Court File and Parties

COURT FILE NO.: CV 16-9 DATE: 2016 July 8 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Redstone Enterprises Ltd. Applicant – and – Simple Technology Inc. and CBRE Limited Respondents

Counsel: Adam Stephens, for the Applicant Judy Hamilton, for the Respondent

HEARD: June 30, 2016 Justice J.C. Kent

Reasons for Decision

[ 1 ] This was an application for a declaration that Simple Technology Inc. (a purchaser pursuant to an Agreement of Purchase and Sale) was in breach of an agreement with Redstone Enterprise Ltd. (the vendor pursuant to the Agreement) for the purchase of property municipally described as 156 Adams Boulevard, Brantford, Ontario. The vendor seeks a declaration that it is entitled to retain the deposit paid by the purchaser in respect of the Agreement of Purchase and Sale. The amount of the deposit in total is $750,000.00 on a purchase price of $10,225,000.00.

Background

[ 2 ] The vendor and purchasers entered into their agreement on 8 July 2014. On the premises was a 200,000 square foot warehouse which the purchaser intended to use to operate a government-licenced marijuana grow-op. That operation required a licence from Health Canada.

[ 3 ] The initial deposit when the agreement was entered into was $100,000.00. Upon the conditions in the original agreement being waived, a further deposit of $200,000.00 was made.

[ 4 ] Prior to the original closing date, 30 June 2015, the purchaser learned that it could not arrange its financing to complete the purchase by 30 June 2015. Neither could it obtain the Health Canada licence to engage in its intended business. An extension of the closing date from June 30 to December 15 was negotiated.

[ 5 ] The purchaser, upon obtaining the extended closing date, was required to pay an additional deposit in the amount of $450,000.00, bringing the deposit amount to $750,000.00. The funds were held in trust by CBRE Limited.

[ 6 ] CBRE currently holds the sum of $750,000.00 plus accrued interest in trust to be paid out in accordance with the order of this court on this application.

The Purchasers Requisitions and Alleged Breaches by the Vendor

[ 7 ] As indicated to counsel during the course of submissions, this court has reviewed all of the above requisitions and alleged breaches. I am not persuaded that any of them go to the essence of the agreement of purchase and sale. None of them, therefore, would entitle the purchaser to avoid its obligation to complete the transaction.

The Reason the Purchaser Did Not Complete the Transaction

[ 8 ] The evidence is clear that the purchaser could not complete the transaction because it did not have financing available to enable it to close. In addition, the purchaser had been unable to obtain a Health Canada approval or licence for its intended business operation at the premises.

[ 9 ] In short, the purchaser raised objections in an effort to repudiate an agreement that it was going to be unable to fulfill. This, I find, was contrary to its “good faith” obligation. See: Le Mesurier v. Andrus, [1986] O.J. 2371 (C.A.), paragraph 19-22; Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494.

[ 10 ] This court finds that there was no legally acceptable justification for the purchaser not to close the transaction on 15 December or even 16 December 2015.

Should the Purchaser’s Deposit Be Forfeited?

[ 11 ] In order to obtain relief from forfeiture, the purchaser is required to establish:

1. That the proposed forfeited sum is out of proportion to the damages suffered by the claimant, and
2. That it would be unconscionable for the vendor/claimant to retain the deposit paid. See Varajao v. Azish, 2015 ONCA 218, at paragraph 11.

[ 12 ] There is no evidence before the court that enables a determination of whether or not the vendors suffered any damages. It is, therefore, not possible to say that the sum proposed to be forfeited is or is not proportionate to any damages suffered by the vendor. It is, however, possible to say $750,000.00 is a very significant deposit even for a transaction of over $10,000,000.00. The final deposit of $450,000.00 to obtain an extension of the closing date from 30 June 2015 to 15 December 2015 is disproportionate. When combined with the first deposit of $100,000.00 and the second deposit of $200,000.00, the grand total reaches a level where complete forfeiture becomes unconscionable, in the absence of any evidence concerning damages suffered by the vendor.

Result

[ 13 ] For all of the above reasons, relief against forfeiture should be granted pursuant to Section 98 of the Courts of Justice Act and the sum to be forfeited should be reduced. A reduction to a total of $350,000.00 is appropriate in the circumstances to eliminate the level of unconscionability that the total deposit reached.

Costs

[ 14 ] At the conclusion of submissions, counsel advised the court of the total of costs they would be claiming based on their cost outlines.

[ 15 ] In view of the divided success, however, no order for costs is made.

[ 16 ] An order should go that CBRE Limited pay the sum of $350,000.00 to the respondent, with the balance that it has on hand including accrued interest to be paid to the applicant.

J. C. Kent Released: July 8, 2016