Coghlan v. Unique Real Estate Holdings Inc., 2016 ONSC 6420

CITATION: Coghlan v. Unique Real Estate Holdings Inc., 2016 ONSC 6420

COURT FILE NO.: 5651/14

DATE: 20161014

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

BRIAN COGHLAN

Plaintiff/Defendant by Counterclaim

– and –

UNIQUE REAL ESTATE HOLDINGS INC. and BRENT LIPKE

Defendants/Plaintiffs by Counterclaim

R. A. Dinnen, for the Plaintiff/Defendant by Counterclaim

David Cameletti, for the Defendants/Plaintiffs by Counterclaim

HEARD: May 27 and August 19, 2016

reasons for judgment

Wilcox, J.

[1] The Plaintiff/Defendant by Counterclaim moved for summary judgment for the forfeiture of a deposit paid pursuant to an agreement of purchase and sale, and related relief.

[2] The defendant company (the purchaser) entered into an agreement of purchase and sale on August 16, 2013 to purchase for $950,000.00 from the plaintiff (the vendor) an apartment building at 72 McCamus Street, Kirkland Lake, Ontario, which deal was to be completed on January 9, 2014. Pursuant to the agreement, the purchaser paid a deposit of $50,000.00 which is held in trust by the vendor’s lawyer.

[3] The defendant Brent Lipke is allegedly the director and shareholder of the corporate defendant, and signed the agreement of purchase and sale on its behalf, but not in a personal capacity except allegedly as the guarantor of a vendor take back mortgage which is not of concern in these proceedings.

[4] The deposit provision states:

DEPOSIT: Buyer submits ...Upon Acceptance ......................................................

...Fifty Thousand…………………………..Dollars (CDN$)….50,000.00…………

By certified cheque payable to..Seller’s Solicitor, in trust…………… “Deposit Holder” to be held in trust pending completion or other termination of this Agreement and to be credited toward the Purchase Price on completion. For the purposes of this Agreement, “Upon Acceptance" shall mean that the Buyer is required to deliver the deposit to the Deposit Holder within 24 hours of the acceptance of this Agreement. The parties to this Agreement hereby acknowledge that, unless otherwise provided for in this Agreement the Deposit Holder shall place the deposit in trust in the Deposit Holder's non-interest bearing Real Estate Trust Account and no interest shall be earned, received or paid on the deposit.

[5] The agreement contains six conditions:

1. This offer is conditional upon the Buyer arranging, at the Buyer's own expense, a new first Charge/Mortgage in the amount of $760,000.00 on terms satisfactory to the Buyer in the Buyer's sole and absolute discretion, within 60 days of acceptance of this offer. Unless the Buyer gives notice in writing delivered to the Seller or his Solicitor within 60 days from the acceptance of this Offer that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer's sole option by notice in writing to the Seller within the time period stated.

2. This offer is conditional upon the inspection of the subject property by a home inspector at the Buyer's own expense, and the obtaining of a Report satisfactory to the Buyers in the Buyers sole and absolute discretion, with 7 days of waiver of financing condition. Unless the Buyers give notice in writing delivered to the Seller or his Solicitor that this condition is fulfilled, this offer shall be null and void and the deposit shall be returned to the Buyer in full without interest or deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer's sole option by notice in writing to the Seller within the time period stated herein.

3. This offer is conditional upon the Seller providing to the Buyer within five (5) business days of the acceptance of this Offer, and the Buyer being satisfied with, statements of income and expenses, including rent receipts for each apartment, bank deposit receipts“BC”, taxes, insurance, hydro, gas and water bills for the periods of 2011, 2012 and 2013 year to date, failing which this Offer shall be null and void and the Buyer’s deposit shall be returned in full without deduction.

4. The seller represents and warrants that the subject property has recently“BC” passed all fire retrofit, electrical and fire inspections, environmental site assessment“BC” and zoning requirements. The Seller further represents and warrants that all rents collected are legal within the meaning of the Landlord and Tenant Act, and agrees to provide the Buyer with all documentation including inspection reports within five (5) business days of acceptance of this offer, failing which this Offer shall be null and void and the Buyer's deposit shall be returned in full without deduction.

5. This offer is conditional for five (5) business days after acceptance upon the Seller providing to the Buyer copies of any leases, names, unit occupied, monthly rent payable and due date, amount of any prepaid rent and date it was paid, any arrears and any and all pertinent rental information, and the Buyer being satisfied with said information, failing which this Offer shall be null and void and the Buyer's deposit shall be returned forthwith without deduction.

