ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-12448943

DATE: 20130711

BETWEEN:

2270752 ONTARIO INC.

Plaintiff

– and –

2071111 ONTARIO INC. and 2250361 ONTARIO INC.

Defendants

– AND BETWEEN –

2250361 ONTARIO INC.

Plaintiff by Counterclaim

– and –

2270752 ONTARIO INC., KAILASH CHANDER KASAL, CENTURY 21 NEW STAR REALY INC. and BALJIT DHALIWAL

Defendants by Counterclaim

Michael Simaan, for the Plaintiff, and Defendants by Counterclaim, 2270752 Ontario Inc. and Kailash Chander Kasal

Marvin J. Huberman, for the Defendant, 2250361 Ontario Inc., Plaintiff by Counterclaim

HEARD: February 25, 26, 27, 28, March 1, April 29, 2013

REASONS FOR JUDGMENT

lederman, j.

Nature of Action

[1] The plaintiff seeks specific performance of an Agreement of Purchase and Sale to purchase a gas station property in Peterborough, Ontario (the “Fowlers Corner” property).

[2] The plaintiff, through its representative, Kailash Kasal (“Kasal”) signed an Agreement of Purchase and Sale (“APS”) on April 29 2011, with a seller named as 2071111 Ontario Inc. However, it is clear that the name of the seller was a mistake and was always intended to be the defendant, 2250361 Ontario Inc. (“225”). The action was discontinued against 2071111 Ontario Inc.

[3] The APS was drafted by the defendant by counterclaim Baljit Dhaliwal (“Dhaliwal”), the principal of the brokerage, the defendant by counterclaim Century 21 New Star Realty Inc. (“Century 21”). They acted as a dual agent for both the plaintiff purchaser and the defendant 225 vendor in this transaction.

[4] The principals of 225 were Dianwei Xu (“Peter”) and Rong Wu (“Jenny”)

[5] The APS called for two closings: an interim closing on May 31, 2011 at which time the plaintiff would take possession of the property; and a final closing of the sale of the property within one year later at which time legal title would pass to the plaintiff. Specifically, the relevant terms of the APS (and a subsequent amendment) were as follows:

a. The purchase price was $3,200,000.00;

b. The transaction was to be completed on or before May 31, 2011 on which date vacant possession of the property was to be provided to the plaintiff;

c. The plaintiff was to pay a deposit of $300,000.00 within 24 hours of acceptance of the agreement to Century 21 and to be held by Century 21, the brokerage firm acting for both the plaintiff and 225;

d. The plaintiff was to pay a further deposit of $600,000.00 by June 30, 2011;

e. By an amendment to the APS, dated June 6, 2011, the plaintiff agreed to pay a further deposit of $300,000.00 to the seller;

f. The purchaser was to close the sale of the property within one year, namely May 31, 2012;

g. The plaintiff would take over the first mortgage which was approximately $2,000,000.00 and monthly rent would be equivalent to the monthly payments under the mortgage of the property which was $16,000.00 per month and to be paid on the first day of each month. The principal amount paid by the plaintiff as a monthly rent would be credited to it at the time of closing of the transaction;

h. Inventory was to be physically counted on the day of interim closing at invoice price or cost. The purchaser was to pay cash or certified cheque to 225 for the inventory on the interim closing;

i. The plaintiff would be fully responsible for all the costs involved in bringing a Tim Horton’s franchise to the subject property;

j. 225 would be responsible for all accounts payable, expenses, purchases and taxes up to May 31, 2011.

k. The plaintiff would be responsible for all sales tax, heat, hydro, water, property tax and any other costs towards the subject property after May 31, 2011;

[6] The Defendant 225 takes the position that the plaintiff is not entitled to any relief and in particular specific performance and indeed has itself been in breach of the APS in not paying the deposits as specifically required and failing to pay accounts while in possession of the property. 225 counterclaims against the plaintiff, Dhaliwal and Century 21 for its damages. In response, the plaintiff cross-claims against Dhaliwal and Century 21 for contribution and indemnity and damages.

