International Property Group Inc. v. 2262814 Ontario Ltd., 2015 ONSC 4709
CITATION: International Property Group Inc. v. 2262814 Ontario Ltd., 2015 ONSC 4709
COURT FILE NO.: CV-14-516253
DATE: 20150804
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
INTERNATIONAL PROPERTY GROUP INC.
Plaintiff
– and –
2262814 ONTARIO LTD., 1577020 ONTARIO LTD., 1577021 ONTARIO LTD., 1577010 ONTARIO LTD., and CLAUDE BITTON
Defendants
Harvin D. Pitch and Jennifer J. Lake, for the Plaintiff
Doug Bourassa, for the Defendants
HEARD: July 21, 2015
REASONS FOR JUDGMENT
G. DOW, j
[1] The plaintiff and defendants seek summary judgment with regard to a real estate transaction they entered into May 15, 2014. The plaintiff, led by Gregory Marchant and their real estate agent, Ralph Kemp, agreed to purchase from the defendants, controlled by Claude Bitton, real estate investor, a number of properties on Bloor Street East for $36,000,000. The Agreement of Purchase and Sale (“APS”) did not close and each party maintains it is entitled at law to keep the $2,000,000 deposit provided by the plaintiff.
Issue - Summary Judgment
[2] The parties were in agreement this matter fulfilled the criteria and direction given by Justice Karakatsanis in Hryniak v. Mauldin, 2014 SCC 7, and this method of adjudication was preferred to the expense and delay associated with the trial. I agree.
Facts
[3] A key component of the dispute was the negotiation between the parties as to the wording of the intention of the parties to have the plaintiff assume the existing mortgages on the properties. The defendants, or more precisely Mr. Bitton, rejected draft wording in the APS, which made the agreement conditional on “the Buyer obtaining approval of the Mortgagees to assume the existing Charges” and negotiated alternative wording, the key portion (known as Rider # 1) being:
the Buyer obtaining the approval of the Mortgagees to assume (and in the case of the mortgage in favour of Home Trust Company, to extend the term for same) said existing charges, on terms and conditions satisfactory to the Buyer, in its sole and absolute discretion. Forthwith upon mutual acceptance of this Agreement, Buyer shall proceed, in good faith and with due diligence, to make application to the existing Mortgagees for approval to assume the existing mortgages on title and to provide said Mortgagees with the information reasonably requested by said Mortgagees as part of the mortgage assumption application process.
[4] The mortgages in question were held by CTC Bank of Canada (“CTC”) in the approximate amount of $7,800,000 and the necessary person at CTC to deal with was Ray Liu. The other mortgage of note was held by Harbour Mortgage Corporation (“Harbour”) in the amount of approximately $15,000,000 with the necessary person to deal with being Greg Russell.
[5] It is clear from the outset Mr. Bitton chose to involve himself in the effort to complete the APS. This began with his advising the plaintiff not to contact the mortgagees until he had an opportunity to speak with them as confirmed in an email May 20, 2014 (Exhibit B of the affidavit of Gregory Marchant sworn March 5, 2015).
[6] The contact with Gregory Russell goes smoothly with documentation provided on June 3 and the plaintiff’s offer to provide whatever additional information is required.
[7] The contact with Ray Liu on June 2 does not go well. From Mr. Marchant’s perspective, he is told and deposes that circumstances at CTC were such they could not extend further credit. This is reinforced in an email from Ray Liu to Claude Bitton which is forwarded to Ralph Kemp on June 2 describing the need for a $230,000 deposit as a reserve for 10 months’ interest payments, the new borrower having a strong financial background and a personal guarantor, a $21,000 loan fee for the revised commitment and Bitton remaining in the picture as a personal guarantor. From Mr. Marchant’s perspective, this made moving forward impossible given the investors behind the plaintiff included limited partners which excluded the possibility of giving a personal guarantee. Further, the email from Ray Liu to Mr. Bitton forwarded to Ralph Kemp on June 2, 2014 notes, in Liu’s words, a need by CTC to “re-evaluate the whole credit as if it’s brand new deal” (Exhibit F to the affidavit of Gregory Marchant sworn March 5, 2015).
[8] From Mr. Bitton’s perspective, this appears to have been part of what needed to be negotiated and could change if and when a more formal application with financial details was made to CTC.
[9] Mr. Marchant, in what I consider to be a bona fide effort to complete the transaction, seeks to add the amount being loaned by CTC to the Harbour mortgage. In emails, he also purports to make further efforts to contact Ray Liu but testified under cross-examination this did not occur. Importantly, Ralph Kemp emails Mr. Bitton on June 3 advising him “The information that Ray is asking for is not typical of a deal this size – directors of a fund are not going to give personal information or personal guarantees” (Exhibit J to the affidavit of Gregory Marchant sworn March 5, 2015).
