OSHAWA COURT FILE NO.: 87557/14 DATE: 20180823 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Mohammad Younas Dar Plaintiff – and – The Yards Corporation, and Mazhar Hussain Defendants
Counsel: Harinder Dhaliwal, for the Plaintiff Gasper Galati, for the Defendant, The Yards Corporation
HEARD: April 5, 2018
REASONS
H.K. O’CONNELL J.:
OVERVIEW
Position of the Moving Party, Mr. Dar
[1] Mr. Dhaliwal, counsel for Mr. Dar, outlined that the issue before the court is with respect to relief from forfeiture of a deposit on a real estate deal in the amount of $134,960.00, pursuant to section 98 of the Courts of Justice Act. Alternative relief was sought in respect of damages to be paid by the defendant to the plaintiff in the event that relief from forfeiture was not granted.
[2] Both Mr. Dhaliwal and Mr. Galati advised the court that the motion for summary judgment was the most efficient and cost effective way to deal with this matter, and that all of the requisite materials, inclusive of affidavits and cross-examination on same to allow the court to determine the issue on a summary judgment motion, were before the court for that determination to be made.
[3] The motion only deals with Mr. Dar and The Yards Corporation (“Yards”), and not the real estate agent, Mr. Hussain. The litigation as against Mr. Hussain is outstanding and will not be effected by this motion. As a consequence, Mr. Hussain did not participate in the motion.
[4] No issue is taken with the fact that deposits were made by Mr. Dar for the purchase of a property, nor with the timelines as set out by Mr. Dar in his material.
[5] Furthermore, it was conceded that the agreement of purchase and sale was terminated. Indeed to quote Mr. Dhaliwal in his submissions, “it is clear as day” that the agreement was terminated by his client.
[6] Mr. Dhaliwal notes that a total of $134,964.00, in deposits, is at issue. This amount was forfeited by Yards from Mr. Dar after Mr. Dar could not make the last of 5 deposits on the property.
[7] Mr. Dhaliwal is currently 74 years old and is a resident of Pakistan. Mr. Dar was 68 years old at time of the signing of the agreement. Mr. Dar purchased the property for the benefit of his daughter who lives in Canada.
[8] As of date of the termination of the agreement, the amount deposited by Mr. Dar was for some 28% of the purchase price, an amount that Mr. Dhaliwal described as grossly disproportionate to the damages that Yards has suffered.
[9] Indeed Yards notes that it benefitted from the deposit in funding the construction of the home in question.
[10] The parties are ad idem on the test in Ontario for relief from forfeiture, as set out in Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282.
[11] The test is set out at page 5 of Redstone. It is a two part test. The Court must consider whether the forfeited deposit is out of all proportion to the damages suffered and second, whether it would be unconscionable for the seller to retain the deposit. Mr. Dhaliwal argued that the test rests in favour of his client.
[12] Although the court in Redstone did not grant relief from forfeiture, the deposit in Redstone was slightly more than 7% of the purchase price, as distinct from the 28% on deposit in the case at bar.
[13] At paragraph 26 of Redstone, the court in relation to the second part of the test, a finding of unconscionability must be an exceptional one. Unconscionability can be founded on a disproportionately large deposit, however, such was not the case in Redstone.
[14] The court asked Mr. Dhaliwal if a larger deposit was requested because Mr. Dar was a non-resident. Counsel agreed that the total deposit would have been 35% had all deposits been made, and that this sum was what the seller requested in the case at bar, given that Mr. Dar was a non-resident.
[15] Customarily deposits of around 10% of purchase price, according to the caselaw, can be expected. However, the court in Redstone noted that it was reluctant to specify a quantum that would be tantamount to a commercially unreasonable deposit. It should be noted that Redstone was a case involving a commercial property and not a residential one.
[16] Mr. Dhaliwal submitted that in April 2017 when this motion was originally to be heard, Mr. Dar provided his affidavit in first instance.