[7] Neither Dhaliwal nor Century 21 defended the claims against them. They were noted in default. At the opening of the trial, counsel for those parties attended and announced that they were considering bringing a motion to set aside the noting in default. However, no such motion was brought and counsel did not participate in the trial. Nor did Dhaliwal attend at the trial as a witness although both the plaintiff and 225 attempted to summons him.

Theory of the Plaintiff

[8] At all times, Kasal acted as the authorized representative of the plaintiff. He signed the APS on behalf of the plaintiff and dealt with Dhaliwal, Peter and Jenny.

[9] The plaintiff claims that it paid a total of $1,130,000.00 of the $1,200,000.00 deposit that was called for and followed the instructions of the parties’ real estate agent, Dhaliwal, as to the payment of the balance.

[10] After the plaintiff took possession of the Fowlers Corner gas station, Kasal operated the gas station and paid all suppliers and vendors when he became aware of the bills. He acknowledged that there were a few problems with payments with respect to certain suppliers, but for the most part, kept current with the accounts. He improved the property by cleaning it up, painting parking lines, adding a propane outlet and adding two new aisles of products in the store.

[11] After eight months of possession by the plaintiff, Jenny, one of the principals of 225, forcibly re-possessed the gas station and evicted Kasal and the plaintiff. Jenny took all the cash and inventory in the store as well as the plaintiff’s records. The plaintiff submits that there was no reason for the eviction and that no notice of default or any prior notice of any kind was given to the plaintiff that there had been non-payment of bills before taking this action. The plaintiff states that when the defendant took back the property on January 25, 2012, except for a few minor bills that were not due to be paid until the end of the month, all accounts had been paid.

[12] The plaintiff submits that the gas station is unique, that it had put a lot of money and effort into turning this property into a successful operation and only after it had significantly increased sales, did the defendant come back unto the property and forcibly remove the plaintiff.

[13] The plaintiff submits that it has satisfied all aspects of its obligations under the APS, save and except for the payment of a small portion of the deposit. Accordingly, the plaintiff contends that having paid all amounts that were due, it is entitled to close the sale in accordance with the APS and seeks specific performance accordingly.

[14] The plaintiff submits that 225’s physical re-taking of the property was entirely improper and that the plaintiff should be entitled to immediately repossess the property, with an accounting of monies due, to be conducted by an agreed upon referee.

Theory of the defendant 225

[15] 225 submits that the plaintiff is not entitled to specific performance and that it has a valid counterclaim entitling it to damages against the plaintiff and the other defendants by counterclaim.

[16] In support of this position it raises a number of allegations including:

a. That the APS is unenforceable because of the lack of capacity of the named vendor, 2071111 Ontario Inc.;

b. The plaintiff breached the APS so significantly as to discharge 225 from further performance of the APS in that, the plaintiff failed to pay the required deposits toward the purchase price as called for by the APS;

c. The plaintiff was in default under the APS in that while it operated the property it owed over $100,000.00 to various suppliers;

d. The plaintiff has not demonstrated that it is ready, willing and able to complete the transaction in that it has not demonstrated that it has sufficient funds to close the sale;

e. There is nothing particularly unique about the Fowlers Corner gas station, that a substitute is readily available and therefore any remedy for the plaintiff can only be in damages;

f. It would not be fair to grant any equitable remedy to the plaintiff given i) its conduct and ii) the inappropriate conduct of Dhaliwal and Century 21 who have been noted in default and thereby are deemed to have admitted liability. That liability redounds to the plaintiff because Dhaliwal also served as the plaintiff’s agent and the plaintiff is liable vicariously because of its agent’s conduct.

[17] 225 claims that it is entitled to an award of damages against the plaintiff and the defendants by counterclaim which includes loss of expectancy damages as it has been deprived of loss of profits in the future.

Is the APS Unenforceable because of Misidentification of the Selling Party

[18] The seller in the APS is identified as 2071111 Ontario Inc. That company has nothing to do with the subject property. Jenny did not know anything about 2071111 Ontario Inc. and testified that it was 225 that owned the Fowlers Corner property. She left the drafting of the APS to Dhaliwal who clearly made a mistake in inserting the name of 2071111 Ontario Inc. as the vendor.

[19] This would be a proper case for rectification if necessary. However, the defendant 225 has admitted in its Statement of Claim that this was an inadvertent error and that 225 was always intended to be the selling party. The APS is therefore valid and enforceable as against 225.

