SUPERIOR COURT OF JUSTICE - ONTARIO
COURT FILE NO.: 09 CV 00374492
DATE: 2012/07/11
RE: Kreadar Enterprises Limited
Plaintiff/Applicant
Jessica Xiao Jing Wang
Defendant/Respondent
BEFORE: Justice Moore
COUNSEL: Stephen Richard Morrison & Daniel Zacks , for the Plaintiff/Applicant
Ben Mignardi , for the Defendant/Respondent
DATE HEARD: 5 July 2012
E N D O R S E M E N T
[ 1 ] In this summary judgment motion, the applicant is Kreadar Enterprises Limited (“Kreadar”), a commercial real estate developer and the owner of two condominium units that the respondent, Jessica Xiao Jing Wang (“Wang”), offered to purchase in July of 2006.
[ 2 ] There is no suggestion that the agreement of purchase and sale was other than a standard form document that reflected, in every respect, the agreement that it purported to document. It documented a total purchase price of just under $2,000,000 and called for the payment of three purchase deposits, of 10% each, two of which Wang paid in full and on time.
[ 3 ] A third deposit, due in the summer of 2008 was not paid when due. Kreadar extended the time for payment but Wang did not ever fund that deposit obligation and the transactions did not close.
[ 4 ] The deposits that were paid have remained in trust and Kreadar has been unable to persuade Wang to consent to their release; hence this action and this motion.
[ 5 ] The matter came on by way of an Application before Pattillo J. on 3 May 2010, at which time there was no cross application by Wang for the return of the deposits; but in responding materials filed for purposes of that hearing, Wang raised, for the first time, issues that it would be unconscionable for the court to order the release of the deposit money to Kreadar and that Kreadar had suffered no damages as the result of Wang’s refusal to fund and close the transaction.
[ 6 ] Pattillo J declined to deal with the issues before him by way of Application and directed a trial of issues upon pleadings that he ordered to be exchanged.
[ 7 ] Kreadar delivered its statement of claim in June of 2010 and in July of 2010, Wang delivered her statement of defence and counterclaim; she thereby denied Kreadar’s entitlement to the deposit money and requested its return to her.
[ 8 ] In April 2011, Kreadar launched this motion for summary judgment. For various reasons, the motion was adjourned several times but the issues engaged by the pleadings have remained the same.
[ 9 ] The purchase agreement clearly provides that upon termination of the agreement while deposit money is being held in trust, that money is forfeited to Kreadar; as such, an issue on this motion is whether Wang is entitled to relief from forfeiture.
[ 10 ] Kreadar insists that as a matter of fact and law, there is no basis for ordering that relief and no issue that requires a trial in this action in order for the court to obtain a full appreciation of the evidence and issues required to make a dispositive finding. For the reasons that follow, I agree.
[ 11 ] I also find that while Kreadar has put its best foot forward in establishing its right to the relief sought, Wang simply has not. I will come back to this concern later in these reasons.
The Law
[ 12 ] The parties agree that this is a motion governed by the provisions of Rule 20.04(2) (a), a rule that is to be liberally construed to secure the just, most expeditious and least expensive determination of a proceeding upon its merits.
[ 13 ] The parties accept, as do I, the recent jurisprudence from our court of appeal in Combined Air , [1] as discussed and applied in many cases in this court since, is applicable in this matter. Principles to be taken include:
The purpose of summary judgment is to eliminate unnecessary trials. Rule 20 permits a court to decide action summarily where the court is satisfied that there is no factual or legal issue raised by the parties that requires a trial for its fair and just resolution; [2]
Cases are amenable to summary judgment where the claims or defenses are shown to be without merit or where the "interests of justice" do not require the issues to be resolved at trial. Cases do not require a full trial if they satisfy the full appreciation test; that is, if the court can fully appreciate the evidence and issues required to make a dispositive finding based on the motion records, the rule 20.04 powers and without a full trial process; [3] and
Document-driven cases with limited testimonial evidence, cases with limited contentious factual issues, and cases where the governing legal principles are not in dispute will normally satisfy the full appreciation test. [4]
[ 14 ] Given that the factual matrix giving rise to the real estate transaction and the agreement of purchase and sale evidencing it are not in dispute and that this motion involves the determination of issues in the context of a document-driven case with limited testimonial evidence and clear law governing the legal issues, I am satisfied that I am well able to obtain a full appreciation of the issues and evidence necessary to make dispositive findings based upon the motion materials before me.