6. This offer is conditional for 7 business days after waiver of the financing condition upon the Buyer arranging, at his own expense, satisfactory insurance coverage, failing which this Offer shall be null and void and the Buyer' s deposit shall be returned forthwith without deduction.

[6] Conditions 1, 3 and 5 were waived. Condition 2 was extended to December 18, 2013. There are disagreements over whether condition 4 was satisfied, but little was made of this in the motion.

[7] The date for waiving condition 6, the insurance condition, worked out to be November 18 or 19, 2013 depending on whether Remembrance Day (November 11) is considered a business day. It was never formally waived. Although it had not been satisfied by then, neither side communicated to the other that the agreement was therefore terminated. Rather, the parties continued to work toward closing.

[8] On November 21, 2013, the parties exchanged e-mails with respect to the purchaser using the vendor’s old property manager, scheduling an environmental assessment, and who the purchaser was going to hire to do an asbestos report and a building inspection report required by the purchaser’s lender. In addition, the purchaser asked the vendor several questions about annual repair and maintenance costs as well as other major expenses that the vendor had had or expected.

[9] E-mails between the parties to organize and schedule the environmental assessment, the asbestos survey and the building inspection for around December 9 to 10, 2013 were exchanged on December 1, 3 and 4, 2013.

[10] On December 3, 2013, the purchaser e-mailed the vendor seeking contact information for the snow removal company, to which the vendor replied with information on December 4, 2013. The purchaser e-mailed a further request for information, which the vendor answered on December 5, 2013.

[11] Then, on December 7, 2013, the purchaser e-mailed the following to the vendor:

Good morning Brian,

As part of our ongoing due diligence process on Kirkland Lake, as well as the viability of an investment in such a remote location, we have been in many discussions with current and past residents of your city.

Some of the information we have uncovered from residents and business owners has revealed to us the volatile nature of the city and its dependence on the mine as its primary industry.

As such my partner, my mentor as well as my solicitor have all strongly warned me that while the property itself may yet prove to be viable over the short-term, (this would still require spending close to $10,000 on a building inspection, an asbestos survey and a building condition report), an exit strategy for a future sale of the property, even at its current purchase price, may not be realistic or even possible should the mine close in the next 10 to 20 years.

It is for this reason that we have decided not to proceed with the inspection on Monday or to visit the property. The inspection company has been notified and I will also contact Ali to notify him also.

Our lawyer will prepare a Mutual Release for us to sign. I wish you much success in the sale of your property and apologize that we weren't able to gather this information at an earlier date which may have prevented a delay in you selling your property.

Regards,

Brent Lipke

[12] This is followed by correspondence between the lawyers. In particular, on December 13, 2013, the plaintiff’s real estate lawyer, Richard R. Morrow, wrote to the vendor’s lawyer, Robert A. Dinnen, as follows:

Dear Sir:

Re: Unique Real Estate p/f Coghlan

72 McCamus Ave, Kirkland Lake

Further to my fax to you yesterday December 12^th last, regarding the condition for insurability, I refer you to Schedule "A" of the Agreement of Purchase and Sale, which provided:

"This offer is conditional for 7 business days after waiver of financing condition upon the buyer arranging at its own expense satisfactory insurance coverage, failing which this offer shall be null and void and the buyer's deposit shall be returned forthwith without deduction."

The purchaser waived the financing condition by executing a waiver dated November 7, 20l3, which waiver was acknowledged in writing by the vendor who signed the bottom of the same waiver form on November 12, 2013.

By the terms of the bargain negotiated by the parties, the "Agreement of Purchase and Sale ended and became null and void on November 19^th last, some 7 days after the waiver of financing , as the condition regarding insurability had not been waived. The agreement was terminated by its own terms. You and I as solicitors are bound by the bargain between the parties. Neither party nor solicitor can unilaterally change the terms of that bargain. The contract was ended by its own terms, and the contract went on to provide that "the buyers deposit shall be returned forthwith without deduction."

The vendor is in breach of contract if he does not now comply with the terms of the agreement he bargained for. The condition for insurability was not waived within the time limit provided for in the offer, or waived at all, and the vendor by the terms of the contract agreed to return the deposit monies.