[17] Yards did not provide particulars at that time of sale proceeds of the property. That material was provided in July 2017 via the affidavit of Mr. Rehman Nazareli, who is a development manager at Yards. After a comprehensive overview of the nature of the relationship of Mr. Dar and Yards and deposits made pursuant to the agreement of purchase and sale, the only reference to where the deposit monies went is to the funding of construction costs.
[18] Furthermore Mr. Nazareli noted that. Yards was prejudiced by Mr. Dar’s failure to make all of the deposits. Mr. Dhaliwal submitted that this is a far cry from what is required to substantiate damages as sought by Yards, with the retention of the deposit monies.
[19] Effectively the sale price of the property was not forthcoming by Yards, post-termination of the deal with Mr. Dar. Counsel for Yards, Mr. Galati, had advised that the sale price was not relevant. Mr. Dhaliwal had advised Yards it was relevant as it would speak to the only damages that Yards occasioned.
[20] Mr. Dar had to seek out the new sale price post-termination of the contract via a title search which revealed that the loss in value of the condominium upon its eventual sale was some $17,000.
[21] On March 14, 2018, Mr. Nazareli advised at page 21 of his cross-examination on his affidavit, reaffirmed that the $134,960 in deposits was used to finance construction.
[22] Mr. Nazareli noted that there was a loss on the sale, inclusive of administration and legal fees. Mr Nazareli noted in examination that none of those costs were set out in his affidavit.
[23] Counsel for Yards undertook to provide the losses that it says were occasioned by virtue of the termination of the agreement by Mr. Dar, which is now before the court via the undertakings brief provided on April 5, 2018. Mr. Dhaliwal took the position on the motion that the Court should not consider it on this motion, as it was not relevant to his client’s motion, and was extremely late in coming to the plaintiff.
[24] Effectively Mr. Dhaliwal submitted that the answer to the undertaking at this stage is improper and impermissible under the Rules. It is not in answer to any question in any event asked of Mr. Nazareli.
[25] The only evidence of damages properly before the court is the $17,000 and change less than the property sold for post-termination of the agreement.
[26] In relation to the first part of the test in Redstone, counsel argued that the forfeiture sought in the case at bar is grossly disproportionate to any damages suffered.
[27] Counsel referenced the decision in Sheel v. Henkelman at paragraph 19, the court defined unconscionability, with reference to Newby v. Newby (1986), 56 O.R. (2d) 483 (Ont. H.C.) wherein Bolan L.J.S.C considered the meaning of unconscionable as follows:
The word “unconscionable” is defined in the Canadian Law Dictionary as “that which is contrary to the conscience of the Court.” It is defined in the Webster’s New Collegiate Dictionary as shockingly unfair or unjust. Whether “unconscionable” is used in a legal or non-legal sense, it can best be described as “something which is shocking, oppressive, not in keeping with a caring society.
[28] In Redstone, the court noted that the list of indicia of unconscionability is not closed, given the context specific nature of transactions. The Court stated that “the cases suggest several useful factors such as inequality of bargaining power, a substantially unfair bargain, the relative sophistication of the parties, the existence of bona fide negotiations, the nature of the relationship between the parties, the gravity of the breach and the conduct of the parties.”
[29] Mr. Dhaliwal argued that the inequality of bargaining power is present in the case at bar. Although both parties had counsel, Mr. Dar was dealing with a land development corporation. He, in comparison, was an individual that resides in an underdeveloped nation, who at first instance did not have a lawyer to assist him. Mr. Dhaliwal noted that the agreement of purchase and sale was signed in 2011 and a lawyer only came on board for him in 2013.
[30] The Court queried that even assuming Mr. Dar resides in an underdeveloped country, there was nothing to suggest that because of that fact he was at a disadvantage in his bargaining with Yards. In addition, there was no medical evidence that Mr. Dar’s health bore upon the bargaining equation between the parties.
[31] Mr. Dhaliwal re-iterated that there was an inequality of bargaining power given that one party is a land developer and the other a citizen. The Court raised the issue of where the evidence was that this relationship raised the spectre of inequality of bargaining power.