[10] On June 9 Harbour advises Mr. Marchant they will not increase its mortgage and in advance of the Rider # 1 deadline of June 12, 2013, the plaintiff advises the defendants the APS was “null and void” and sought return of the deposit. It is also noteworthy the property sold August 20, 2014 for $36,200,000, thus mitigating any loss which may have resulted to the defendants.
[11] The plaintiff retained and had a report prepared by Sidney Troister, LSM, a lawyer and Certified Specialist in Real Estate law, whom defence counsel acknowledged was an expert in real estate law to opine on the accepted industry practice relating to the assumption of mortgages in commercial real estate transactions. Mr. Troister concluded “it was reasonable for and expected of a lender to seek financial information about the purchaser” and “to pay a reasonable fee for the administration of the assumption application process”. However, it is not an industry standard to require a purchaser to prepay 10 months’ interest. Similarly, it is not industry practice on a commercial loan of this size to require personal guarantees where the buyer is a fund.
Issue – Entitlement to rely on Rider # 1
[12] Defence counsel stressed the plaintiff failed to make the “good faith and due diligence” effort required by the negotiated wording of Rider # 1. In summary, Marchant only contacted Liu once and that clearly resulted in a misunderstanding between them as to the financial makeup or structure of the plaintiff. Had the plaintiff submitted the application as contemplated, the situation would have been sorted out.
[13] I disagree. Defence counsel referred to the Nortel decision, 2015 ONSC 2987, with reference at paragraph 52, regarding the test for construing a commercial contract and the need for the Court to construe the contract as a whole in a manner that gives meaning to all of the terms and avoid an interpretation that renders one or more terms ineffective. In this regard, I have greater concern that to hold in favour of the defendants the phrase “on terms and conditions satisfactory to the Buyer, in its sole and absolute discretion” would be rendered meaningless if this matter was decided in favour of the defendants. While I appreciate the plaintiff failed to make an “application” in a formal sense, there was contact between Marchant and Liu, with Marchant left with the impression CTC would not be accepting the request to assume the existing mortgage. I am reinforced in this conclusion by the effort Marchant made to replace the shortfall in mortgage funds by requesting an increase in the mortgage being assumed with Harbour. Further, regarding the misunderstanding described by defendant’s counsel, it appears his own client made efforts whether intentionally or inadvertently to clarify the situation to Ray Liu. As a result, the facts at hand appear to fall within the interpretation of the phrase “sole and absolute discretion” considered by Justice Keenan in Marshall v. Bernard Place Corp., [2000] O.J. No. 3321 which noted whether measured by subjective or objective standards, the conduct must be reasonable and done with honesty and good faith (paragraph 22).
Issue – Relief from Forfeiture
[14] The plaintiff argued, in the alternative, if not successful on the interpretation of Rider # 1 the deposit should be returned given the subsequent sale of two months later for a price $200,000 greater. However, in this regard, I would agree with the submissions of defence counsel that relief from forfeiture of a purchaser’s deposit should occur only where it is established that the sum is out of all proportion to the losses suffered and that it would be unconscionable for the vendor to retain the money. Further, the vendor does not have to prove actual damages (see paragraph 31 and 43 of the decision of Justice Akhtar in Mikhalenia v. Drakhshan and Home Life Bayview Realty Inc. Brokerage, 2015 ONSC 1048).
Costs
[15] At the conclusion of argument, the parties exchanged Costs Outlines and provided same to me. The plaintiff sought costs of the action including the summary judgment motion totalling $60,374.20 on a partial indemnity basis and $90,561.31 on a substantial indemnity basis plus disbursements in the amount of $11,176.98 (the majority of which is the cost of Mr. Troister’s report). By way of contrast, defence counsel sought costs including disbursements totalling $33,082.68 on a partial indemnity basis. Following a brief discussion in open court, counsel for the plaintiff acknowledged an appropriate amount would be in the range of $30,000 plus HST ($3,900) plus the disbursements ($11,176.98) or a total of, by my calculation, $45,076.98.
Disposition
[16] The plaintiff is entitled to a return of its $2,000,000 deposit plus interest at 1.3 percent per annum from June 12, 2014 plus costs fixed in the amount of $45,076.98 inclusive of fees, HST and disbursements.
Mr. Justice G. Dow
Released: August 4, 2015
CITATION: International Property Group Inc. v. 2262814 Ontario Ltd., 2015 ONSC 4709
COURT FILE NO.: CV-14-516253
DATE: 20150804
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
INTERNATIONAL PROPERTY GROUP INC.
Plaintiff
– and –
2262814 ONTARIO LTD., 1577020 ONTARIO LTD., 1577021 ONTARIO LTD., 1577010 ONTARIO LTD., and CLAUDE BITTON
Defendants
REASONS FOR JUDGMENT
Mr. Justice G. Dow
Released: August 4, 2015