COURT FILE NO.: CV-20-635251

DATE: 20210809

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Sative Yan-Ling Tsui and Jonathan Simon Levert

Plaintiffs/Defendants by Counterclaim

– and –

Ye Zhuoqi and Re/Max Imperial Realty Inc.

Defendants/Plaintiffs by Counterclaim

Ruzbeh Hosseini and N. Joan Kasozi, for the Plaintiffs

Paul H. Starkman, for the Defendants

HEARD: July 22, 2021

sharma j.

REASONS FOR JUDGMENT

[1] The defendants bring this rule 20 motion to dismiss the plaintiffs' claim, a declaration that the plaintiffs have repudiated an Agreement of Purchase and Sale, and an Order for the forfeiture of a $31,000 deposit paid by the plaintiffs to the defendant, Ye Zhuoqi.

[2] The plaintiffs bring a cross-motion for summary judgment, a declaration that the defendant, Ms. Zhuoqi, breached an Agreement of Purchase and Sale, an award of damages, an order amending the Reply and Defence to Counterclaim of the plaintiffs, or in the alternative, equitable relief from forfeiture.

[3] For the reasons that follow, I grant the plaintiffs cross-motion for summary judgment and order the deposit paid to the defendant be returned to the plaintiffs and that damages of $33,110.02 be paid by the defendant, Ms. Zhuoqi, to the plaintiffs.

I. SUMMARY OF FACTS

[4] The action arises from an agreement of purchase and sale ("APS") of a three-level condominium unit (the "Property") signed on November 25, 2019. The purchase price was $626,800. The plaintiffs were the purchasers, and the defendant, Ye Zhuoqi, was the vendor. A deposit of $31,000 was paid and is held in trust by the defendant realtor, Re/Max Imperial Realty Inc. ("Re/Max").

[5] The APS provided a condition of an inspection satisfactory to the plaintiffs. That condition was waived on December 5, 2019. Subsequently and through an amendment to the APS, the defendant, Ms. Zhuoqi, agreed to replace at her expense the Kitec plumbing in the Property, which work was to be complete five days after the closing date, namely on January 15, 2020. The sale of the home was to close on January 10, 2020.

Damage Identified by Plaintiffs

[6] On or around January 9, 2020, the plaintiffs attended the Property for a final inspection. They discovered that there had been extensive water damage to the Property caused by a break in a water supply when the seller's agent was replacing the Kitec plumbing. The water damage was to the floors, subfloor, baseboards, trim, ceiling, and drywall.

[7] On January 10, 2020, the day of the scheduled closing, the plaintiffs' real estate lawyer, Ms. Ghorbankhani, sent an email to the defendant's real estate lawyer, Ms. Ma, including some photos of the damage. In her email, Ms. Ghorbankhani noted the significant damage to the Property and that it is not sufficient to just replace the flooring. She provided the defendant's real estate lawyer with two options - (1) allow the plaintiffs' own contractor to fix the damage while a holdback of $100,000 is kept with all living expenses covered by the defendant; or (2) the parties would sign a mutual release, however the defendant would pay $25,000 to cover expenses of renting a new place and repurchasing another property.

[8] Ms. Ghorbankhani's email concluded by saying that the plaintiffs are ready, able, and willing to close but will not close until this issue is resolved.

[9] Also on January 10, 2020, Ms. Ma responded. She advised Ms. Ghorbankhani that a water damage specialist would issue a report, and that the damage is not as significant as Ms. Ghorbankhani stated. She advised that the repair cost is far less than $100,000, and as such, the option of a $100,000 holdback was denied. Since the main issue is damage and repair costs, she proposed that the closing be extended to January 13, 2020 so that the parties can have a more accurate assessment of damage and costs.

[10] A few minutes later, Ms. Ghorbankhani responded. She advised that the property was severely damaged, and that it was not in the original condition when they signed the APS. She provided an amended option - a holdback of $80,000 (rather than $100,000) to have the plaintiffs' contractor fix the damage and to cover expenses, or a mutual release from the APS on the condition the seller would pay $25,000 to the plaintiffs for rental and repurchasing costs. She did not address the seller's proposal to extend the closing to January 13, 2020.

