Court File and Parties

COURT FILE NO.: CV-17-132038 DATE: 2018-08-10

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

SHAGHAYAGH CHITI ZADEH Applicant – and – ALIREZA KHAIBARI also known as ALIREZA KHIBARI and HOMELIFE LANDMARK REALTY INC., BROKERAGE Respondents

COUNSEL: John Lo Faso, for the Applicant Dheeraj Bhatia, for the Respondents

HEARD: April 25, 2018

J. SPEYER J.

Introduction

[1] On April 3, 2017, the applicant entered into an agreement of purchase and sale [the “APS”] with the respondent. Ms. Chiti Zadeh [the “seller”], the registered owner of a property in Richmond Hill [the “property”], agreed to sell the property and Mr. Khaibari [the “buyer”] agreed to buy it. The buyer agreed to pay $3,975,000 for the property. The deal was to close on July 11, 2017. It did not close.

[2] It was a condition of the APS that a deposit, in the amount of $200,000, was to be paid by the buyer in two installments: 1) $100,000 on April 5, 2017; and, 2) $100,000 on May 4, 2017.

[3] The April 5, 2017 deposit was paid. The second deposit was not paid.

[4] On June 1, 2017, the lawyer for the buyer sent a requisition letter to the counsel for the seller. In relation to a survey, it requested “An up-to-date survey of the subject lands. Please advise immediately if one is not available.” The requisition letter also required, on or before closing, production and registration of a good and valid discharge of a private mortgage registered against the property. In response, the lawyer for the seller wrote to the lawyer for the buyer, and asked that the second installment of the deposit be paid. On July 4, 2017, a new lawyer for the buyer, Mr. Bhatia, wrote to the lawyer for the seller. The letter is four single-spaced pages long. It alleged that the APS was null and void for numerous reasons, and demanded return of the $100,000 deposit paid. In addition, the letter threatened legal action, including steps to “register a Caution on title” to prevent the sale of the property. The lawyer for the seller responded the next day, asserting that the letter from the buyer’s lawyer of July 4, 2017 amounted to an anticipatory breach of the contract. The letter went on to terminate the APS.

[5] On July 10, 2017, the seller re-listed the property for sale. She initially sought a higher price than the buyer agreed to pay, but then lowered the price several times because no offers were received. The property sold on October 29, 2017, for $3,485,000, an amount that is $490,000 less than the price the buyer agreed to pay.

[6] The respondent, Homelife Landmark Realty Inc., Brokerage [“Homelife”], was the seller’s real estate agent in relation to the agreement with the buyer. Homelife was named as a respondent because Homelife held the $100,000 deposit paid by the buyer on April 5, 2011. Homelife released those funds to the seller, who paid that amount into court pursuant to an Order made by Sutherland J. on November 2, 2017.

The nature of this application

[7] The applicant seeks orders:

1. declaring that the APS was firm and binding;
2. declaring that the respondent breached the APS;
3. declaring that the respondent is liable to the applicant for damages resulting from the breach;
4. declaring that the applicant suffered damages in the amount of $490,000 plus some other amount to be determined by reference or motion to the Court; and,
5. that $100,000 paid by the applicant into court be released to her.

[8] Rule 14.05(3)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg 194 [the “Rules”], provides that a proceeding may be brought by application where the relief claimed is the determination of rights that depend on the interpretation of a deed, will, contract or other instrument, or on the interpretation of a statute, order in council, regulation or municipal by-law or resolution. This case involves the determination of rights that depend on the interpretation of a contract.

[9] While this matter could have proceeded by way of an action, Rule 2.01(2) provides that the "court shall not set aside an originating process on the ground that the proceeding should have been commenced by an originating process other than the one employed." The parties have proceeded in accordance with the rules that govern the conduct of an application. They have exchanged affidavits and conducted cross-examinations on those affidavits, so the court has the same sort of record that would be available on a motion for summary judgment under Rule 20, had this case been commenced by way of action instead of application.

[10] Rule 38.10 provides that:

38.10 (1) On the hearing of an application the presiding judge may,

(a) grant the relief sought or dismiss or adjourn the application, in whole or in part and with or without terms; or

(b) order that the whole application or any issue proceed to trial and give such directions as are just.

