COURT FILE NO.: CV-20-00000957-0000 (OSHAWA) DATE: 20220105

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1854329 ONTARIO INC., BERNARD BOUTET, JEAN BOUTET, JOHN SHOBRIDGE and LYNNE SHOBRIDGE, Plaintiffs/Moving Parties

AND:

ANGELO CAIRO, STOUFFVILLE GLASS MIRROR AND ALUMINUM 2012 INC., also known as STOUFFVILLE GLASS MIRRORS & ALUMINUM (2012) LTD. and YOUR COMMUNITY REALTY INC. operating as ROYAL LEPAGE YOUR COMMUNITY REALTY, BROKERAGE or as ROYAL LEPAGE YOUR COMMUNITY REALTY, Defendants/Respondents

BEFORE: Dawe J.

COUNSEL: N. Cameron Murkar, Counsel, for the Plaintiffs/Moving Parties Barry Greenberg, Counsel, for the Defendants/Respondents Angelo Cairo and Stouffville Glass Mirror & Aluminium 2012 Inc. a.k.a. Stouffville Glass Mirror & Aluminium (2012) Ltd. No one appearing for the Defendants/Respondents Your Community Realty Inc. operating as Royal LePage Your Community Realty, Brokerage or as Royal LePage Your Community Realty

HEARD: June 24 and September 24, 2021

ENDORSEMENT

I. Overview

[1] In November 2019 the defendants Angelo Cairo and Stouffville Glass Mirror and Aluminum 2012 Inc. (“Stouffville Glass”) agreed to purchase an industrial building in Pickering that was owned by the plaintiffs for $7.25 million. The deal was scheduled to close in early April 2020. However, the transaction failed when the defendants’ financing arrangements fell through, leaving them with insufficient funds to close.

[2] The plaintiffs brought a motion seeking judgment in an amount equalling the $400,000 in deposit funds that are currently being held in trust by the realtor, Your Community Realty Inc. The realtor has been named as a defendant but the action against it has been discontinued. Accordingly, I will refer to Mr. Cairo and Stouffville Glass collectively as “the defendants”.

[3] The plaintiffs framed their motion as a request for partial summary judgment, because they wanted to reserve the right to perhaps seek additional damages in excess of the $400,000 deposit funds at a later date.

[4] I heard this motion on June 24, 2021. On August 8, 2021 I released an endorsement (2021 ONSC 5515) in which I held that:

i) This was not a suitable case for granting partial summary judgment, but very likely was one where the entire claim could appropriately be decided without a trial;

ii) The individual plaintiffs Bernard and Jean Boutet and John and Lynne Shobridge had no standing to sue the defendants for breach of contract, since they were not named as parties in the agreement of purchase and sale, even though they were part-owners of the property being sold;

iii) The failure to name the Boutets and Shobridges as vendors in the Agreement of Purchase and Sale (“the APS”) did not invalidate the contract. The corporate plaintiff 1854329 Ontario Inc., which was named in the APS as the sole vendor, is entitled to sue the defendants for the full amount of the contract;

iv) The APS was not rendered null and void by the defendant Angelo Cairo’s delay in waiving a financing condition. On a proper interpretation of its terms, including the parties’ agreement that extended the waiver deadline, Mr. Cairo had until the end of the day on January 24, 2020 to waive the condition, and he did so before this deadline expired;

v) The alleged deficiencies in 1854329 Ontario Ltd.’s closing documents were minor and had no bearing on the deal not closing as scheduled. Rather, the deal failed to close only because the defendants’ financing arrangements fell through.

[5] I accordingly granted the motion in part. I dismissed the Boutets’ and Shobridges’ claims, but granted summary judgment in favour of 1854329 Ontario Ltd. on the issue of the defendants’ liability for breach of contract. (Since the Boutets and Shobridges claims have already been dismissed, I will refer to 1854329 Ontario Ltd. during the balance of my reasons as “the plaintiff”.)

[6] I also directed that there be a further hearing at which I would hear argument on two remaining issues, with the benefit of a more fulsome evidential record:

i) How much 1854390 Ontario Ltd. can properly claim in damages for breach of contract; and

ii) Whether I should exercise my equitable discretion to relieve the defendants from forfeiture of the full $400,000 deposit.

[7] I heard submissions on these remaining issues on September 24, 2021, and reserved my decision.