I can assure you that your threat of litigation has been taken most seriously. I have already met with litigation counsel, and he too is of the opinion that the deposit monies you hold are impressed with a trust, and cannot be unilaterally released by the Vendor. If you do so, you are at your own risk personally. As litigation seems certain, both the Vendor (and you, as you are the stakeholder) will be sued, and you can pay the deposit monies into court.

We are of the firm opinion that this transaction died when the condition regarding insurability was not waived. Although it is trite law to say a dead deal is dead, that in fact is what we have here. If you do not confirm by 12 noon Wednesday December 18^th next that the mutual release is being executed by the Vendor, and the $50,000.00 deposit monies returned forthwith, I am instructed to refer my file to litigation counsel for action, at which point this file will be out of my hands, and you can deal with litigation counsel.

Yours truly,

[13] This is followed by a letter of January 6, 2014 from David A. Cameletti, the purchaser’s ligation lawyer, to Mr. Dinnen:

Re: Unique Real Estate purchase from Coghlan

72 McCamus Avenue, Kirkland Lake, Ontario

I have been forwarded a copy of the correspondence from Mr. Richard Morrow to you on December 13, 2013 as well as some additional documentation. I am acting for the purchaser, Unique Real Estate, in this matter.

My understanding of the Agreement of Purchase and Sale was that Schedule "A" provided that the purchaser had conditions for both financing and insurance coverage which was inserted for the sole benefit of the purchaser. While one of the conditions was waived on November 7, 2013, that being the financing condition, the insurance condition was never waived. The purchaser was not able to arrange for insurance coverage on the real property at 72 McCamus Avenue, Kirkland Lake, Ontario. As such, the Agreement of Purchase and Sale became null and void on or about November 19, 2013.

You have been provided with a substantial deposit on this file in the amount of $50,000.00 which you hold in trust. The condition in Schedule "A" relating to insurability provided that the deposit was to be returned forthwith to the purchaser in the event that this condition was not waived. You and your client have been put on notice that the deposit is to be returned forthwith. You have not done so. The fact that you hold the money in trust makes you a party to any proceeding in relation to the return of the deposit by virtue of your being in a trust position in holding this money and you are urged to consider the seriousness of that position.

My client prefers that is matter be settled amicably. As such, you and your client have until the close of business on Thursday, January 9, 2014 to return the deposit in its entirety. If this is not done, I have instructions to commence legal action immediately to compel its return. Needless to say, necessary legal costs will be sought for having to do so.

I trust that you and your client will judge yourself accordingly.

Yours very truly,

[14] The vendors sued the purchaser for $200,000.00, comprising $150,000.00, being the alleged difference between the $950,000 that the purchaser had agreed to pay and the $800,000.00 that the vendor allegedly was able to get from the subsequent purchaser, plus the estimated $50,000.00 costs thrown away as a result of the purchaser’s refusal to complete the transaction. The Statement of Claim was later amended to add a claim for forfeiture of the $50,000.00 deposit.

[15] The purchaser defended, alleging that the Agreement of Purchase and Sale expired when certain conditions were not satisfied in time, and that the deposit was to be returned. The purchaser counterclaimed for the return of the deposit, with interest, which counterclaim the vendor defended against.

[16] The vendor then brought this motion for summary judgment seeking:

1. The defendant/purchaser’s deposit in the sum of $50,000.00 currently in the plaintiff/vendor’s counsel’s trust account is forfeited to plaintiff/vendor

2. That the counterclaim is dismissed

3. That the defendant/purchasers shall pay the plaintiff/vendor costs of these proceedings, to be agreed upon or assessed.

This is on the grounds that there is no genuine issue for trial.

[17] The purchasers took the position that the question for the deposit should be forfeited cannot be decided on a motion for summary judgment because there are issues requiring a trial, being:

1. Whether the purchaser acted appropriately in taking the position that it could not arrange “satisfactory insurance coverage”.

2. Whether the “deposit” should be treated as a deposit or as a partial payment with the consequent effect on its forfeitability.

3. Whether the court should provide relief against forfeiture.

LAW RE: SUMMARY JUDGMENT

[17] Motions for summary judgment are provided for by Rule 20 of the Rules of Civil Procedure. Rule 20.04 provides for the disposition of such motions as follows:

DISPOSITION OF MOTION

General

20.04 (1) [Revoked]

(2) The court shall grant summary judgment if,

(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or (b) the parties agree to have all or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment. O. Reg. 284/01, s. 6; O. Reg. 438/08, s. 13(2).