[11] Ms. Ma rejected these options in a subsequent email. The sale did not close on January 10, 2020.

[12] On January 13, 2020, Ms. Ghorbankhani attempted again to complete the transaction. She advised the purchasers were willing to close if there were a price abatement of $75,000 and damages of $5,000 paid to them, without prejudice to her clients suing if more is required to cover their costs.

[13] On January 13, 2020, Ms. Ma rejected this offer as well. She attached a copy of an inspection report from Restoration 1 Water Damage Experts ("Restoration") setting out the estimate of repairs at $10,000, which I discuss below. Based on this report, she indicated that her client would only be willing to fix damages and a holdback of $10,000. She further stated that for a property sold for $626,000, $10,000 in damages is not significant.

[14] In a further email on January 13, 2020, Ms. Ghorbankhani rejected this offer. She asked for an opportunity to have the plaintiffs have an engineer inspect the property, which request was rejected by Ms. Ma later the same day. Ms. Ma advised that her client would be re-listing the property for sale and would be seeking a Court order forfeiting the deposit and holding the purchasers liable for any damages.

[15] On January 17, 2020, Ms. Ma advised that her client now agreed to have an engineer inspect the property. 30 Forensic Engineering ("30 Forensic") did inspect the property and issued a report on February 21, 2020.

[16] The plaintiffs commenced litigation on January 28, 2020, and issued a Fresh as Amended Statement of Claim on March 17, 2020.

[17] Ultimately, Ms. Zhuoqi caused the Kitec plumbing to be replaced at a cost of $10,000, and the water damage was repaired at a cost of $6,893.00, although the plaintiffs take issue with whether this is the complete cost of the repairs. The Property was relisted and sold on May 2, 2020 for $665,000.00.

Scope of damage

[18] On or about January 10, 2020, the seller's agent had Restoration attend the site and prepare an inspection report. The report identified the affected areas damaged by the water - drywall, insulation, baseboards, trim, wood flooring. It quoted the emergency services Restoration would provide as follows:

“remove all baseboards and door trim, check walls for insulation and remove wet insulation, remove necessary drywall, remove wet wood flooring to dry subfloor, set up air movers in rooms per iicrc (sic) specifications based on affected sqft (sic)”

[19] The plaintiffs submitted in evidence photographs of the damage to the property they observed on January 9, 2020. The photographs supported the scope of water damage as identified by Restoration on at least two floors of the Property. The photos showed the flooring being lifted, wet subfloors, some portions of subflooring being removed, water damage to the baseboards and drywall, and some portions of drywall having been removed.

[20] Restoration's report quoted the approximate cost of emergency services to be $5,000 to $8,000, and the approximate cost of the repairs to be $6,000 to $8,000. The closing remarks in the Report indicated that the detailed bill for drying services and detailed estimate for repairs will be provided once emergency drying services had been completed. Furthermore, the report further qualified the estimated cost of the repair work. It stated:

Since every property is different including the extent of damage from flood or fire, costs will vary considerably. Consequently, it is rarely possible to provide an accurate cost estimate for the emergency cleanup and dry-out services until after the work is well underway. Water and smoke soot can sometimes travel an unexpected path requiring removal of affected building materials that is not even ascertainable until Restoration 1 is on-site and tear out work has already started.

[21] The 30 Forensic report obtained by the plaintiffs concluded that the Restoration report was inadequate and that it did not identify the extent of damage due to water ingress. It further noted that the Restoration report lacked information pertaining to the location of damaged interior finishes and wet insulation in the wall. Like the comments found in the Restoration report, the 30 Forensic report noted that water can travel through many paths in a building. Since it was not authorized to conduct test cuts, 30 Forensic was not able to fully assess the scope of the damage.

II. ANALYSIS

Legal Principles - Summary Judgment

[22] On a summary judgment motion, the moving party has the onus of establishing there is no genuine issue requiring a trial: Rule 20, Rules of Civil Procedure.

