Court File and Parties

Court File No.: CV-16-557418 Date: 2018-10-18 Superior Court of Justice - Ontario

Re: Jonathan Beatty and Jacqueline Beatty, Applicants And: Zhong Wei and Re/Max Premier Inc., Respondents

Before: Cavanagh J.

Counsel: John Lo Faso, for the Applicants Patrick Bakos, for the Respondent Zhong Wei Amanda Gibson, for the Respondent Re/Max Premier Inc.

Heard: October 15, 2018

Endorsement

[1] The applicants Jonathan Beatty and Jacqueline Beatty (the “Sellers”) commenced this application against Zhong Wei (the “Purchaser”) and Re/Max Premier Inc. for relief in respect of an agreement of purchase and sale for the sale of land. I heard this application and released a judgment dated June 5, 2017 and a costs order dated August 25, 2017.

[2] The Court of Appeal in a decision released on May 24, 2018 set aside the judgment in the costs order. The Court of Appeal made an order allowing the Sellers’ application to the extent of declaring that (i) the Purchaser breached the agreement of purchase and sale by failing to close; and (ii) the Sellers are entitled to the deposit in the amount of $30,000. The Court of Appeal remitted this application to the Superior Court of Justice for determination in accordance with its reasons of the following issues:

a. The entitlement of the Sellers to their costs of the proceeding before the application judge;

b. The costs of Re/Max Premier Inc. and Harold Balchand arising out of the Purchaser’s application; and

c. The Sellers’ claim for damages.

[3] The issue involving the costs of Re/Max and Mr. Balchand was settled.

What amount of damages should be awarded?

[4] The Sellers entered into an agreement of purchase and sale (the “APS”) with the Purchaser for the sale and purchase of a residential property for the purchase price of $916,000. The APS included an illegal substances clause by which the Sellers represented and warranted that during the time that they owned the property, the use of the property and the buildings and structures thereon has not been used for the growth or manufacture of any illegal substances, and that to the best of the Sellers’ knowledge and belief, the use of the property in the buildings and structures thereon has never been used for the growth or manufacture of illegal substances. After the APS was made and before closing, the Purchaser discovered through confirmation by the Toronto Police Services that in 2004 the property had been used to produce marijuana. The Purchaser advised the Sellers of this fact and that, as a result of the stigma from the fact the home was a previous marijuana facility, he was not willing to complete the transaction. The Purchaser demanded a return of his deposit.

[5] The Sellers refused to terminate the APS and, instead, commenced this application seeking a declaration that the Purchaser had breached the APS by refusing to close; forfeiture of the deposit; and damages for any loss they might suffer as a result of the delayed re-sale of the property. The Purchaser commenced a competing application seeking a declaration that he was not required to complete the purchase of the property and claimed a return of the deposit and damages resulting from the Sellers’ breach of the APS.

[6] The Seller sold the property to another purchaser for $86,100 less than the price stipulated in the APS.

[7] The issue before me is the amount of damages that should be ordered to be paid by the Purchaser to the Sellers for breach of the APS.

[8] In Blodgett v. Clarke, Murphy J. set out at para. 27 the principles that apply to quantification of damages in an action for breach of a contract for the sale of land, citing 100 Main Street East v. W.B. Sullivan Construction Ltd. (1978), 88 D.L.R. (3d) 1 (Ont. C.A.):

On breach by a purchaser of a contract for the sale of land the vendor’s damages are to be calculated on the basis of the difference between the contract price and the value at which the land could be sold on the market by reasonable efforts commencing on the contractual date fixed for completion, or, in the case of anticipatory repudiation, and the date of acceptance of the repudiation. The vendor bears the initial onus of proving his loss by adducing evidence to show the market value of the land.

The onus is then on the purchaser to show, if he can, that the damages could have been reduced by reasonable mitigating steps.

[9] In a letter from the Purchaser’s counsel to the Sellers’ counsel dated August 10, 2016, counsel for the Purchasers confirmed that the Purchaser will not be completing the transaction and advised that the Sellers should immediately relist the property in an effort to mitigate their damages. The property was relisted on the same day at the same price as the price at which it was originally listed. The listing agent disclosed that the property had been used to grow marijuana in 2004. There were 29 appointments booked to view the property.