Powers

(2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:

1. Weighing the evidence.

2. Evaluating the credibility of a deponent.

3. Drawing any reasonable inference from the evidence.

Oral Evidence (Mini-Trial)

(2.2) A judge may, for the purposes of exercising any of the powers set out in the subrule (2.1), order that oral evidence be presented by one or more parties, with or without time limits on its presentation. O. Reg. 438/08, s. 13(3).

Only genuine issue is amount

(3) Where the court is satisfied that the only genuine issue is the amount to which the moving party is entitled, the court may order a trial of that issue or grant judgment with a reference to determine the amount.

Only genuine issue is question of law

(4) Where the court is satisfied that the only genuine issue is a question of law, the court may determine the question and grant judgment accordingly, but where the motion is made to a master, it shall be adjourned to be heard by a judge.

Only claim is for an accounting

(5) Where the plaintiff is the moving party and claims an accounting and the defendant fails to satisfy the court that there is a preliminary issue to be tried, the court may grant judgment on the claim with a reference to take the accounts.

[18] Rule 20 was substantially amended effective January 1, 2010. The former test of “no genuine issue for trial” was replaced with “no genuine issue requiring a trial”. Judges hearing motions for summary judgment were given the power to weigh evidence, evaluate the credibility of a deponent, and draw reasonable inferences from the evidence (the “enhanced powers”) in determining whether there is a genuine issue requiring a trial.

[19] In the case known as Combined Air Mechanical Services Inc. v. Flesch 2011 ONCA 764, 2011 O.N.C.A. 764 the Ontario Court of Appeal heard five separate appeals from summary judgment rulings. In view of controversy and uncertainty arising from the amendments, the court took the opportunity to provide guidance in the use of rule 20. Rather than commenting on the relative merits of the various approaches taken in the cases, the court explicitly stated that, “ … our decision marks a new departure and a fresh approach to the interpretation and application of the amended rule 20”. (Paragraph 35). Therefore, previous cases must be used with caution.

[20] The Court of Appeal promulgated a “full appreciation” test. It was to be applied in deciding if the enhanced powers should be used to identify claims having no chance of success or to resolve all or part of any action. This full appreciation test was criticized by the Supreme Court of Canada in the case of Hryniak v. Mauldin, 2014 SCC 7, 2014 S.C.C. 7, as will be seen below.

[21] One of the five cases dealt with by the Court of Appeal in Combined Air Mechanical v. Flesch, Hryniak v. Mauldin, was appealed to and dealt with by the Supreme Court of Canada, as noted above. The Supreme Court agreed with the Court of Appeal’s disposition of the case and dismissed the appeal, but differed on the interpretation of Rule 20.

[22] The Supreme Court stated that the process of adjudication must be “fair and just” and expanded on what that meant in terms of the accessibility of the justice system which is compromised by the cost and delay of dispute resolution processes, such as full trials, when these are disproportionate to the nature of the dispute and the interests involved. Summary judgment procedures, when used appropriately, were seen as enhancing access to justice.

[23] The court noted that motions for summary judgment “must be granted whenever there is no issue requiring a trial”, but that the Court of Appeal had not explicitly focused on when there is a genuine issue requiring a trial (paragraphs 47-49). Therefore the Supreme Court stated at para. 49:

There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process

(1) allows the judge to make the necessary findings of fact,

(2) allows the judge to apply the law to the facts, and

(3) is a proportionate, more expeditious and less expensive means to achieve a just result.

[24] Notably, the Supreme Court took issue with the Court of Appeal’s formulation of its “full appreciation test”, as follows:

56. While I agree that a motion judge must have an appreciation of the evidence necessary to make dispositive findings, such an appreciation is not only available at trial. Focusing on how much and what kind of evidence could be adduced at a trial, as opposed to whether a trial is “requir[ed]” as the Rule directs, is likely to lead to the bar being set too high. The interest of justice cannot be limited to the advantageous features of a conventional trial, and must account for proportionality, timeliness and affordability. Otherwise, the adjudication permitted with the new powers – and the purpose of the amendments – would be frustrated.