II. Analysis

A. Damages

1. The difference in the sale proceeds

a) The reduced sale price to a new purchaser

[8] In November 2019 the defendant Angelo Cairo, acting in trust for the corporate defendant Stouffville Glass, agreed to purchase an industrial building at 875 Dillingham Road South in Pickering from 1854329 Ontario Ltd. for $7.25 million. The sale was scheduled to close on April 8, 2020, but the transaction did not close because the defendants’ financing arrangements fell through a few days before the closing date. Mr. Cairo attributes the collapse of his financing arrangements to the COVID-19 pandemic.

[9] 1854329 Ontario Ltd. subsequently relisted the property for sale, and in October 2020 sold it to a different purchaser for $7.175 million. The new sale price was $75,000 less than the price the defendants had agreed to pay. There is no dispute that the plaintiff is entitled to receive the difference between the two sale prices as damages for the defendants’ breach of contract.

b) Increased realtors’ fees

[10] The plaintiff has also led evidence that it ended up paying more in realtors’ fees than it would have had to pay if the original sale to the defendants had been completed. The reason for this is that the realtors involved in the first sale of the property to the defendants had agreed to discount their fees by a total of $40,000. However, they were not prepared to offer a similar discount when the property was later sold to the new purchaser.

[11] As the plaintiff has explained, the realtors involved in the two transactions ordinarily set their fees at 4% of the sale price, plus HST. Since the property was to be sold to the defendants for $7.25 million, the relators’ fees would usually have been 4% of this sale price, or $290,000, plus HST, for a total of $327,700. However, they had agreed to reduce their fees to $250,000 plus HST, or $282,500 in total.

[12] When the property was resold to the new purchaser in October 2020 for $7.175 million, the realtors’ 4% fee came to $287,000 plus HST, or $324.310 in total, and they did not offer any discount.

[13] The net result was that the plaintiff ended up paying $41,810 more in realtors’ fees and HST than it would have paid if the original sale to the defendants had been completed.

[14] I am satisfied that the plaintiff can properly claim this $41,810 difference as damages for the defendants’ breach of contract.

[15] This increases the running total of the plaintiff’s damages to $116,810.

c) Additional legal expenses

[16] The plaintiff also incurred additional legal expenses in connection with the second sale, which it would not have had to spend if the sale of the property to the defendants had been completed. It has provided an account showing that its real estate lawyer billed $6,000 in fees, disbursements and HST for his work in connection with the October 7, 2020 sale of the property to the new purchaser. I agree that the plaintiff is entitled to recoup these expenses from the defendants as damages for their breach of contract.

[17] Adding this $6,000 brings the running total of the plaintiff’s established damages to $122,810.

d) Other reductions

[18] The plaintiff maintains that it received a total of $140,342.20 less in the second sale than it would have collected if the sale of the property to the defendants had been completed.

[19] The difference between this amount and the running total obtained above is $17,532.20.

[20] There are two main reasons for this arithmetical discrepancy.

[21] First, the plaintiff’s figures include credits and debits for property tax overpayments and underpayments.

[22] If the sale of the property to the defendants had closed on schedule in April 2020, the plaintiff would have received a $6,392.34 credit for property taxes it had already paid. However, when the sale to the new purchasers closed in October 2020, the purchasers received a $22,628.72 credit for property tax that the plaintiff had not yet paid, which the purchaser accordingly had to pay themselves.

[23] My concern with including the property tax adjustments at this stage of the damages calculation is that, as discussed below, the plaintiff is also claiming its property tax payments separately as a carrying cost. There is accordingly a risk of double-counting if these amounts are also included when calculating the difference in the sale proceeds.

[24] The second reason for the discrepancy between my calculations and the plaintiff’s figures is that the plaintiff has reduced the amount it would have received if the sale to the defendants had gone through by $11,488.82, to reflect the legal fees it paid in connection with this transaction. However, it has not included these fees when calculating its net proceeds from the October 2020 sale to the new purchasers.

[25] Since the plaintiff presumably still had to pay these legal fees even though the first transaction fell through, I think they ought to be included on both sides of the ledger. This inures to the plaintiff’s benefit.

[26] For these reasons, I would quantify the plaintiff’s established damages arising from the difference in the sale proceeds as $112,810. I will take the property tax payments into account when considering the issue of the plaintiff’s carrying costs.

2. Carrying costs

[27] The plaintiff maintains that as a result of the defendants’ failure to complete the transaction in April 2020, it had to spend additional funds for property taxes and other maintenance expenses during the six months it took to sell the property to the eventual new purchasers. It quantifies these carrying costs as totalling $ 87,852.24.