[23] A motion judge must first determine if there is a genuine issue requiring a trial based only on the evidence before the Court, without using the fact finding powers in rule 20.04 (2.1) and (2.2). If the Court is satisfied the evidence exists to fairly and justly determine there is no genuine issue requiring a trial, summary judgment may issue. However, if there appears to be a genuine issue requiring a trial, the judge may then determine if the need for a trial can be avoided by using the fact finding powers in rule 20.04(2.1) and (2.2): Hryniak v. Mauldin, 2014 SCC 7 ("Hryniak") at para 66.

[24] Parties are required to put their best foot forward on a summary judgment motion. The court is entitled to assume that the record on a motion for summary judgment contains all the evidence the parties would present at trial (see Sweda Farms v. Egg Farmers of Ontario, 2014 ONSC 1200 at paras 26 and 27).

[25] The parties have both taken issue with the evidence of the opposing parties. The plaintiffs argue that I should disregard the affidavit of Ms. Zhuoqi because the jurat did not indicate an interpreter was involved in swearing the affidavit and there was some evidence that the contents of her affidavit were not fully communicated to her (see r. 4.06(8) of the Rules of Civil Procedure and Vaticano Holdings Inc v. Greco [2011] O.J. No. 1831 at paras 30 and 31). The defendants also argue that some of Mr. Levert's affidavit, which constitutes double hearsay and is therefore inadmissible, should therefore not be relied upon by the Court (see Aker Biomarine AS v KGK Synergize Inc., 2013 ONSC 4897 at paras 9 - 12).

[26] In my view, it is not necessary for me to determine these objections to the affidavit material. I find that the facts in Ms. Zhuoqi's affidavit that are necessary to decide this motion are found elsewhere in the motion materials. Similarly, I find that the challenged portions of Mr. Levert's affidavit that provide opinion evidence of the damage to the Property is found in other evidence filed on this motion, notably the reports of Restoration and 30 Engineering. It is worth reminding counsel that great care must be attached to the requirements of submitting proper affidavit evidence, particularly on a motion for summary judgment.

Legal Principles - Breach of Contract or was there Substantial Damage

[27] The real issue on this summary judgment motion is whether or not there was substantial damage caused to the property allowing the plaintiffs to terminate the APS, or if not, whether the plaintiffs are in breach of contract. Section 18 of the standard Agreement of Purchase and Sale issued by the Ontario Real Estate Association is the "substantial damage" clause. It reads (in part):

18. INSURANCE. The Unit and all other things being purchased shall be and remain at the risk of the Seller until completion. In the event of substantial damage to the Property, Buyer may at Buyer's option either permit the proceeds of insurance to be used for repair of such damage in accordance with the provisions of the Insurance Trust Agreement, or terminate this Agreement and all deposit monies paid by Buyer hereunder shall be refunded without interest or deduction.

[28] The defendant argues that section 18 was not expressly pled in the pleadings. I have reviewed the pleadings, and the evidence on this motion. While section 18 of the APS may not have been specifically pled in the pleadings by the plaintiff, there is no question that the issue of substantial damage to the property was the focus of the discussions leading to this dispute, and the nature and extent of the damage was specifically pleaded in the plaintiff's pleadings. For example:

(a) Para 14 of the Fresh as Amended Statement of Claim states: "The lawyers of the Purchasers advised that they were ready and willing to close, but the Property had flood damage and was no longer livable and not in the original form that it was in when the APS was finalized."

(b) Para 1 of the Fresh as Amended Statement of Claim, seeks as relief in para 1, "Termination of the Purchase and Sale Agreement…"

(c) Para 16 of the Fresh as Amended Statement of Claim states: "In breach of the APS, the Sellers, failed to repair any of the damage to the Property and initially failed to co-operate in providing access to the Property for the purposes of Inspection."

(d) Para 17 of the Fresh as Amended Statement of Claim states: "In further breach of the APS, by January 10, 2020 the Property had been damaged and was not in its original condition, which prevented the parties from closing."

(e) The Simplified Procedure Motion Form filed by the Plaintiff states as grounds for this motion for summary judgment at para (d) "…as a result of the Seller and/or his agents actions and/or omissions, the Kitec testing conducted by the Seller and/or its agents caused a break in a water supply line at the Property, which caused extensive water infiltration into the Property and subsequent damage to the Property."