[32] Mr. Dhaliwal argued that the inequality should be considered to be implicit.
[33] Mr. Dhaliwal referenced Redstone at paragraph 26 to emphasize his position that in that case, the court noted that in some cases a disproportionately large deposit can be, in some cases, without more, unconscionable.
[34] Although that was not found to be the case in Redstone, the deposit in that case was well shy of 10% whereas in the case at bar the deposit paid to Yards was 23.8% of the purchase price.
[35] Letters were exchanged between the parties, with the defendant noting that if deposits were not up to date by October 30, 2013 the defendant would rely upon the termination clause. No extension was granted post October 31, 2013 by the defendant. Earlier extensions had been granted.
[36] To be sure there was no argument on the motion that the defendant had waived deposit payment dates such that the termination date was not enforceable. To the contrary, as noted, it was conceded that Mr. Dar, by his failure to pay all of the deposits pursuant to the contract, triggered the termination of the agreement on October 30, 2013.
[37] However, Mr. Dhaliwal submitted that the plaintiff was in a position to make the required deposits but that the defendant denied the request, and this has yielded the claim by the defendant, Yards, that they were entitled to keep all of the deposit monies.
[38] Counsel referenced other cases, including Porto v. Di Domizio at paragraph 11, wherein the court noted that neither law nor equity allowed for keeping of the deposit in that case. The court noted what quantum of deposit would be fair for the seller to keep, and ordered a refund of the remainder of the deposit.
[39] The Court of Appeal affirmed the trial decision in Porto v. Di Domizio.
[40] Mr. Dhaliwal referenced his factum at paragraphs 23 and 24, wherein he quoted from the decision in Rideout v. Rogers, 2010 NLTD(G) 196, to submit that where the sum forfeited is out of all proportion to the damages, the forfeiture clause itself may be construed to be of a penalty.
[41] At paragraph 24 of his factum, Mr. Dhaliwal made further reference to Rideout. The court in Rideout referenced the text by Di Castri, The Law of Vendor and Purchaser (3rd ed.) (Toronto, Carswell 1988) wherein the learned authors note that a purchaser may be entitled to the return of a deposit if the forfeiture of his deposit should be regarded not as liquidated damages but as a penalty; and that its retention in the circumstances of the particular case would be unconscionable.
[42] The authors stated further that “to justify interference with such an agreement there must be an extravagant disproportion between the agreed sum and the amount of any damage capable of pre-estimate. While there appears to be a rule of thumb that a deposit does not attract the appellation “penalty” if it is less than 10% of the purchase price, other bases have been applied.”
[43] Finally, Mr. Dhaliwal provided to the court the decision in Loans till Payday v. Brereton, 2010 ONSC 6610 (S.C.J.) to counter the argument of the defendant that the agreement he signed noting that in event of default the deposit should be considered liquidated damages and not a penalty. In Loans, the court noted such a clause is not enough to exclude the jurisdiction of the court to exercise its discretion under section 98 of the Courts of Justice Act.
Submissions of the Responding Party, Yards
[44] Mr. Galati made very pointed submissions as Mr. Dhaliwal had.
[45] His client seeks summary judgment in its favour, seeking full forfeiture of the deposit monies.
[46] In relation to the answers to undertakings, Mr. Galati noted what the vendor’s damages are. This was because Mr. Dhaliwal was asked about the damages in his cross-examination, and has now provided at Schedule “A” to the answers to undertakings, a list of those damages.
[47] Mr. Galati referred to this as a fallback position as his client’s primary position is that the deposit should be forfeited in whole due to the agreement between the parties.
[48] Argument was made about the receivability of the answers to undertakings. To that end Mr. Galati provided the court with caselaw on the issue. I will not undertake a review of it as I conclude that it is material that I should consider.
[49] It is material that is directly relevant to the issue of forfeiture or not, or partial forfeiture.
