COURT FILE NO.: CV-21-86394
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Beibei Chang and Ke Jia
Applicants
– and –
Craig Hung and Marie-Josée Rodrigue
Respondents
COUNSEL:
Wei Jiang for the Applicants
James Bowie for the Respondents
HEARD: December 7, 2021
AMENDED JUDGEMENT
The release date of the original Judgment dated December 14, 2021 was corrected on December 14, 2021, at para. 37 and the explanation of the correction is appended.
Justice Sally Gomery
1On January 25, 2021, the applicants, Beibei Chang and Ke Jia, offered to purchase a house at 123 Arthur Street in Ottawa for $750,000. The Arthur Street house, a triplex, was owned by the respondents, Craig Hung and Marie-Josée Rodrigue. The respondents accepted the offer, but later refused to close. The would-be purchasers now seek an interpretation of the “Deposit Clause” in the signed Agreement of Purchase and Sale:
If this Agreement is terminated by Seller and Seller is in breach of any terms of this Agreement, Seller shall immediately refund to buyer the Deposit whereupon this agreement shall terminate and be of no further force and effect. Alternatively, if this Agreement is terminated by buyer and buyer is in breach of any terms of this Agreement, Seller shall forfeit the deposit as liquidated damages, and not as a penalty, whereupon this Agreement shall terminate and be of no further force and effect.
2According to the respondents, the effect of this Deposit Clause is that the applicants waived their right to sue for damages if the respondents breached the Agreement. Their only remedy is the return of their $10,000 deposit. Since the respondents have already returned the deposit, I should dismiss this application.
3According to the applicants, the Deposit Clause only prevents them from seeking specific performance of the Agreement, that is, from suing the respondents to require them to sell them the Arthur Street house. They contend that they never gave up their right to recover damages in addition to being reimbursed their deposit. They accordingly ask me to find that the respondents are liable for damages arising from their breach.
4If I accept the applicants’ interpretation of the Deposit Clause, the parties also disagree on the method of calculating their damages and how much the respondents must pay.
5For reasons more fully explained below, I am granting the application. A party to a contract does not waive their right to claim damages for the other party’s breach absent clear, unambiguous language to that effect. The Deposit Clause does not contain such language, nor is there any evidence that the parties ever discussed such a term. I therefore find that the applicants are entitled to damages for the respondents’ breach of the Agreement. Their damages are the difference between the appraised value of the property on the date of the respondents’ breach and the price the applicants would have paid for it. I accept the appraisal for the property obtained by the applicants. The respondents must pay them $150,000 in damages, plus pre-judgment interest and costs on the application.
What does the Deposit Clause mean?
6In interpreting a contract, a judge must determine the intent of the parties and the scope of their understanding: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at para. 47. To do so, a judge “must read 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”.
7At para. 57 of Sattva, the Supreme Court of Canada considered how a judge may use evidence of the circumstances in which a contract was signed. Although a judge may consider the surrounding circumstances, “they must never be allowed to overwhelm the words of that agreement”. The goal of examining surrounding circumstances is rather “to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract” [emphasis added]. A court cannot use to the surrounding circumstances “to deviate from the text such that the court effectively creates a new agreement”.
8The Court further limited the use of evidence of surrounding circumstances as seen at para. 58 of Sattva. Such evidence “should consist only of objective evidence of the background facts at the time of the execution of the contract (…) that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting”.
9Again, the Deposit Clause at issue reads as follows:
If this Agreement is terminated by Seller and Seller is in breach of any terms of this Agreement, Seller shall immediately refund to buyer the Deposit whereupon this agreement shall terminate and be of no further force and effect. Alternatively, if this Agreement is terminated by buyer and buyer is in breach of any terms of this Agreement, Seller shall forfeit the deposit as liquidated damages, and not as a penalty, whereupon this Agreement shall terminate and be of no further force and effect.
