Court File and Parties
Court File No.: 18/831 Date: 2018-08-21
Superior Court of Justice - Ontario
Re: Paterson Veterinary Professional Corporation – and – Stilton Corp Ltd.
Before: Tzimas J.
Counsel: David Fogel and Rachel Fielding, for the Applicant R. Seumas M. Woods, for the Respondent
Heard: July 17, 2018 at Brampton
Endorsement
Introduction
[1] The Application before this court concerns the enforcement of a Settlement Agreement between two veterinarians that purported to resolve an acrimonious legal action between them. The litigation concerned the sale of the property where the McCleary Animal Hospital (the Clinic) operates.
[2] Neither party disputes the existence of the settlement or its terms. Those terms had four key terms: i) the extension of the lease for the Clinic’s premises by two years; ii) the agreement that the premises would be sold by the Respondent to the Applicant with a close to occur on February 1, 2018 and at a price of $1,250,000; iii) the exchange of a Full and Final Release; and iv) the dismissal of the action.
[3] The Applicant complied with the terms of the lease, the Respondent received the monthly rent as anticipated by the Agreement, the Full and Final Release was executed, and the action was dismissed. But when it came to the sale transaction of the Clinic premises, the Respondent refused to sell because by the date of closing the Respondent alleged that the value of the property had increased from the agreed upon price of $1.25 million to $1.9 million. The Respondent concluded that if he went ahead with the settlement, it would result in a windfall to the Applicant of approximately $750,000. The Respondent also indicated that the property was his “baby” and that he had a change of heart and could not go through with the sale. Finally, he sought to resurrect his past differences with the Applicant by suggesting that the Applicant coerced him into the original selling of his practice to her back in 2006 and that he should not be required to sell the property. In effect, the Respondent sought to set aside the settlement though he framed his refusal to close the transaction in terms of alleged failures by the Applicant, which he alleged, rendered the Settlement Agreement void.
[4] The Applicant seeks the immediate enforcement of the settlement. She asks for a vesting order upon the payment of the sum of $1,250,000 either to the Respondent or into Court. The Respondent opposes the Application and asks that the matter be converted into an action.
[5] The Application engages the following issues: a) Is an Application pursuant to Rule 14 of the Rules of Civil Procedure, the appropriate procedural avenue for the enforcement of the Settlement Agreement of December 20, 2013? b) Is the Settlement Agreement of December 20, 2013 a valid and enforceable contract? c) Does the alleged increase in the value of the property result in the frustration of the Settlement Agreement of December 20, 2013? d) Does the enforcement of the Settlement Agreement of December 20, 2013 engage the court’s equitable jurisdiction? and e) What is the appropriate remedy?
[6] For the reasons that follow, I conclude that the Settlement Agreement of December 20, 2013 is valid. The Applicant did nothing wrong to invalidate the agreement or to otherwise put into question its validity and enforceability. The plain and simple fact is that the Respondent does not want to sell his property. He is trying to find a way to avoid that contractual obligation. The alleged increase in the property value does not amount to frustration of the contract and does not offer the Respondent a way out.
[7] Although both parties made extensive submissions on the availability of specific performance, the dispute between the parties is entirely contractual and it does not engage the court’s equitable jurisdiction. The settlement resolved the issue of specific performance which was one of the primary issues in the underlying litigation. The Respondent effectively conceded specific performance when he agreed to sell his property to the Applicant. The Respondent cannot walk away from the agreement just because of an alleged change of heart or, more realistically, because he would like to get a better price for his property. Nor, in the face of a settlement that included a Full and Final Release and the dismissal of the action between the parties, can the Respondent seek to resurrect alleged past grievances to void an otherwise valid settlement.
[8] Accordingly, the parties shall have 30 days to conclude the purchase and sale of 981 Clarkson Road. Should the Respondent continue to refuse to close the sale transaction, the Applicant may come back before me to seek a vesting order and an order that the purchase funds be paid into court.
[9] Insofar as the issue of rent for the premises for the months since February 1, 2018 and for any other outstanding fees is concerned, the parties are strongly encouraged to work out a settlement. While it is not disputed that the Applicant has not paid any rent since February 2018, the cause for that non-payment is the Respondent’s refusal to close the transaction. Having regard for the possibility that the Applicant may have suffered damages on account of having to arrange for financing and other related costs, if the parties cannot reach an agreement over the outstanding rent and any damages the Applicant may have incurred, then they may bring the issue before me on a full evidentiary record and accounting so that the issue may be disposed of in a fair and just manner. Absent the appropriate and comprehensive accounting, it will be impossible for me to make any further pronouncement. I will however note that the reconciliation of this issue, stands separate and apart from the conclusion of the sale of the property. Although it would be practical to include it in an overall statement of adjustments, if that cannot be accomplished, it should not in any way be used to delay the sale transaction within the noted 30 days.
