Court File and Parties

Court File No.: 17-74785 Date: 2018/10/17 Ontario Superior Court of Justice

Between: 1179 Hunt Club Inc., Applicant – and – Ottawa Medical Square Inc. and Abrar Mobarak, Respondents

Counsel: Colin Baxter, for the Applicant Anne Tardif, for the Respondents

Heard: April 6, 2018, reply submissions received in writing on April 26, 2018 and sur-reply submissions received in writing on May 2, 2018

Reasons for Decision

RYAN BELL J.

Overview

[1] In January 2015, 1179 Hunt Club Inc. and Ottawa Medical Square Inc. (“OMS”), through its predecessor in name, entered into an agreement of purchase and sale that required Hunt Club to build the shell of a two-storey customized medical plaza and to convey 22 condominium units to be created within the plaza. OMS was required to purchase the condominiums and to design and fit up the interior of the building. Ms. Mobarak is the president, secretary and founding director of OMS.

[2] The agreement of purchase and sale failed to close. While the parties agree that the agreement is at an end, they disagree as to how the agreement came to be terminated and whether Hunt Club is entitled to retain the deposit paid by OMS pursuant to the agreement.

[3] The issues I must determine on this application are:

(i) Did OMS anticipatorily repudiate the agreement of purchase and sale?

(ii) Is OMS liable for failing to complete the transaction and is Hunt Club entitled to retain the deposit?

(iii) Is Ms. Mobarak personally liable pursuant to the agreement of purchase and sale?

[4] The parties have agreed that other issues raised in Hunt Club’s notice of application will be converted to an action.

[5] For the following reasons, I find that the agreement of purchase and sale came to an end on November 28, 2017 when both parties were unable to close the transaction. Accordingly, OMS is entitled to the return of the deposit. Even if I had found OMS to be liable for failing to complete the transaction, I would not find Ms. Mobarak to be personally liable under the agreement.

Background Facts

(i) The Agreement of Purchase and Sale

[6] On January 19, 2015, Hunt Club and OMS entered into an agreement of purchase and sale for the purchase by OMS of the commercial condominium units to be created by Hunt Club in Building A, located at 1179 Hunt Club Road, at a purchase price of $5,600,000. Hunt Club was also required to perform certain specified exterior and base building construction work. The agreement provided for a deposit towards the balance of the purchase price in the amount of $250,000.

[7] Hunt Club was created to own and develop the lands at 1179 Hunt Club Road and to sell the commercial condominium units built on the property. Barry Godfrey, the president and director of Hunt Club, is an experienced developer. OMS, formerly known as Inova Medical Square Inc., was formed for the purpose of acquiring the condominium units in Building A. Ms. Mobarak was OMS’ representative in the negotiations with Hunt Club and signed the agreement of purchase and sale on behalf of OMS.

[8] Pursuant to the agreement of purchase and sale, the transaction was scheduled to close on a date designated by Hunt Club’s solicitor – the “Unit Transfer Date” – at least 20 days after the registration of the declaration and description of the condominium against the title to the property. The Unit Transfer Date was scheduled to occur within two years of the date that OMS took occupancy of the units. The agreement provides that the units would be deemed to be substantially completed for occupancy when Hunt Club’s architect certified that the vendor’s work was substantially completed.

[9] Section 41(b) of the agreement of purchase and sale provides:

Where the Purchaser is a corporation, or where the Purchaser is buying in trust for a corporation to be incorporated, the execution of this Agreement by the principal or principals of such corporation, or by the person named as the Purchaser in trust for a corporation to be incorporated, as the case may be, shall be deemed and construed to constitute the personal guarantee of such person or persons so signing with respect to the obligations of the Purchaser herein.

[10] OMS paid to Hunt Club’s solicitor in trust, an initial deposit of $100,000 at the time the agreement of purchase and sale was signed and a second deposit of $150,000 upon waiving all conditions in its favour.

[11] The agreement of purchase and sale was conditional upon Hunt Club being satisfied, in its sole and absolute discretion, with the economic feasibility and viability of proceeding with the project’s development and construction, and with OMS’ credit worthiness. At no time did Hunt Club request proof of OMS’ income or source of funds.

(ii) The Amendment to the Agreement of Purchase and Sale

[12] On January 19, 2015, the parties also executed an amendment to the agreement of purchase and sale. The preamble to the amendment provides that time is of the essence. The amendment also made the agreement conditional upon OMS obtaining financing.

