Court File and Parties

COURT FILE NO.: CV-15-542761 DATE: 20160526 SUPERIOR COURT OF JUSTICE – ONTARIO

APPLICATION UNDER Rule 14.05(3)(d) of the Rules of Civil Procedure

RE: 2260695 ONTARIO LIMITED, 2260698 ONTARIO INC. And 2260700 ONTARIO LIMITED Applicants

AND:

INVECOM ASSOCIATES LIMITED Respondent

BEFORE: Lederer J.

COUNSEL: Martin Sclisizzi, for the Applicants Benjamin Salsberg, for the Respondent

HEARD: May 3, 2016

Endorsement

[1] This is an application which relies on r. 14.05(3)(d) and (h). The first of the two provisions applies because the issue at hand reflects on rights that depend on the interpretation of the terms of a contract. The second provision is apt because there is no substantive dispute as to the material facts which provide the context.

[2] There are contracts which allow for some flexibility in their interpretation and application. This can give the parties some opportunity to adjust to changing circumstances and unforeseen contingencies. It can also lead to a measure of uncertainty and to disputes if those involved cannot agree on what was intended. Other contracts may have very specific terms that guide the performance of the parties. This may remove flexibility but provide greater certainty. It may cause problems or difficulties for those caught outside what the contract provides.

[3] In this case, the respondent, Invecom Associates Limited, agreed to purchase three properties, one each from the three numbered companies which are the applicants. The total purchase price was $27,250,000. The applicants seek a declaration that the respondent breached the agreement and that, pursuant to its terms, is obliged to forfeit the deposit in the amount of $400,000.

[4] The purchaser’s (Invecom) obligation to complete the agreement was subject to several conditions. The conditions were to be satisfied or waived by the purchaser on or before 5:00 p.m. on April 15, 2014. The contract allowed the purchaser to provide written notice to the vendors if the purchaser determined that a particular condition was to be waived (clause 4.1). On the other hand, if by the time the contract specified (5:00 p.m. on April 15, 2014) the purchaser had not given notice to the vendors that conditions had not been satisfied or waived, such conditions were deemed to have been either waived or satisfied. In such circumstances, the contract required that the parties complete the closing pursuant to its terms. In the event that notice was given that the terms had not been satisfied or waived, the agreement was to be terminated and of no further force or effect (clause 4.3). In such circumstances, the deposit was to be returned to the purchaser. However, in the event the transaction was not completed as a result of a default of the purchaser, the deposit was to be forfeited to the vendors as liquidated damages in full and complete satisfaction of any claims they may have against the purchaser as a result of the default (Clause 2.2).

[5] The contract made time of the essence save and except where the parties agreed to a time limit being abridged or extended. Such agreement was to be in writing (clause 14.3). It is generally understood that, when time is made to be of the essence, it means that the limits set are to be strictly adhered to. It is an indication the contract is to be one of specific terms and greater certainty:

How more clearly could contacting parties make conditions as to the timing of performance essential than by simply saying, time in all respects shall be of the essence of this agreement? In my opinion, the provisions in clauses 21 and 22 of this agreement, drawn as it was by a professional agent of Loblaw and entered into by sophisticated people of business acumen, clearly [page 548] signaled that any breach of any of the obligations in the agreement calling for performance at a specified time amounted to the breach of an essential element of the contract. That being the case, the law is clear that such breach may be treated by the other party as discharging the agreement and relieving against performance by that other party.

(1473587 Ontario Inc. v. Jackson, 2005 ONSC 4578, 74 OR (3d) 539, at para. 19)

and:

At common law the courts rigidly enforced agreements where time was of the essence.

(1376273 Ontario Inc. v. Knob Hill Farms Limited, 2003 ONSC 28382, 34 BLR (3d) 95, at para. 89, referring to Coslake v. Till (1826), 1 Russ. 376, 38 E.R. 146)

[6] The agreement also made specific provision as to how and to whom notice was to be given. Notice was to be given by “delivery, facsimile transmission, electronic mail in PDF format or other means of electronic communication”. Notice to the purchaser was to be directed to Daniel C. Scenna; his mailing address and e-mail address were provided in the agreement. The name, mailing address and e-mail address of the purchaser’s solicitor were also included in the agreement. Notice to the vendors was to be directed to George Georghiades; his mailing address and e-mail address were provided in the agreement as was the name, mailing address and e-mail address of the vendors’ solicitor. The delivery locations and addresses could be changed, but only by notice in writing. The times at which the notice was to be taken to have been given were also specified: in the case of delivery, it was the actual day of that delivery; with respect to recorded electronic communication, it was at the time and on the date of transmittal (clause 14.5).

[7] Again, the agreement was specific and narrow in its terms. This was confirmed by the presence of an “entire agreement clause” which made clear that the arrangement between the parties included no representations, warranties, collateral agreement or condition other than those expressed in the written contract (clause 14.6).