(2) Where a trial of the whole application is directed, the proceeding shall thereafter be treated as an action, subject to the directions in the order directing the trial.

(3) Where a trial of an issue in the application is directed, the order directing the trial may provide that the proceeding be treated as an action in respect of the issue to be tried, subject to any directions in the order, and shall provide that the application be adjourned to be disposed of by the trial judge.

In this case, to the extent that the rights of the parties that depend on the interpretation of their contract can be resolved on the basis of evidence before me, I intend to do so. As to any outstanding issues that remain, I will provide directions. Those directions will reflect the rule that a multiplicity of proceedings is to be avoided.

The history of the litigation

[11] On July 31, 2017, the seller filed the notice of application that is the subject of this judgment. The application was heard on August 31, 2017, in the absence of the respondent, who later denied having been served with the application record, and Di Luca J. granted the relief sought by the applicant.

[12] On September 7, 2017, the respondent buyer initiated an action, Court File No. CV-17-582242, against the applicant seller. The applicant seller has filed a defence and a cross-claim seeking substantially the same relief sought on this application. The respondent buyer has filed a reply and defence to the cross-claim.

[13] On September 28, 2017, the respondent filed a motion to set aside the order of Di Luca J. The motion was heard on November 2, 2017, and allowed, thus re-instating the application.

[14] On March 5, 2018, the respondent filed a notice of cross-motion, seeking that the application be dismissed with costs to the respondent. This document adds nothing to the respondent’s response to the application, and was completely unnecessary.

The issues

[15] The applicant frames four issues:

1. Did the buyer breach the APS by failing to pay the second deposit?
2. Did the seller breach the APS?
3. Was the seller entitled to terminate the APS?
4. What are the seller’s damages?

[16] The respondent asserts that the application raises four issues:

1. Should the application be dismissed due to the existence of a multiplicity of proceedings?
2. What is the impact on the contract when the seller failed to discharge a private mortgage?
3. Did the seller breach the APS by failing to provide an original copy of a survey to the buyer?
4. Does the seller have standing to bring the application?

[17] The issues for determination, in logical order, are these:

1. Does the seller have standing to bring the application?
2. Should the application be dismissed or stayed because the respondent initiated an action after the application was commenced?
3. Was the APS breached, and if so, who breached the APS, and what is the nature of the breach?
4. Was the applicant entitled to terminate the APS?
5. Is the applicant entitled to damages, and if so, in what amount?

Analysis

1. Does the seller have standing to bring the application?

[18] The buyer argues that the applicant does not have standing to bring the application because she is not the “real owner” of the property. This position is taken because the seller testified, during cross-examination on her affidavits filed in support of her application, that she bought the property for her brother, and that he made all decisions in relation to the property, although it was registered in her name. The buyer argues that the brother is the “real owner” of the property, and that the seller has “no personal interest in the property and the transaction and the present application.” As a result, says the buyer, the application should be dismissed.

[19] The seller responds that “the trustee in a resulting trust has the standing to file an application in her personal capacity.”

[20] No evidence has been introduced in these proceedings about who provided the funds to purchase the property as between the seller and her brother. There is no evidence about why title was taken as it was. There is no evidence about the arrangements that have been made between the seller and her brother. None of this is surprising. This case is not about the arrangements between the seller and her brother. It is about the APS between the seller, the legal owner of the property, and the buyer.

[21] The seller’s lack of knowledge about the details of the APS, and about the steps taken by her counsel to permit her to comply with her end of the bargain, may impact my assessment of the evidentiary value of her affidavits. But that does not affect her standing to bring the application. She is the legal owner of the property. It is registered in her name. She alleges a wrong against herself. She is a contracting party to the APS. See: Neumann v. Chudjak Estate, 2001 BCSC 957, at para. 11.