[50] No submissions were made in relation to the termination of the agreement given that was conceded on the motion.
[51] In relation to the Agreement of Purchase and Sale, Mr. Galati referenced it for the court, and argued that the deposits were meant to be forfeited.
[52] The agreement of purchase and sale is at Tab A of the responding motion record. A payment schedule is set out with the required deposits. In the event of default the purchaser is entitled to keep deposits not as penalty but as liquidated damages.
[53] The plaintiff has not led any evidence to argue that the deposit requirement is in dispute.
[54] The plaintiff was given multiple indulgences as a sign of good faith in relation to the payment of the 4th deposit. That payment was made 4.5 months late with the substantial indulgence of Yards. As noted the 5th deposit was not made as Yards invoked the termination clause.
[55] When Mr. Dar was cross-examined he agreed that there was no agreement with the defendant for a lower deposit amount and that he was aware that a foreign purchaser had to pay a larger deposit amount.
[56] Any quarrel between Mr. Dar and his real estate agent, Mr. Hussain, is for determination in that litigation, not in this proceeding in relation to any deposit requirements.
[57] In total, Yards provided 5 indulgences to Mr. Dar to make the 5th payment, but he was never able to do so.
[58] Mr. Nazareli in his questioning on his affidavit, testified that the monies on deposit were for construction financing.
[59] Damages were occasioned as are set out in Schedule “A” of the answer to undertakings. They are substantial.
[60] In the context of forfeiture of the deposit, as a general principle, “where a transaction involving the sale of land does not close due to the default by a purchaser, the vendor is entitled to the payment of the deposit amount, without having to first prove actual damages.” This principle is supported by cases such as Mihalenia v. Drakhshan, 2015 ONSC 1048.
[61] Generally where the term ‘deposit’ is used in an agreement that connotes that the payment is intended to be forfeited in the event of a breach by the purchaser. The court must however look at the intention of the parties.
[62] Deposit payments have five legal points to be considered, which are set out in Tang v. Zhang, 2013 BCCA 52.
[63] Mr. Galati submitted that the agreement in the case at bar sets out that the payments are deposits, there is no clause to say that they are not meant to be forfeited, and indeed the clause notes that forfeiture occurs in the event of breach and that the forfeiture is not for a penalty, but for liquidated damages.
[64] The position of Yards is that they chose to work with the purchaser at his request, but eventually lost faith and triggered the termination right in the agreement.
[65] Mr. Galati agreed that Redstone provides the touchstone test for consideration of relief from forfeiture, but the purchaser must meet both requirements of that test.
[66] To grant relief from forfeiture, Mr. Galati argued that the amount of deposit is not out of proportion to the losses suffered, and the agreement says that damages are for liquidated damages.
[67] The purchaser, Mr. Dar, cannot satisfy the test for proportionality.
[68] In his alternative argument, Mr. Galati submitted that even if part of the deposit is said to be a penalty, the amount should still be forfeited as the test for unconscionability has not been met.
[69] In that respect, there was no inequality of bargaining power in the case at bar. In the decision of Sinha v. Shabestari, 2018 ONSC 192, the court noted that lawyers were engaged as were licenced brokers. In Mihalenia, the court made plain that the onus is on the purchaser to establish such inequality.
[70] Nor can it be said that the deposits are excessive, absent evidence that the amounts are commercially unreasonable. In Amiri v. One West Holding Ltd., 2013 BCCA 155, a deposit of 25% of the purchase price was deemed not to be unconscionable.
[71] Mr. Galati argued that reference by the plaintiff to the decision in Porto is outdated and not analogous to the facts at hand in the case at bar.
[72] There is no evidence before the court that a non-resident could not expect to pay the type of deposit that was made in this case. Indeed Mr. Dar agreed that that was the case and in his own evidence agreed that the amount of the deposit he was to have made in this case was not unconscionable.
[73] In the context of damages suffered by Yards, Mr. Galati referenced law that the vendor can retain the deposit even when a resale yields the same amount or more in proceeds of a sale. In short, proof of damages is not required. The purchaser must still prove unconscionability.