[10] Finally, insofar as costs are concerned, the parties are also strongly encouraged to reach a settlement. If they are unable to do so then the Applicant shall have until September 7, 2018 to make her submissions and the Respondent shall have until September 14, 2018 to respond. Both sides will limit their written submissions to 4 pages, in 12 pt. character and double-spaced, and they will attach a Bill of Costs.
Background
[11] The following facts are not in dispute.
[12] Marjorie Paterson is a licensed veterinarian and she is the sole director of the Applicant, Paterson Veterinary Professional Corporation, (Paterson). She is 62 years old. In 1981, after she graduated from veterinary school she began to work for McCleary Animal Hospital, (the Clinic) located at 981 Clarkson Road in Mississauga, Ontario.
[13] Dr. McCleary operated the clinic under his corporation Stilton Corp. Ltd., (Stilton). He began practicing as a veterinarian in 1971 and he started to operate the Clinic in 1974. Stilton owns the Clinic premises at Clarkson, (the Clarkson property).
[14] In 2006, Dr. Paterson bought assets of the Clinic from Dr. McCleary for $1,275,000. [1] Although Dr. Paterson wanted to continue the practice at the Clarkson Road premises she could not afford to buy the property in addition to the practice. She had already been practicing there for 25 years and she would not have bought the practice if she had to move it to another location. Accordingly, the asset purchase agreement included a lease agreement for a period of five years with an option to renew the lease and an option to purchase the property. Dr. Paterson’s hope was that in those five years, she would be able to raise sufficient funds to exercise the option to purchase.
[15] In 2010 Dr. Paterson tried to exercise the option to purchase the property. Dr. McCleary challenged the validity of the option to purchase and more particularly the way that Dr. Paterson exercised the option, and refused to sell. Dr. Paterson was forced to commence an action for specific performance and for other related relief.
[16] Eventually, following certain cross-examinations, the litigation was settled by way of Minutes of Settlement and the action was dismissed. Under the terms of the Settlement, the parties agreed that the Applicant would continue to lease the Clarkson property until January 31, 2018 that thereafter, the Respondent would sell the property, with a closing of the transaction to occur on February 1, 2018.
[17] The lease extension fixed the annual rent at $74,799.96, payable in monthly instalments of $6,233.33 plus HST, subject to annual increases based on the Consumer Price Index. As of January 1, 2018, the basic rent came to $6,460.71 plus HST, for a total sum of $7,300.60 and an additional $1,521.69 plus HST, or $1,719.51 per month, on account of realty taxes and insurance.
[18] The purchase terms anticipated the following:
“Upon the date (the “Closing Date”), which shall be the day following the end of the term of the Lease of January 31, 2018, the defendant Stilton Corp. Ltd. shall transfer its title and ownership of the Property to the plaintiff Paterson Veterinary Professional Corporation, and the plaintiff shall pay to the defendant the purchase price of $1,250,000 plus harmonized sales tax (“HST”), in consideration of the transfer of title and ownership of the Property from the defendant to the plaintiff) ”the Purchase and Sale”). If such day falls on a day on which the applicable land registry office is closed, then the Closing Date shall be the first day thereafter on which such land registry office is open for business. Stilton Corp. Ltd. shall transfer such title in good and marketable form free and clear from any and all financial encumbrances including, without limitation, mortgages and construction liens. Paterson Veterinary Professional Corporation hereby represents and warrants to Stilton Corp. Ltd. that it will on the Closing Date be registered for the purposes of the HST imposed under the Excise Tax Act, (Canada), (the “Act”), and shall be liable, shall self-assess and remit to the appropriate governmental authority all HST payable under the Act in connection with the Purchase and Sale. Stilton Corp. Ltd. shall not collect HST on the Closing Date in respect of the Purchase and Sale and shall allow Paterson Veterinary Professional Corporation to self-assess and remit HST to the Receiver General in accordance with the Act. Paterson Veterinary Professional Corporation shall indemnify and save harmless Stilton Corp. Ltd. from and against any and all HST, penalties, costs and/ or interest which may become payable by or assessed against Stilton Corp. Ltd. as a result of any inaccuracy, misstatement or misrepresentation made by Paterson Veterinary Professional Corporation on the Closing Date in connection with any matter set out herein. Stilton Corp. Ltd. covenants that, until the Closing Date, it shall not charge, transfer, assign, lease or otherwise part with any other interest in the Property without Paterson Veterinary Profession Corporation’s written consent.”
[19] At the time of the Settlement Agreement, Dr. McCleary believed that the Property was worth about $1,374,000. Dr. Paterson’s appraisal of January 3, 2012 offered a value of $945,000. According to Dr. McCleary, he expressly acknowledged that he agreed to the sale price of $1,250,000 instead of his higher price because he wished to mitigate the risks associated with the litigation.
[20] Both parties were represented by their respective counsel in the negotiation and the drafting of terms of the Settlement. The final Settlement Agreement was produced in a letter format and on letterhead for Blakes, who was counsel for Dr. McCleary. It included a Full and Final Release of any and all claims that were raised or that could have been raised in Paterson’s court action bearing Court File No. CV-13-1706-00. Both Dr. Paterson and Dr. McCleary executed the agreement on December 20, 2013 on behalf of their respective corporations, Paterson and Stilton. The action was dismissed on January 15, 2015.