57. On a summary judgment motion, the evidence need not be equivalent to that at trial, but must be such that the judge is confident that she can fairly resolve the dispute. …

[25] The Supreme Court went on to outline the roadmap/approach to a motion for summary judgment, as follows:

66. On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

[26] P.M. Perell J. stated in Miaskowski (Litigation Guardian of) v. Persaud, 2015 ONSC 1654 at paragraph 62:

Hryniak v. Mauldin does not alter the principle that the court will assume that the parties have placed before it, in some form, all of the evidence that will be available for trial. The court is entitled to assume that the parties have respectively advanced their best case and that the record contains all the evidence that the parties will respectively present at trial: Dawson v. Rexcraft Storage & Warehouse Inc., 1998 CanLII 4831 (ON CA), [1998] O.J. No. 3240 (C.A.); Bluestone v. Enroute Restaurants Inc. (1994), 1994 CanLII 814 (ON CA), 18 O.R. (3d) 481 (Ont. C.A.); Canada (Attorney General) v. Lameman, 2008 SCC 14, [2008] 1 S.C.R. 372 at para.11. The onus is on the moving party to show that there is no genuine issue requiring a trial, but the responding party must present its best case or risk losing: Pizza Pizza Ltd. v. Gillespie (1990), 1990 CanLII 4023 (ON SC), 75 O.R. (2d) 225 (Gen. Div.); Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., (1996), 1996 CanLII 7979 (ON SC), 28 O.R. (3d) 423 (Gen. Div.), aff’d [1997] O.J. No. 3754 (C.A.).

[27] I assume that the record contains all of the evidence that the parties respectively would present at trial. The vendor/moving party filed two affidavits of Brian Coghlan, with numerous exhibits, an affidavit and exhibit from John Sullivan, an insurance broker, regarding Brent Lipke seeking information from him regarding the building, and an affidavit of Mr. Lipke with exhibits. The purchaser/responding party filed a further affidavit and exhibit from Mr. Lipke and an affidavit of Dan Tetzlaff, an insurance representative consulted by Mr. Lipke.

[28] Indeed, we are unusually well served in this case in that so much of the evidence is available in the form of the parties’ exchange of e-mails. That assists in dealing with issues of fact, or of mixed fact and law.

[29] I am satisfied that there are no genuine issues here requiring a trial or, if there are, that the need for a trial can be avoided by using the enhanced powers.

[30] There is the preliminary issue of whether the agreement of Purchase and Sale survived past November 19, 2013, being the date up to which the purchaser could arrange for satisfactory insurance coverage. That condition was not waived. On its face, then, the agreement would be null and void. However, as previously noted, that date came and went without comment and the parties continued to interact as if the deal was still alive. Nevertheless, the purchaser’s counsels’ letters of December 13, 2013 and January 6, 2014 purport to rely on the purchaser’s failure to waive the condition to support their contention that the agreement became null and void on November 19, 2013, and that therefore the deposit should be returned.

[31] The purchaser’s counsel raised in passing this preliminary issue of whether the agreement was extended by the purchaser working on the deal passed the insurance condition date. Either the deal was dead as of that date, or it was extended by the parties’ behaviour, he submitted, arguing for the former result because of the parties’ conduct with respect to other conditions, extending or waiving them, but not the insurance one. The vendor’s counsel suggested that there was waiver by conduct. Neither provided any law on the point.

ANALYSIS

[18] Determining whether or not a contract automatically terminates if a condition is not satisfied by its completion date largely rests on whether or not the condition was a "true condition precedent".

[19] The Ontario Superior Court of Justice in 3869130 Canada Inc. v. I.C.B. Distribution Inc. (2005), 2005 CanLII 28425 (ON SC), 45 C.C.E.L. (3d) 15, at para. 371 defined a true condition precedent as follows:

A true condition precedent occurs where a) the rights and obligations of the contracting parties under the contract depend b) on a future uncertain event, c) the happening of which is beyond the control of the parties and depends entirely on the will of a third party. Until the event occurs, there is no right to performance on either side. (Zhilka v. Turney, 1959 CanLII 12 (SCC), [1959] S.C.R. 578 (S.C.C.), at 583-584 [Turney], affirmed by S.C.C. in Barnett v. Harrison (1975), 1975 CanLII 33 (SCC), [1976] 2 S.C.R. 531 (S.C.C.).

[1] The Alberta Court of Appeal, in Kempling v. Hearthstone Manor Corp. (1996), 1996 ABCA 254, 184 A.R. 321 at para. 26 states:

Professor Fridman says at pages 438-40 of his text The Law of Contract, 3d ed. (Toronto : Carswell, 1994) that Turney has made a distinction between a condition relating to the existence of a contractual obligation and one that is precedent to performance. Until the time given for the fulfilment of the true condition precedent neither party is free to withdraw from the contract but if the true condition precedent is not satisfied, there is no contract. It is a question of construction whether the obligations in a contract are absolute and binding immediately or, as where there is a true condition precedent, contingent.

