COURT FILE NO.: CV-19-615532-0000 DATE: 20210426
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Madison Homes Cornell Rouge Limited Plaintiff
– and –
Chi-Hong Stanley Ng Defendant
Shane Greaves, for the Plaintiff
, Yan Liu for the Defendant Stanley Ng, Defendant
HEARD: March 15, 2021
J. WILSON J.
The Motion
[1] This is a motion for default judgment for the shortfall in price and various adjustments for the sale of 387 William Forster Road, Markham (the Property).
[2] The motion raises the issue of Toronto best practice to serve default judgment motion materials on the defendant even though a defence has not been filed. It also raises the question of the onus of proof upon the plaintiff to provide evidence of mitigation when considering the question of damages, particularly in the context of a motion for default judgment.
Background
[3] In 2016 the Defendant Chi-Hong Stanley Ng (“Mr. Ng”) entered into the agreement of purchase and sale for the Property to be built by Madison Homes for the sum of $1,346,421.77.
[4] The closing was scheduled for December 18, 2018. The Defendant made interim deposits in the amount of $94,972.00 but failed to close the transaction and pay the sum of $1,257,938.76 due on closing. On the closing date, Madison Homes was ready to complete the transaction in accordance with the agreement.
[5] At the end of 2018 the real estate market had softened and unfortunately Madison Homes was unable to resell the home without incurring losses. Hence this proceeding and this motion.
[6] The Property was resold in August 2019 and the closing occurred on January 6, 2020 for $1,030,000.00. After factoring in the adjustments, the purchasers in the Resale Transaction paid Madison Homes a total of $1,058,771.43 (the Total Resale Price) in order to close the transaction. The shortfall from the amount due from the defendant on closing of $1,257,938.76 therefore is $199,167.33.
Toronto best practice requires service of default proceedings upon the defendant
[7] In the motion for default judgment the Plaintiff did not serve the Defendant with the motion materials. In accordance with Toronto best practice for default judgment motions the defendant should be served with the motion for default judgment.
[8] I required the Defendant to be served. Plaintiff’s counsel initially resisted this requirement, but then complied.
[9] Although there is no practice direction on this point, there is existing case law confirming this best practice.
[10] In Elekta Ltd. v. Rodkin, 2012 ONSC 2062, at para. 10, D.M. Brown J., (as he then was), directed a plaintiff to provide notice to a defaulting defendant, under Rule 19.02(3), on the basis that this allows the judge hearing the undefended trial or motion for judgment to be satisfied that the defaulting defendant was provided with proper notice of the claim and of the motion or hearing pending for judgment:
Although once noted in default a party is not entitled to notice of a motion for default judgment, by far the better practice is to serve the default judgment motion materials on the defendant in any event. The main reason for this practice is a simple, but important, one. Often the materials filed on a Rule 19.05 motion for default judgment will raise questions about the adequacy of the service of the Statement of Claim. … . Even where the Registrar has noted a defendant in default, a judge will want to satisfy himself or herself that the defendant was given proper notice of the claim. By serving the default judgment motion record on the responding party and filing proof of such service, a court can satisfy itself that the person against whom default judgment is sought knew about the claim, knew about the motion for default judgment yet, nevertheless, elected not to defend or respond. [Emphasis added].
[11] Several courts have followed the best practice approach that began with Elekta.
[12] Justice Myers commented in L-Jalco Holdings Inc. v. Bell, 2017 ONSC 1035, 45 C.B.R. (6th) 320, at para. 20 that the best practice in default proceedings is for the plaintiff to serve its motion record on the defendant, citing Elekta. Similar statements are made by Favreau J. in Canada Mortgage and Housing Corporation v. CMC Medical Centre Inc.., 2017 ONSC 7551, at para. 11 and in CF/Realty Holdings Inc. v. Midtowns Tiny Tots Inc., 2017 ONSC 7647, at para. 10, and by Koehnen J. in Ott v. Canadian Standard Home Services, 2017 ONSC 7114, at para. 3. Justice Sanfilippo, in Casa Manila Inc. v. Iannuccilli, 2018 ONSC 7083, also confirms at paras. 11 and 12 the best practice principles citing with approval Elekta.
