Fenwick v Concierge Auctions, ULC, 2017 ONSC 2514

Court File and Parties

DATE: 2017-04-25

TORONTO COURT FILE NO.: CV-16-560719

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

ALLAN FENWICK Applicant – and – CONCIERGE AUCTIONS, ULC AND BENNETT JONES LLP Respondents

Counsel: Kevin D. Sherkin and Elizabeth Barrass, Counsel for the Applicant Julia E. Schatz and Hartlee R. Zucker, Counsel for the Respondent, Concierge Auctions, ULC

TORONTO COURT FILE NO.: CV-16-563706

AND BETWEEN:

CONCIERGE AUCTIONS, ULC Applicant – and – ALLAN FENWICK, SUSAN FENWICK, MARK WEILAND, DEIDRE WEILAND AND ROMAC ENTERPRISES INC. Respondents

Counsel: Julia E. Schatz and Hartlee R. Zucker, Counsel for the Applicant, Concierge Auctions, ULC Kevin D. Sherkin and Elizabeth Barrass, Counsel for the Respondents, Allan Fenwick and Susan Fenwick Mark Weiland, Deirdre Weiland and Romac Enterprises Inc., No one appearing

HEARD: February 22, 2017

Reasons for Partial Judgment on Cross-Applications

MULLINS J.:

Introduction

1The relief sought at this hearing is between the Fenwicks and Concierge Auctions ULC. Both the Fenwicks and Concierge Auctions ULC seek relief in relation to the sum of $430,000 that has been paid into court.

The Facts

2Concierge is in the business of auctioning luxury real estate in Canada and the United States. It was engaged by Mr. and Mrs. Weiland and Romac Enterprises Inc. to auction a cottage located at 2-1100 Delbrooke Road, Dwight, Lake of Bays, Ontario. The cottage had been on the market for a number of years. Concierge examined the pin to the property during its marketing efforts and became aware that the mortgages registered amounted to more than $4,500,000. A manager employed by Concierge has deposed in these proceedings that he was advised by Mark Weiland that there was approximately $2,000,000 outstanding on the mortgages registered against the cottage, notwithstanding the face value of the mortgages. Had Concierge been informed otherwise, its representative says, the vendors would have been advised to utilize a reserve bid format for the auction.

3At no point did Concierge guarantee a price for the property nor would such a thing be a normal part of Concierge’s business practices, asserts Concierge.

4The agreement governing the relationship between the vendors and Concierge included a representation by the vendors that they had good and marketable title to the property and in the event of any shortfall realised on sale, they would nonetheless be able to close the transaction. In the event of the vendors’ default in closing, the vendors were obliged to pay Concierge the buyer’s premium that would otherwise be payable by the purchaser.

5Concierge agreed to rebate 25% of the buyer’s premium to the vendors upon the successful closing of the property and waived its $55,000 engagement fee.

6The Fenwicks were looking for a cottage property when, in about mid-July 2016, Mrs. Fenwick came across an advertisement in the Globe and Mail that promoted the auction for the cottage property at 1100 Delbrooke Road with no reserve.

7In order to be registered as a bidder, the Fenwicks were obliged to execute and deliver an Escrow Agent Direction and Acknowledgment and wire a deposit in the sum of $100,000 to the escrow agent. I use the plural ‘Fenwicks’ for simplicity’s sake. Mr. Fenwick was nominally the bidder/purchaser, but latterly it was Mrs. Fenwick who entered into a second agreement of purchase and sale and took title. Counsel agree that nothing turns on these circumstances as it was always intended that Mrs. Fenwick take title.

8Mr. Fenwick also executed a Bidder Registration Auction Terms and Conditions Agreement and provided a letter from his banking institution. Bidders had the option of providing a minimum starting bid, providing it was in excess of $3,500,000. By doing so, the bidder would be entitled to receive a discount from the vendors in the amount equal to 10% of the starting bid. The Fenwicks took advantage of this provision, and made a starting bid of $3,500,000. Under the terms of the Bidder Registration Agreement, this minimum bid entitled the Fenwicks to a credit from the vendors against the eventual purchase price, of $350,000.

9Among other things, Concierge told the Fenwicks that though there was a mortgage on the property it would in no way impact the winning bidder.