[2] The result is, if a true condition precedent is not satisfied by its completion date, the contract is void. This arises from the fact that satisfying a true condition precedent gives rise to the rights and the obligations of the contracting parties. If the condition is not satisfied, their rights do not arise.

[3] Failure to satisfy a condition that is not a true condition precedent does not automatically render decision void (Knight v. Exploration Innovations Inc., 2002 ABQB 21, 310 A.R. 147, para.52).

[4] Determining whether or not something is a true condition precedent involves "[reviewing] the terms of the contract, the circumstances surrounding it, and the actions of the parties" (Knight, para. 47). Paragraph 32 of Kempling elaborates:

It is the intention of the parties that ultimately determines their duties under a contract containing a conditional clause. While it is true that the registration of a condominium plan depends on the will of a third party and that such is a feature of a true condition precedent, that, by itself, is not determinative.

[1] Helpful in making this determination is whether or not the condition can be unilaterally waived. Conditions in a contract solely for the benefit of one party or that can be unilaterally waived, are unlikely to be true conditions precedent. True conditions precedent cannot be unilaterally waived (Knight, para. 50).

[2] However, failure to complete a true condition precedent is not the end of the determination. Although the courts have held that a true condition precedent cannot be unilaterally waived, it is possible to mutually waive, and that such waiver can be implied from conduct (Harding Addison Properties Ltd. v. Campbell, [1992] O.J. No. 2732 (Ct J (Gen Div)).When party conduct amounts to mutual waiver, the condition precedent is waived and the contract remains binding.

[3] In Harding, the defendant Purchasers entered into an Agreement of Purchase and Sale with the plaintiff Vendor for the purchase of condominium units. An Occupancy Agreement provided that if the Declaration and Description were not registered within 270 days after the possession date, the purchaser would vacate the unit and receive their deposits back. The agreement also provided that time was of the essence. The units were complete on August 24, 1989. The condominium was registered on October 3, 1991, well past the 270 day registration completion date. The plaintiff argued that the defendants' failure to assert their rights, along with their conduct following the completion date constituted a waiver of the condition. The defendants argued that the 270 day registration clause was a true condition precedent that could not be waived by either party and failure to register within the stated time meant the agreement automatically terminated 270 days after August 24, 1989.

[4] The court held that the conduct of the defendants clearly waived the 270-day requirement, and the conduct of the plaintiff clearly accepted the waiver (Harding, para. 20). In reaching this conclusion, the court considered the following:

− The defendants provided no notice to the plaintiff that they were relying on the 270 day clause until 5 months after its expiry;

− No action was taken by either party to terminate the contract until October 3, 1991;

− The defendants paid Occupancy Fees in accordance with the occupancy agreement; and

− The defendants, who had rented the premises, collected rent from their tenants and made no efforts to have them vacate the units.

[1] In making these considerations, the court distinguished the case of Ally v. Harding Addison Properties Ltd. (1991), 1990 CanLII 6938 (ON SC), 1 O.R. (3d) 167 (Ct J (Gen Div)). In that case, the purchasers promptly notified the vendor that they were relying on a 270 day registration clause, indicated they would vacate the premises after that date, and would treat the agreement as terminated.

[2] Therefore, the decision of Mr. Justice Farley in Ally "implies that there is an obligation on the purchaser to take some timely step - at least to notify the vendor that the purchaser regards the agreement as being at an end" (Harding, para. 17).

[3] A similar result occurred in Kempling, a case in which the contract for purchase and sale rested on the registration of a condominium plan by January 15, 1990. At para. 37, Justice Picard stated that from the time the contract was signed in May 10, 1989 until the notice of February 19, 1990 the parties treated their obligations under the contract as binding."

[4] Justice Harradance, concurring in result, stated that the conduct of the parties up to and beyond the completion date for the condition precedent supported only one conclusion, that "the parties accepted that there was and would continue to be a contract for purchase and sale" (Kempling, para. 87). In so acting, the court found their conduct "mutually expressed their intention to carry out the agreement without reliance upon the condition precedent" (Kempling, para. 85).