The Nearby Lansdowne Gas Station

[20] Kasal testified that as he entered into possession of the Fowlers Corner gas station, he was asked by Jenny to manage another gas station property nearby, the Lansdowne property. He agreed to do this as a favour to Jenny as she could no longer manage the Lansdowne property from a long distance location in Sutton, Ontario. Kasal stated that he was told he would only have to manage it for a few months until Dhaliwal found a purchaser for it.

[21] The defendant 225 submits that that was not the case and that in fact at the same time that the plaintiff purchased Fowlers Corner it also purchased the Lansdowne property and that payments were made by the plaintiff to 225 in respect of both the stock for Fowlers Corner and the stock for Lansdowne and other costs associated with those properties.

Payment of Deposits

[22] The plaintiff contends that it paid to 225 by way of payment to Century 21/Dhaliwal, the deposits required under the APS in respect of Fowlers Corner. Kasal testified that he paid all the deposits required of the plaintiff when requested by Dhaliwal.

[23] Kasal testified that Dhaliwal advised him that the first two deposits of $300,000.00 and $600,000.00 should be paid by the plaintiff on or before the interim closing date of May 31, 2011. Accordingly, $780,000.00 was paid by bank draft dated May 24, 2011 to the order of Century 21.

[24] Kasal directed that $50,000.00 held by Dhaliwal as a deposit on a previously failed unrelated transaction in Hamilton be applied towards the $900,000.00 deposit.

[25] Kasal testified that he was further told by Dhaliwal that he did not have to pay the remaining $70,000.00 deposit as that would be paid through Dhaliwal’s commissions.

[26] With respect to the third deposit of $300,000.00 required by the amended agreement, it was paid to Century 21 on June 23, 2011, 17 days late.

[27] Kasal testified that all the deposits were paid to Century 21 as that was Kasal’s understanding of the plaintiff’s obligation under the APS.

[28] In response, 225 submits that the plaintiff defaulted in the payment of the required deposit monies with respect to the timing, the amounts and the requisite payee. Specifically, 225 submits that:

a. Of the total $1,200,000.00 deposit monies required by the APS only the initial deposit of $300,000.00 should have been paid to the agent, Century 21/Dhaliwal. The second deposit of $600,000.00 and the third deposit of $300,000.00 (called for by the amendment) should have been paid directly to 225 but were not;

b. The $50,000.00 held by Century 21/Dhaliwal referable to the unrelated Hamilton deal, does not constitute a proper payment by the plaintiff to 225 with respect to the Fowlers Corner transaction. Furthermore, it is highly implausible that the $50,000.00 deposit was in fact related to the Hamilton deal, given the vast discrepancy in the date of the purported deposit months before the date of an offer on the Hamilton property;

c. The $70,000.00 payment by way of having Century 21/Dhaliwal waive their claim to commission in respect of the Fowlers Corner transaction does not in fact constitute payment of a deposit to 225. The fact is that 225 did not authorize that payment from commission and, in any event, no agreement was reached with respect to the amount of commission that was to be paid to the agent at the end of the transaction.

[29] Most importantly, Jenny testified that 225 received only $200,000.00 of the total deposits owed to 225, leaving a balance due and owing by the plaintiff of $1,000,000.00 which was never paid to 225 in respect of the Fowlers Corner property as required. She testified that 225 did in fact receive from Century 21/Dhaliwal a further sum of $500,000.00 but that had nothing to do with the Fowlers Corner transaction. Rather, she contends that it was part payment in respect of a $900,000.00 deposit pertaining to a different Agreement of Purchase and Sale dated April 29, 2011 in respect of the plaintiff’s purchase of the Lansdowne property.

[30] She indicated that the nature of the payments totaling $700,000.00 that she and Peter received from Century 21/Dhaliwal was as follows:

a. $400,000.00 represented in a cheque dated June 2, 2011 from Century 21 with respect to both the Fowlers Corner property and the Lansdowne property ($200,000.00 for each of the properties);

b. $300,000.00 representing the amount of a cheque dated July 11, 2011 from Century 21 with respect to the Lansdowne property.