[21] Dr. Paterson complied with the terms relating to the lease of the premises. On November 24, 2017, Dr. Paterson’s counsel at the time, Mr. Joost Heersche, communicated with Mr. Seumas Woods, who was the counsel on the litigation and who participated in the negotiation of the Settlement Agreement to inquire if he would remain counsel for Dr. McCleary (Stilton), in the upcoming sale of the property, which pursuant to the Settlement Agreement was scheduled to close on February 1, 2018.
[22] Mr. Heersche did not receive an immediate response to that letter. He followed up with additional communications directly to Mr. Woods and to Dr. McCleary on January 11, 12, 15, 19, and 22, 2018 about issues related to the upcoming closing.
[23] On January 26, Mr. Woods wrote to Mr. Heersche and confirmed his retainer with Dr. McCleary to act on behalf of both Dr. McCleary and Stilton. In the same letter, he said: “Dr. McCleary does not want to sell his property to your client.” He also asked that Mr. Heersche “direct any correspondence to me rather than to him or his practice.”
[24] On January 29, Mr. Heersche confirmed the receipt of Mr. Woods’ letter. He also confirmed his understanding that Mr. Woods was the solicitor of record for the purposes of the closing scheduled for February 1, 2018 and he indicated that Dr. Paterson would be proceeding with the closing as scheduled. He asked that Mr. Woods respond to the requisitions and Statement of Adjustments and he provided Mr. Woods the appropriate copies.
[25] On January 30, 2018, Mr. Heersche sent a letter to Mr. Woods and enclosed the draft closing documents. He again confirmed that Mr. Woods was the solicitor for the Closing. On January 31, 2018, Mr. Heersche sent to Mr. Woods the Purchaser’s Documents. On February 1, 2018, Dr. Paterson attempted to Tender on Dr. McCleary (Stilton)’s lawyers, Blakes. The representative of Dr. Paterson who attempted the tender met with one of Blake’s law clerks and showed her the Purchaser’s executed documents. He also showed her two certified trust cheques: the first was a certified trust cheque of Huber & Heersche Trust Account payable to the Minister of Finance for $21,475; the second was a certified trust cheque of Huber & Heersche Trust account payable to Blake, Cassels & Graydon LLP in trust for $1,250,000.
[26] On February 2, 2018, Dr. Paterson registered a caution on title to the Clarkson Property.
[27] On February 5, 2018, Mr. Woods wrote to Mr. Heersche and demanded that Dr. Paterson vacate the Clarkson premises within 30 days due to the expiry of the lease. On February 23, 2018, Dr. Paterson obtained a Certificate of Pending Litigation and had it registered on the Clarkson property.
[28] As of May 8, 2018, the Respondent contends that the Property’s value has increased to $1,925,000.
Position of the Parties
[29] The Applicant seeks the enforcement of all the terms of the Settlement Agreement of December 20, 2013 that included the lease of the Clarkson premises until January 31, 2018, the purchase and sale of the Clarkson property on February 1, 2018, a Full and Final Release of the issues in dispute in the action bearing Court File No. CV- 13-1706-00 and a dismissal of the action. The only outstanding term remains the closing of the sale transaction. They say that Dr. McCleary (Stilton), breached the Settlement Agreement. As part of the enforcement of the Agreement the Applicant asks for specific performance of the sale transaction and for a vesting order of the property to the Applicant.
[30] The Respondent opposes the Application. To begin with he challenges the Applicant’s enforcement recourse by way of Application, He submits that there are material facts in dispute that would therefore require the application to be converted into an Action and that a full trial be held with full viva voce evidence. He admits however that the dispute in the material facts does not lie with the terms of the Settlement Agreement but rather with the facts concerning the history of the relationship between the parties that resulted in the original sale of the practice, the inclusion of the purchase option, and the elements that specific performance, namely, uniqueness of the property, the availability of other suitable locations, and Dr. Paterson’s overall bona fides conduct vis-à-vis Dr. McCleary.
[31] The Respondent also contends that the Settlement Agreement has been frustrated by the tremendous increase in the value of the property, from the agreed upon price of $1,250,000 in December 2013 to $1,925,000 in 2018. Such a variation, according to the Respondent represents a dramatic and unforeseen development and on that basis alone the Settlement Agreement is no longer binding. In addition, the Respondent argues that the Applicant’s tender was defective, it disputes the Applicant’s readiness and willingness to close, and finally, it challenges the Applicant’s entitlement to specific performance.
Analysis
[32] The Application engages the following issues: a) Is an Application the appropriate procedural avenue to obtain an order for the enforcement of the Settlement Agreement of December 20, 2013? b) Is the Settlement Agreement of December 20, 2013 a valid and enforceable contract? c) Does the alleged increase in the value of the property result in the frustration of the Settlement Agreement of December 20, 2013 so as to render it invalid and void? d) Does the enforcement of the Settlement Agreement of December 20, 2013 engage the court’s equitable jurisdiction to order specific performance? and e) What is the appropriate remedy?
a) Is the Application an appropriate procedural avenue to obtain an order for the enforcement of the Settlement Agreement of December 20, 2013?