10Concierge delivered a list of chattels which purported to confirm which items of furniture were to be included and which excluded from the purchase of the property.

11The bidding process was completed using Concierge’s “instant gravel” online bidding system, on July 25, 2016. The Fenwicks were successful when they bid $4,300,000. The next morning the Fenwicks were provided with a completed Agreement of Purchase and Sale executed by the vendors, which Mr. Fenwick executed. As of this moment, the state of accounting between the vendors, purchaser(s) and Concierge was premised on a purchase price of $4,300,000, a vendors’ credit to the purchasers ($350,000), and a buyer’s premium calculated at 10% of the purchase price ($430,000) to be paid by the Fenwicks to Concierge. As required by the documents governing the auction, Mr. Fenwick delivered a further sum of $330,000 to be held in escrow.

12Later in that same week, the Fenwicks were notified that the vendors were claiming that they would be unable to close the sale, because the purchase price was insufficient to discharge the mortgages on the property. Mr. Fenwick deposes in these proceeding that he does not know if the vendors were truthful about this.

13Mr. Fenwick instructed his lawyer to register the Agreement of Purchase and Sale of July 26, 2016 on title. He paid the land transfer tax. A caution was registered on July 29, 2016.

14The vendors wrote to Mr. Fenwick on August 11, 2016 to explain why they were unable to close the sale. Although Mr. Fenwick quotes Mrs. Weiland as stating that Concierge ‘blindsided them and misled them as to the amount the bidders would have to bid’ the letter is more so a lengthy lament about the collapse of the Weilands’ financial resources and the term ‘blindsided’ refers to somewhat more complex matters than suggested in Mr. Fenwick’s affidavit.

15On August 23, 2016 counsel for Concierge wrote to the vendors confirming their breach of the Agreement of Purchase and Sale and reminding them that in the event of this default by them, Concierge was entitled to recover its bidder’s fee from them.

16The Fenwicks attempted to persuade Concierge to allow the funds they held in escrow to be used to bridge the shortfall between the purchase price and the amount necessary to clear the vendor’s mortgages. Concierge declined.

17Unbeknownst to Concierge, Susan Fenwick entered into a new Agreement of Purchase and Sale with the Weilands for the purchase of the cottage, at the same purchase price of $4,300,000, on September 8, 2016.

18As this second Agreement of Purchase and Sale purported to be outside of the documents that had governed the auction process, the amount payable on closing was not, effectively, reduced by the vendors’ credit of $350,000 called for in the first agreement. In this sense, $350,000 more was paid in consideration by the Fenwicks to the Weilands to close the transaction. The Fenwicks calculated, I infer, that they would be entitled to recover the $430,000 they had deposited and was being held in escrow because it was the vendor’s responsibility that the sale by auction had been thwarted by their inability to give clear title.

19The Fenwicks’ depose that they incurred additional transactional and legal fees to close pursuant to the second Agreement of Purchase and Sale. They paid the legal costs for the vendors, too. Upon closing, the Fenwicks claim that not all of the furniture they were given to understand was to have been included in their purchase remained in the premises. Unfortunately, says Mr. Fenwick, with all of the legal fees, shortage of furniture and costs there are no excess funds available to offer Concierge. In these circumstances Concierge is left with a right to sue the vendors to recover damages for the non-payment of the buyer’s premium.

20The vendors have since made assignments in bankruptcy.

21The parties conceded when asked, albeit with more reluctance than enthusiasm, that there are no material facts in dispute, wherefore this hearing could be dispositive at to which of the Fenwicks and Concierge is entitled to the funds paid into court.

22Mr. Fenwick observes that the vendors had a deal with Concierge Auctions to receive a rebate in the amount of 25% of the $430,000 buyer’s premium and urge that whatever the outcome, Concierge is not entitled to more than 75% of the buyer’s premium.

23The Fenwicks contend that the original Agreement of Purchase and Sale failed to close as a result of the vendor’s breach, wherefore Concierge is not entitled to the buyer’s premium.

24By its terms, the Bidder Registration Auction Terms and Conditions Agreement between Mr. Fenwick and Concierge Auctions provides as follows:

Paragraph 3, buyer premium.

