 532,232 square feet (49,446 square metres). This proposal provides for the continuation of Wyecroft Road eastbound from the Burloak Signature Park;
• On March 24, 2003, the Town of Oakville Planning and Development Council approved an Official Plan Amendment, rezoning and Draft Plan of Subdivision for the majority of the subject lands permitting a mixed commercial retail, office and industrial subdivision; and,
• The subject site is designated "Arterial Commercial", "Employment Lands" and "Natural Area" within the Burloak Employment District in the Town of Oakville Official Plan;
• The subject site is zoned E1 - Light Employment, E2 - General Employment and C3A – Arterial Commercial and O4 – Open Space. The implementing Zoning By-law contains a holding provision until, among other issues, arrangements have been made with the Region of Halton's Development Coordinator for wastewater services and plant capacity;
• The Draft Plan of Subdivision proposes a variety of land uses including large scale retail, which are intended to be developed in a "power centre" format, office commercial, prestige industrial, general industrial, highway commercial and future development lands;
• A 5.377 acres (2.176 hectare) parcel of land at the southeast corner of Burloak Drive and the proposed easterly extension of Wyecroft Road was not included in the application and recently granted severance approval from the larger parcel and is proposed for development with a Petro-Canada gas station and retail uses.
[Emphasis added]
[515] His conclusion on Highest and Best Use was as follows:
Having consideration of the subject location, site characteristics, Official Plan and zoning designations and Draft Plan Approval, it is our opinion that the highest and best use of the subject property is a mixed commercial industrial subdivision.
[Emphasis added.]
[516] Hicks' Report. Ex 54, contains the following on highest and best use:
Definition "The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and results in the highest value."
"The four criteria the highest and best use must meet are physically possible, legally permissible, financially feasible, and maximum productivity or profitability."
Physical Given the prominent location, good exposures, and site area, the subject property is able to support the proposed developments. It was considered to be physically possible.
Legal The current zoning and site specific by-law 2001-007 permit a mixed industrial, commercial and retail development. We are of the opinion that the subject property is of a legal conforming use, and considered to be legally permissible.
Financial The proposed improvements were very popular construction in the 'big-box' style. This type of construction has proven to be very profitable with very low vacancies. Therefore, the proposal to improve the property appears to be financially feasible.
Maximum The proposed improvements appear to cover a reasonable portion of the site area and, based on similar type developments, produce a steady and stable cash flow for the owners. Therefore, the proposed use is considered to be the use which is maximally productive.
Conclusion Therefore, the potential development of the site for approximately 1,670,000 square feet of retail and commercial buildings was considered to be the use most compatible with the criteria for the highest and best use of the land.
[Emphasis added.]
[517] Despite their agreement that the Direct Comparison Approach should be used in arriving at Fair Market Value, from a review of their reports and their evidence it appears that the application of that approach was fraught with difficulty, given the size of the Lands, the mixed uses constituting highest and best use and their incomplete development status.
[518] Ideal comparables are identical in size, location, zoning, Official Plan designation, highest and best use, development status and timing.
[519] The well advanced but incomplete development status of the Burloak Lands was a major complicating factor here. They were obviously much more valuable after the approvals on March 24, 2003 than they had been before the development process was commenced. However, the extent of the value enhancement was very controversial.
[520] Developed lands used for a specific purpose may be compared with other developed lands used in the same way. Undeveloped lands may be compared with other undeveloped lands having the same highest and best use.
[521] Here, however, it was difficult to virtually impossible to find good comparables for the Burloak Lands, because its development process, while largely complete, had not been wholly accomplished. Some conditions needed to be met and servicing needed to be done. Once complete, a particular combination of mixed highest and best uses would be allowed, including industrial, office and big box retail uses.
[522] In the Direct Comparison Approach, if comparables have been chosen that do not have identical attributes to the subject, adjustments must be made to reflect the differences. As the number of adjustments increases, the reliability of the value conclusions decreases (Marsiglio's report at p. 70.)
[523] Here the nature and size of the adjustments that should be made were controversial. The correct manner of making them was also contentious.
[524] Stewart and Marsiglio made "directional" up and down adjustments, without quantifying them. Marsiglio said [Nov 4] he used directional adjustments because:
A. Appraisal is not a precise science. …Given the nature of this property and all the issues and complexities of it … in this case, we just felt that trying to quantify the adjustments would ultimately be somewhat misleading, whereas directional adjustments at least give someone a sense of what we're thinking … maybe it's a small downwards or maybe it's a large downwards, and conversely on the upwards side. And that gives our reader, we think, a sense of … how we're approaching this and how we slowly funnel into … a smaller range of values that create goal posts on the low side and on the high side. …
[525] Hicks quantified her adjustments and then precisely calculated her adjusted values.
Stewart's Appraisal
[526] As mentioned earlier, Stewart's appraisal, purportedly using the Direct Comparison Approach, was the primary rationale for Réno-Dépôt's decision to list the Burloak Lands for $14 million, although it also had in hand Marsiglio's unfinished draft.
[527] In his report, Exhibit 38, Stewart appraised the market value of the Burloak Lands at $14,216,880.00, as of March 25, 2003 [after the successful rezoning on March 24, 2003 but before June 2003 when about 5 acres of the Lands were transferred to Petro-Canada pursuant to an option to purchase for $357,524]. He agreed that his value needed to be adjusted downward to reflect the reduced value as a result of that transfer.