[22] In Suzanne Street Properties Ltd. v. Manhold Development Corp. (1998), 37 O.R. (3d) 797 (C.A.) (“Suzanne Properties Ltd.”), the court considered an argument that a general partner of a limited partnership lacked standing to sue for a claim that alleged wrongs done to the limited partnership. The general partner chose to sue in its own capacity as an entity that had been wronged. The Court of Appeal concluded, at para. 9:

Based on these facts, I see no reason why the plaintiff would not have the capacity to sue (or why it could not be sued if that were the case). The fact that, based on an agreement with another entity, the plaintiff may be liable to pay over any damages it may be awarded or that it may be entitled to seek indemnification for the cost it incurred as a result of the deficiencies in question does not detract from its capacity to sue the defendants in its own right.

The court went on to note the absence of any evidence in that case that the defendants would be precluded from raising any relevant defence by reason of fact that the plaintiff chose to sue in its own right. Similarly, in this case, the buyer is not precluded from raising any relevant defence to the application because the application has been brought by the seller personally.

[23] It must also be noted that the buyer has chosen, in the action he commenced in relation to the failed APS, to name the seller as the defendant. If she can be sued, then she must have the capacity to sue, or to bring an application.

[24] Even if the applicant is a trustee, Rule 9.01(1) of the Rules provides that a proceeding may be brought by a trustee representing a trust and its beneficiaries. See Suzanne Properties Ltd., at para. 7. Rule 9.01(2) lists the types of proceedings to which it does not apply. Proceedings relating to an alleged breach of contract are not included in that list.

[25] I conclude that the applicant has standing to bring this application.

2. Should the application be dismissed or stayed because the respondent initiated an action after the application was commenced?

[26] The respondent argues that the application should be dismissed, because the long-standing principle that a multiplicity of proceedings is to be avoided should be applied to allow the dispute between the parties to be resolved in the action that was commenced by the respondent after the application was commenced by the applicant. The Courts of Justice Act, R.S.O. 1990, c. C.43, as amended, provides in s. 138 that “as far as possible, multiplicity of legal proceedings shall be avoided.”

[27] In this case, the multiplicity of proceedings occurred because the buyer chose to commence an action after the application was brought. The seller was entitled to proceed as she did. There is no suggestion that the application was brought for any untoward purpose, or to interfere with the conduct of the then non-existent action. To the extent that the application, which is an expeditious and cost-effective manner of proceeding relative to an action, permits proper determination of any or all of the matters in dispute between the parties, it is an appropriate manner of proceeding.

3. Was the APS breached, and if so, who breached the contract, and what is the nature of the breach?

[28] The seller argues that the buyer breached the APS by failing to pay the second deposit in the amount of $100,000 as required by the APS by May 4, 2017. The seller further argues that the buyer committed an anticipatory breach of the APS when counsel for the buyer sent the letter dated July 4, 2017, demanding the return of the first deposit to the buyer, alleging that the APS was void, and that it had been breached by the seller.

[29] The buyer replies that the seller breached the APS by failing to discharge an existing private mortgage in advance of the agreed upon closing date, and by failing to provide the original existing survey of the property by April 4, 2017. The buyer alleges that he did not provide the second deposit because there was a verbal agreement between agents for the seller and the buyer that the second deposit need not be provided because the original existing survey was not provided by the seller. The buyer further argues that, in any event, he had already given a “huge deposit”, and that the seller did not need a further deposit.

[30] I will deal with each of the alleged breaches in turn.

i. The respondent’s failure to pay the second deposit as required by the APS and the survey issue

[31] There is no dispute that the respondent did not pay $100,000 by May 4, 2017, or at any time thereafter. The buyer argues that he was not required to pay the second deposit because the real estate agents for the parties agreed that it need not be paid because the seller had not provided a survey of the property to the buyer. The only evidence before me of such an agreement is found in the buyer’s cross-examination on his affidavits conducted on January 29, 2018, where the buyer testified that “because the seller didn’t provide the survey to me, and it was agreement, verbal agreement, between the buyer agent and the seller agent not provide the second deposit” [sic]. The seller provided no information as to how he became aware of any such agreement. His account in cross-examination about this alleged verbal agreement did not find its way into any of three affidavits that he swore on September 28, 2017, October 27, 2017 or January 29, 2018 (the date of his cross-examination). In his affidavits, he asserts only that he was not required to pay the second deposit because the seller breached the APS by failing to provide “the survey” to him by April 4, 2017. His affidavits make no mention of any agreement between the real estate agents.