Buyer shall pay to Concierge a “buyer’s premium” equal to ten percent (10%) of the Capital High Bid, plus HST, being the harmonized sales tax. Buyer acknowledges and agrees that the Buyer’s Premium is deemed earned upon conclusion of the Auction and shall be held by Bennett Jones LLP and disbursed to Concierge by Bennett Jones LLP upon closing. If the sale of the property is not consummated for any reason other than default by the Seller, the buyer’s premium shall nevertheless be due and payable to Concierge. The buyer’s premium is not a real estate commission; it is the fee that Concierge charges to bidder for bringing the property(s) to auction. Any applicable real estate commissions will be determined by the parties in a separate agreement. Concierge is not involved in any way in connection with the closing of any real property transaction and all such functions will be handled exclusively by third party real estate brokerage or legal professionals.

25At sub-paragraph D at paragraph 4 of the agreement, provision is made that:

The Opening Bid Buyer Incentive shall not apply to any purchase and sale contract executed other than to the purchase and sale contract between the buyer and seller executed on the day of the auction, including pre-auction offers or a backup buyer contract.

Brief Summary of the Positions Advanced by the Parties

26Under the terms of the Auction Marketing Agreement, emphasizes Concierge, the buyer’s premium was deemed earned upon conclusion of the auction. The $350,000 credit to a successful bidder whose opening bid was at least $3,500,000 was offered by the vendors, not Concierge. The two mortgages on the property having a face value over $4,700,000 were disclosed on Concierge’s website for prospective bidders and shared with the Fenwicks on July 15, 2016, well before they chose to bid at the auction.

27It was on the basis of a representation from Mr. Weiland that Concierge’s representative advised the purchasers that the mortgages on title would have no impact on the sale. In any event, Concierge points out that the purchasers agreed in their contract with it that they were not entitled to rely on any representations made by Concierge and were obliged to perform due diligence with respect to the property themselves.

28Though advised that the property was not going to close as originally scheduled, Concierge complains that it was excluded from any communications between the Weilands and the Fenwicks leading up to the eventual closing on September 9, 2016.

29Concierge incurred costs in preparing, marketing and inspecting the property to the benefit of the vendors and purchasers.

30The Agreement of Purchase and Sale dated September 8, 2016 provides that the Fenwicks retained all right to make any claim of any kind or pursue any remedy relating to the Agreement of Purchase and Sale of July 26, 2016.

31Concierge contends that it is entitled to the buyer’s premium on a number of grounds. The Fenwicks saw the property in newspaper advertising, registered and bid in the auction all of which ought to be to the credit of Concierge on a quantum meruit basis and are circumstances in which the Fenwicks knew they were obliged to pay for the services. Mr. Fenwick tendered, registered a caution and paid the land transfer tax for the property, pursuant to the terms of the July 26, 2016 agreement and reserved his rights under that agreement. His wife entered into the second agreement on September 8, 2016, the negotiations for which took place without disclosure to Concierge. The actions of the Fenwicks failed to meet the duty of good faith resting upon them. The Fenwicks have been unjustly enriched by not having to pay the buyer’s premium and Concierge deprived thereof, in circumstances where there is no juridical reason warranting such.

32It was in order to mitigate damages, say the Fenwicks, that Mrs. Fenwick entered into the second Agreement of Purchase and Sale and ultimately, purchased the property for $350,000 more than would have been payable under the terms of the original Agreement of Purchase and Sale. They have been deprived of some of the contents they were to have received. They have paid increased legal and closing costs. Thus, they have not been enriched. The obligations specified in a contract between Mr. Fenwick and Concierge excludes the application of quantum meruit, and to the extent it calls for the vendors to pay the buyer’s premium upon their default, there is a juridical reason why Concierge is not entitled to the premium.

33The second Agreement of Purchase and Sale is a fresh agreement and not an extension of the original one. They had to pay substantially more for the property than they would have had the vendors closed under the original agreement. Concierge has a contractual remedy against the vendors. It has not, therefore, suffered any detriment. Nor can Concierge justify the third element of unjust enrichment, which is that there be no juristic reason for the loss. Under the terms of the contracts which govern the transaction, which were drafted by Concierge, the buyers’ premium would not have been released to Concierge. As demonstrated by the letter from their counsel, the reasonable expectation of Concierge was that it would recover the buyers’ premium from the vendors in the event, as here, that the transaction did not close due to the vendors’ default. As to any argument that Concierge is entitled to a sum for quantum meruit, there are written contracts between all of the parties, which displace any claim that could arise on a quantum merit basis.