Validity of the Agreement to sell the Lansdowne property to the plaintiff

[31] At the heart of this lawsuit is the allegation by 225 that on April 29, 2011, the same day that the plaintiff agreed to purchase Fowlers Corner, it also entered into an agreement to purchase the Lansdowne property. That agreement bears Kasal’s signature on behalf of the plaintiff, but he denies ever signing such an agreement or knowing anything about it.

[32] The validity of the Lansdowne property agreement is crucial because 225 relies on it to explain that the $700,000.00 in cheques that it received was not solely in relation to Fowlers Corner but was in connection with both the Lansdowne property (to the extent of $500,000.00) and Fowlers Corner (to the extent of only $200,000.00).

[33] As mentioned before, Kasal testified that he never signed or initialed or even saw the Lansdowne Agreement of Purchase and Sale prior to this litigation. He testified that he never wanted to manage the Lansdowne property but that it was requested of him as a favour to Dhaliwal and to Jenny and was necessary in order to complete the purchase of Fowlers Corner. He testified that he would only manage the Lansdowne property on a temporary basis for a few months until Dhaliwal found another purchaser for it.

[34] Kasal testified that after being present and managing the Lansdowne property for a few months, he learned from Wally Gupta (“Gupta”), the principal of the company that originally owned Fowlers Corner, that Gupta’s company (and not Jenny’s company) actually owned the Lansdowne gas station property.

[35] Kasal further testified that not knowing anything about the Lansdowne agreement, he never paid any deposits in respect of that transaction.

[36] For his part, Gupta testified that he had known nothing about any agreement to sell his Lansdowne property. He had never seen the written Agreement of Purchase and Sale purportedly made in respect of this transaction, nor did anyone ever tell him about such an agreement. Gupta had previously sold both Fowlers Corner and the Lansdowne property to Jenny and Peter or their company. In March or April 2011, he was approached by Peter, Jenny and Dhaliwal who advised him that the defendants wished to sell Fowlers Corner but were only willing to do so “if they could get out of the Lansdowne agreement”. Gupta agreed to the proposal and a memorandum of understanding was entered into on May 28, 2011, whereby he agreed to return $600,000.00 of deposit monies to Jenny and Peter with respect to the Lansdowne property.

[37] Gupta testified that he had no problem in principle with Jenny and Peter selling the Lansdowne property so long as he received his money. However, no one ever asked him to agree to the sale of any such property. Nor did he receive any money in respect of any such sale.

[38] Of importance as well, is the fact that when Jenny consulted with her solicitors about problems that she was having with the plaintiff, she never mentioned anything about the sale of the Lansdowne property, let alone that there had been any default in respect of payments called for by that agreement.

[39] This is most unusual given Jenny’s testimony that there was a deposit shortfall of $400,000.00 by Kasal on the Lansdowne transaction. She never complained about it to her solicitors; nor did she ever write to Kasal specifically about it; nor was any mention of it made in the statement of defence and counterclaim.

[40] Of note also is the fact that Peter, a principal of 225, and a signatory to the Lansdowne agreement and the Memorandum of Understanding dated May 28, 2011, was present throughout the trial but did not testify. One can therefore infer that he could not give evidence favourable to the defendant and in support of Jenny’s version as to the circumstances surrounding the signing of the Lansdowne agreement.

[41] Based on this evidence, I conclude that the agreement in respect of the Lansdowne property is not a valid document. Such an agreement is inconsistent with the memorandum of understanding of May 28, 2011, signed with Gupta, whereby Jenny and Peter were giving the very same Lansdowne property back to Gupta for the return of their $600,000.00 deposit. It is not logical that they would have both sold the property to the plaintiff and gave it back to the original vendor, Gupta.

[42] That being the case, it puts into doubt Jenny’s credibility about receiving only a total of $200,000.00 deposits in respect of Fowlers Corner, the balance having to do with the Lansdowne transaction.