[32] I reject the buyer’s evidence in cross-examination, and do not believe that any such agreement occurred. I reject it because his affidavits make no reference to it. Moreover, it defies belief that the seller’s agent would agree to any such thing in the face of the evidence that the seller’s agent on April 4, 2017, at 6:59 p.m., sent a copy of an existing survey, completed on December 7, 2016, by email to the buyer’s agent.

[33] Even if there was a verbal agreement as alleged by the buyer during his cross-examination, it does not affect the terms of the APS. The APS provides: “This Agreement including any Schedule attached hereto, shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed therein.” No written amendment to the APS was ever made.

[34] The buyer argues that the seller breached the survey clause of the APS by failing to provide “the original survey.” He argues that the ordinary and grammatical meaning of the expression used in the APS, being “an existing survey of the said property”, means that the APS requires that the original survey be provided, and not a copy of it. He cites no authority in support of this proposition.

[35] The language of the APS is clear and unambiguous. It does not require “the original survey” to be provided to the buyer. This argument is devoid of merit.

ii. The impact of the undischarged private mortgage

[36] The buyer argues that the seller breached the APS by failing to discharge an existing private mortgage in advance of the agreed upon closing date. The buyer raised this issue, in a letter written by his counsel to counsel for the seller, on July 4, 2017. The overall thrust of that letter is that the buyer is entitled to return of the deposit that he did pay because the seller breached the APS in a variety of ways, most of which have not been pursued on this application.

[37] One of the ways in which the July 4, 2017 letter alleged that the seller breached the APS was by failing to have removed an encumbrance registered against the property, being a private mortgage. As the letter acknowledges, it was a condition of the APS that the buyer remove any charges against the property prior to closing. The closing was to occur on July 11, 2017. Therefore, any charges against the property could not render the APS null and void on July 4, 2017.

[38] If the buyer’s argument was to prevail, any buyer of a property against which a private mortgage is registered could get out of the deal at any point before closing by simply stating that a private mortgage is registered against the property and therefore the seller cannot give clear title.

[39] I note that counsel for the respondent unsuccessfully advanced this argument in Nicolaou v. Sobhani, 2017 ONSC 7602 [“Nicolaou”], a decision released by Charney J. in this jurisdiction on December 19, 2017. Other aspects of that case also bear a striking similarity to those advanced on behalf of the respondent in this case. Although counsel for the respondent was undoubtedly aware of the Nicolaou decision, having been counsel for the defendant in that case, counsel did not bring this case to my attention. He ought to have done so.

iii. Did the July 4, 2017 letter from the respondent’s counsel amount to an anticipatory breach?

[40] A central issue in this case is whether the buyer’s counsel’s letter of July 4, 2017 constituted a repudiation and anticipatory breach of the APS by the buyer.

[41] An anticipatory breach occurs where one party to a contract repudiates the contract before performance is due. Repudiation may be by words or conduct. An anticipatory breach discharges the innocent party of its obligations under the contract and allows it to pursue damages without the need to tender: Kloepfer Wholesale Hardware and Automotive Co. v. Roy, [1952] 2 S.C.R. 465.

[42] The law relating to anticipatory breach of contract has been recently and thoroughly summarized by Charney J. in Nicolaou at paras. 37-42, as follows:

37. The law relating to anticipatory breach of contract was summarized by the Ontario Court of Appeal in Spirent Communications of Ottawa Limited v. Quake Technologies (Canada) Inc., 2008 ONCA 92, at para. 37:

An anticipatory breach sufficient to justify the termination of a contract occurs when one party, whether by express language or conduct, repudiates the contract or evinces an intention not to be bound by the contract before performance is due. See Pompeani v. Bonik Inc. (1997), 35 O.R. (3d) 417, [1997] O.J. No. 4174 (C.A.). To assess whether the party in breach has evinced such an intention, the court is to ask whether a reasonable person would conclude that the breaching party no longer intends to be bound by it. See McCallum v. Zivojinovic (1977), 16 O.R. (2d) 721, [1977] O.J. No. 2341 (C.A.). …[I]n determining whether the party in breach had repudiated or shown an intention not to be bound by the contract before performance is due, the court asks whether the breach deprives the innocent party of substantially the whole benefit of the contract.

