SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: CV-08-1684-00
DATE: 2014-03-17

RE: 514052 Ontario Limited and 1176847 Ontario Limited carrying on business as Orfus Realty v. 2080323 Ontario Inc.

BEFORE: Barnes J.

COUNSEL:
Blair W.M. Bomen, for the Plaintiffs

Palwinder Singh Verraich, in person

HEARD: September 11, 2013

E N D O R S E M E N T

INTRODUCTION

[1] The plaintiffs, 514052 Ontario Limited and 1176847 Ontario Limited (collectively, Orfus Realty) seek damages for breach of contract and unjust enrichment in the sum of $123,443.37 from 2080323 Ontario Inc. (the defendant).

[2] Orfus Realty initially commenced this action against 2080323 Ontario Inc. and Drew Future Developments Inc. (“Drew Inc.”). Orfus Realty settled this action with Drew Inc. on September 9, 2013. The minutes of settlement with the accompanying letter from counsel for Drew Inc., dated July 20, 2011, shall be Exhibit 6 on this trial.

[3] Two witnesses were called in this short trial. Mr. Howard Orfus testified on behalf of Orfus Realty and Mr. Palwinder Singh Verriach testified on behalf of the defendant. Both witnesses provided testimony that was consistent in all respects. I accept their testimony and make findings of fact accordingly.

[4] Upon a review of all the evidence and upon considering the submissions of counsel for Orfus Realty and Mr. Verraich, on behalf of the defendant, I conclude that the defendant was not unjustly enriched and therefore the Orfus Realty’s action is dismissed.

BACKGROUND FACTS

[5] On December 10, 1998, Orfus Realty purchased some land located at Derry Road and Airport Road in the City of Mississauga, Ontario (“the City”). Orfus Realty’s intention was to develop the land.

[6] On March 11, 1998, Orfus Realty signed an agreement with the City. This agreement dealt with the development of the land.

[7] According to the agreement, Orfus Realty would not obtain a building permit from the City until it had fulfilled certain obligations and met certain requirements. One of the obligations and requirements was that Orfus Realty build roads on the land. Prior to building any structures on the land, Orfus Realty must obtain a building permit. According to the agreement, when Orfus Realty applies for a building permit, it was to receive a development credit from the City for out of pocket expenses incurred in building the roads.

[8] Orfus Realty built the roads and expected to receive credit in the amount of $123,443.37, from the City. Orfus Realty did not apply for a building permit instead, Orfus Realty sold the land to 2000768 Ontario Inc. This sale took place on January 10, 2003.

[9] At paragraph 8.17 of the sale agreement, 2000768 Ontario Inc. agreed to purchase the development credits from Orfus Realty. 2000768 Ontario Inc. also agreed to reimburse the credits to Orfus Realty if it received the credits from the City.

[10] 2000768 Ontario Inc. was to receive the development credits, from the City, when it registered a Plan of Subdivision for the land, in effect, when 2000768 Ontario Inc. applied for a building permit.

[11] At paragraph 8.17 of the sale agreement, 2000768 Ontario Inc. agreed to enter into a similar agreement with any future purchaser of the land. 2000768 Ontario Inc. did not pay the development credits to Orfus Realty. 2000768 Ontario Inc. did not obtain a building permit from the City.

[12] On December 10, 2004, 2000768 Ontario Inc. sold the land to Drew Inc. Drew Inc. did not develop the land. On August 22, 2005, Drew Inc. sold the land to the defendant. AHK Construction bought the land in trust for the defendant.

[13] The defendant purchased the land from Drew Inc. for $1.6 million dollars. The defendant received a building permit from the City in 2008. The permit was to build 39 units as condominiums. The defendant received a credit of $123,443.37 from the City.

[14] Orfus Realty had no dealings with the defendant. Once Orfus Realty sold the land to 2000768 Ontario Inc., it had no further dealings with the land and its subsequent purchasers.

[15] The defendant was unaware that Drew Inc. had purchased the land from 2000768 Ontario Inc. or that Orfus Realty had any previous involvement with the land.

ISSUE

[16] The issues in this trial:

(a) Was the defendant unjustly enriched?

(b) Should Orfus Realty be awarded damages?

[17] I have concluded that the defendant was not unjustly enriched and Orfus Realty’s action is dismissed.

ANALYSIS

[18] The burden is on the plaintiffs to demonstrate, on a balance of probabilities, that the defendant has been unjustly enriched.

[19] The test for unjust enrichment is described by the Supreme Court of Canada in Garland v. Consumers’ Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629, at p. 645. The test has three elements: “(1) an enrichment of the defendant; (2) a corresponding deprivation of the plaintiff; and (3) an absence of juristic reason for the enrichment (Pettkus v. Becker, 1980 22 (SCC), [1980] 2 S.C.R. 834, at p. 848; Peel (Regional Municipality v. Canada, 1992 21 (SCC), [1992] 3 S.C.R. 762 at p. 784).”

