Court File and Parties

COURT FILE NO.: CV-15-534584 DATE: 20160412 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2336574 Ontario Inc., Plaintiff – AND – 1559586 Ontario Inc., Defendant

BEFORE: Justice E.M. Morgan

COUNSEL: Bernard Gasee, for the Plaintiff/Defendant by Counterclaim Michael McQuade, for the Defendant/Plaintiff by Counterclaim

HEARD: April 11, 2016

REASONS FOR JUDGMENT

[1] Does the obligation of good faith in contracting mean that everything must be flexible, and that a fixed closing date is really an approximate closing date?

I. The parties and the motion

[2] The Plaintiff, 2336574 Ontario Inc. (the “Purchaser”), is the purchaser under an Agreement of Purchase and Sale dated July 12, 2013 (the “Agreement”) for a commercial condominium (the “Condominium”) located in a mixed-use commercial/residential building. The Defendant, 1559586 Ontario Inc. (the “Vendor”), is the builder of the building and seller of the Condominium. The principals of the Purchaser are experienced business people and real estate investors, and the principals of the Vendor are experienced builders and property developers. Both sides were at all times represented by well qualified counsel.

[3] The sale never closed. The Purchaser sues for specific performance and relief from forfeiture of the deposit monies. The Purchaser here moves for a certificate of pending litigation. The Vendor sues for a declaration that the Agreement is at an end and that the Purchaser has forfeited its deposit paid to the Vendor. The Vendor here moves for summary judgment and for orders removing a Caution placed on title by the Purchaser and authorizing the Vendor’s lawyer to release the deposit monies held in trust.

[4] Each side relies on the Supreme Court of Canada’s judgment in Bhasin v Hrynew 2014 SCC 71, [2014] 3 SCR 494, and accuses the other of failing to act in good faith. The Vendor says that the Purchaser was cavalier in its attitude toward the contract and failed to close for no good reason and despite having the closing funds available to it. The Purchaser says that the Vendor was unreasonable in unilaterally setting a closing date without consultation and then refusing to grant even the shortest of extensions.

II. The payment schedule

[5] The purchase price under the Agreement was $639,990, payable as follows:

$10,000 upon signing of the Agreement on July 12, 2013; $10,000 on September 15, 2013; $10,000 on November 15, 2013; $10,000 on January 15, 2014; $31,999.50 on interim occupancy closing; and the balance on final closing.

[6] The Agreement provided that in the event of a monetary default by the Purchaser, or a no-monetary default which is not remedied within 5 days of being notified of that default, the deposit monies are forfeited to the Vendor as liquidated damages. It also provides that in the event of any default the Purchaser is to pay the Vendor’s solicitor $500 plus HST and disbursements for each letter or other form of notice sent.

[7] The Agreement set the outside final occupancy date at June 8, 2015 and the outside closing date at 30 days later, on July 8, 2015. The precise date was left to the Vendor to set.

III. Interim occupancy

[8] On September 11, 2014, the City of Vaughan issued an occupancy permit for the Condominium, thereby permitting interim occupancy to take place. The Vendor’s solicitor advised the Purchaser’s lawyer that the interim occupancy date was set at October 25, 2014. On October 24, 2014, the Purchaser’s solicitor requested an extension of the interim closing date to November 7, 2014, which was granted by the Vendor. It was agreed that the interim occupancy date would be set for November 12, 2014.

[9] On November 6, 2014, the Purchaser’s solicitor sought another extension of the interim occupancy date to November 19, 2014, and again the Vendor granted that request. Interim occupancy in fact took place on November 19, 2014. The Purchaser delivered to the Vendor’s solicitor a cheque in the amount of $31,009.50 on account of the interim closing, as provided in the Agreement.

[10] Upon interim occupancy, the Purchaser took possession of the Condominium. The various utility bills for the Condominium were put on the Purchaser’s name, the Purchaser began paying monthly occupancy rent, and in turn leased the Condominium to a tenant. Matters remained in that state until the beginning of June 1, 2015, when the parties commenced what counsel for the Purchaser at the hearing of this motion aptly described as a “poker game”.