38. In addition, the Ontario Court of Appeal held in Remedy Drug Store Co. Inc. v. Farnham, 2015 ONCA 576 at para. 47 that the test for anticipatory breach is an objective one based on a consideration of the surrounding circumstances: “a party can repudiate a contract without subjectively intending to do so.” The Court (at para. 48) adopted this summary from Angela Swan, Canadian Contract Law, 3d ed. (Markham: LexisNexis Canada, 2012), at p. 618:

The person (or his or her solicitor) may believe when the statement is made that he or she has an excuse for non-performance and that it is the other party who is in breach of the contract. The characterization of the statement as an “anticipatory breach” [or “repudiation”] will then be made when the dispute goes to trial.

39. Similarly, the Ontario Court of Appeal in Pompeani adopts the following statement from Waddams, The Law of Contracts, 3rd ed., paras. 613-614:

Repudiation can be by words or conduct evincing an intention not to be bound by the contract. It was held by the Privy Council in Clausen v. Canada Timber & Lands, Ltd. that such an intention may be evinced by a refusal to perform, even though the party refusing mistakenly thinks that he is exercising a contractual right. [Emphasis added]

40. When confronted by an anticipatory repudiation or breach, the innocent party has a right to elect to terminate the agreement or accept the repudiation as discharging the agreement. The effect of exercising the right to terminate the agreement relieves the party of any further obligation to perform its obligations under the contract and allows it to pursue damages for the breach of contract without the need to tender: Pompeani; Bethco Ltd. v. Clareco Canada Ltd. (1985), 52 O.R. (2d) 609, John D. McCamus, “The Law of Contracts 2nd Ed.” Irwin Law, 2012, at 686.

41. See also: Place Concorde East Limited Partnership v. Shelter Corporation of Canada; 270 DLR (4th) 181 (ON CA), at para. 50:

Thus, a repudiatory breach does not automatically bring an end to a contract. Rather, it confers a right upon the innocent party to elect to treat the contract at an end thereby relieving the parties from further performance. As a general rule, the innocent party must make an election and communicate it to the repudiating party within a reasonable time: see Chapman v. Ginter, [1968] S.C.R. 560 at 568. However, in some cases the election to treat the contract at an end will be found to have been sufficiently communicated by the innocent party’s conduct: John D. McCamus, The Law of Contracts, (Toronto: Irwin Law Inc., 2005) at pp. 641-42.

42. Finally, the analysis of Lederer J. in Kalis v. Pepper, 2015 ONSC 453 at paras. 10 to 12 is also relevant to the issues raised in this case:

The question of who gets the deposit is answered by a determination of whether the defendants repudiated the contract:

[U]pon default or repudiation by the buyer the vendor may retain the deposit as liquidated damages.

(Victor Di Castri, The Law of Vendor and Buyer, Volume 2, Carswell, at §805)

When can it be said that a contract has been repudiated? It has been said that:

Repudiation is conduct that demonstrates that a contracting party has absolutely renounced its contractual obligations.

A party to a contract repudiates by clearly stating that he or she does not intend to perform his or her obligations under the contract.

(Paul Perell, Real Estate Transactions, 2nd edition, Canada Law Book at p. 340, [and cases cited therein]…

For any action or statement to be relied on as repudiation, it must be clear, absolute and certain. Otherwise, any expressed uncertainty could be taken as repudiation and it would be impossible (or at least risky) for a party to a contract to express concerns or seek assistance from the other party to address such concerns lest it be taken as repudiation.

[43] It is clear that the buyer, through his counsel, repudiated the APS on July 4, 2017. The letter written by Mr. Bhatia, counsel for the buyer, dated July 4, 2017, and sent to counsel for the seller by fax, asserts five times that the APS is null and void. It alleges “a fatal error that goes to the root of the contract,” and “that the seller is guilty of misrepresentation and fraud committed on the buyer.” The letter alleges repeatedly that the seller has breached the APS. The letter also states that the buyer will commence legal proceedings if the deposit is not returned to the buyer.