(1) Has the defendant been enriched?

[20] A straightforward economic approach is adopted in determining whether the defendant has been enriched: see Peter v. Beblow, 1993 126 (SCC), [1993] 1 S.C.R. 980, at p. 990.

[21] To be enriched the defendant must have received a tangible benefit. Such a benefit can be positive or negative. A positive benefit can be the payment of money. A negative benefit can be saving the defendant from an expense they would have incurred otherwise: see Garland, at p. 645; Peel, at p. 790.

[22] Orfus Realty built roads on the land at its own expense and was to receive $123,443.37 in development credits from the City, if it applied for a building permit. Orfus Realty did not apply for the building permit. Orfus Realty sold the land to 2000768 Ontario Inc.

[23] Orfus Realty and 2000768 Ontario Inc. agreed that should 2000768 Ontario Inc. develop the land, the development credits would be passed on to Orfus Realty. Further, they agreed that should the land be sold, 2000768 Ontario Inc. would enter into the same agreement to have the development credits remitted to Orfus Realty.

[24] 2000768 Ontario Inc. sold the land to Drew Inc. without developing the land. Drew Inc. in turn sold the land to 2080323 Ontario Inc. without developing the land. 2080323 Ontario Inc. developed the land and received the $123,443.37 in development credits from the City. 2080323 Ontario Inc. did not remit this money to Orfus Realty.

[25] In commencing the original action, Orfus Realty sought to establish liability against 2000768 Ontario Inc. on the basis that it sold the land to Drew Inc. without the covenant to reimburse the development credits to Orfus Realty. Against Drew Inc., Orfus Realty sought to establish liability on the basis that despite it’s knowledge of the existence of the covenant, Drew Inc. sold the land to 2080323 Ontario Inc. without the covenant. 2000786 Ontario Inc. and Drew Inc. are not parties to this trial and therefore, I do not make any determination as to their liabilities or lack thereof. This simply provides some context for this action.

[26] Orfus Realty argues that the enrichment of the defendant has occurred because the defendant has received $123,443.37 in development credits, money Orfus Realty would have received from the City for developing the roads.

[27] The defendant testified that it was not aware that Orfus Realty was entitled to any credits from the City. In fact, the defendant was not aware that Orfus Realty had anything to do with the land. The defendant understood that it had contractual obligations with Drew Inc. alone because Drew Inc. was selling the property.

[28] I accept Mr. Verraich’s testimony that he was informed by his real estate agents that credits of about $100,000 would be coming from the City. Mr. Verraich explained that as a result, the defendant paid a premium price of $1.6 million dollars for the property.

[29] The defendant submits that they have not been enriched because the credit amount was factored into the purchase price. In effect, they paid a premium for the land. The defendant also submits that there is no contractual obligation with Orfus Realty, Drew Inc. or any other party requiring it to credit Orfus Realty with the development credits it received.

[30] In effect, the first part of the defendant’s argument is how can 2080323 Ontario Inc. be enriched when 2080323 Ontario Inc. paid a premium for the land, which in effect cancelled out the credits? In Garland, the plaintiff argued that the defendant (Consumers’ Gas) had been unjustly enriched by charging customers late payment fees in excess of the interest limit prescribed by s. 347 of the Criminal Code.

[31] In defending the action, one of the arguments raised by Consumers’ Gas was that the levies collected for late payment were applied to reduce the fees paid by consumers. In effect, the utility argued that the revenue it obtained from the late penalty payments was cancelled out by the corresponding reduction in revenue it received from consumers and therefore, it had not been enriched in any fashion.

[32] In rejecting this argument, the Supreme Court confirmed that the issue of enrichment is to be resolved on a straightforward economic analysis; i.e. did the defendant receive a tangible [economic] benefit? At this stage, the analysis does not extend to what happened to the benefits once the defendant received it: see Garland, at p. 647-48:

While the respondent rightly points out that the language of “received and retained has been used with respect to the benefit requirement (see, for example, Peel, supra at p. 788), it does not make sense that it is a requirement that the benefit be retained permanently. The case law does, in fact recognize that it might be unfair to award restitution in cases where the benefit was not retained, but it does so after the three steps for a claim in unjust enrichment have been made out by recognizing a “change in position” defence … [w]hether recovery should be barred because the benefit was passed on to the respondent’s other customers ought to be considered under the change of position defence. [Citations omitted.]

[33] Orfus Realty put in a road on the land, at its own expense. Orfus Realty was entitled to the development credits, when a building permit was obtained. 2080323 Ontario Inc. developed the land. 2080323 Ontario Inc. was spared the expense of building the road because Orfus Realty had already done so. 2080323 Ontario Inc. received the development credits; therefore, 2080323 Ontario Inc. has been enriched.