10The parties agree that the Clause unambiguously provides as follows:
If the seller terminates the Agreement in breach thereof, it must return the buyer’s deposit; and
If the buyer terminates the Agreement in breach thereof, it forfeits the right to a return of the deposit, which represents liquidated damages as opposed to a penalty.
11The parties disagree, however, on the impact of the provision that, in either party breaches, “the agreement shall terminate and be of no further force and effect”. According to the applicants, this means that neither party can seek to obtain specific performance of the Agreement. According to the respondent, the Clause prevents either party from seeking any remedy aside from recovery of the deposit (if the buyer is the victim of a breach) or retention of the deposit (if the seller is the victim).
12I reject the respondents’ interpretation. It is inconsistent with a plain reading of the Deposit Clause and with the evidence of the communications between the parties when they negotiated the terms of the Agreement.
13The respondents’ proposed interpretation would transform the Deposit Clause into an exclusion clause. Although parties may agree to exclude any right of recovery in a contract, a party’s renunciation of such a right is only enforceable if it is clear and unambiguous. In Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, for example, a majority of the Supreme Court of Canada declined to enforce a clause that stated that a bidder in an RFP process would not have “any claim for compensation of any kind, whatsoever, as a result of participating in this RFP”, and that by submitting a proposal the bidder “shall be deemed to have agreed that it has no claim”.
14The Deposit Clause does not say that the applicants shall have no claim for compensation if the respondents breach the Agreement or that they waive any claim for damages from the respondents. The respondents ask me to infer such terms. I cannot conclude that the applicants agreed to surrender their right to be made whole, through damages, based on an inference.
15In my view, the inclusion of the termination language in the Deposit Clause has another, much more obvious impact. By specifying that the Agreement terminates and is of no force and effect in the event of a breach, the Deposit Clause eliminates the possibility of specific performance. If a seller of property reneges on their agreement to sell, the purchaser would ordinarily have a choice between enforcing the sellers’ contractual obligations or seeking damages. As stated in Semelhago v. Paramadevan, 1996 CanLII 209 (SCC), [1996] 2 S.C.R. 415, at para. 15:
In cases such as the one at bar, where the vendor reneges in anticipation of performance, the innocent party has two options. He or she may accept the repudiation and treat the agreement as being at an end. In that event, both parties are relieved from performing any outstanding obligations and the injured party may commence an action for damages. Alternatively, the injured party may decline to accept the repudiation and continue to insist on performance. In that case, the contract continues in force and neither party is relieved of their obligations under the agreement.
16The respondents argue that their interpretation of the Deposit Clause is consistent with the parties’ discussions prior to execution of the Agreement. Having reviewed the record of the correspondence between the applicants’ lawyer on the transaction, Jian Zhang, and the respondents’ lawyer, Rita Asangarani, I do not agree.
17On January 22, 2021, Mr. Zhang sent an email to the respondents’ lawyer attaching a draft offer to purchase the Arthur Street house for $750,000. On January 25, 2021, Ms. Asangarani sent Mr. Zhang a counter-offer. It included a provision that the applicants’ $10,000 deposit was non-refundable. Mr. Zhang responded twenty minutes later, saying that all of the terms in the counter-offer were acceptable to his clients except for the non-refundable deposit clause. He followed up with another email, clarifying that: “We agree that the deposit should be forfeited upon the purchaser's default only, and the deposit should be fully refundable due to any default by the seller”.
18Ms. Asangarani indicated that, to her understanding, the parties had previously agreed that the applicants’ deposit would be non-refundable. She nonetheless agreed to get instructions. She subsequently advised that the respondents would be willing to accept the proposed “forfeit clause arrangement instead of the non-refundable clause”, and asked Mr. Zhang to send her revised language.
19On the evening of January 25, 2021, Mr. Zhang sent Ms. Asangarani a revised offer signed by the applicants, which included the Deposit Clause. The next day, Ms. Asangarani wrote back, asking that a typographical error in the Clause be corrected. She also proposed to strike the last part of the last sentence in the Clause, based on her understanding of its implications of terminating the Agreement. She expressed the view that:
[T]he Agreement should not be terminated upon breach of the buyer. The seller should keep his right to seek recover [sic] of further damages under contract law for the breach should such damages be above and beyond the coverage of the deposit. Please remove the wording “whereupon this Agreement shall terminate and be of no further force and effect”.