[10] On August 30, 2016, the property was sold for a purchase price of $829,900. This was the only offer. The difference between this price and the purchase price under the APS is $86,100.

[11] In addition, the Sellers claim damages for the carrying costs of the property from August 23, 2016, the closing date under the APS, to October 31, 2016, the closing date of the resale, together with bridge financing costs as follows:

a. Property taxes $781.19 b. Insurance $114.10 c. Enbridge Gas $313.77 d. Mortgage and line of credit $1,173.30 e. Bridge financing $2,910.00 f. Total $6,502.60

[12] The Purchaser submits that the Sellers have not provided sufficient evidence of fulfilment of their duty to mitigate their damages. The Purchaser submits that the Sellers failed to remediate the property prior to relisting it for sale and that, had they done so using one of many companies that provides this service and obtained a “clean bill of health” for the property, there would not have been a difference between the original purchase price and the purchase price on the resale. The Purchaser submits that he should not be penalized in damages for the Sellers’ failure to properly mitigate their damages by failing to properly remediate the property and failing to properly market it, allowing for a sufficient time for the property to remain on the market and attract more than one offer.

[13] The Purchaser relies upon the decision in DHMK Properties Inc. v. 2296608 Ontario Inc., 2017 ONSC 2432 where Perell J. at para. 72-73 wrote:

[72] The onus of proving that the innocent party failed to mitigate rests upon the guilty party [citation omitted].

[73] In assessing the innocent party’s efforts at mitigation, the courts are tolerant, and the innocent party need only be reasonable, not perfect; in deciding what is a reasonable way to mitigate the effects of a breach of contract, the innocent party is not to be held to too nice a standard; it need only act reasonably, using what it knows then, without hindsight, and it need not do anything risky [citations omitted].

[14] The Purchaser submits that at the time of the resale housing market in Toronto was hot and prices were steadily rising. The Purchaser submits that, in this market, the Sellers were required to take steps to remediate the property and, after doing so, expose it to the market for a reasonable period of time.

[15] There is no evidence about what the costs of such a remediation would have been, how long it would have taken to complete a remediation or, if such a remediation had been completed, what effect this would have had, if any, on the purchase price for the property. In addition, the Sellers could not have known what would happen in the future with respect to the market for house prices and they were not required to do anything risky. To delay listing the property would involve risk that, in my view, the Sellers were not required to take. I conclude that the Purchaser has not discharged his onus of showing that the Sellers failed to take reasonable steps to mitigate their damages.

[16] The Purchaser does not object to the damages for carrying costs, other than the claim of $1,173.30 for mortgage and line of credit interest. The Purchaser submits that the claim for bridge financing covers the Sellers damages as a result of carrying two properties until the resale of the property was completed and that to allow claims for both bridge financing and mortgage and line of credit interest would amount to double counting. I agree, and I disallow the claim of $1,173.30.

[17] I find that the Sellers are entitled to damages calculated as the sum of $86,100 and $5,329.30, a total of $91,429.30. The Sellers have received the deposit in the amount of $30,000, and the damages must be reduced to reflect this.

[18] The net amount of damages to be paid by the Purchaser to the Sellers is $61,429.30.

Are the Sellers entitled to costs of this application and, if so, on what scale and in what amount?

[19] The Sellers seek costs of this application against the Purchaser on a substantial indemnity scale in the amount of $50,384.49 calculated as one and one half times their costs on a partial indemnity scale of $33,589.66. The Sellers seek costs on a substantial indemnity scale on the ground that the Purchaser made an unsuccessful allegation of fraud against the Sellers in this application. The Sellers rely upon the fact that in his factum for the hearing of this application the Purchaser alleged that the Sellers made a representation “with reckless disregard for the truth”. The Sellers submit that this amounts to an allegation of fraudulent conduct.

[20] The hearing before me on this application and the cross application brought by the Purchaser focused on matters of contractual interpretation and who should be contractually responsible in circumstances where it was discovered after the APS was made and before closing that the property had been used to grow marijuana in 2004. Although it is true that the Purchaser alleged that the Sellers had acted “with reckless disregard for the truth”, this submission was made in relation to the Purchaser’s reliance on a decision of the Divisional Court in Peterson v. Matt, 2014 ONSC 896 in support of a submission that the Sellers were in a better position to discover any former marijuana grow operation at the property, and that they had the onus of showing that they could not have known this fact. I made reference to this submission in my decision at paragraph 29. The fact that the Purchaser may be alleging in his separate application that the Sellers knowingly failed to disclose that the property had been used to grow marijuana does not affect my order as to costs of this application.