[ 15 ] Kreadar has filed motion materials that satisfy the evidentiary burden upon it to establish that there is no genuine issue of material fact requiring a trial. I assume for purposes of this motion that the motion materials filed by the parties contain all relevant evidence that would be presented at trial. Particularly is this so in this case as the parties have had several years in which to consider the issues and marshal evidence related to each.
[ 16 ] While I observe it to be odd that Wang did not raise unconscionability and/or no damages suffered issues between her default in October 2008 and the hearing before Pattillo J in May of 2010 and has not spoken for herself in any affidavit filed to this date, the fact remains that time is of the essence in real estate matters and in motions of this sort and the parties have had ample time to put “best foot forward”.
[ 17 ] Kreadar having met its obligation to establish no genuine issue for trial, Wang bore a burden of responding to that position. She is obliged to adduce proper evidence, by admissible affidavits or otherwise, to establish that her defence and counterclaim stand a real chance of success. [5]
[ 18 ] The evidence adduced by Wang was scant, lacking in particulars such as those required to identify sources of information relied on, lacking in first-hand knowledge of facts deposed to, it was self serving but vague and largely not responsive to the evidence lead by Kreadar and/or the issues before the court on this motion. There was no evidence adduced to explain why Wang remained personally silent before this court in the face of her very real and present danger of legal and fiscal jeopardy.
[ 19 ] Far from putting her best foot forward, Wang’s response to this motion amounted to little more than dabbing a toe in the water.
[ 20 ] The court may and I do draw an adverse inference from Wang’s failure to provide her first hand evidence of the facts at issue in this matter [6] and I accept the evidence of Kreadar where it conflicts with any asserted to stand in opposition to it.
[ 21 ] The law is clear that a deposit may be forfeited without proof of damages. [7] This is a simple case in which Wang agrees that she made two deposit payments during the life of the agreement and in accordance with the terms of that agreement. The transaction floundered, despite offers by Kreadar to grant extensions of time for Wang to cure her default. The agreement called for forfeit upon default.
[ 22 ] The language used in the agreement is clear and unambiguous. There is no doubt that absent a valid reason to relieve against it, forfeit of deposit money follows upon Wang’s default.
[ 23 ] Kreadar has clearly suffered damages as the result of Wang’s default but waives any claim to recover damages in addition to recovery of the deposits and associated interest accrued upon them. Wang’s submissions and the case law cited in support thereof overlook the fact that proof of damages is not a pre-condition of Kreadar’s entitlement to the deposit money here.
[ 24 ] Wang responded not at all to Kreadar’s reliance upon Peachtree [8] in which Sharpe JA stated (at paragraph 21 - 25):
To understand the law’s treatment of stipulated remedy clauses as it pertains to this case, we must turn to history and to the two great streams of our legal tradition, common law and equity. Although those two streams were joined well over a century ago, as this case demonstrates, we continue to encounter issues of confluence and the reconciliation of doctrines derived from one tradition with those derived from the other.
The courts of common law and equity adopted similar but distinctive rules with respect to stipulated remedy clauses that had penal consequences. The courts of common law dealt with attempts to enforce the payment of penalties while the courts of equity dealt with pleas for relief from penal forfeitures….. Like promises to pay a penalty, forfeitures often have penal consequences as the right or property forfeited by the defaulting party may bear no relation to the loss suffered by the innocent party.
There is a venerable common-law rule to the effect that the courts will not require a party to pay a genuine or true penalty on grounds of public policy. The parallel, but distinctive, equitable rule is to the effect that penal forfeitures will be relieved against where their enforcement would be inequitable and unconscionable.
While both doctrines have the effect of relieving the breaching party of the penal consequences of stipulated remedy clauses, in their traditional formulations they bear significant differences. The common law penalty rule involves an assessment of the stipulated remedy clause only at the time the contract is formed. If the stipulated remedy represents a genuine attempt to estimate the damages the innocent party would suffer in the event of a breach, it will be enforced….. Although the common-law defined penalties in terms of unconscionability, that assessment is to be made at the time the contract was formed. The common-law doctrine did not include any discretion to be exercised in the light of circumstances that may exist at the time of breach.
Equity, on the other hand, considers the enforceability of forfeitures at the time of breach rather than at the time that the contract was entered. Equity also looks beyond the question of whether or not the stipulated remedy has penal consequences to consider whether it is unconscionable for the innocent party to retain the right, property or money forfeited…
[ 25 ] Kreadar comes before this court as an innocent party which has acted reasonably, in accordance with the terms of the real estate agreement it made with Wang, having offered Wang opportunities to cure her default and seeks equitable relief. Kreadar neither seeks damages nor payment of a pre-estimate made at the time of negotiation of the agreement of what the size and shape of damages upon default might reasonably be.