IV. Final closing

[11] By letter dated June 1, 2015, the Vendor’s solicitor wrote to the Purchaser’s solicitor advising that the condominium project was registered on May 21, 2015, and that the date for the final closing of the transaction was set for June 26, 2015. This date was set without consultation with the Purchaser’s solicitor, but was clearly within the time frame contemplated under the Agreement.

[12] The Purchaser’s solicitor wrote back the very next day, on June 2, 2014, and requested an extension of the closing date to September 1, 2015. No explanation for the request of a two-month extension was provided in this letter. The following day, on June 3, 2014, the solicitor for the Vendor emailed the solicitor for the Purchaser, and advised that the Vendor was “not I a position to extend the final closing date, and accordingly we expect the purchaser to complete the closing on June 26, 2015, as scheduled pursuant to the Agreement of Purchase and Sale.” As the Purchaser’s solicitor had provided no explanation for the request for an extension of the closing date, the Vendor’s solicitor provided no explanation for the refusal of the request.

[13] On June 11, 2015, the Purchaser wrote to the Vendor explaining that they had been travelling. The Purchaser offered the Vendor an extra $10,000, increasing the deposit funds “to a total of $50K” to extend the closing date by two weeks, to July 10 2015.

[14] The next day, June 12, 2015, the Vendor contacted the real estate agent who had arranged the sale, and was advised by the agent that the Purchasers had encountered some problems with their financing. On June 17, 2015, the solicitor for Vendor wrote to the solicitor for the Purchaser stating that his clients expected the transaction to close on June 26, 2014.

[15] Shortly after the June 17, 2015 correspondence, the solicitor for the Vendor had a conversation with the solicitor for the Purchaser, who advised him that the Purchaser would not be in a position to close as scheduled on July 26, 2014. In view of this advice, the solicitor for the Vendor decided that it would be prudent to tender on the Purchaser, and so sent what he described as a “closing package” to the office of the Purchaser’s solicitor on June 26, 2015.

[16] That closing package contained a statutory declaration and an assignment and direction re HST rebate, both of which were to be signed by the representative of the Purchaser. It did not contain a deed to the Condominium, which presumably would have been provided to the Purchaser in exchange for the balance of the closing funds.

[17] In the afternoon of Friday, June 26, 2015, the solicitor for the Purchaser wrote to the solicitor for the Vendor stating that he had waited until 4:30 p.m. to complete the closing, and that when he called he was told by the Purchaser’s solicitor’s receptionist that he had gone home for the day. The Vendor’s solicitor wrote that in view of this he considered the Purchaser to have failed to close and that this was an anticipatory breach.

[18] On Monday, June 29, 2015, the very next business day, the Purchaser’s solicitor emailed the Vendor’s solicitor indicating that the Purchasers will have the funds the next morning and will be in a position to close. The Purchaser’s solicitor asked for the Vendor’s solicitor’s direct deposit information as soon as possible. The principal for the Purchaser explained in his evidence that he had the funds available and intended to fund the Purchaser out of his personal money. The Vendor’s solicitor never responded to this email.

V. Good faith in contracting

[19] It is the Vendor’s position that once the Purchaser failed to close on the June 26, 2015 closing date, the deal was dead. It is the Purchaser’s position that the Purchaser had acted reasonably in asking for a short extension and that the Purchaser had done all it could to get the closing funds on time and had literally missed by a day.

[20] Counsel for the purchaser asks, rhetorically, whether it is reasonable not to give an extension for one or two days if a Purchaser misses the closing date by just a little bit; counsel for the Vendor asks, equally rhetorically, whether it is reasonable to miss the closing date when the Agreement is clear and the date was squarely within its terms. Counsel for the Purchaser says that it was unreasonable to set the closing date unilaterally; counsel for the Vendor says that the Agreement specifically provided for the Vendor to choose the date. The Purchaser views the Vendor as acting in a high-handed manner and out of proportion to the Plaintiff’s breach, while the Vendor views the Purchaser as having chosen, of its own volition, to have missed the closing date when they had the money in hand and could have easily made the closing date.

[21] As I read the evidence, it does not lie with either side to accuse the other of failing to act in good faith. Both sides played their moves carefully and showed each other only their game face.