[33] The Application brought by the Applicant is an appropriate procedural avenue to obtain an order for the enforcement of the Settlement Agreement of December 20, 2013. Although in the Notice of Application the Applicant did not make an explicit reference to Rules 14.05(3)(d) and 14.05(3)(e) which deal with the determination of rights that depend on the interpretation of a contract and the declaration of interest in land, the parties argued the Application as if the explicit reference to the said Rules were made. Although the omission amounts to a technical error, the correction to add the specific references to Rule 14 may shelter under the reference in the Notice of Application to “such further and other remedies as may be appropriate”.
[34] Insofar as the availability of these specific Rules is concerned and the Respondent’s submission that there are material disputes between the parties such that the Applicant ought to have proceeded by way of an action and a statement of claim and that at this point the Application ought to be converted into an action, I disagree.
[35] Rules 14.05(3)(d) allows for the resort to an 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.” Rule 14.05(3)(e) speaks to the making of “a declaration of an interest in or charge on land, including the nature and extent of the interest or charge or the boundaries of the land, or the settling of the priority of interests or charges.” Rule 14.05(3)(h) speaks to the use of an application to obtain relief “in respect of any matter where it is unlikely that there will be any material facts in dispute”.
[36] Contrary to the submissions by the Respondent, there are no material facts that pertain to the circumstances leading to the making of the agreement, the terms of the agreement, and their respective conduct to preclude the use of an Application. In other words, there is no impediment to the court’s ability to interpret the legal meaning of the Settlement Agreement and to make a declaration concerning the interest in the Clarkson property on the basis of the Settlement Agreement.
[37] The parties’ disagreement, particularly with respect to the availability of frustration to invalidate a contract, the Applicant’s readiness and willingness to close and her approach to tender, and the resort to equitable relief by way of an order to specific performance are legal questions. The issue of specific performance engages factual considerations. However, as I explain more fully below, the court’s equitable jurisdiction in this instance is not engaged and there is therefore no need for a specific performance analysis. What is engaged is the interpretation of the Settlement Agreement, the assessment of the existence of a breach, and a determination of the appropriate remedy for that breach.
[38] Accordingly, there is no need to convert the Application to an Action. Any such step would only serve to delay the adjudication of circumstances that are as straight forward as a matter can get: the parties entered into an agreement, the Applicant complied with its obligations but the Respondent refuses to honour its own obligations.
[39] I make the further observation that given the comprehensive nature of the evidentiary record before the court, including the extensive cross-examinations of the parties, even if the Applicant had proceeded by way of an action and a summary judgment motion, it is doubtful that the court would face any impediment to making an order for judgment, pursuant to Rule 49.09 of the Rules.
[40] Finally, I note that it is incumbent on all parties and on the court to identify the procedures that will best promote finality in a dispute. Having regard for the fact that in this instance the subject of the application is the enforcement of a settlement intended to resolve once and for all a preceding legal action, it is essential to remember that it is sound judicial policy to promote settlement and to enforce the principle of finality as that contributes to the effective administration of justice. I rely expressly on the Supreme Court of Canada’s decision in Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37, [2013] 2 S.C.R. 623, para. 11 which said:
[11] Settlements allow parties to reach a mutually acceptable resolution to their dispute without prolonging the personal and public expense and time involved in litigation. The benefits of settlement were summarized by Callaghan A.C.J.H.C. in Sparling v. Southam Inc. (1988), 66 O.R. (2d) 225 (H.C.J.):
the courts consistently favour the settlement of lawsuits in general. To put it another way, there is an overriding public interest in favour of settlement. This policy promotes the interests of litigants generally by saving them the expense of trial of disputed issues, and it reduces the strain upon an already overburdened provincial court system. [p.230]
b) Is the Settlement Agreement of December 20, 2013 a valid and enforceable contract?
[41] There is nothing in the evidence to put into question the validity and the enforceability of the Settlement Agreement. The parties agree that they entered into the Settlement Agreement on December 20, 2013 following extensive cross-examinations, negotiations, and the drafting of an agreement. The Settlement Agreement is a contract.
[42] It is trite law that for a contract to exist, the court must find that the parties (1) had a mutual intention to create a legally binding contract; and (2) that they reached an agreement on all of the essential terms. Where the contract is in writing, the Court is to objectively determine the intention of the parties based on the words chosen by the parties. Evidence of a party’s subjective intention has no place in the interpretation of the contract. As Gillese J.A. recognized in Olivieri v. Sherman, 2007 ONCA 491 at para 44:
A determination as to whether a concluded agreement exists does not depend upon an inquiry into the actual state of mind of one of the parties or on the parole evidence of one party’s subjective intention. …. Where, as here, the agreement is writing, it is to be measure by an objective reading of the language chosen by the parties to reflect their agreement.