[74] Nothing that the vendor did in this case was unconscionable. To the contrary, the vendor was patient and indulgent in the extreme. There is no unconscionabilty that would precipitate relief from forfeiture.
[75] Mr. Galati reviewed cases provided by the plaintiff and submitted why they were distinguishable.
[76] There is no evidence that the vendor Yards acted in any way wrongfully in terminating the agreement, nor in keeping the 4 deposits. This was not an exercise in penalizing Mr. Dar.
[77] To conclude, this is a classic case for summary judgment in favour of the defendant, Yards.
Reply of the Plaintiff
[78] Mr. Dhaliwal appealed to the equitable conscious of the court. His client relied upon his real estate agent and regrettably so. The court noted that that litigation was a separate action and was not relevant to the motion before the court.
[79] This court should grant relief from forfeiture based on its equitable assessment of this case.
[80] Mr. Dhaliwal notes that it was not provided with any indication of damages as Yards took the position that it was not relevant, until days before the motion.
Ruling
[81] To begin, I have considered the answer to undertakings that were provided to the court. I have done so as I find that they can inform the issue of proportionality.
[82] There is no basis for this court to find that the agreement here was unconscionable. No evidence was led of non est factum, and that doctrine was expressly noted by counsel to not be one that was available to the plaintiff.
[83] The amount of the deposit agreed to by Mr. Dar, a foreign buyer, simply cannot be said to be unconscionable in and of itself, nor can it be said that Mr. Dar was a lamb to the slaughter at the call of Yards. The deposit amount is not commercially unreasonable on the facts of this case.
[84] It is crucial to note as well that Mr. Dar had an agent to assist with the agreement and then a lawyer. As noted above he is suing his agent. The agent and Yards are distinct entities and are not entwined in their interests.
[85] Nothing at all causes the court to find any reason to apply unconscionability to the factors in this case. Simply put there is nothing in the conduct between the parties that is shocking, oppressive or offends the notion of what a caring society would expect in a relationship such as this.
[86] Nor can I find that the agreement entered into between the parties is penalty based in nature.
[87] I have carefully considered the argument that a mere assertion in an agreement that any retention of deposit fund is because of liquidated damages and not as a penalty, must be carefully considered. I do not find that this is a case where Mr. Dar is being penalized for his failure to abide by the agreement. I underscore again that the deposit is not disproportionate on the facts of this case, nor is unconscionability present.
[88] Yards was very, very indulgent of Mr. Dar, at his pleading, for allowance for a substantial extension of time for the paying of the 4th deposit. Yards did not lull Mr. Dar into paying the 4th deposit with any foresight into thinking that termination was forthcoming. Had that been the case things may have been somewhat different.
[89] In short Yards acted diligently, fairly and to some extent to its disadvantage in not terminating the agreement earlier.
[90] To visit upon Yards a remedy that would turn the indulgence into an equitable reason to grant relief from forfeiture would deprive Yards of its rights under the agreement.
[91] There is therefore no reason for the Court to grant relief from forfeiture in this case, or to as Mr. Dhaliwal suggested, reach into the handbag of equity absent disproportionality and unconscionability or any other concern that the court may have had that Yards should not be entitled to forfeiture.
[92] This is a case unlike others where Yards clearly suffered damages as a consequence of the breach of the deposit regimen by Mr. Dar. Damages are nonetheless not a requirement for the keeping of a deposit, absent disproportionality and unconscionability.
[93] Yards is therefore entitled to summary judgment.
[94] I hope counsel can work out the issue of costs. If not, Yards is to serve and file at the Oshawa courthouse its bill of costs and submissions on costs not to exceed 5 pages, and any offers to settle by September 5, 2018, with Mr. Dar to respond within 10 days of receipt on the same terms, and any reply within 5 days of responding submissions.
Justice H.K. O’Connell
Released: August 23, 2018