(2) Is there a corresponding deprivation of the plaintiff (Orfus Realty)?

[34] This is answered in the affirmative. Orfus Realty put in the road at its own expense. Orfus Realty was to receive the development credits of $123,443.37 for this expense. This was to occur when Orfus Realty applied for a building permit. Orfus Realty did not apply for a building permit. The land was sold on two occasions. 2080323 Ontario Inc. ultimately purchased the land and applied for a building permit. 2080323 Ontario Inc. received and kept the $123,443.37 Orfus Realty should have received. This is the corresponding deprivation.

(3) Is there a juristic reason for the enrichment?

[35] The analytical approach for a juristic reason analysis is described in Garland, at p. 651. It can be summarized as follows:

(i) The plaintiff must show that there is no juristic reason for the enrichment.

(ii) The juristic reason analysis has two parts. First, the plaintiff must demonstrate that the defendant(s) enrichment cannot be justified under certain established categories:

The established categories that can constitute juristic reasons include a contract (Pettkus, supra), a disposition of law (Pettkus, supra), a donative intent (Peter, supra), and other valid common law, equitable or statutory obligations (Peter, supra). If there is no juristic reason from an established category, then the plaintiff has made out a prima facie case under the juristic reason component of the analysis: Garland, at p. 651; see Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, at paras. 31-44.

(iii) If the plaintiff establishes a prima facie case to deny recovery, the defendant may rebut this by asserting a residual defence to deny recovery.

(iv) The “residual defence” assessment involves an assessment of all the circumstances of the case to determine if there is another reason to deny recovery.

(v) There are two parts to the “residual defence” analysis. The first, involves an examination of the reasonable expectation of the parties and the second, an assessment of public policy considerations.

(vi) In summary, the juristic analysis has two components: First the plaintiff must establish a prima facie case to support recovery. This prima facie case is met when the plaintiff establishes the absence of a bar to recovery based on certain established categories. Second, once the plaintiff establishes the prima facie case, the burden shifts to the defendant to demonstrate that there is a residual defence under which recovery is barred: see Kerr.

[36] There is no “contract, disposition of law, donative intent or other valid common law, equitable or statutory obligation” that will justify 2080323 Ontario Inc. keeping the development credits. Therefore, Orfus Realty has established that there is no juristic reason, from an established category, to deny recovery.

[37] This case does not fall in any of the established categories of juristic reasons. Therefore, the burden shifts to the defendant to show why recovery by Orfus Realty should be denied. I have resolved this case on the basis of the reasonable expectations of the parties, aptly described in the family law case of Pettkus v. Becker, 1980 22 (SCC), [1980] 2 S.C.R 834, at p. 849:

As for the third requirement, I hold that where one person in a relationship tantamount to spousal prejudices herself in the reasonable expectation of receiving an interest in property and the other person in the relationship freely accepts benefits conferred by the first person in circumstances where he knows or ought to have known of that reasonable expectation, it would be unjust to allow the recipient of the benefit to retain it.

[38] Therefore, a key consideration in this analysis is whether the party receiving the benefit is aware or ought to have been aware of the reasonable expectations of the parties.

[39] Mr. Verriach was informed by his real estate agent that there may be credits coming from the City. 2080323 Ontario Inc. understood that because of those credits it was to pay a premium for the land. 2080323 Ontario Inc. paid Drew Inc. a premium price, which took into account the credits from the City. 2080323 Ontario Inc. did not know and had no reason to suspect that the credits properly belonged to Orfus Realty. This covenant was not included in the contract to purchase between Drew Inc. and 2080323 Ontario Inc. 2080323 Ontario Inc. had no dealings whatsoever with Orfus Realty. Orfus Realty had a reasonable expectation that 2000768 Ontario Inc. would remit any development credits obtained to Orfus Realty, and would include the covenant in any purchase agreement with any subsequent purchaser.

[40] Under all these circumstances, it is not within the reasonable expectation of either Orfus Realty or 2080323 Ontario Inc. that 2080323 Ontario Inc. would return a benefit it paid a premium for and was never aware was due to Orfus Realty and there are no public policy considerations in support of recovery.

[41] 2080323 Ontario Inc. has not been unjustly enriched. Orfus Realty’s action is dismissed. Parties seeking costs shall submit bill of costs within 15 days of this Order. Bill of Costs/Cost Outline shall not exceed two pages.

Barnes J.

DATE: March 17, 2014

COURT FILE NO.: CV-08-1684-00

DATE: 2014-03-17

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: 514052 Ontario Limited and 1176847 Ontario Limited carrying on business as Orfus Realty v. 2080323 Ontario Inc.

BEFORE: Barnes J.

COUNSEL: Blair W.M. Bomen, for the Plaintiffs

Palwinder Singh Verraich, in person

ENDORSEMENT

Barnes J.

DATE: March 17, 2014