[13] In DCR Strategies Inc. v. Vector Card Services LLC, 2013 ONSC 5881, 117 O.R. (3d) 551, at para. 27, Firestone J. applied the ratio from Elekta concluding that the party seeking to set aside a default judgment ought to have been served with notice of the default proceeding.
[14] Mr. Ng did appear on the return date of the motion after the requested supplementary materials were filed with his counsel. He did not file any responding materials.
Onus of Proof in Default Judgment Motion
[15] In this default judgment motion the material initially filed by counsel did not provide adequate evidence that the Plaintiff had made reasonable efforts to resell the Property in a timely manner for fair market value. This is required material in any default judgment motion.
[16] The Plaintiff’s counsel in the factum suggested that it is the obligation of the Defendant to provide evidence that the plaintiff’s efforts to mitigate were not adequate, questioning my concerns about the adequacy of the material filed.
[17] This is not correct, particularly in the context of a motion for default judgment. I return to basic principles.
[18] In all proceedings where a plaintiff seeks damages with respect to a breach of an agreement of purchase and sale of a property, defended or undefended, the plaintiff must prove the quantum of damages to which it is entitled. In the context of an aborted sale of real estate, the plaintiff must prove that its efforts to resell were reasonable and timely: 100 Main Street Ltd. v. W.B. Sullivan Construction Ltd. (1978), 88 D.L.R. (3d) 1 (Ont. C.A.), at p. 23.
[19] If there is a delay between the aborted sale and the resale, the delay must be explained with evidence of the plaintiff’s best efforts to sell the property in question at fair market value during the period of the delay.
[20] In 100 Main Street, at p. 21, Morden J.A., confirms that it is appropriate to calculate damages as the difference between the contract price and the resale price as:
[T]he highest price obtainable within a reasonable time after the contractual date for completion following the making of reasonable efforts to sell the property commencing on that date.
[21] The defendant in turn may argue that the plaintiff failed to adequately mitigate and bears that onus of proof as confirmed in 100 Main Street. However, Morden, J.A. also confirms at p. 23, this onus on the defendant does not relieve the plaintiff from its burden of proof of damages:
As I have said, with respect to the issue of mitigation, the onus is on the defendant. However, the onus on the defendant to prove failure to mitigate does not relieve the plaintiff from proving an obvious element in the calculation of his damages. McGregor on Damages, supra, in para. 212, p. 149 …
Principles applicable in motion for default judgment
[22] On a motion for default judgment, the defaulting party is deemed to have admitted the facts pleaded in the statement of claim. However, in accordance with rule 19.06 “[the] plaintiff is not entitled to judgment on a motion for judgment … merely because the facts alleged in the statement of claim are deemed to be admitted, unless the facts entitle the plaintiff to judgment.”
[23] When the damages are unliquidated as in this case, in accordance with rule 19.05(2) the motion shall be supported by affidavit evidence. The court must be satisfied by the evidence filed that the facts entitle the plaintiff to judgment including facts substantiating the calculation of the requested damages.
[24] The onus is upon the plaintiff in the written materials filed requesting default judgment to satisfy the court that reasonable efforts were made to resell the property for fair market value in a timely manner to substantiate the claim made for default judgment, including canvassing questions of adequate mitigation.
[25] In Forest Hill Homes (Cornell Rouge) Limited v. Wang, 2020 ONSC 556, Perell J. heard a default judgment motion in comparable circumstances to this case. He notes in his decision to award the difference between the contract price and the resale price, he had two appraisals of the property at the original closing date, as well as the resale price, which was in excess of both appraisals. In these circumstances he concluded that the plaintiff had met the onus of proof.
[26] Justice Davies heard similar default judgment motions in both Tribute (Simcoe Street) Limited v. He, 2020 ONSC 7846, and Tribute (Springwater) Limited v. Doyle, 2020 ONSC 6528. She was “satisfied in He that [the plaintiff] took reasonable steps to mitigate its damages”, where the plaintiff “adduced an affidavit from… a certified real estate appraiser”, which showed that the plaintiff “recovered more than the assessed market value of the property in its efforts to mitigate its damages”. In Doyle Justice Davies also had the evidence of a certified real estate appraiser confirming that the property was resold in excess of the appraised market value.