[43] What is clear is that, except for the $70,000.00 shortfall relating to Dhaliwal’s purported release of his commission, all of the deposits were paid by the plaintiff in connection with Fowlers Corner. As for Kasal’s direction to Dhaliwal to apply the $50,000.00 held by him on the unrelated aborted Hamilton deal, there is evidence that Dhaliwal did in fact hold the plaintiff’s funds and Kasal accounted for the delay between the date of Dhaliwal’s receipt of the $50,000.00 and the date of the offer due to the fact that the deal was ongoing and would take Dhaliwal some time to draft the offer. While the first deposit was not paid precisely on time, this failure was specifically waived by the defendant because the interim closing did take place and keys were provided to the property and the parties otherwise moved forward with the agreement. Similarly, although the amendment to the agreement did call for a deposit payment of $300,000.00 to the “seller”, as opposed to the agent, this requirement was similarly waived.

Alleged failure to pay various suppliers

[44] I accept the evidence that Kasal’s payments of bills were kept up to date except for a few problems because of a lack of information or certain matters didn’t come to his attention in time. Jenny produced at trial, a list of suppliers who had not been paid which she claimed justified her forcible retaking of Fowlers Corner on January 25, 2012. She acknowledged that many of the accounts were unpaid when she handed over the store to Kasal eight months earlier and really were her responsibility. She was unable to clearly establish through documentary evidence what was actually due and owing on January 25, 2012.

[45] On the balance of the evidence, I conclude that there was absolutely no basis for this pre-emptive retaking of Fowlers Corner by the defendant. It should be noted that this was specifically against the advice of Jenny’s solicitor, Tom Richards, who advised that the best course of action would be to bring an application to the court for directions. That advice was not followed and the plaintiff has suffered consequences as a result.

[46] With respect to the cost of a Tim Horton’s franchise of $84,643.94, expended by Gupta, Kasal always acknowledged the plaintiff’s responsibility to pay such costs when demanded, but Gupta who was incurring certain costs in obtaining that store for the property, had not yet asked for reimbursement. Nothing was therefore due and owing by the plaintiff as of January 25, 2012.

Uniqueness of the property

[47] The defendant states that there is nothing unique about the Fowlers Corner property. It submits that the property does not have incomparable features to the extent that a substitute gas station would not be readily available.

[48] The defendant further submits that the plaintiff was just looking for an “investment” and any gas station would serve this purpose. Accordingly, it argues that specific performance is not justified.

[49] In deciding whether there is something special about the property, the fact that the plaintiff’s acquisition of the Fowlers Corner property was an investment is a factor, but only one. The “determination of uniqueness and the availability of substitute property is fact driven”: Conamed (Stamford) Ltd. v. Marterwood Doors Ltd. (2006), 41 R.P.R (4th) 90 (Ont SCJ) at para. 105.

[50] The plaintiff had looked at 7 gas stations in Ontario but entered into an agreement to buy the Fowlers Corner property. It viewed it as a unique property because of its location, size, an apartment above the store, a forthcoming Tim Horton’s franchise and a trailer park located behind the gas station providing a ready-made customer base for the store. Further, Kasal made improvements to the property that increased sales which are now difficult to value. No evidence was led of any property with comparable features available for sale.

[51] On a contextual consideration of all these factors, I find that the property is sufficiently unique to warrant the remedy of specific performance.

Whether the Plaintiff was and is Ready, Willing and Able to Complete the APS

[52] 225 contends that the plaintiff has failed to show that, at all material times, it had the funds to close the Fowlers Corner transaction. The plaintiff has no assets other than some vacant land in London, Ontario. The deposit monies under the APS were funded from time to time by one of the principals of the plaintiff as needed. On February 24, 2013, there was approximately $420,000.00 in his bank account, which is insufficient if $1,000,000.00 is still required to close the deal.

[53] Without a proper accounting, it is unclear how much of the remaining balance of the purchase price was to be made up through the assumption of the mortgage already on title. However, Kasal testified that even without assuming the mortgage, the plaintiff had the financial wherewithal to pay the balance owing under the APS on closing. He backed this up by showing that significant sums of money were flowing into and withdrawn from the plaintiff’s bank account when monies were required for the substantial deposits or payments for the transaction. The plaintiff thereby paid $1,130,000.00 of the $1,200,000.00 deposit. The sources of these monies were the principals of the plaintiff.