[5] The case law appears to suggest that party conduct, specifically acting in disregard of a clear condition precedent, may result in a contract existing beyond the condition's completion date. In Harbour Management Inc. v. Cleland, 2006 BCSC 1278, 2006 CarswellBC 2084, Justice Holmes stated at para. 16:

The issue of waiver was addressed in Kempling v. Hearthstone Manor Corp., 1996 ABCA 254, [1996] A.J. No. 654 (Alta. C.A.) by the Alberta Court of Appeal. In a review of the law, Harradence J.A., at p. 14, noted that:

...a waiver of a condition precedent could be effective where the other party's conduct amounted to an "acceptance" of the waiver,

and that

...both parties to a contract, by their conduct in continuing to treat the contract as though it was not rendered void by operation of a condition precedent, had mutually waived a time requirement for registration of a condominium.

[48] On the facts of this case, I find that the Agreement of Purchase and Sale survived beyond the insurance condition date, November 19, 2013. Brent Lipke’s affidavit of April 4, 2016, particularly paragraph 54, and Dan Tetzlaff’s affidavit indicate that Mr. Lipke was working on getting insurance into December, 2013, well after the November 19^th date. Also, the above mentioned e-mails up to December 4 in which Mr. Lipke sought information from the vendor and arrangements were being made for further inspections of the building indicate that the parties still considered the agreement to be alive after November 19. Neither party gave any indication up to that point that the agreement was terminated due to the failure to waive any condition.

[49] Brent Lipke’s reason for terminating the agreement appears in his e-mail to the vendor of December 7, 2013. In short, he came to realise that he might not be able to sell the building in the future for a sufficient price to make it a viable investment. He explicitly says “it is for this reason that we have decided not to proceed…”. There is no mention of relying on the failure to waive any condition. It was only subsequently that his lawyers attempted to rely on the insurance condition to say that the agreement had become null and void as of November 19 because of failure to waive the insurance condition by then. That position is inconsistent with Mr. Lipke’s conduct in continuing to work on the deal after November 19.

[50] I turn now to the consequences of the purchaser terminating the agreement as he did.

[51] The case of Greenberg v. Meffert et al 1985 CanLII 1975 (ON CA), 50 O.R. (2d) 755 ONCA (1985), leave to appeal to the SCC refused, dealt with an employment contract in which in certain circumstances the employer had the sole discretion as to the commission to be paid to an employee. In deciding whether a court may interfere with the exercise of discretion conferred by contract, the court found that the exercise of the discretion is subject to a requirement of honesty and good faith and that fair dealing is implicit in the contract.

[52] The Greenberg case was referred to as the leading authority in this area in Marshall v. Bernard Place Corp., [1999] O.J. No. 889, a decision of the Ontario Court of Justice (Gen. Div.). The Marshall case has similarities to the present case. It arose from an agreement of Purchase and Sale regarding some real property. The agreement was conditional upon inspection and receipt of a report satisfactory to the purchasers, in their sole and absolute discretion. The purchasers purported to rely on the condition to get out of the deal. The vendors contended that the purchasers were not justified in exercising the condition clause and were not acting reasonably, honestly and in good faith, and withheld the deposit, which the purchaser sought the return of through a motion for summary judgment. The motion Judge found that there was evidence in favour of both sides, but there were issues of credibility that could not be resolved in a motion for summary judgment under the rules of the time.

[53] The trial decision is found at [2000] O.J. No. 3321 (S.C.J.). The issue was whether the purchasers had acted properly and according to law in exercising their rights under the condition clause. That is, had they acted reasonably, honestly and in good faith, or were they attempting to get out of the transaction for reasons not related to the conditions. The court found no evidence that the purchasers had backed out of the deal for reasons outside the inspection report, nothing in the purchasers’ conduct which suggested dishonesty or bad faith, and that their decision was reasonable. This was contrasted with the situation in Greenberg in which there was no difficulty finding that the defendants had not acted honestly and in good faith. The court ordered the return of the deposit to the purchasers.

[54] The trial decision was upheld on appeal. In doing so, the Ontario Court of Appeal confirmed its decision in Greenberg that “discretion under contractual conditions subject to discretionary judgments (sometimes called “sole discretion clauses”) must be exercised honestly and in good faith, and agreed with the trial judge that the purchasers in the Marshall case had met the requirements of good faith, honesty and reasonableness.