[27] In the contested proceeding, DHMK Properties Inc. v. 2296608 Ontario Inc., 2017 ONSC 2432, Perell J., at para. 56, confirmed the onus is on the plaintiff to adduce evidence of the contract price and of the market value at the resale price to establish the loss “which generally will require expert evidence; that is, appraisal evidence”.
[28] In a motion for default judgment it is not an ironclad rule that independent appraisal evidence is required but certainly it is best practice.
[29] In this case the Plaintiff is a builder/developer and may have other properties for sale at the same time as this resale. This situation creates a potential conflict of interest between the Plaintiff’s interests and its obligations to mitigate. In these facts in my view an obligation for an arms length appraisal is triggered.
Calculation of Damages
[30] At my request, and notwithstanding counsel’s objections, the Plaintiff has filed supplementary materials dealing with questions of mitigation and whether reasonable steps were taken by the Plaintiff to sell the Property at the highest and best price in a timely manner.
[31] The Plaintiff took steps to obtain an appraisal of the Property at the time of default in January 2019 and listed the Property on MLS listing to ensure exposure some months later in July 2019.
[32] Generally, due to potential volatility in the real estate market if there is a delay between the aborted sale and the resale, there should be appraisal evidence available confirming the fair market value of the property at the time of the listing and resale.
[33] I note that the Plaintiff listed the Property on a MLS listing in July 2019 when the market had somewhat improved for $1,049,000.00, which was above the appraisal price in January 2019. No updated appraisal evidence was provided as of July 2019. The Plaintiff did not accept the first price offered, but rather negotiated a higher price at $1,030,000.00 for the sale which was signed in August 2019.
[34] Important in this case, notwithstanding the absence of an appraisal at the time of the sale, is that the Defendant was aware of the MLS listing of the Property. He even expressed an interest in repurchasing at the new listing price and his counsel asked the Plaintiff to take the Property off the market. In these somewhat unique circumstances, there can be no criticism of the Plaintiff’s conduct in not obtaining an appraisal at the time of the listing of the Property and the execution of the Agreement of Purchase and Sale.
[35] For these reasons I accept the Plaintiff’s calculation of damages as the difference between the balance due on closing in the original transaction with the Defendant and the total resale price as $199,167.33 (the Differential in Price).
[36] The Plaintiff also seeks various ancillary damages that it alleges flows from the breach including:
a. realty taxes since the original closing date;
b. natural gas since the closing date;
c. electricity/utilities since the closing date;
d. realtor costs associated with the failed transaction
e. increased realtor costs incurred on resale transaction
f. legal costs thrown away associated with the failed transaction; and
g. interest/financing costs.
[37] Specifically, the Plaintiff seeks the following damages as a result of the Defendant’s breach of the APS:
| TYPE | AMOUNT |
|---|---|
| Differential in Price for resale | $199,167.33 |
| Realty Taxes – 2019 | $2,189.49 |
| Realty Taxes - 2020 | $30.81 |
| Gas – Enbridge | $1,949.45 |
| Utilities – Alectra | $742.17 |
| Legal Costs | $937.90 |
| Interest | $46,626.82 |
| Co-operating Agent’s Commission on Resale | $13,260.10 |
| MLS Listing Agreement Fee on Resale | $10,540.00 |
| IHGML Commission on Original Sale | $2,293.90 |
| TOTAL: | $277,737.97 |
[38] I have two difficulties with the additional requests. The first is the interest, and the second is the period of unexplained delay of in excess of a year from the date of default to of the resale, and in particular, the delay from the date the agreement of purchase and sale was signed for the resale on August 5, 2019 and the closing date on January 6, 2020.
Interest
[39] The first is the claim for 20% compound interest calculated monthly on the differential in price from the original agreement with the Defendant and on the resale price of $199,167.33. This claim for $46,626.82 is based upon a buried standard clause in the builders’ agreement signed by the Plaintiff.
[40] I note that counsel for the Plaintiff did not argue that the 20% interest rate should be applied in his oral submissions before me, although it was pleaded in his factum.