34To characterize a transaction, submits Concierge, the courts should look to whether the negotiations to the transaction were ongoing, whether the parties retained their interest in the transaction until it was completed and if the contracting parties knew of and expected a claim for the commission. There is no credible argument that the September Agreement of Purchase and Sale represented a different transaction than the July version. The purchase price is identical and the rights to resolve the dispute over the chattels reserved. The purchasers registered the July Agreement of Purchase and Sale on title, giving a clear signal of their interest in the property. The Fenwicks failed to discharge a basic requirement of honest performance of their contractual obligations, submits Concierge. An analogy should be drawn to real estate cases. If so, the September 8 Agreement of Purchase and Sale may fairly be characterized as an extension of the original agreement rather than a separate transaction.

Brief Overview of Case Law Relied Upon

35The court was invited to reflect upon a number of cases. These included the decision given by the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 SCR 633. It was therein observed that contractual interpretation may involve issues of mixed fact and law and is an exercise in which the principles of contractual interpretation are applied to the words of the contract to be considered in light of the factual matrix. The goal of the interpretation process is to ascertain the objective intentions of the parties. The contract must be read as a whole, given the words their ordinary and grammatical meaning consistent with the surrounding circumstances.

36Garland v. Consumer’s Gas Co., 2004 SCC 25, [2004] 1 SCR 629, at para. 30, sets out the test for unjust enrichment. It has three elements: (1) an enrichment of the defendant; (2) a corresponding deprivation of the plaintiff; and (3) an absence of juristic reason for the enrichment.

37Urbanplan Consultants Ltd. v. Wicha, 1977 CarswellNS 132, at para. 16, 23 N.S.R. (2d) 9, (N.S. C.A.) stands for the proposition that where there is an express contract there is no room for application of the doctrine of quantum meruit. It can only arise from an implied contract.

38Glendinning v. Cavanagh (1907), 10 O.W.R. 475, 1907 CarswellOnt 158 (Ont. C.A.) is an example of when a commission may be payable where the vendor and purchaser varied an agreement in a manner that served to reduce the commission payable. The court ordered payment of the commission calculable on the original price to which the parties had agreed. The substance, not the form of the agreement, was to apply, said the court.

39Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494 speaks of good faith contractual performance, as a general organizing principle of the common law of contract. As an organizing principle, it is not a free-standing rule, says the court, but rather a standard that underpins and is manifested in more specific legal doctrines and may be given different weight in different situations. It was said that 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 action in service of those interests in all cases. It merely requires that a party not seek to undermine those interests in bad faith.

40The Court observed that the principle of good faith must be applied in a manner that is consistent with the freedom of contracting parties to pursue their individual self-interest. A party may sometimes cause loss to another, even intentionally, in the legitimate pursuit of economic self-interest. Doing so is not necessarily contrary to good faith and in some cases has actually been encouraged by the courts on the basis of economic efficiency. The proper application of the principle of good faith steers clear of ad hoc judicial moralism or ‘palm tree’ justice. It must not be used as a pretext for scrutinizing the motives of contracting parties. So it is, says the Court, that there is a common law duty applying to all contracts to act honestly in the performance of contractual obligations. Parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance.

41This Court was invited to draw an analogy to the case of McBrayne v. Imperial Loan Co.. Where the purchaser who was originally introduced to a property remains either directly or indirectly interested throughout the transaction, says this decision, the agent does not lose the right to commission that arose in the circumstances of the original introduction of the purchaser to the property, although the form and scope of dealing may be changed, with or without his assent, and although others become interested either as contributors to the success of the sale or enlarging the range of the transaction; provided that no right arises from the act of another, without which the sale would not have been consummated.