20Mr. Zhang never responded to this part of Ms. Asangarani’s January 26 email. He instead advised her, later that day, that the applicants had advised him that the respondents would contact Ms. Asangarani directly and provide them both with fully executed documents. In response, Ms. Asangarani again pointed out that there was a typographical error in the Deposit Clause. Mr. Zhang told her that the parties would correct it directly on the Agreement, which they did.
21The correspondence between Ms. Asangarani and Mr. Zhang does not support the respondents’ contention that the parties intended, through the Deposit Clause, that the applicants would forfeit their right to the respondents for contractual breach. Nowhere in this correspondence is there any suggestion that the parties ever discussed, much less agreed to, such a waiver.
22In her January 26 email, Ms. Asangarani expressed the view that the Deposit Clause, as worded, would prevent the respondents from suing to recover anything beyond the deposit if the applicants breached the Agreement. She never addressed what would occur if the respondents were at fault. Furthermore, even if I infer that she thought that a lack of remedy for the respondents would also mean a lack of remedy for the applicants, there is no indication that Ms. Asangarani ever discussed her interpretation of the Deposit Clause with her clients, or that it was communicated to the applicants, either by Mr. Zhang or Ms. Asangarani.
23The respondents argue that the applicants should be bound by Ms. Asangarani’s interpretation, because Mr. Zhang did not tell her he disagreed with it when he got her January 26 email. Even if I accepted this argument, there is no evidence that the respondents relied on it when they signed the Agreement with the Deposit Clause. Neither they nor Ms. Asangarani filed an affidavit in response to the application.
24The interpretation of a contract is not based on the subjective understanding of one party or their lawyer’s flawed understanding of it, but on the evidence of the mutual and objective intentions of the parties as expressed in the words of the contract. Based on the wording of the Deposit Clause, the nature of the contract, and the evidence of the parties’ communications prior to execution, I conclude that the parties’ primary intention in including the Deposit Clause was to settle what would happen to the applicants’ deposit if one of the parties breached the Agreement. In adopting the wording of this specific Clause, they also agreed to limit their remedies to damages as opposed to specific performance. There is no evidence that they intended to preclude either party from claiming contractual damages if the Agreement were wrongfully terminated by the other party.
25As a result, I conclude that the applicants did not forfeit their right to claim contractual damages if the respondents breached the Agreement.
What are the applicants’ damages?
26The respondents admit that they breached the January 28, 2021 Agreement of Purchase and Sale by refusing to go through with the sale of the Arthur Street house to the applicants. The applicants are accordingly entitled to recover damages that would put them in the position they would have occupied absent the respondents’ breach of their Agreement.
27The applicants advance two possible methods for determining their damages.
28First, they propose that I award them $305,000, the difference between the price they agreed to pay for the respondents’ property ($750,000), and the price they paid on April 19, 2021, for another house ($1,050,000). They argue that this is a sound measure of damages in a rising residential property market. The applicants rely on an affidavit by a real estate agent and appraiser, Joyce McGlinchey. She states that:
Between March 25, 2021 and April 20, 2021, the real estate market in Ottawa was very hot. Property values were increasing daily and there was far more demand than there was supply. Properties were being sold over asking price most of the time. As a result, it was incredibly difficult for an average buyer to purchase a property.
29I cannot accept this “lost opportunity” theory of damages based on the record on this application. I have no way of assessing whether the house the applicants purchased in April had a comparable value to the Arthur Street house. The applicants have not submitted any evidence that their new house was the closest replacement they could find for the Arthur Street house. Their counsel in fact concedes that the house they bought is not in the same neighbourhood and is also not a triplex.