[54] I conclude that, even with the $70,000.00 shortfall in deposit monies (represented by Dhaliwal’s alleged commitment to cover this amount by contributing his commission), the plaintiff has demonstrated that it had and has sufficient funds to complete the transaction.

The Equities

[55] 225 submits that the conduct of the plaintiff and its agent Dhaliwal/Century 21 disqualify the plaintiff from obtaining the equitable remedy specific of performance. 225 argues that the plaintiff blindly or negligently followed the instructions of Dhaliwal/Century 21 who clearly acted improperly and in conflict of interest and is responsible for the actions of its agent.

[56] Dhaliwal/Century 21 were the agents for 225 as well as the plaintiff. Jenny and Peter knew the deposits were not made on time and that the $300,000.00 deposit (called for under the amended agreement) was not paid directly to 225. Yet 225 by accepting this state of affairs moved forward with the transaction and ratified all of this. The only aspect of the deposit payments that 225 did not ratify was the attribution of Dhaliwal’s commission to the extent of $70,000.00 which was only approximately 6% of the total deposit.

[57] For its part, 225 acted without justification and against its solicitor’s advice to obtain directions from the Court, in retaking possession of the property and forcibly removing the plaintiff. In the end, it is the plaintiff who sits with the substantial deposit monies paid by the plaintiff and is taking the benefit of the operation of the gas station and store.

[58] The equities lie with the plaintiff and it is entitled to specific performance.

Summary and Taking of Accounts

[59] The plaintiff has performed substantially all of its obligations under the APS. The failure to have paid the $70,000.00 to make up the full $1,200,000.00 required rests with Dhaliwal/Century 21. There is no evidence of any breach of the APS that would entitle 225 to treat the agreement at an end. The repossession of the Fowlers Corner property by 225 was not justified. The equities are with the plaintiff and an order will go that the APS be specifically performed.

[60] A reference will be held to conduct an accounting of monies paid and due and owing by each of the parties to the APS to determine the balance to be paid on closing. Such an accounting is to include, but is not limited to the following:

a) any monies owed to 225 on closing (through the shortfall on the deposit monies, if any; a credit for the mortgage payments towards principal; adjustment for vendor payments; and any other appropriate adjustments;

b) a determination of profits from the operations of the gas station from January 26, 2012 to the date that the plaintiff is entitled to repossession;

c) a determination of the actual value of inventory of the store as of January 26, 2012.

[61] As agreed by counsel, Andrew M. Diamond of ADR Chambers is appointed under R.54.03 to conduct the reference and determine the aforesaid issues. He is to report back to the Court, unless the parties otherwise agree.

[62] The closing of the APS is to take place thereafter. Counsel are to agree upon the repossession of the property by the plaintiff and the mechanics of closing. If unable to do so, they may address those issues before me.

The Counterclaim

[63] The Counterclaim against the plaintiff and Kasal is dismissed.

[64] Dhaliwal and Century 21 were noted in default and are deemed to have admitted the allegations of fact made in the counterclaim. As stated by the Court of Appeal in Sunlife Assurance Company of Canada v. Premier Financial Group Incorporated 2013 ONCA 151 at para. 1, “… a conscious decision not to participate in the proceedings bars consideration of a defence for the merits, even if one exists.”

[65] 225 is entitled to judgment for damages as against Dhaliwal and Century 21. The determination of such damages is to await the report on the reference and may require, if counsel request, a further motion to the Court to complete the assessment.

Costs

[66] If counsel cannot otherwise agree, the responsibility for and fixing of costs of the action and reference, may be addressed in writing or on attendance after the conclusion of the reference.

Lederman J.

Released: July 11, 2013

COURT FILE NO.: CV-12448943

DATE: 20130711

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

2270752 ONTARIO INC.

Plaintiff

– and –

2071111 ONTARIO INC. and 2250361 ONTARIO INC.

Defendants

– AND BETWEEN –

2250361 ONTARIO INC.

Plaintiff by Counterclaim

– and –

2270752 ONTARIO INC., KAILASH CHANDER KASAL, CENTURY 21 NEW STAR REALY INC. and BALJIT DHALIWAL

Defendants by Counterclaim

REASONS FOR JUDGMENT

Lederman J.

Released: July 11, 2013