[41] There is no evidence that this onerous clause was brought to the Defendant’s attention, when documentation was signed and he did not have legal advice.
[42] Courts have declined to enforce prejudgment interest at a rate stipulated by contract in a number of recent cases where that rate was found to be surprisingly onerous and unexpected, and in particular where the clause was not drawn to the attention of the defendant. In Forest Hill Homes v. Ou, 2019 ONSC 4332, Morgan J. considered a comparable case relating to the breach of an agreement of purchase and sale with a contractual interest rate of 20%.
[43] I adopt the reasoning of Morgan J. as follows, at paras. 18-22:
The APS provides that the Plaintiff can charge interest in the amount of 20% of the purchase price if the Defendants fail to pay the balance due on closing. The Defendants state that this is excessively onerous and as a consequence ought not be enforceable. Defendants’ counsel submits that the exorbitant rate of interest was never drawn to the Defendants attention, which would be required if this kind of surprisingly onerous term is to be enforced.
It has been four decades since the Ontario Court of Appeal held that a surprisingly onerous term of a contract may be unenforceable if it cannot be presumed that the non-drafting party had actually agreed to it: Tilden Rent-a-Car v Clendenning, (1978), 83 DLR (3d) 400. As Dubin CJO put it, at 408-9:
In many cases the parties seeking to rely upon the terms of the contract know or ought to know that the signature of a party to the contract does not represent the true intention of the signer, and that the party signing is unaware of the stringent and onerous provisions which the standard form contains. Under such circumstances, I am of the opinion that the party seeking to rely on such terms should not be able to do so in the absence of first having taken reasonable measures to draw such terms to the attention of the other party, and, in the absence of such reasonable measures, it is not necessary for the party denying knowledge of such terms to prove either fraud, misrepresentation or non est factum.
I am not convinced that a party in the Plaintiff’s position – a subdivision builder with a standard form of contract for each of its purchasers – can enforce a surprisingly onerous and unexpected term in that contract without at least drawing it to the other party’s attention. The record indicates that indeed the high interest rate was not called to the Defendants’ attention, and there is nothing to suggest that the Defendants, who signed the APS on the same day that it was presented to them and without any legal advice, understood or were cognizant of this term.
As this court stated in Aviscar Inc. v Muthukumaru, 2009 CarswellOnt 4003, at para 23, “The law is that if a person signs a contract without reading it, that person is bound by the terms of the contract. That is the general rule. There are exceptions if the signing person can establish that there was fraud, misrepresentation, or there was a very onerous term that a reasonable person would not expect to be in the contract.” In my view, this is one of those cases that falls into the latter category.
Further, the fact that the Plaintiff is not seeking to enforce it to its fullest extent does not, in my view, counter the fact that it was not agreed to and is therefore unenforceable. A party cannot try to sneak an onerous term by the other contracting party and then as if make up for it by only asking for part of the onerous relief. The clause is either enforceable or it is not. To the extent that interest is owed to the Plaintiff on any unpaid amount, the interest rates prevailing from time to time under the Courts of Justice Act apply.
[44] This reasoning was followed in Madison Homes v. Yiman Shi, 2020 ONSC 7810, where, at paras. 33-34, Papageorgiou J. adopts the reasoning of Morgan J. in Ou, when there was no evidence that the purchaser was aware of the onerous term:
Although this case is somewhat different than Ou, since there was evidence in that case that the interest provision was not drawn to the purchaser’s attention, in my view, given that on its face the term is onerous, the absence of evidence that it was drawn to the defendants attention is fatal to the claim for this interest. The plaintiff is implicitly agreeing that the term is onerous and unenforceable given that it does not even claim the full interest which the provision would permit. If the provision is unreasonable and unenforceable, this is not cured by the plaintiff agreeing to apply the interest rate to a lesser sum.
[45] In both cases, as in this case, the court noted that the plaintiff was seeking interest only on the “loss of the value of the bargain” rather than on the outstanding purchase price, as provided for in the agreement of purchase and sale. The court found in Shi, at para. 34, that this was an implicit agreement that the term is onerous and unenforceable. In both cases, the court applied the Courts of Justice Act, R.S.O. 1990, c. C.43, rate.