[43] In this instance, there is no dispute between the parties that the objective of the Settlement Agreement was to settle the litigation between them. The Agreement, which was outlined in a letter format on Blakes’ letterhead had four essential components to it: i. the extension of the lease for the Clarkson property for a term that would end on January 31, 2018; ii. the sale and purchase of the Clarkson property with a closing date of February 1, 2018; iii. a Full and Final Release of all claims that were either raised in the action or that could have been raised; and iv. a dismissal of the action
[44] Both parties were represented by counsel in the negotiation and the drafting of the Settlement Agreement. Both parties executed it on December 20, 2013. Their respective intentions concerning the Agreement are not in dispute. Dr. McCleary, in his evidence, very explicitly acknowledged that although the agreed upon price of $1,250,000 for the sale of the Clarkson property was lower than the appraised value of $1,374,000, which he obtained, he agreed to settle the settlement to manage his litigation risk. Dr. Paterson’s intentions are also not in dispute. She wanted to secure the purchase of Clarkson so that she could continue her veterinary practice there.
[45] Dr. Paterson complied with the terms of the settlement. She paid the rent in accordance with the lease agreement and Dr. McCleary accepted the payments. Both Dr. Paterson and Dr. McCleary executed the Full and Final Release and the action was dismissed on January 15, 2014. The only outstanding term was and remains the sale of the Clarkson property. Dr. McCleary breached his end of the bargain when he refused to accept the tendering of the closing documents.
[46] The Respondent raised three reasons for the court to invalidate the Settlement Agreement: Dr. McCleary’s change of heart, an allegedly defective tendering, and doubts over Dr. Paterson’s actual willingness and ability to close. Counsel also raised the legal argument of frustration, which I deal with in some detail below.
[47] Insofar as Dr. McCleary’s change of heart is concerned, and specifically his suggestion that the Clarkson property was “his baby” and he could not part with it, I found that evidence quite dubious and contrived. His overriding reason for refusing to sell related to the sale price. I suspect that if the Applicant were to agree to pay the suggested $1.9 million, something which would not, in any way, be required to do, Dr. McCleary would not be objecting to the sale. But his credibility on this issue is irrelevant. Even if I were to accept that he had a change of heart, that explanation could not operate in law to invalidate the Settlement Agreement.
[48] A party or parties will not be relieved of their contractual obligations just because they no longer wish to be bound by their terms: see Perri v. Concordian Chesterfield Co., [2003] O.J. No. 5852 (S.C.J.), at para. 5. Similarly, in 1672370 Ontario Ltd. v. Narducci Holdings Inc., 2009 CarswellOnt 5903, where the settlement at issue concerned the sale of land at a certain price, the Court held that the agreement was binding and concluded that the purchaser could not change its mind and refuse to complete the contract simply because it did not wish to do so:
107 A party will not be relieved from its contractual obligations pursuant to a settlement simply because it no longer wishes to be bound to them. I find that in the present case the Numbered Company decided that it no longer wished to be bound by the Agreement because, as its lawyer stated in his letter of September 4 and 12, 2008, “ the market for new construction has changed considerably, to our client’s prejudice”.
108 Finality is important in litigation. In Mohammed v. York Fire Casualty Insurance Co., in the context of a settlement constituting a contract and a consent judgment being binding, the Court of Appeal stated:
Finality is important in litigation. This is so for the sake of the parties who reached their bargain on the premise of an allocation of risk, and with an implicit understanding that they will accept the consequences of their settlement. Finality is also important for society at large, which recognizes the need to limit the burdens placed on justice resources by relitigation a limitation reflected in the doctrine of res judicata (citation omitted). Emphasis added.
Indeed, the fundamental principles of contract law would fall apart if a contracting party could walk away from a contract on a whim or just because they changed their mind.
[49] Regarding the allegedly defective tendering is concerned, to begin with, the Respondent’s breach of his contractual obligations crystallized on January 26, 2018 when through his counsel Mr. Woods, he advised Dr. Paterson’s counsel that he no longer wished to sell the Clarkson property and he would not be closing the transaction. On that basis alone, although the tendering by Dr. Paterson underscored her intention to meet her end of the bargain, the breach had already occurred and it would not have been necessary for her to tender.
[50] But leaving aside the implications of the communication of January 26, 2018 to the effect that Dr. McCleary did not wish to sell his property to Dr. Paterson, Mr. Woods’ submission that the Applicant’s tender was defective because the Applicant failed to ask Dr. McCleary if Mr. Woods was authorized to accept a tender is to put it very mildly, audacious and has an air of being disingenuous and unprofessional, given Mr. Woods’ direction in his letter of January 26, 2018 that Dr. Paterson’s counsel “direct any correspondence to me [Mr. Woods] rather than him [Dr. McCleary] or his practice [Stilton].”. In the next couple of days that followed, counsel did just that. On January 29, Mr. Heersche advised Mr. Woods that they were proceeding with the closing and asked Mr. Woods to respond to the requisitions and the Statement of Adjustments. He told him that he looked forward to completing the transaction in a timely manner. On January 30, 2018 Mr. Heersche sent to Mr. Woods draft closing and related documents. On January 31, 2018, Mr. Heersche sent to Mr. Woods the Purchase’s Documents.