(iii) The Reinstatement and Amending Agreement

[13] As a result of OMS’ delay in waiving the financing condition in the amendment, the agreement of purchase and sale became null and void. Hunt Club and OMS agreed to reinstate the agreement subject to the terms and conditions set out in a reinstatement and amending agreement made as of April 30, 2015.

[14] The reinstatement and amending agreement provides that all purchaser conditions shall be deemed waived or satisfied. The reinstatement and amending agreement does not refer to a personal guarantee.

(iv) The Transaction Fails to Close

[15] Hunt Club obtained a building permit in the spring of 2016. OMS and Hunt Club had a number of disagreements regarding the design and construction of Building A. Following a meeting at the site between Mohamad Kadoura (Ms. Mobarak’s husband and part of OMS’ project team) and Mr. Godfrey in late July 2017, the real estate broker (who had also been present at the site meeting) sent Mr. Kadoura an email in which she reproduced s. 41(b) of agreement. Ms. Mobarak’s evidence is that this was the first time that s. 41(b) was brought to her attention and to the attention of OMS. Ms. Mobarak acknowledged on cross-examination that she read the agreement in the presence of OMS’ solicitor before signing it.

[16] On November 1, 2017, OMS’ solicitor advised Hunt Club’s solicitor that he was no longer acting for OMS in relation to the agreement.

[17] On November 2, 2017, Hunt Club’s solicitor, Mr. Vinayagalingam, notified OMS’ new solicitors that the condominium documents had been registered and that the transaction would close on November 28, 2017, the Unit Transfer Date. On November 17, 2017, OMS’ solicitors were provided with a copy of the area certificate related to the units. OMS did not respond to these communications at the time.

[18] On November 22, 2017, six days before the scheduled closing date, OMS’ lawyer, Mr. Presseau, requested an extension of the Unit Transfer Date in order to permit OMS to complete the transaction. OMS requested an extension for two reasons. First, OMS’ former solicitor had had to withdraw after OMS and Ms. Mobarak became aware of s. 41(b) of the agreement of purchase and sale and put their former solicitor on notice of a potential claim. Second, investors withdrew from the project in September 2017 and OMS was attempting to secure financing.

[19] The parties were unable to negotiate an extension of the Unit Transfer Date.

[20] On November 24, 2017, Hunt Club’s litigation lawyer wrote to Mr. Presseau and advised, “[o]ur instructions are therefore to insist that the close of the sale proceed on November 28, 2017, as scheduled, failing which our client will purse [sic] all available rights and remedies, while also seeking to mitigate its damages.” OMS did not respond to this correspondence.

[21] The statement of adjustments was provided to OMS on November 27, 2018. The following day, the Unit Transfer Date, Hunt Club’s solicitor was unable to message the transfer documents to OMS’ lawyer. OMS did not respond to these communications.

[22] On November 30, 2017, Mr. Vinayagalingam advised that Hunt Club was prepared to close the transaction “per section 36 of the Agreement.” Section 36 deems the vendor to have made a valid tender if the vendor’s solicitor has delivered all closing documents and keys in escrow, has advised the purchaser’s solicitor in writing that the vendor is ready, willing and able to complete the transaction in accordance with the agreement, and has completed all steps required by the Teraview Electronic Registration System that can be performed without the participation of the purchaser’s solicitor. OMS’ position is that Hunt Club’s solicitor did not deliver all closing documents or advise in writing that Hunt Club was prepared to complete the transaction until November 30, 2017.

[23] OMS admits that it did not have the funds to close the transaction on November 28, 2017 and that it was not in a position to close on November 30, 2017.

Issue 1: Did OMS Anticipatorily Repudiate the Agreement of Purchase and Sale?

[24] Hunt Club’s position is that OMS anticipatorily breached the agreement of purchase and sale. Hunt Club relies on s. 35(b) of the agreement of purchase and sale which provides:

…in the event the Purchaser or his Solicitor advise the Vendor or its Solicitors, on or before the Occupancy Date or Unit Transfer Date, as applicable, that the Purchaser is unable or unwilling to complete the purchase or take occupancy, the Vendor is relieved of any obligation to make any formal tender upon the Purchaser or his Solicitor, and may exercise forthwith any and all of its rights and remedies provided for in this Agreement and at law.

[25] In his affidavit, Mr. Vinayagalingam states that on November 22, 2017, Mr. Presseau advised him that OMS had no intention of closing on the Unit Transfer Date and stated “we both know it’s not closing.” Mr. Presseau requested an extension of the Unit Transfer Date to March 1, 2018. Hunt Club asserts that on November 22, 2017, OMS anticipatorily repudiated the agreement of purchase and sale.