Highest and Best Use of the Burloak Lands
[528] As noted earlier, Stewart gave evidence that the highest and best use of the Lands was for mixed retail office and industrial uses in a business and retail park setting as follows:
30.44 acres of large scale retail
22.63 acres of office commercial
26.89 acres of prestige industrial
14.21 acres of general industrial uses
28.42 acres of natural, storm water management areas and Roads
Stewart's Comparable 1
[529] Stewart's Comparable 1 lands, located in Ajax (the "Ajax lands"), about the same acreage as the Burloak Lands, 144.63 acres in size versus 131 acres, were sold for $152,778.00 per acre on July 31, 2002.
[530] Loblaws purchased them for a large warehouse distribution centre, an industrial highest and best use.
[531] The Ajax lands had no commercial acreage that would typically sell at higher values than industrial acreage.
[532] Stewart made no upward adjustment for time vis-à-vis the Burloak Lands, although the transfer of Comparable 1 was earlier than the effective date of the appraisal of the Burloak Lands, March 25, 2003, and one would have been warranted.
[533] Stewart conceded that the zoning, Official Plan and planning status of the Ajax lands were inferior to those of the Burloak Lands.
[534] The Ajax lands were located outside the Urban Boundary of Ajax. As of July 2002, they were zoned agricultural. Before Loblaws could use them for the industrial purpose for which they were purchased, it had first to obtain an Official Plan Amendment and get them re-zoned.
[535] Stewart agreed [Oct. 28] that since the Burloak Lands had superior zoning, location, planning status and timing, upward adjustments were warranted for each vis-à-vis the Burloak Lands.
[536] He did not quantify his adjustments.
[537] While he initially said that the Ajax lands had better accessibility to the 401 in July 2002 than the Burloak Lands had to the QEW on the effective date of his appraisal, March 25, 2003, he admitted later that the access ramp from the 401 to service the Ajax lands was not built until after July 2002, or indeed, until after March 25, 2003.
[538] As to location, he conceded that suburban GTA lands to the east of Toronto are generally considered to be less valuable than comparable lands to the west [i.e., the location of the Burloak Lands was better than that of the Ajax lands.]
[539] Since Loblaws purchased the Ajax lands for its own use as a distribution warehouse and was not, according to Stewart, facing the same development risks that a buyer of the Burloak Lands would face, Stewart opined that a significant downward adjustment vis-à-vis the Burloak Lands was warranted on that account.
[540] Stewart opined overall that there was no basis for any downward adjustment vis-à-vis the Burloak Lands except for those greater development risks.
[541] Stewart said [Oct. 28] he had no information that Loblaws paid anything other than market value for the Ajax lands.
[542] [Marsiglio opined [Nov. 4] that it is improper for the Court to simply consider what the purchaser intends to do with a property. Rather, it must look at what the Market knew at the time – what any number of knowledgeable purchasers would believe the potential of the property to be at the time of the sale.]
[543] Counsel for 142 submitted that there was no basis for a downward adjustment on account of development risks. Stewart should only have made upward adjustments vis-à-vis the Burloak Lands on account of timing, zoning, planning and location to the $152,778.00 per acre price paid by Loblaws for the Ajax lands in July 2002.
[544] Counsel for 142 submitted this Court should hold that Stewart's Ajax Comparable 1 represents a minimum value for the Burloak Lands of $152,778.00 per acre. Even if a modest 30% total upward adjustment had been made in favour of the Burloak Lands for time, location, zoning and planning, that would result in an adjusted value of $198,611.00 per acre.
Stewart's Comparable 2
[545] Stewart opined and counsel for Réno-Dépôt submitted, based on his evidence, that Stewart's most important comparable was the sale of the Burloak Lands as of November 2001. In selecting comparable properties, appraisers seek to find properties as close as possible to the subject property. Therefore, a sale of the Lands themselves was ideal. Using the 2001 sale price of $10,352,160, Stewart then adjusted for changes in value that had occurred between November 1, 2001 and the date of valuation, March 25, 2003 caused by the March 24, 2003 approvals. He estimated the change in value at $3,825,000.
[546] He considered only the change in value resulting from the rezoning of 12.75 acres from industrial to large scale retail. He made no adjustment for any increases in value to the balance of the Lands as a result of the March 24 approvals.
[547] Counsel for 142 submitted that Stewart's methodology with regard to his Comparable 2 departed markedly from the standard Direct Comparison Approach. His comparables were serviced retail and industrial lands, when the lands being valued, the Burloak Lands, were unserviced.
[548] His large scale retail comparables were serviced 6-10 acre parcels in Oakville, Mississauga and Brampton, sold between August 2001 and March 2003 for $425,746 - $795,417 per acre. On the basis of those comparables, Stewart concluded that serviced large scale retail lands would sell for $350,000 – $800,000 per acre [as set out in the chart at p. 71 of his appraisal, Ex. 38.] He ultimately used a serviced value of big box retail lands of $600,000 per acre.
[549] He estimated that 12.75 acres of serviced industrial land would have sold for $185 – $320,000 per acre. He ultimately concluded they would have sold for $300,000 per acre. The rezoning on March 24 had caused an increase in value of $300,000 per acre [inaccurately described in Ex. 38 as $200,000 per acre as set out on the chart at p. 72 of Ex. 38.]
[550] Therefore he estimated the increase in value of the 12.75 acres at 12.75 x $300,000 = $3,825,000.
[551] $10,352,160 (the 2001 purchase price) + $3,825,000 =$14,177,160, his total estimated value of the Burloak Lands as