[51] At no time did Mr. Woods alert Mr. Heersche to a change in instructions from Dr. McCleary or to a clarification that the reference to “correspondence” in his letter of January 26, 2018 did not extend to the tendering of the closing documents. Even on February 1, 2018, when the Applicant tendered, if Mr. Woods truly did not have instructions to accept the tender, he or his staff should have contacted Mr. Heersche to alert him to his limited instructions and to advise him to tender directly on Dr. McCleary. The individual who attended at Blakes to execute the tender, Mr. Brian Bird, did so at 12:20 p.m. Had Mr. Woods alerted Mr. Heersche in a timely manner of those allegedly limited instructions, Mr. Heersche could have made alternate arrangements to tender on Dr. McCleary directly. Mr. Woods remained silent. In light of these circumstances, I find it especially troubling that counsel would try to capitalize on that silence to shift the blame for the failed closing on the Applicant. The Applicant did nothing wrong.
[52] Finally, regarding Dr. Paterson’s willingness and ability to close on February 1, 2018, the questioning at this late date of her financial situation and ability to close and the demand that she produce at this stage all her financial arrangements and documentation of the financing in place is excessive and it is designed to make the enforcement of the settlement onerous as possible for Dr. Paterson and to distract the court from the very basic facts of this case: Dr. McCleary breached the terms of a valid agreement when he refused to close the sale transaction.
[53] I recognize that at some point, should Dr. Paterson seek to claim the costs or possible penalties she may have incurred as a result of the failed closing, she will have to provide the appropriate evidence to substantiate the damages she incurred as a result of Dr. McCleary’s intransigence. But until such a claim is advanced, if it ever is, the best evidence of the Applicant being ready, willing and able to close is the certified trust cheque drawn on Huber & Heersche Trust Account and payable to Blake, Cassels & Graydon LLP in trust for $1,250,000 that Dr. Paterson’s agent produced when he tendered. Had Dr. McCleary accepted the tender and closed the transaction, he would have received those funds. To argue that despite the noted certified cheque, Dr. Paterson did not have the funds and that Dr. Paterson must produce additional corroborative evidence is preposterous and suggests a desperate attempt to shift the blame away from Dr. McCleary’s express refusal to sell the Clarkson property to the hypothetical and unfounded allegation that Dr. Paterson would not have been ready, willing and able to close.
c) Can the alleged increase in the value of the property result in the frustration of the Settlement Agreement?
[54] On the facts of this case I conclude that the doctrine of frustration does not apply to invalidate the Settlement Agreement of December 20, 2013. The Respondent could not point the court to any Canadian authority that has found a marked variation in the value of a property to amount to a contract that becomes radically different from the one that the parties contemplated. Courts have actually held the contrary, see most recently, Holst v. Singh, [2018] O.J. No. 3600 and 642947 Ontario Ltd. v. Fleisher, 1997 Carswell Ont. 1576.
[55] Counsel identified a case from the High Court of Australia, Codelfa Construction Pty. v. State Rail Authority of N.S.W. (1982), 149 C.L.R. 337 and a case from the United States, Florida Power and Light Co. v. Westinghouse Electric Co. 826 F. 2d 239 (1987), and suggested that this court should be guided by the two decisions and in effect add recognize or extend the doctrine of frustration to include a change in circumstances that result in financial hardship or are commercially impractical.
[56] To begin with, even if I were to obtain some guidance, and even if I could introduce some flexibility in the application of the doctrine from the proposed cases, they do not necessarily stand for the propositions that the Respondent suggested. In the Australian example, although the Justices of the High Court undertook fairly extensive discussions of the doctrine of frustration and some suggested that the approach to be taken ought to flexible and open to new applications, the radically different circumstances of that case rested in the fact that as a result of an injunction, it became unlawful for the construction company to satisfy the terms of its contract. A contractual term that was thought to be lawful, was rendered unlawful. The variation in the value of the Clarkson property does not create an unlawful circumstance.
[57] In the American example, the impracticability of the performance was only one of three requirements to enable the finding of frustration. The Court noted that the intervening occurrence had to be unexpected and that the occurrence had to be of such a character that its “non-occurrence” was a basic assumption of the agreement of the parties, before it could consider the implications of the impugned occurrence. In this case, as I explain more fully below, a change in property values is anything but unexpected. The valuation of the Clarkson property was the very reason for the original dispute and legal proceedings that eventually led to the settlement.
[58] In Canadian law, the doctrine of frustration and the applicable test was summarized by the Supreme Court of Canada in Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58, [2001] 2 S.C.R. 943, as follows:
53 Frustration occurs when a situation has arisen for which the parties made no provision in the contract and performance of the contract becomes "a thing radically different from that which was undertaken by the contract": Peter Kiewit Sons' Co. v. Eakins Construction Ltd., [1960] S.C.R. 361, per Judson J., at p. 368, quoting Davis Contractors Ltd. v. Fareham Urban District Council, [1956] A.C. 696 (H.L.), at p. 729.