[21] In my view, the allegation made by the Purchaser that the Sellers had acted with “reckless disregard for the truth” does not justify an award of costs on a substantial indemnity scale given the context in which this statement was made.

[22] The Sellers, in the alternative, seek costs on a partial indemnity scale until the date of their offer to settle, December 5, 2016, and on a substantial indemnity scale from December 6, 2016 to the date of the hearing. The offer to settle was on the basis that the Purchaser pay to them the sum of $80,000 plus costs on a partial indemnity scale, less $3,000, within 30 days of the acceptance of the offer. The Sellers rely upon rule 49.10(1) and rule 49.13 of the Rules of Civil Procedure.

[23] The Purchasers submit that there should be no order as to costs on the ground that the issues raised on this application were novel and it was reasonably resisted by the Purchaser. The issues on this application principally involved issues of interpretation of a provision that was a warranty and representation in a contract. I conclude that the issues are not so novel that it would be appropriate to make no order as to costs. I did not accept this submission when it was made by the Sellers, when I first awarded costs of this application in favour of the Purchaser. The usual order, that costs follow the event, should be made.

[24] The Purchaser also relies upon rule 39.02(4)(b) which provides that on a motion other than a motion for summary judgment or a contempt order a party who cross-examined on an affidavit is liable for the partial indemnity costs of every adverse party on the motion in respect of the cross-examination, regardless of the outcome of the proceeding, unless the court orders otherwise. The Purchasers submit that the Sellers should not receive costs for the cross-examinations. The rule cited by the Purchaser does not apply to an application, and I find that the Sellers are entitled to costs of the cross-examinations.

[25] The Purchaser also relies upon criticisms of the conduct of the Sellers’ counsel on the cross-examination of the Purchaser on his affidavit as set out in the endorsement of Master Pope dated May 12, 2017 who found that the cross-examination had been unnecessarily and unreasonably lengthened. I reduce the partial indemnity fees claimed by the Sellers by $1,262 (4.25 x ($495 x .6)) calculated as one half of the time claimed for November 23, 2016 when the Purchaser and the real estate agent were cross-examined, on the basis that the Sellers should not be awarded costs for some of the time expended on this day because of the findings made by Master Pope.

[26] At the hearing before me, the Sellers provided a revised Bill of Costs which significantly reduced the amount of costs claimed by removing the costs in respect of much of the time claimed for second counsel on this application. The Sellers also claim disbursements of $3,320.60 plus additional disbursements in the amount of $850 for the costs of obtaining electrical inspection and mould inspection reports for use in the litigation, a total of $4,170.60.

[27] In my view, the amount of time claimed and the hourly rates charged by counsel for the Sellers were reasonable for this application. The fees and disbursements claimed by the Sellers are very close to the amount of fees and disbursements claimed by the Purchaser as shown by his bill of costs for the application.

[28] In this case, the Sellers obtained a judgment that is more favourable than the terms of their offer to settle. I exercise my discretion and conclude that the Sellers are entitled to costs on a partial indemnity scale until December 5, 2016, and on a substantial indemnity scale from December 6, 2016 to the date of the hearing.

[29] The amount of fees on a partial indemnity scale up to the date of the offer to settle is $14,852 (($26,857.50 x 0.6) - $1,262). The amount of fees on a substantial indemnity scale from the date of the offer to settle to the date of the hearing is $15,469 (($17,187.25 x 0.6) x 1.5). The total amount of fees calculated on this basis is $30,321. HST on these fees is $3,942. The disbursements total $4,170.60. HST on disbursements is $542.18.

[30] I fix costs of this application in the amount of $38,975.78 inclusive of fees, disbursements and HST to be paid by the Purchaser to the Sellers.

[31] If there are issues to be decided in relation to the costs of this hearing before me that are not resolved by the parties, I may be spoken to.

Cavanagh J. Date: October 18, 2018