[26] In his affidavit, Mr. Presseau states that in his phone call with Mr. Vinayagalingam, he did not say that OMS was unwilling or unable to complete the transaction; he was seeking to extend the Unit Transfer Date to permit OMS to complete the transaction. In that context, Mr. Presseau likely said or implied that the transaction would not close on November 28, 2017. Mr. Presseau states that he could not have asked for an extension without introducing the concept of a later closing date.

[27] It is common ground that Mr. Presseau asked for an extension of the Unit Closing Date to March 1, 2018. I accept Mr. Presseau’s evidence that in so doing, he said or implied that the transaction would not close on November 28, 2017. But that does not mean and I do not find that OMS repudiated the contract on November 22, 2017 by asking that the closing date be extended to allow it to complete the transaction. Hunt Club’s approach would automatically equate a party’s request for an extension of time to complete a transaction with anticipatory repudiation of the contract. I agree with OMS that such an approach would impede cooperative discussions between parties aimed at completing transactions and avoiding litigation.

[28] In support of its position that OMS anticipatorily repudiated the contract, Hunt Club also relies on a number of other circumstances including: the withdrawal of OMS’ investors from the project; OMS’ alleged refusal to occupy the units pursuant to the agreement and to pay occupancy fees under the agreement; OMS’ alleged refusal to accept the keys to Building A; OMS’ failure to respond to communications from Hunt Club’s lawyer relating to the Unit Transfer Date and the inability to message within Teraview; and OMS’ failure to take any steps to tender on the Unit Transfer Date or to advise Hunt Club that it intended to close on the sale of the units.

[29] Renunciation of a contract will be implied if the conduct of a party leads a reasonable person to conclude that the party will not perform, or be in a position to perform, their contractual obligations when the time for performance arises (McCallum v. Zivojinovic (1977), 16 O.R. (2d) 721 (C.A.), at p. 723). Hunt Club submits that the facts in McCallum closely mirror the facts in this case: the failure of the purchaser’s solicitor to reply to correspondence, his requests for extensions, and his telephone conversations with the vendors’ solicitor indicating that the purchaser did not have the money to close. The Court of Appeal upheld the trial judge’s finding that the purchaser had made it clear prior to closing that it was unable to close, and the vendors were relieved of the obligation to tender (McCallum at pp. 723-726).

[30] There is a key distinction between the facts in McCallum and the facts before me. In McCallum, the defective tender arose because the purchaser’s solicitor failed to furnish the information as to how the purchaser wanted to take title; apart from the defective transfer, the vendors were ready, willing and able to perform their obligations at the time of closing. The vendors’ failure to tender a proper transfer was the result of the earlier default of the purchaser. It was on this basis that the vendors were relieved of the obligation to tender (McCallum at pp. 726-727).

[31] As I discuss in the following section, I find that Hunt Club was not ready, willing and able to close on November 28, 2017, the Unit Transfer Date. Hunt Club’s delay in tendering was not the result of any action or inaction on the part of OMS.

[32] As for the other circumstances upon which Hunt Club relies in support of its position, I note that issues surrounding the occupancy date and occupancy fees are not before me on this application. OMS says that its refusal to accept the keys to Building A related to the dispute over deficiencies, another matter not before me on this application. The evidence is that OMS was seeking alternative financing in order to complete the transaction. Complaints about OMS’ lack of response to earlier communications are, in my view, satisfactorily addressed by the November 22, 2017 call in which Mr. Presseau introduced himself as OMS’ new solicitor. Based on the record before me, I find that OMS’ actions would not have led a reasonable person to conclude that OMS would not perform, or be in a position to perform, its obligations under the agreement on the Unit Transfer Date.

[33] Even if I had found that OMS anticipatorily repudiated the agreement of purchase and sale, on being notified of OMS’ anticipatory repudiation, Hunt Club, as the innocent party, was put to an election: it could accept the repudiation and sue for damages or it could reject the repudiation and insist on performance of the contract (Domicile Developments Inc. v. MacTavish (1999), 45 O.R. (3d) 302 (C.A.), at para. 9). As a general rule, the innocent party must make the election and communicate it to the repudiating party within a reasonable time (Spirent Communications of Ottawa Limited v. Quake Technologies (Canada) Inc., 2008 ONCA 92, 88 O.R. (3d) 721, at para. 53).

[34] I find that on November 24, 2017, Hunt Club made its election. In counsel’s November 24, 2017 letter to OMS, Hunt Club expressly rejected the repudiation and insisted on performance of the agreement. Because Hunt Club’s rejection of OMS’ anticipatory repudiation kept the agreement of purchase and sale alive, time remained of the essence. In order to take advantage of a time of the essence provision, the innocent party must itself be “ready, desirous, prompt and eager” to carry out the agreement (Domicile Developments at para. 10). I therefore turn to the issue of whether Hunt Club was ready, willing and able to close the transaction on the Unit Transfer Date.