55 … The court is asked to intervene, not to enforce some fictional intention imputed to the parties but to relieve the parties of their bargain because a supervening event (the OLRB decision) has occurred without the fault of either party. For instance, in the present case, the supervening event would have had to alter the nature of the appellant's obligation to contract with the respondent to such an extent that to compel performance despite the new and changed circumstances would be to order the appellant to do something radically different from what the parties agreed to under the tendering contract, citation of cases omitted.
[59] In its articulation of a “radical change of obligation” the Supreme Court of Canada relied in part on the analysis in G.H.L. Fridman, The Law of Contract in Canada (4th ed. 1999), at pages 677-678 where it is explained that in modern times the idea of a radical change in the contractual obligation arises from unforeseen circumstances in respect of which no prior agreement has been reached. The unforeseen circumstances are said to come about through no default of either party. The party claiming that a contract has been frustrated would have to establish that performance of the contract, as originally agreed would be impossible. Fridman elaborated further that the whole basis of frustration rests on the impossibility of performance. He explained that to mean a physical impossibility and impossibility resulting from a legal development that has rendered the contract no longer a lawful one. [Emphasis added.]
[60] If there is something that is a regular occurrence in the real estate market, it is the fluctuation of the prices. As stated very recently in Gamoff v. Hu, [2018] O.J. No. 1829, the real estate market is not for the faint of heart. Fluctuations in the market values of properties will not invalidate an agreement of purchase and sale and relieve contracting parties from their obligation to buy or sell as the case may be. As noted most recently in Holst v. Singh, supra, the doctrine of frustration has no application in a real estate transaction. The Court in 642947 Ontario Ltd. v. Fleisher, supra, at para 97, where the court noted that: “It is not simply enough to say that market conditions frustrated the contract. If that were so, the Court would be relieved of many cases based on real property contracts that did not close due to the falling real estate market.”
[61] More to the point, on the facts of this case, the parties were already very much alive to the issue of the value of the Clarkson property. The very reason for their original dispute that resulted in the commencement of the litigation in the spring of 2013 was a disagreement over how the market value of the property would be determined. The Asset Purchase Agreement that the parties entered into in 2006 contemplated the obtaining of appraisals and depending on the scope of disagreement, the involvement of an arbitrator to fix a fair market price.
[62] Given this past history, even if I were to be guided by the American case, which has as its first requirement for the applicability of frustration “the unexpected occurrence of an intervening act”, these parties cannot say that the variation in the value of the property was an unexpected occurrence of an intervening act. Moreover, the sale of the property was postponed by two years with the extension of the lease by two years before the property would be sold. In this time period, the Respondent earned $150,000 in rental revenues. If I take that sum into account, then the additional extension of the to January 31, 2018 bridged and arguably exceeded Dr. McCleary’s desire in 2013 of a sale price of $1.37 million. In this regard I find that Dr. McCleary very shrewdly extended the term of the lease to effectively earn additional funds from Dr. Paterson, albeit using the avenue of a lease instead of the purchase price.
[63] I would add that Dr. McCleary’s overall attitude and refusal to sell the property causes me to wonder whether Dr. McCleary ever intended to respect the full terms of the Settlement Agreement or if he deliberately used the Settlement Agreement as a way to end the litigation in 2013 and postpone his refusal to sell to a later date. While I make no specific finding on this point, I raise it only to underscore my conclusion that the value of the property was neither a novel nor an unexpected issue for the Respondent. He cannot rely on that variation to argue frustration.
[64] In the same vein, it defies logic the parties would have assumed that the value of the property would remain fixed at the price the agreed to on or about December 20, 2013. Both Dr. Paterson and Dr. McCleary were mature and experienced professionals. They were supported by experienced and seasoned legal counsel. They could have included an escalator clause or some other term to account for either a prospective increase or a decrease in the value of the subject property. They did not do so. The only evidentiary insight into the reasons for the Settlement and its terms was a desire to manage the litigation risk.
[65] Finally, although at this juncture in light of the alleged value of $1.9 million, (which incidentally was not proven and which the court does not accept as true), the sale of the property at the agreed upon price of $1,250,000 may appear to be improvident, the variation does not create an impossibility of performance in the way that an activity might become unlawful or some entity might go bankrupt. The court is not here to re-write the terms of a contract and to second guess the reasons for which the parties omitted a contractual term that might have otherwise protected them both from the vagaries of the real estate market.
[66] For all these reasons, the Respondent cannot resort to the doctrine of frustration to invalidate the Settlement of December 20, 2013.
d) Does the enforcement of the Settlement Agreement of December 20, 2013 engage the court’s equitable jurisdiction?