(f) It further states at para (f) "The Purchasers were ready, willing and able to close on January 10, 2020 but the Property had flood damage and was no longer livable and not in its original form."

[29] Under no circumstances can it be said that the defendants would have been surprised as this being the subject of this summary judgment cross-motion by the plaintiff.

[30] There is a recent Court of Appeal case which offers guidance on what a purchaser is to do if it believes there is substantial damage discovered prior to closing. In Bilotta v Booth, 2020 ONCA 522 at para 20, the court said:

[20] In some cases, there may be a legitimate dispute about the nature or scope of damage to a property - about whether or not it is "substantial" and so gives rise the buyer's election under the insurance clause. In such circumstances, the seller may be required to provide the buyer with a reasonable opportunity to inspect in order to determine whether the election arises. But that is not this case. There was no substantial damage, nor was there a breach of contract that would otherwise have entitled the Booths to terminate.

[31] The obligation to provide the seller with a reasonable opportunity to inspect a property to determine whether the purchaser's election to terminate the APS arises is implied within section 18 of the standard form Agreement of Purchase and Sale.

[32] In the Bilotta case, the water damage to the basement occurred two weeks before the closing of the sale and therefore, there was time to properly assess the scope of the damage. In addition, the purchaser conceded the damage was not substantial. However, in this case, the damage was discovered approximately 24 hours within the scheduled closing date and there was a real disagreement as to whether or not the damage was substantial. In my view, the Court of Appeal's decision in Bilotta is distinguishable from this case.

[33] As noted by Justice Schabas in Pordell v Crowther Estate, 2020 ONSC 1635 at para 66, provisions such as s. 18 of the APS are intended to protect the purchaser. Parties must act in good faith, including the vendor, to take all reasonable steps to ensure a real estate transaction is completed: see Dynamic Transport Ltd. v O.K. Detailing Ltd., 1978 215 (SCC), [1978] 2 S.C.R. 1072 at p. 1084.

[34] In assessing whether or not the damage is substantial, it is not merely the cost of the repair that is determinative. The quality, character and consequences of the damage must also be considered: see Pordell, supra at para 74.

[35] In my view, there were good reasons for the plaintiffs to conclude that there was substantial damage to the property. I am also satisfied that they exercised good faith efforts to fully investigate the scope of the damage, which were initially rejected by Ms. Zhuoqi, entitling the plaintiffs to terminate the APS and have returned their deposit.

[36] First, the evidence from the experts and in the photos shows damage on at least two floors. The flooring was entirely removed on the third floor, the toilet appeared in a room that was not the bathroom, there was obvious water saturation in the subfloor, parts of the subfloor had been removed, portions of the drywall were removed, and water stains and bubbling were present on parts of the ceiling and drywall. The reports from both Restoration and 30 Forensic confirm that there may have well been more damage that could not be readily ascertained. It is more likely than not that the plaintiffs would have been concerned about water penetration in areas that were not visible. From all of the evidence, I am satisfied that the damage to the Property was substantial and that the plaintiffs would have been reasonable in forming a view that the damage to the Property was substantial.

[37] Second, the plaintiffs had good reason to conclude, even after receiving the report from Renovation 1 on January 13, 2020 - three days after the scheduled closing - that the cost of repairs could well exceed $10,000. As noted above, the Restoration report noted what is commonly known - water can sometimes travel an unexpected path requiring removal of affected building materials that is not even ascertainable until the restoration work is underway. The subsequent 30 Forensic report similarly noted that the scope of water damage could not be fully ascertained without conducting test cuts to determine where the water damage occurred. Therefore, it was not unreasonable for the plaintiffs to reject Ms. Zhuoqi's offer to fix damages and agree to a hold back of only $10,000. In other words, it was reasonable for the plaintiffs to anticipate that the cost of repairs would exceed $10,000.