[55] The present case can be distinguished from Marshall. The rules about motions for summary judgment have changed, as previously noted, to expand the range of cases that can be dealt with thereunder. Also, I find clear evidence in Brent Lipke’s own e-mail that the real reason for terminating the transaction was outside of the conditions. Furthermore, I find the purchaser’s subsequent efforts to justify terminating the agreement, retroactively to November 19, in purported reliance on the insurance condition, were not done honestly or in good faith.

[56] Turning to the deposit, the purchaser submitted that there is a triable issue about how to treat the deposit and that a motion for summary judgment is not appropriate to resolve it in. I disagree. This can be dealt with quite briefly. When grounds for disentitlement to a return of the deposit are raised, “it is for the court to examine all the evidence to discover whether it disclosed that the (purchasers) did not act reasonably, honestly and in good faith and were thereby disentitled to the (return of the deposit). (Marshall et al v. Bernard Place Corp. et al 2002 CanLII 24835 (ON CA), 58 O.R. (3d) 97 ONCA par.36) The trial judge in Marshall quoted at length from Stockloser v. Johnson, [1954] 1 Q.B. 476 at pages 489 to 490 and stated in obiter:

42. If I am wrong in holding that the condition clause gave a very broad discretion to the Marshalls and that the reasonableness of their exercise of that discretion is measured by a combined objective and subjective standard and that they exercised the discretion honestly and in good faith, then I would have to consider whether their deposit is forfeited because they failed to complete the transaction.

43. The Agreement of Purchase and Sale does not provide that the deposit will be forfeited in the event that the Purchaser fails or refuses to complete the transaction. However, when the payment is a deposit, it is not necessary to include a provision in the contract. Unless the contract taken as a whole shows an intention to exclude forfeiture, the vendor is entitled on default of the purchaser to retain the deposit. A deposit is considered to be "earnest money" and an indication that the purchaser intends to be bound by the agreement and to complete the transaction. A reasonable deposit is usually considered to be somewhere in the range of three to ten percent of the total purchase price. In the event of default by the purchaser, the vendor is entitled to retain the deposit if the amount is within that reasonable range. If the "deposit" substantially exceeds the reasonable range, there would be no forfeiture of deposit, but the vendor could recover damages for breach of contract.

[57] The court of Appeal did not have to deal with this issue on appeal.

[58] I note that Stockloser was also referred to me by the purchaser’s counsel in his brief submissions on point, so that there could be no suggestion from the purchaser that it does not state the relevant law. I accept the trial judge’s statements, above, and find that the deposit is forfeited to the vendor, seeing no intention to exclude forfeiture outside of the provisions of the specific conditions and the circumstances set out therein which conditions, it was found above, were not relied on by the purchaser in terminating the contract.

[59] The Purchaser submitted that the court has authority to relieve against forfeiture, but allowed that the argument for that here is weak. He referred to 375186 BC Ltd. v. Cokuitlam Enterprises Ltd., 1997 Canlii 1678 (B.C.S.C) par. 61, which stated “…the test for relief for forfeiture are whether the sum forfeited is out of proportion to the loss suffered and whether it is unconscionable to retain the money”. As noted above, the trial judge in Marshall stated, albeit without pointing to any authority, that “(a) reasonable deposit is usually considered to be somewhere in the range of three to ten percent of the total purchase price”. This was not contested by the purchaser’s counsel here. Here, the $50,000.00 deposit is about 5.26% of the purchase price. Consequently, I find that it is a reasonable deposit and find no reason to provide for relief from its forfeiture.

[60] In the result, I find that this is a matter that can be decided on a motion for summary judgment, and that the $50,000.00 deposit is forfeited to the vendor, Brian Coghlan. It follows that the Counterclaim for the return of the deposit is dismissed.

COSTS

[61] If costs cannot be agreed upon, the Plaintiff will have 30 days to serve and file its costs submissions, and the Defendants will have 15 days after that to serve and file their costs submissions. Each side’s submissions shall be limited to three pages, plus Bills of Costs.

Justice J. A. S. WILCOX

Released: October 14, 2016

CITATION: Coghlan v. Unique Real Estate Holdings Inc., 2016 ONSC 6420

COURT FILE NO.: 5651/14

DATE: 20161014

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

BRIAN COGHLAN

Plaintiff/Defendant by Counterclaim

– and –

UNIQUE REAL ESTATE HOLDINGS INC. and BRENT LIPKE

Defendants/Plaintiffs by Counterclaim

REASONS FOR JUDGMENT

J. A. S. WILCOX

Released: October 14, 2016