[46] Similarly, in Forest Hill Homes (Cornell Rouge) Limited v. Wei, 2020 ONSC 5060, Myers, J. refused to enforce a “20% interest rate buried in one of the standard form schedules to the agreement of purchase and sale”. He confirms the finding in Ou, at para. 55, that such a clause was unenforceable, and again orders prejudgment interest in accordance with the Courts of Justice Act.
[47] I decline to apply the cases cited by the Plaintiff that enforced an exorbitant and unfair contractual rate: Wang; Arista Homes (Kleinburg) Inc. v. Sarah Igbinedion, 2019 ONSC 7086.
[48] I will not enforce the onerous unexpected term of a 20% rate of interest compounded monthly.
[49] The Plaintiff is entitled to prejudgment interest on the loss of bargain as requested, but in accordance with the Courts of Justice Act at the applicable rate of 2%: Courts of Justice Act, s. 128(1) calculated from the date of the aborted sale on December 2018.
Delay in the closing
[50] The resale closed January 6, 2020 over one year after the Defendant failed to close the transaction in December 2018.
[51] While it would be within the reasonable contemplation of the Defendant that he would be liable for interest and carrying costs of the property should he default on the agreement of purchase and sale, there would be no reason for him to have contemplated such a lengthy delay for the resale, without cogent reasons from the Plaintiff in their motion materials explaining the delay.
[52] There was delay in listing the Property for sale on the MLS in July 2019, although the Property was available through the offices of the Plaintiff at the original purchase price.
[53] This first delay can perhaps be explained by the affidavit evidence that the Plaintiff was waiting for the market to improve, and the Property was listed for sale at the original sale price in their sales office.
[54] There is a second unexplained delay: the 5-month delay after the signing of the resale agreement on August 5, 2019 and the closing on January 6, 2020. In the written materials there was no explanation for the closing date 5 months after the Agreement of Purchase and Sale was executed.
[55] As confirmed by John D. McCamus in The Law of Contracts, 3rd ed. (Toronto: Irwin Law, 2020) at p. 1012: “Damages for breach of contract are recoverable only to the extent that the type of loss that has occurred was reasonably foreseeable by the parties at the time of entering the agreement.” This principle is confirmed in Saramia Crescent General Partner Inc. v. Delco Wire and Cable Limited, 2018 ONCA 519, at para. 45 and in Shi (supra) at para. 21.
[56] The Plaintiff has put forward no evidence that a 5-month delay for the closing would be reasonably foreseeable at the time the parties entered their agreement. It would be unfair for the Defendant to bear the burden of such damages for this full period.
[57] If there is an unusual delay between the signing of the agreement of purchase and sale for the resale and the closing, the onus is on a plaintiff to explain the reasons for the delay. A usual closing date for a resale is 60 days after an agreement is entered into.
[58] Therefore, in this case I accept as damage the various carrying costs, expenses and interest calculated from the date of default to 60 days after the date the Agreement of Purchase and Sale for the resale was signed, that is October 5 2019.
[59] For these reasons I grant judgment in favour of the Plaintiff against the defendant in the amount of $199,167.33 for loss of bargain as claimed, plus prejudgment interest on this amount from December 18, 2018 in accordance with the Courts of Justice Act. The claim for the various expenses of gas, electricity and taxes are granted from the date of default on December 18, 2018 until October 5, 2019.
[60] I allow the claim for the commission and legal fees as claimed.
[61] I fix additional costs payable for this motion for default judgment in the amount of $3500.00 inclusive of HST. Much time could have been saved if the appropriate materials were filed substantiating with appropriate evidence the Plaintiff’s claim for damages, rather than providing briefs of law contesting the Plaintiff’s obligation to prove its damages and fulfill its obligation to show appropriate efforts to mitigate.
J. Wilson J.
Released: April 26, 2021
COURT FILE NO.: CV-19-615532-0000 DATE: 20210426
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Madison Homes Cornell Rouge Limited Plaintiff
– and –
Chi-Hong Stanley Ng Defendant
REASONS FOR JUDGMENT
J. Wilson J.
Released: April 26, 2021