[38] The defendants argue that the plaintiffs' proposal to first holdback $100,000, and then $80,000 was not an exercise of good faith. They argued that these offers were an attempt to renegotiate the APS to take advantage of the minor damage that occurred to the Property. Without canvassing each point raised by the defendants, I am satisfied on a balance of probabilities that the facts do not disclose an attempt to take advantage of a minor disrepair to secure a better bargain.

[39] I do not find the holdback amounts proposed by the plaintiffs were unreasonable. Had the defendant immediately permitted the plaintiffs to have their own engineer attend the property and conduct test cuts to ascertain the scope of damages, a more specific holdback amount could have been proposed. The reports of both experts state the scope of the damage was unknown and the cost of repair was equally unknown. At the time and uncertain of the scope of damages and repairs, it is only the benefit of hindsight that can determine whether these requested holdback amounts were excessive or reasonable. When the engineer did attend, he confirmed that the scope of the damage was likely in excess of the damage reported in the Restoration report. For these reasons, and after considering all the evidence, it is my view that it was not unreasonable for plaintiffs to seek as much as $100,000 in a holdback.

[40] What was unreasonable, in my view, and which demonstrates a lack of good faith was Ms. Zhuoqi's initial refusal to allow the plaintiffs' own engineer to assess the scope of the damage. It was also unreasonable and demonstrated a lack of good faith to demand that damages be fixed at $10,000 when the defendant's own report from Restoration noted that there may be further damage that could not be assessed until the renovation work began. The plaintiffs, as purchasers, were entitled to independently assess the scope of damage, which opportunity was initially refused. When it was subsequently granted, their expert report confirmed that the damages were likely in excess of $10,000. In my view, the defendants failed to exercise good faith to take all reasonable steps to complete the sale.

[41] The facts of this case support the conclusion that there was substantial damage to the Property. Upon the discovery of the damage, the plaintiffs' options to resolve this matter, which included a mutual release from the APS, were not unreasonable.

[42] Accordingly, in my view, the plaintiffs were entitled to terminate the contract and have their deposit of $31,000 returned to them. Therefore, I order that that the $31,000 deposit being held by the defendant Re/Max be returned and paid to the plaintiffs.

III. DAMAGES

[43] The plaintiffs seek damages as a result of the sale of the Property not closing due to the substantial damage caused by water. Ms. Zhuoqi was responsible for damage to the Property up until the date of closing. But for this damage, I am satisfied from the evidence that the sale of the Property would have closed.

[44] Those damages include additional leasing costs of an apartment for 12 months from January 2020 to January 2021 ($2,150 x 12 months = $25,800), parking expenses for a new apartment ($1200), moving expenses ($480 in January of 2020, and $1,131.13 in January of 2021), and the cost of 30 Forensic to prepare their report on the extent of the water damage ($4,978.89).

[45] It would be unfair to the defendants to pass on the moving cost of $480 incurred in January of 2020. The plaintiffs would have incurred this expense in any event whether the sale of Property had closed or not. I have discounted this amount from the damage award.

[46] I find that the defendants are responsible paying the following damages to the plaintiffs:

Rental Costs: $25,800.00

Parking Expenses: $ 1,200.00

Moving Expenses: $ 1,131.13

Engineering Report: $ 4,978.89

Total Damages $33,110.02

IV. CONCLUSION

[47] The defendants' motion is dismissed. The plaintiffs cross-motion for summary judgment is granted on terms set out in these reasons.

V. COSTS

[48] Parties are encouraged to agree on an appropriate cost award. If an agreement cannot be reached, parties may submit a 3-page cost submission with an attached Bill of Costs. The plaintiff shall have 14 days from the release of this decision to deliver submissions. The defendants shall have 14 days thereafter for any responding submissions. The plaintiff shall have 7 days thereafter for any reply submission.

Sharma J.

Released: August 9, 2021

COURT FILE NO.: CV-20-635251

DATE: 20210809

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Sative Yan-Ling Tsui and Jonathan Simon Levert

Plaintiffs/Defendants by Counterclaim

– and –

Ye Zhuoqi and Re/Max Imperial Realty Inc.

Defendants/Plaintiffs by Counterclaim

REASONS FOR JUDGMENT

Sharma J.

Released: August 9, 2021