[44] Any reasonable person reading the July 4, 2017 letter from the buyer’s lawyer would conclude that the buyer intended to repudiate the APS and to no longer be bound by its terms. The letter demands return of the deposit, which return can only be claimed if the APS has been terminated. The letter of July 4, 2017 constituted an anticipatory breach of the APS. The buyer’s conduct, which includes not only the July 4, 2017 letter but also his failure to pay the second installment of the deposit, demonstrated that he had absolutely renounced his contractual obligations.

[45] On July 5, 2017, counsel for the seller wrote to counsel for the buyer. The July 5, 2017 letter advised that counsel for the buyer had “clearly stated that the purchaser, Alireza Khaibari, would not complete the transaction”, and that, as a result, he was in anticipatory breach of the APS, and that therefore the vendor had terminated the APS. The seller elected to terminate the contract, as she was entitled to do, and communicated her decision to the repudiating party promptly.

4. The application for forfeiture of the $100,000 deposit

[46] In Kalis v. Pepper, 2015 ONSC 453, at paras. 10-12, Lederer J. concluded that the question of who gets the deposit is answered by a determination of whether the contract was repudiated, and that upon default or repudiation by the buyer, the vendor may retain the deposit as liquidated damages. See also: Nicolaou, at para. 42; Hatami v. 1237144 Ontario Inc., 2018 ONSC 668, at para. 53.

[47] The buyer has not argued on this application that he is entitled to relief from forfeiture of the deposit. Clearly he is not. Forfeiture of the deposit is not out of proportion to the losses suffered by the seller, and it would not be unconscionable for the seller to retain the deposit. The evidence establishes that the seller was able to sell the property some months after the buyer repudiated, but for $490,000.00 less than the price the buyer agreed to pay. See: Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, at para. 15; Dada v. Brantford Communities Ltd., 2018 ONCA 209, at para. 4.

5. Damages

[48] Having breached the APS, the respondent is liable to the applicant for damages she suffered as a result of his breach. The applicant is entitled to be placed, so far as money can do it, in the same position as she would have been had the contract been performed.

[49] The amount of damages can only be determined in a forum in which all issues relevant to quantifying damages may be addressed on the basis of a proper record. The applicant acknowledges that the record is insufficient to comprehensively quantify the damages suffered, and the respondent has not addressed submissions to this aspect of the matter. In her Notice of Application, the applicant seeks an order “directing a reference to the Court for a determination of the damages suffered by the Applicant, or alternatively, damages in the sum of $750,000.00 for breach of the agreement.” This highlights the uncertain nature, at this point in time, of the damages sustained by the applicant.

[50] The appropriate forum in which to quantify damages, unless there is no dispute about the material facts, is in an action. Therefore, it is ordered that the issue of the quantum of damages proceed to trial and that this proceeding be treated as an action in respect of that issue. This action is to be consolidated with Court File No. CV-17-582242, the action and counter-claim also pending in relation to this matter.

6. Conclusion

[51] It is ordered that:

1. the APS was firm and binding;
2. the respondent breached the APS;
3. the $100,000 deposit paid by the respondent is forfeited, and the $100,000 paid into court shall be released to the applicant;
4. the application against Homelife is dismissed;
5. the respondent is liable to the applicant for damages resulting from the breach;
6. the issue of the quantification of the damages sustained by the applicant as a result of the respondent’s breach shall proceed to trial, and the proceeding shall be treated as an action in respect of that issue, and to the extent that the application has not been decided, it is adjourned to be disposed of by the trial judge;
7. the trial of the issue as to the quantification of damages sustained by the applicant as a result of the respondent’s breach will be consolidated with Court File No. CV-17-582242; and,
8. the parties are directed to attempt to resolve the issue of costs. If they are unable to do so by August 24, 2018, written submissions not to exceed 2 pages, in addition to a bill of costs, may be made to me by August 31, 2018.

J. Speyer J. Released: August 10, 2018