[22] The Purchaser missed the date of the closing through his own volition. If its principals could manage to come up with personal cash to fund the purchase the day after closing, they could have come up with the same personal funds on the day of closing had they tried a little harder. That is their own doing. For its part, the Vendor was interested in holding the Purchaser to the strict letter of the contract without bending an inch. If it was interested in seeing the sale go through more than standing on its rights, it could have had the full purchase price by certified cheque the very next day. But it chose to stand firm on the fixed closing date.

[23] A duty of good faith is required in contract law, but it is measured by the specific relationship between the parties: Yam Seng Pte Ltd. v International Trade Corp Ltd., [2013] 1 All ER (Comm) 1321 (QB). It very much depends on “whether, in the particular context, the conduct would be regarded as commercially unacceptable by reasonable and honest people”: Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd., [2013] EWCA Civ 200 (CA).

[24] In other words, while the Supreme Court’s decision in Bhasin v Hrynew puts a new focus on the reciprocal contractual duties owed by contracting parties, its contribution is to “consolidate existing doctrinal approaches and provide a more precise remedial vocabulary”: Edward Belobaba, “Good Faith in Canadian Contract Law”, in: Commercial Law: Recent Developments and Emerging Trends (Law Society of Upper Canada, 1985), at 80. Where the parties have a long term, ongoing relationship, a level of good faith may be expected that imposes flexibility and obligations beyond the letter of the contract; where they are commercially experienced buyers and sellers in a discreet, one-off transaction, the level of contract adherence would not be expected to vary from the strict contractual terms: Yam Seng, at para 142.

[25] The Vendor’s obligation here was to have the Condominium ready to transfer to the Purchaser and to set the final closing date. The Purchaser’s obligation was to have the closing funds ready on the closing date and to pay them to the Vendor. The Purchaser did not have an obligation to take less than full title or to get title a day or two late; likewise, the Vendor did not have an obligation to take a few less dollars or to take the closing money a few days late. Given the relationship of Vendor and Purchaser in a discreet real estate deal, good faith meant sticking to the contract, not bending the contract – even just a little bit – to one side’s will.

VI. The default

[26] The Purchaser here defaulted on the Agreement. When the Vendor’s solicitor wrote to the Purchaser’s solicitor at 4:30 in the afternoon of June 26, 2015 advising him of this, he did not do so “prematurely” or “too eagerly”, as the cases suggest sometimes happens: Lawrie v Gentry Developments Inc. (1989), 72 OR (2d) 512. He was specifically told by the Purchaser’s solicitor’s receptionist that the solicitor had gone home for the day, and so correctly referred to the Purchaser’s actions as an anticipatory breach. This was certainly not a “minor technical breach”, Walker v Jones, nor was it a non-monetary breach just because the Purchaser also failed to sign a few documents in addition to failing to deliver over $600,000 in closing funds.

[27] The Purchaser missed the closing date by a day. That is enough to put an end to the contract. His failure to come up with the funds for closing on the date set for closing “effectively terminated the agreement at a time when the [Purchaser] was not ready, will and able to close”: Via Doro Developments v Insusino, (2001) CarswellOnt 4078, para 14.

[28] Under the default provision of the Agreement, the Vendor is entitled to retain the deposit monies as liquidated damages. As I read it, the Purchaser is also obliged to pay $500 per letter to the solicitor for the Vendor, although Vendor’s counsel this did not press this at the motion. What counsel for the Vendor says here is that the $71,999.50 paid by the Purchaser to the Vendor over the course of their dealings, and which is held in trust by the Vendor’s solicitor, is payable to the Vendor in compensation for the Purchaser’s breach.

VII. Relief from forfeiture

[29] Counsel for the Purchaser says that the Purchaser is entitled to relief from forfeiture. He submits that relief from forfeiture is appropriate where the sum which could potentially be forfeited is out of all proportion to the damage suffered, and it is therefore unconscionable for the Vendor to retain the money: Edwards-Decoito v Maple View Building Corporation, at para 28. To this, counsel for the Vendor responds that no relief from forfeiture will be granted where the failure is apparently deliberate: Terry v Law Society of Upper Canada, [1992] OJ No 1678, at para 12. Citing Impex Holdings v Princess Street Developments, 1993 CarswellOnt 579, he also submits that the purpose of a deposit is to compensate the vendor for the property being off the market pending closing, and that since the Agreement was properly brought to an end, the Vendor is entitled to keep the deposits: Hinkson Holdings Ltd v Sliver Sea Developments, 2007 BCCA 408.