[ 26 ] Wang has not demonstrated that forfeiture of deposit money in this case would be clearly penal in nature or unconscionable on the basis of the application of equitable principles.
[ 27 ] Sharpe JA has also stated that [9]
Judicial enthusiasm for the refusal to enforce penalty clauses has waned in the face of rising recognition of the advantages of allowing parties to define for themselves the consequences of breach… The arguments favoring the enforcement of stipulated remedy clauses on this score are recognized by Fridman, The Law of Contract in Canada, 4 th ed. (Toronto: Carswell, 1999) at 817 and are especially well put by Waddams, supra, at para. 8.330:
It is useful to remember that the jurisdiction to strike down penalty clauses represents an exception to the general principle of freedom of contract. The force of the general principle should not be underestimated. There are strong arguments for enabling parties to set their own value on performance. The power to do so gives flexibility to the contracting process; it enables the promisor to offer an assurance of performance while limiting liability for consequential damages and thereby making the cost of breach predictable. It enables the promisee to avoid the cost of securing compensation by litigation and the risks of under compensation that may be caused by the legal restrictions on damages, such as remoteness, certainty of proof, mitigation and failure to recognize intangible losses; it reduces the cost to the parties and to the state of settling a dispute after breach; it enables the promisee to purchase insurance against default from the party in the best position to provide it at the lowest cost. A further point is that the striking down of the clause may represent an injustice to the promisee for the price of performance will have been agreed in the light of all the promisor's obligations, including the promise to pay an agreed sum on breach; if that promises struck down, the promisee does not receive what has been paid for…
[ 28 ] In the instant case, there are many good reasons to allow the contracting parties to live by the real estate agreement and the forfeiture of deposit provisions therein and there is no good reason, upon the evidence before me on this motion, to do otherwise. Further, Wang has not acted promptly, let alone upon appropriate evidence, to resist Kreadar’s application for equitable relief.
[ 29 ] I agree with the applicant that this is simply a case involving forfeiture and not a case involving a request for recovery of a penal sum. Fairness dictates that Kreadar the entitled to keep the deposit money at issue, the outcome bargained for.
Disposition
[ 30 ] Kreadar shall recover summary judgment against Wang:
• declaring that the deposits, plus any interest earned thereon, are forfeited to Kreadar;
• declaring that Borden Ladner Gervais LLP, as trustee of the deposits, is entitled to release the deposits, together with any interest earned thereon, to Kreadar; and
• dismissing Wang’s counterclaim for return of the deposits.
[ 31 ] At the commencement of this motion, I required the parties to exchange costs demands in order both that the court might have information available to it at the end of the motion as to the reasonable expectations of the paying party and in order that the parties would have a better appreciation of their potential financial jeopardy in costs.
[ 32 ] Kreadar shall recover costs in accordance with the bill of costs, filed, and submissions thereon. If entitled to costs on a partial indemnity basis, Kreadar shall recover the sum of $35,715.46 and if entitled to costs on a substantial indemnity basis, it shall recover $46,790.48. If the parties cannot agree on which basis applies, they may submit brief written submissions, of no more than two pages each, to me within 10 days.
Moore J.
DATE: 11 July 2012
[1] Combined Air Mechanical Services Inc. v. Flesch , 2011 ONCA 764
[2] Supra, at paras. 37-38
[3] Supra, at paras 41-45, 50, 54-55
[4] Supra, at paras 52 and 219
[5] Rules 20.01(3) and 20.04; Combined Air, supra, at para 56; Dawson v. Rexcraft Storage Warehouse Inc. (1998), 164 DLR (4 th ) 257 at para. 23-26 (CA); and 1061590 Ontario Limited v. Ontario Jockey Club (1995), 21 OR (3d) 547 at Para. 36 (CA).
[6] Vincorp Financial Ltd. v. Hope’s Holdings Inc. , 2010 ONSC 6819 at para 45 .
[7] Pleasant Developments Inc. v .Iyer, 2006 10223 (ON SCDC) , [2006] O.J. No. 1319 at para. 7
[8] Peachtree II Associates-Dallas LP v. 857486 Ontario Ltd., 2005 23216
[9] Peachtree, supra, at para. 34.