Issue 2: Is OMS Liable for Failing to Complete the Transaction?

[35] OMS admits that it was not in a position to close the transaction on November 28, 2017. For the following reasons, I find that Hunt Club also was not in a position to close the transaction on November 28, 2017.

[36] The day before the Unit Transfer Date, a representative of the Land Registry Office contacted Hunt Club’s solicitor to advise that the Land Registry Office had erroneously opened the units’ parcel identification numbers under the wrong block number. The Land Registry Office provided a new list of parcel identification numbers late in the day on November 27, 2017. In his affidavit, Mr. Godfrey states, on information and belief from Mr. Vinayagalingam, that “the late change to the Parcel Identification Numbers involved a short delay to the closing of condominium units at the Property. All purchasers of condominium units at the Property, save and except for [OMS], subsequently closed notwithstanding the short delay.”

[37] On cross-examination, Mr. Godfrey first confirmed that Hunt Club was unable to close on November 28, 2017:

187. Q. In other words – right, so in other words, the change to the PINS that delayed closing was not the result of anything the purchaser did or failed to do. A. Yes.

[38] Later in the cross-examination, when asked if Hunt Club was ready, willing and able to close on November 28, 2017, Mr. Godfrey gave answers that I find were unresponsive and argumentative. For example, several times, he responded with words to the effect, “neither was the purchaser.”

[39] In answers to undertakings given on Mr. Godfrey’s cross-examination, Hunt Club advised that the only outstanding registration issues on November 28, 2017 were the registration of the shared facilities agreement and the condominium by-laws. These documents were registered on November 29, 2017. Hunt Club asserts that it would have registered these documents on November 28, 2017 had OMS indicated that it was ready, willing and able to close.

[40] I reject this evidence. It is clearly contentious. Pursuant to Rule 39.01(5) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, this evidence cannot be provided on information and belief. More importantly, it lacks credibility as it contradicts the evidence provided by Mr. Godfrey in his affidavit.

[41] I find that Mr. Vinayagalingam’s November 30, 2017 email advising that Hunt Club was prepared to close the transaction “per section 36 of the Agreement” is consistent with Hunt Club being unable to close on November 28, 2017 as a result of the late change to the units’ parcel identification numbers.

[42] Finally, I note that on cross-examination, Hunt Club, through its counsel, identified November 30, 2017 as the date on which Hunt Club says OMS breached the agreement by failing to complete the transaction. Hunt Club did not change this answer. In my view, it is too late for Hunt Club to now assert that the date of OMS’ breach was November 28, 2017 in an effort to avoid the consequences of its own inability to close the transaction on November 28, 2017.

[43] When time is of the essence and neither party is ready to close on the agreed date, the agreement remains in effect. Either party may reinstate time of the essence by setting a new date for closing and providing reasonable notice to the other party (Domicile Developments at para. 11 citing King v. Urban & Country Transport Ltd. (1973), 1 O.R. (2d) 449 (C.A.), at pp. 454-6). The Court of Appeal in Domicile Developments identified the following important corollary to the second proposition: a party who is not ready to close on the agreed date and who subsequently terminates the transaction without having set a new closing date and without having reinstated time of the essence will itself breach or repudiate the agreement (Domicile Developments at para. 12).

[44] In Kwon v. Cooper, the vendor insisted on compliance with the strict terms of the contract and required that the closing occur on the scheduled date; however the vendor itself was not ready, willing and able to close as scheduled (Domicile Developments at para. 14 citing Kwon v. Cooper (1996), 89 O.A.C. 239 (Ont. C.A.)). The Court of Appeal in Kwon concluded that by his own instance, the vendor had precluded himself from relying on the law set out in King. The vendor himself was not in a position to close on the scheduled date; therefore, the contract came to an end on the failure of both parties to comply with the contract’s terms (Kwon at p. 2).

[45] On November 24, 2017, Hunt Club insisted on compliance with the strict terms of the agreement of purchase and sale and required that the closing occur on November 28, 2017. But on November 28, neither party was in a position to close. By its own insistence, Hunt Club precluded itself from relying on the propositions set out in King. Put slightly differently, on November 28, 2017, the contract was terminated, with neither party having set a new closing date, nor having reinstated that time was of the essence. Both parties were in breach.