30In the alternative, the applicants seek damages representing the difference between the price they would have paid for the Arthur Street house and its appraised value as of the date of the respondents’ breach. They obtained two valuations for the property. In March 2021, the applicants’ bank advised them that the appraised value of the house for the purpose of financing was $873,000. In November 2021, the applicants asked Ms. McGlinchey to appraise the property. She concluded that the Arthur Street house was worth $900,000 on March 25, 2021. Depending on which of these two valuations I accept, the applicants would be entitled to either $123,000 or $150,000.
31The respondents agree that this is an appropriate approach to damages but contend that the Arthur Street house was worth less than proposed by Ms. McGlinchey. They have filed a report from another appraiser, Thomas Geniole, who says that its value on March 25, 2021 was $810,000. If I accept his opinion, the applicants would only be entitled to recover $60,000. Alternatively, the respondents’ lawyer in oral argument suggested that I could split the difference between the appraised value in Ms. McGlinchey’s report and Mr. Geniole’s report, in which case the applicants could recover $105,000.
32Having carefully reviewed both reports, I conclude that Ms. McGlinchey’s appraisal is more reliable than Mr. Geniole’s appraisal. I also prefer Ms. McGlinchey’s appraisal to the bank’s assessment of the property’s value.
33The applicants’ bank provided no information about how it assessed the value of the Arthur Street house at $873,000 in March 2021. The bank refused to provide the applicants with a copy of any appraisal report it may have obtained. Assuming a formal appraisal was done for the bank, we do not know who conducted it or anything about their methodology.
34Mr. Geniole’s appraisal report is flawed. First, the site dimensions of the Arthur Street property are mis-stated in the critical section of the report. The property’s actual lot size is 33 feet by 99 feet, but is erroneously stated to be 28 feet by 68.98 feet in the table comparing it to other properties. This mis-stated value led Mr. Geniole to conclude that the Arthur Street property had less value than comparable properties with ostensibly bigger lot sizes. Second, Mr. Geniole did not use the best available comparables. We know this because, in her report, Ms. McGlinchey identified properties similar to the Arthur Street house that were geographically closer, and which sold more recently, than the comparables used by Mr. Geniole.
35The respondents have not identified any flaws in Ms. McGlinchey’s methodology. Her conclusion that the Arthur Street house was worth $900,000 on March 25, 2021 seems conservative, as the adjusted values of comparable properties identified in her report were in the range of $902,000 to $907,000. There is no principled reason to reduce the damages to which the applicants would be entitled based on Mr. Geniole’s less reliable appraisal.
36I accordingly find that the applicants are entitled to recover damages of $150,000, being the difference between the amount they agreed to pay for the respondents’ property and the value of the property when the Agreement was terminated.
Disposition
37The application is granted. The applicants are entitled to $150,000 in damages, plus pre-judgment interest of $473 calculated from April 28, 2021 to December 13, 2021 at 0.5%, for a total of $150,473. Further to the parties’ agreement, the applicants shall also recover costs of $10,000, inclusive of fees, disbursements and HST.
Justice Sally Gomery
Released: December 14, 2021
APPENDIX
Paragraph 37 previously stated:
The application is granted. The applicants are entitled to $150,000 in damages, plus pre-judgment interest of $473 calculated from April 28, 2021 to December 13, 2021 at 0.5%, for a total of $150,473. Further to the parties’ agreement, the respondents shall also recover costs of $10,000, inclusive of fees, disbursements and HST.
Paragraph 37 now reads as follows:
The application is granted. The applicants are entitled to $150,000 in damages, plus pre-judgment interest of $473 calculated from April 28, 2021 to December 13, 2021 at 0.5%, for a total of $150,473. Further to the parties’ agreement, the applicants shall also recover costs of $10,000, inclusive of fees, disbursements and HST.
COURT FILE NO.: CV-21-86394
DATE: 2021/12/14
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Beibei Chang and Ke Jia
Applicants
– and –
Craig Hung and Marie-Josée Rodrigue
Respondents
AMENDED JUDGMENT
Gomery J.
Released: December 14, 2021