[30] The Court of Appeal has made it clear that deposits can be forfeited to a Vendor upon a Purchaser’s non-closing: DePalma v Runnymede Iron, [1995] OR 1 (CA). The question here, however, is whether all of the payments made to the Vendor qualify as deposits. Counsel for the Purchaser says that, in fact, none of them do since an interim closing had already taken place, while counsel for the Vendor says that all of them do since they were all labeled as deposits by the parties.

VIII. The deposits

[31] The Purchaser’s position is that once the interim closing takes place and the Purchaser assumed occupancy of the Condominium, the deposits became payments on account of the closing and are no longer deposits to be held as security by the Vendor. That is not a particularly persuasive position with respect to the four $10,000 payments, which are clearly delineated as staged deposits and are marked as “deposit” on the memo line of each of the cheques written by the Purchaser.

[32] The same is not true, however, of the $31,999.50 payment made on the interim closing date. That appears to literally be a payment on account of closing, and, indeed, the cheque written by the Purchaser and deposited by the Vendor does not say “deposit” on the memo line. Closing funds are not deposits.

[33] In providing for liquidated damages, the Agreement, properly read, provides the Purchaser forfeits the $40,000 in deposit monies. It does not provide that the Purchaser forfeits the $31,999.50 paid on account of closing funds.

[34] There is nothing out of proportion about this forfeiture. Counsel for the Purchaser has provided me with no case law or expert opinion demonstrating that a $40,000 deposit on a $639,990 is an unusually large deposit or represents a disproportionate amount of liquidated damages. This is not a case for relief from forfeiture.

IX. Summary judgment

[35] I pause to indicate that I am satisfied that I can come to a fair and just determination of this matter on the merits based on the motion materials filed and the submissions of counsel. In Hyrniak v Mauldin, 2014 SCC 7, [2014] 1 SCR 87, the Supreme Court instructed that Rule 20 and the test for summary judgment must be interpreted broadly, with a view to proportionality and access to an affordable, timely and just judicial process. Here, the parties communicated mostly by correspondence and email, and even if this matter went to trial the trial judge would for the most part be presented with a written evidentiary record. I find that here is no genuine issue requiring a trial.

[36] The Purchaser’s action is dismissed, as is its motion for a certificate of pending litigation. There shall be a declaration that the Agreement is at an end and that the Purchaser has forfeited its deposit of $40,000. The solicitor for the Vendor shall release $40,000 held in his trust account in respect of this transaction to the Vendor. The balance of $31,999.50 held by the Vendor’s solicitor in respect of this transaction shall be released to the Purchaser. There shall also be an order removing the Caution placed on title to the Condominium by the Purchaser.

X. Costs

[37] Both counsel have submitted Cost Outlines that are in a similar range. Vendor’s counsel seeks a total of just under $16,000 on a partial indemnity basis, while Purchaser’s counsel seeks just over $18,000 on a partial indemnity scale. The Vendor deserves some costs, although given that it recovers $40,000 rather than the over $70,000 it was not entirely successful.

[38] Costs are discretionary under section 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. Rule 57 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provides guidance on how to exercise that discretion. Under Rule 57.01(1)(a), this includes taking into account “the amount claimed and the amount recovered in the proceeding”. In general, the court is required to consider what is “fair and reasonable” in fixing costs, having regard to the reasonable expectations of the parties: Boucher v Public Accountants Council (Ontario), 71 OR (3d) 291, at paras 26, 38 (Ont CA).

[39] I will exercise my discretion to award the Vendor two-thirds of the approximately $16,000 it seeks. The Purchaser shall pay the Vendor $10,666 in costs, inclusive of all disbursements and HST.

Morgan J. Date: April 12, 2016