[46] I reject Hunt Club’s characterization of this result as “unfair” and “technical.” Mr. Godfrey is an experienced developer. By its own election to insist on performance of the agreement, Hunt Club precluded itself from being able to rely upon the propositions set out by the Court of Appeal in King.

[47] Because of my conclusion that Hunt Club was unable to close the transaction on the Unit Transfer Date, it is unnecessary for me to deal with OMS’ alternative argument that Hunt Club failed to obtain an occupancy permit.

[48] As the agreement of purchase and sale was terminated on November 28, 2017 due to the inability of both parties to close, OMS is entitled to the return of the $250,000 deposit.

Issue 3: Is Ms. Mobarak Personally Liable?

[49] Even if I had found OMS to be liable under the agreement of purchase and sale on the basis of its failure to close the transaction, I would not find Ms. Mobarak to be personally liable pursuant to s. 41(b) of the agreement.

[50] The goal of contractual interpretation is to ascertain the objective intent of the parties by reading the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract (Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 47 and 49). As stated by G.H.L. Fridman, “[w]here the contract is ambiguous, the application of the contra proferentem rule ensures that the meaning least favourable to the author of the document prevails” (The Law of Contract in Canada, 3rd ed. (Scarborough, Ontario: Carswell, 1994), at pp. 470-71, cited in Manulife Bank of Canada v. Conlin, 1996 SCC 182, [1996] 3 S.C.R. 415, at para. 9).

[51] In endeavouring to ascertain the objective intent of the parties – that is, whether s. 41(b) was intended to be a personal guarantee by Ms. Mobarak, I have considered the following:

• Section 41(b) is a “deeming provision”; it does not specifically name the “principal or principals” of the corporation intended to be guarantors.
• Ms. Mobarak signed the agreement of purchase and sale on behalf of the purchaser Inova Medical Square Inc. The agreement does not state that Ms. Mobarak signed in her personal capacity as guarantor.
• Section 41(b) does not set out the terms or conditions pursuant to which the unnamed principal or principals are to be bound personally for OMS’ obligations under the agreement.
• There was no separate guarantee document.
• The agreement was conditional upon Hunt Club satisfying itself as to the economic viability of the project and OMS’ credit worthiness. There is no similar provision enabling Hunt Club to satisfy itself as to the credit worthiness of the guarantor or guarantors.
• Mr. Godfrey admitted on cross-examination that he did not know who the directors, officers or shareholders of OMS were at the time the agreement of purchase and sale was executed.
• The parties did not specifically discuss s. 41(b) of the agreement or the concept of a personal guarantee prior to entering into the agreement; however, on cross-examination Ms. Mobarak admitted that she read the agreement before signing it.
• Section 41(b) was included in the agreement from the outset; OMS was provided with an opportunity to review the draft agreement and OMS’ former solicitor provided comments on the draft document.

[52] Reading the contract as a whole and considering the surrounding circumstances, I find the agreement to be ambiguous as to whether the parties intended s. 41(b) to be a personal guarantee on the part of Ms. Mobarak. Applying the contra proferentem rule, I find that s. 41(b) does not amount to a personal guarantee given by Ms. Mobarak.

[53] If I am in error and s. 41(b) amounted to a valid personal guarantee on the part of Ms. Mobarak, I find that her obligations under the guarantee were discharged when the agreement of purchase and sale came to an end as a result of OMS’ failure to waive the financing condition.

[54] Although the parties reinstated the agreement, Ms. Mobarak is not a party to the reinstatement and amendment agreement. It does not refer to the guarantee. And, the reinstatement and amendment agreement specifically revived the agreement of purchase and sale without any conditions in favour of OMS.

[55] A specific guarantee is an undertaking by the surety against the risks arising from a particular contract. If that contract is varied so as to change the nature or extent of the risks arising under it, the effect of the variation is to remove the creditor from the scope of the protection the guarantee affords (Manulife at paras. 2-3). The revival of the agreement of purchase and sale without any conditions in favour of OMS resulted in a change in Ms. Mobarak’s risk as guarantor. She was therefore released from liability on the guarantee.

Disposition

[56] For these reasons, I declare that the agreement of purchase and sale was terminated on November 28, 2017 when both parties were unable to close the transaction. OMS is entitled to the return of the $250,000 deposit.

[57] In the event the parties are unable to agree on costs of the application, OMS shall serve and file written submissions by November 2, 2018. Hunt Club will then have until November 16, 2018 to serve and file a written response. The written submissions are not to exceed three pages, not including any offer to settle or bill of costs.

Madam Justice Robyn M. Ryan Bell Released: October 17, 2018