42In William Allan Real Estate Co. Ltd. v. Robichaud, s. 23 of the Real Estate and Business Brokers Act, R.S.O. 1980, c. 431 was under consideration. Under this provision, an agent would be entitled to a real estate commission if it has obtained an offer in writing that has been accepted. The courts are to look to see if there was a direct sequence of events, such that subsequent agreements were, in reality, extensions of the previously concluded agreement. Here it was found that the evidence demonstrated that the ultimate agreement of purchase and sale was an extension of a previous agreement.

Disposition

43There is substantial evidence that the Fenwicks intended to close the Agreement of Purchase and Sale entered into on July 26, 2016, notwithstanding having been told by the vendors that clear title could not be given due to the mortgages registered against the property. The Fenwicks tendered, registered a caution and paid the land transfer tax in respect of the Agreement of Purchase and Sale dated July 26, 2016. That first Agreement of Purchase and Sale formed part of the documents they had agreed would be signed, in order to be entitled to bid in the auction conducted by Concierge, pursuant to the Bidder Registration Auction Terms and Conditions Agreement.

44Clearly, the Fenwicks were determined to close their purchase of that cottage. They entered into the ‘second’ Agreement of Purchase and Sale, which was for the same property, at the same purchase price, though they did not receive the vendors’ credit of $350,000 to which they were entitled under the terms of their Bidder Registration Auction Terms and Conditions Agreement, having placed a minimum bid of $3,500,000.

45The second agreement is dated September 8, 2016 and reserved rights from the first agreement. The transaction closed the next day.

46If the second Agreement of Purchase and Sale is truly not, effectively, an extension of the first, then the terms of the Bidder Registration Auction Terms and Conditions Agreement would apply. The vendors balked at closing, evidently because the proceeds were insufficient to give clear title. By operation of the buyer’s premium clause, which is clear, unambiguous and was in words scribed by or behalf of Concierge alone, Concierge is limited to a remedy against the vendors.

47It is open to the court, by drawing an analogy to the cases involving the payment of a real estate commission to an agent, however, to consider whether the closing on September 9, 2016 was, in all of the circumstances, pursuant to the Agreement of Purchase and Sale dated July 26, 2016. The Fenwicks’ conduct in registering a caution, paying the land transfer tax and reserving their rights, establishes on a balance of probabilities that they acted with a continuous intention to close the transaction throughout.

48Because the two agreements of purchase and sale were, effectively, one continuous agreement, Concierge is entitled to the buyer’s premium, which is $430,000.00, together with HST. Concierge is entitled to pre-judgment interest. I do not consider that Concierge is obliged to credit the Fenwicks with the 25% rebate of the buyer’s premium. That rebate belongs to the vendors, or perhaps more accurately now, the trustee of their estates in bankruptcy.

49The authorities relied upon by counsel disclose that claims in quantum meruit and unjust enrichment are not ipso facto excluded by the presence of contracts between the parties. On the facts here, however, the relationship of the Fenwicks to Concierge was one of bidder to auctioneer. The value of services upon which Concierge’s claim in quantum meruit rests is predicated on the work performed for the vendors, and their own business purposes. Although the premium is deemed earned upon conclusion of the auction, other provisions in the documents govern by whom it is payable. The principles of contractual interpretation require that sense be made of a contract by considering, among other things, all of the terms. On the facts and in these circumstances here, the entitlement to the buyer’s premium and by whom it was to be paid were governed by clear, unambiguous terms of the documents. The contracts govern to the exclusion of unjust enrichment and, to my mind, to the exclusion of a claim based on unjust enrichment.

50The evidence falls somewhat short of establishing that the Fenwicks acted in bad faith, or in a calculated manner to deprive Concierge of the buyer’s premium, by closing their purchase ostensibly pursuant to the second agreement of purchase and sale under which they paid $350,000 more to the vendors, intending not to have to pay the buyer’s premium to Concierge of $430,000. At its highest, the evidence, notably the correspondence of counsel filed as exhibits to the affidavits tendered, suggest that the Fenwicks may knowingly have taken a calculated risk.

51The evidence and submissions made by the parties relating to the other claims of the parties, notably regarding the furniture was insufficient to grant judgment at this time in this hearing format. The parties may make written submissions as to the procedure they seek to adjudicate these.

52The parties may make written submissions for costs within 30 days or such other reasonable time as they may agree.