[8] The applicants submit that the purchaser did not provide notice consistent with the terms of the agreement indicating that the conditions were not to be waived and were not satisfied. This being so, as the agreement provides, those conditions were deemed to have been waived and satisfied and the purchasers were obliged to complete the transaction. They did not. The applicants submit that the purchaser is in default and that, as the agreement directs, the deposit of $400,000 is forfeit.

[9] In the days leading up to April 15, 2014, Daniel Scenna, a principal of the purchaser, discussed a potential extension with the real estate agent representing the applicants (the vendors). There were “many” such discussions (Affidavit of Christopher Coupal, sworn April 8, 2016, at para. 5). The extension requested was to April 30, 2014. Daniel Scenna advised the vendors’ representative (the real estate agent) that if the vendors did not agree to an extension, the purchasers would not complete the agreement. The transaction would be at an end (Affidavit of Christopher Coupal, sworn April 8, 2016, at para. 5). The applicants did not agree. Their representative (the vendors’ real estate agent) advised that the vendors might consider an extension if appropriate concessions were made in return (Affidavit of Christopher Coupal, sworn April 8, 2016, at para. 6; Affidavit of George Georghiades, sworn December 13, 2015, at paras.13 and 15). In the absence of any agreement, the purchaser’s representative (the principal, Daniel Scenna) asked that a copy of the proposed Amending and Extending Agreement be given to the vendors. The vendors’ real estate agent complied with this request and, on April 15, 2014, at 2:25 p.m., e-mailed the proposed agreement to the vendors. The vendors reiterated that they did not agree to the extension (Affidavit of Christopher Coupal, sworn April 8, 2016, at para. 7; Affidavit of George Georghiades, sworn December 13, 2015, at para.14).

[10] On April 15, 2014, after 5 p.m., there was an exchange of text messages between Daniel Scenna and the vendors’ real estate agent. At approximately 11:11 p.m., in response to the request of Daniel Scenna to know “what happened to the extension”, the real estate agent responded that the vendors “won’t give a straight extension”. At approximately 11:39 p.m., still on April 15, 2014, Daniel Scenna delivered a text message to the vendors’ real estate agent which said: “If they [the vendors] cannot agree to [the extension] then the deal is that an end and I will cease any ongoing work” (Affidavit of George Georghiades, sworn December 13, 2015, at para. 22, and Exhibit D).

[11] On its face, it is plain there was no notice delivered or transmitted to the vendors’ designated recipient (George Georghiades) or to their solicitor by 5:00 p.m. on April 15, 2014 advising that the conditions were not being waived and had not been satisfied. Accordingly, as the agreement provides, the conditions are deemed to have been waived or satisfied. On this basis, the purchaser was obliged to complete the transaction. Having failed to do, the purchaser is in default. Pursuant to the agreement, the $400,000 received as a deposit is forfeit as the measure of damages suffered by the vendors as a result of the failed sale.

[12] On behalf of the purchasers, it is said that this requires a closer look.

[13] Counsel of behalf of the purchasers submitted that as a result of the delivery to the vendors’ real estate agent of the proposed Amending and Extending Agreement and its subsequent transmittal to the individual designated to receive notices on behalf of the vendors (George Georghiades), the notice requirements of the agreement were met. The receipt of a proposed agreement requesting that the time for indicating waiver or satisfaction with the terms of the contract was, as counsel sees it, a direct demonstration that the purchaser was not yet satisfied and was not yet prepared to waive the conditions.

[14] This is where the specific nature of this contract becomes pertinent. The conditions are clear and unambiguous. The notice was to indicate that the conditions were not waived or satisfied. It was to be delivered or transmitted to the individual designated for the purpose by the time the agreement specified. This is not what the proposed Amending and Extending Agreement did. It was an offer. It confronted the vendors with a choice, accept the offer or risk the possibility that notice indicating the conditions were not being waived and were not satisfied would follow and, by the terms of the contract, end the agreement. If the vendors did not respond, the need for a decision returned to the purchaser. It could amend its offer and provide some additional benefit to the vendors in exchange for the extension in the hope that this amended proposal would be accepted. (The vendors had implied, if not suggested, with the appropriate incentive, it was possible they would agree to an extension (see para. [9], above)). Once 5:00 p.m. approached, the decision the purchaser was required to make changed: send the notice as required by the agreement or accept the conditions and prepare to close the purchase. The delivery of the proposed Amending and Extending Agreement did not foreclose the normal back and forth of negotiation, even as the agreement was at risk. It did not lay off the responsibility to decide the future of this agreement with the concomitant acceptance of risk on to the vendors. In the hard world of commercial negotiations, the vendors held the stronger position. It is the purchasers who wanted the change. The vendors could hold out knowing they would either get a better offer in exchange for the extension, complete the transaction or, in the event that the purchaser defaulted, keep the properties and the deposit. The delivery of a proposed agreement directed to extending time did not, given the terms of the agreement to purchase, change that dynamic.