[67] Although it is the Applicant who included a request for a declaration of a right to specific performance as a means of enforcement, the issue before this court does not engage the court’s equitable jurisdiction. Rather, the court is concerned with a straight breach of one of the contractual terms, namely the sale of the specific property under the terms of Settlement Agreement. In the underlying litigation, the Applicant (Plaintiff) sought specific performance of the purchase option. As one of the settlement terms, the Respondent (Defendant) agreed to the requested specific performance of the sales transaction. He is now obliged to deliver on that contractual obligation. Absent a contractual failure within the terms of the Settlement Agreement there is no basis for the court to resort to equitable relief.
[68] Had the parties not settled, and had they proceeded with the litigation, the concerns that were highlighted with respect to the uniqueness of the property in question, the behaviour of the parties, and Dr. Paterson’s entitlement to equitable relief may have been engaged and litigated.
[69] But the parties chose an alternate course. They settled with four essential terms to their agreement: the extension of the lease for two years, the sale of the property on February 1, 2018, a Full and Final Release of the claims that were raised or that could have been raised, and the dismissal of the action. The only term of the Agreement that has yet to be satisfied is the sale of the Clarkson property. That term is but one of the four essential terms of the Agreement. The enforcement of the Settlement Agreement is not about the propriety of specific performance. Rather, the dispute is limited to the final execution of the last term of the Settlement Agreement.
[70] To be drawn into a specific performance analysis would be to effectively set aside the settlement terms that included the Full and Final Release and the dismissal of the action. The unravelling of the overall Settlement Agreement can best be illustrated with reference to Dr. McCleary’s current allegations concerning his historic relationship with Dr. Paterson and the reasons for which he decided to sell the practice in 2006. Today he says that Dr. Paterson coerced him into the sale of the practice. But back in 2013 Dr. McCleary said nothing about being coerced; he wanted to sell. The disagreement that resulted in the litigation was over the market value of the property. To get into any of that discussion would require the court to set aside the Full and Final Release.
[71] But that in turn highlights the reality that the enforcement of an agreement is not about looking behind the agreement, reopening it and re-writing it. It comes back to the overriding observation referenced early on in this decision to the effect that settlements have to mean something and parties must be able to rely on those settlements. If every settlement of a lawsuit became susceptible to being re-opened and re-examined just because somebody changed his or her mind, that could result in a never-ending spiral, something that would clearly be contrary to the public interest and the administration of justice. Absent any concerns over the validity of the agreement, there is no basis to refuse the enforcement of the Settlement of December 20, 2018.
e) What is the appropriate remedy?
[72] Contrary to the Applicant’s request that the court issue a vesting order in the Applicant’s favour together with a payment of $1,250,000 either directly to Dr. McCleary or into court, I consider such a remedy to be premature. Instead, I conclude that it is more appropriate that the parties be given 30 days to finally close the sale transaction. If Dr. McCleary continues to refuse to close, the Applicant may come back before me, at which point I will be prepared to reconsider the appropriateness of issuing a vesting order and an order that the purchase funds be paid into court.
[73] At the conclusion of their submissions, counsel for the parties raised concerns about the fact that Dr. Paterson has not paid any rent since February 1, 2018, that certain expenses such as the taxes have also not been paid. The court was not provided with a comprehensive evidentiary record to be in any position to consider the issue. Given the foregoing analysis, the parties are strongly encouraged to work out a settlement and as a practical matter incorporate the adjustments into the closing of the sale transaction.
[74] In their negotiation of this issue, in addition to the non-payment of rent, I would expect that if Dr. Paterson incurred expenses and damages on account of the financing she obtained and then possibly gave up, those sums would be taken into account in the overall reconciliation of monies owing. If the parties cannot reach an agreement, then they may bring the issue before me on a full evidentiary record that includes the appropriate accounting so that the issue may be disposed of in a fair and just manner. Absent such a record, it is impossible for me to make any further pronouncement. As I noted in the introductory part of my decision, the reconciliation of this issue stands separate and apart from the conclusion of the sale of the property and should not in any way be used to delay its conclusion within the noted 30 days.
Conclusion
[75] In light of the foregoing findings and conclusions, the parties shall have 30 days from the date of this decision to conclude the sale transaction for the Clarkson property and Dr. McCleary is ordered to participate in and conclude the sales transaction within the noted 30 days. The parties are also strongly encouraged to address and resolve the outstanding rents and any expenses associated with Dr. Paterson’s financing efforts as described above and if possible to include that reconciliation in the overall adjustments.
[76] As far as costs are concerned, the parties are also strongly encouraged to reach a settlement. If they are unable to do so then the Applicant shall have until September 10, 2018 to make her submissions and the Respondent shall have until September 30, 2018 to respond. Both sides will limit their written submissions to 4 pages, in 12 pt. character and double-spaced, and they will attach a Bill of Costs.
Tzimas J. Date: August 21, 2018
Footnotes
[1] The transactions between Drs. Paterson and McCleary were conducted through their respective corporations. Each is a sole officer and director of the respective corporation and each is the directing mind. The Application names the two corporate entities and the actions between the parties are in the names of the corporations. However, for ease of reference, I refer to the parties as Drs. Paterson and McCleary respectively.