[15] The statement made by the purchaser’s representative to the effect that, in the absence of an extension agreement the transaction would be at an end, does not give rise to any different analysis. In fact, it stands to confirm why, in agreements such as this one, the parties seek to be precise and specific. While the vendors’ real estate agent deposed that the purchaser’s representative (Daniel Scenna) advised him that without the extension the purchaser would not complete the agreement and the “transaction was at an end” (Affidavit of Christopher Coupal, sworn April 8, 2016, at para. 5), the vendors’ representative (George Georghiades) deposed that his understanding was that, if there was no extension agreement, the purchaser “ might terminate the Agreement of Purchase and Sale” (Affidavit of George Georghiades, sworn December 13, 2015, at para. 13, [Emphasis added]). This confusion reflects on the significance of the need for notice to be in writing and on the identification as to who the notice was to be delivered to. Given the specific requirements in the agreement, this difference in understanding does not matter.

[16] Finally, it was submitted on behalf of the purchaser that the vendors breached the obligation of good faith in the performance of contracts as stipulated in Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494. I do not agree. In an effort to place good faith properly in the framework available to interpret contracts and contractual obligations, the Supreme Court of Canada identified it as a “general organizing principle”:

…[A]n organizing principle states in general terms a requirement of justice from which more specific legal doctrines may be derived. An organizing principle therefore is not a free-standing rule, but rather a standard that underpins and is manifested in more specific legal doctrines and may be given different weight in different situations... It is a standard that helps to understand and develop the law in a coherent and principled way.

(Bhasin v. Hrynew, supra, at para. 64, referring to R. v. Jones, 1994 SCC 85, [1994] 2 S.C.R. 229, at p. 249; R. v. Hart, 2014 SCC 52, [2014] 2 S.C.R. 544, at para. 124; R. M. Dworkin, “Is Law a System of Rules?”, in R. M. Dworkin, ed., The Philosophy of Law (1977), 38, at p. 47)

[17] As a standard rather than a rule, the obligation to act in good faith does not place specific obligations on a contracting party. In Bhasin v. Hrynew, the court was careful to draw this distinction between the obligation to act in good faith from the duty of loyalty and trust owed to a fiduciary:

The organizing principle of good faith exemplifies the notion that, in carrying out his or her own performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner. While ‘appropriate regard’ for the other party’s interests will vary depending on the context of the contractual relationship, it does not require acting to serve those interests in all cases. It merely requires that a party not seek to undermine those interests in bad faith. This general principle has strong conceptual differences from the much higher obligations of a fiduciary. Unlike fiduciary duties, good faith performance does not engage duties of loyalty to the other contracting party or a duty to put the interests of the other contracting party first.

[Emphasis added]

(Bhasin v. Hrynew, supra, at para. 65)

[18] The case goes on to define a new common law duty arising out of the obligation of good faith:

It is appropriate to recognize a new common law duty that applies to all contracts as a manifestation of the general organizing principle of good faith: a duty of honest performance, which requires the parties to be honest with each other in relation to the performance of their contractual obligations.

[Emphasis added]

(Bhasin v. Hrynew, supra, at para. 93)

[19] The demonstration of the breakdown of good faith as proposed in the submissions made by counsel for the purchaser was the failure of the vendors to respond to the e-mail of 2:25 p.m. on April 15, 2014. Without this, the purchasers were denied “... a fair opportunity to protect their interests” (Bhasin v. Hrynew, supra, at para. 86). If accepted, this would stand as a galvanizing of the obligation of good faith beyond anything foreseen by the Supreme Court of Canada. It would require the vendors to have had regard for the take-up of time and to have had the obligation to act as it ran out. The contract placed that obligation on the purchaser. There is no failure of good faith and nothing dishonest in leaving it to the purchasers to look after their own interests when the terms of the agreement are known to all.

[20] I find that proper notice advising that the conditions had not been satisfied and were not being waived was not given. The conditions were deemed to be satisfied or waived. The purchasers were obliged to complete the contract. They are in default. The deposit of $400,000 is forfeited to the vendors.

[21] No submissions were made as to costs. If the parties are unable to agree, I will consider written submissions on the following terms:

1. On behalf of the applicants, no later than 15 days following the release of these reasons. Such submissions are to be no longer than 3 pages, double-spaced, not including any Bill of Costs, Cost Outline or caselaw that may be referred to.
2. On behalf of the respondent, no later than 10 days thereafter. Such submissions are to be no longer than 3 pages, double-spaced, not including any Bill of Costs, Cost Outline or caselaw that may be referred to.
3. On behalf of the applicants, in reply if necessary, no later than 5 days thereafter. Such submissions are to be no longer than 2 pages, double-spaced.

LEDERER J. Date: 20160526