[28] I should note at the outset that this figure includes $56,147.12 for property taxes the plaintiff says it paid during the period between April 7 and October 7, 2020, which is why I have not included the property tax adjustments when calculating the difference in the two sale receipts.

[29] The defendants take issue with two aspects of the plaintiff’s carrying costs calculations. First, they note that the total 2020 property tax payable on the Dillingham Road property was $100,108.48. Since the sale of the property was delayed by exactly six months, from April 7 to October 7, they argue that the amount payable in property tax for this period should be half of the total, or $50,054.24 rather than $56,147.12.

[30] I agree with the defendants on this point. When the sale closed in October 2020, the plaintiff calculated the property taxes on a per-day basis by dividing the annual total by 366, since 2020 was a leap year. On this basis, the daily tax rate in 2020 was $273.52, and the total tax payable during the 183 day period between April 7 and October 7 was $50,054.24, or half the annual total.

[31] The defendants’ second objection is that the plaintiff has included payments of various invoices that were made out to the plaintiff’s former tenant, Howard Marten Co. Ltd., totalling $7,479.79, for work done by the Atlantic Overhead Door Company installing a new door and repairing some other doors. The defendants argue that the plaintiff has not shown that it is entitled to recoup these expenses.

[32] I would not give effect to this argument. It seems to be undisputed that the Howard Marten Co. Ltd. vacated the Dillingham Road South premises in advance of the anticipated April 7, 2020 sale of the property to the defendants. The defendants did not advise the plaintiff that they would be unable to complete the transaction until April 6, 2020, the day before the scheduled closing.

[33] It is clear from the invoices at issue that they all relate to work that was done between May and August 2020. I am prepared to infer that the plaintiff must have paid for this work, even though the invoices were made out to their former tenant. It makes no sense that the Howard Marten Co. Ltd. would have continued to pay for upgrades and repairs to premises it was no longer renting or occupying.

[34] In summary, I am satisfied that the plaintiff has established its entitlement to $81,759.36 in damages for its expenditures on property tax and other carrying costs during the six months it took to sell the property to different purchasers.

3. Damages for lost rent

[35] The plaintiff argues further that because it had to terminate its tenants’ leases in order to provide vacant possession of the property to the defendants on April 7, 2020, it should be entitled to claim $187,595.68 in additional damages for lost rent during the six months it then took to sell the property after the sale to the defendants fell through.

[36] In my view, this argument is conceptually unsound. Damages for breach of contract are supposed to restore the plaintiff to the position it would have occupied if the contract had been completed. In this case, if the sale of the property to the defendants had gone through as scheduled, the plaintiff would have collected no rent after April 7, 2020. It accordingly cannot claim that its inability to collect any rent between April 7 and October 7, 2020 is a loss it has incurred because of the defendant’s breach of contract.

4. Damages for lost investment value

[37] In the alternative, the plaintiff argues that if it cannot recoup any damages for lost rent between April and October 2020, it should be compensated for its loss of the opportunity to invest the sale proceeds during the six months it took to sell the property to the new purchaser at a slightly reduced price. The plaintiff argues:

This property was mortgage free. If $6,962,403.50 had been invested between April 7 th to October 7 th and generated a very very conservative rate of return for that six month period of 3%, the investment income earned would have been $104,436.05.

[38] I agree that the plaintiff is entitled to compensation for the time value of the money it lost when the sale of the property was delayed by six months. However, I do not accept the plaintiff’s argument that it should be compensated at an effective annual interest rate of 3%, for two related reasons.

[39] First, it may well be true that if the sale to the defendants had been completed, the plaintiff and the Boutets and Shobridges – who as two-third owners of the property presumably would have received two-thirds of the sale proceeds – could have obtained at least a 3% rate of return if they had invested the money. However, there is no evidence from any of them that this is actually what they would have done with the sale proceeds. They might very well planned to spend rather than invest at least some of the money they received.

[40] Second, the conceptual underpinning for this aspect of the plaintiff’s damages claim strikes me as essentially indistinguishable from the basis on which plaintiffs are entitled to receive pre-judgment interest, which under s. 127 - 130 of the Courts of Justice Act, R.S.O. 1990, c. C.43 is ordinarily computed using the rates published in accordance with s. 127(2) of the Act. The published prejudgment interest rate between April 7 and June 30, 2020 was 2%, and from July 1 to October 7, 2020 it was 0.5%.

[41] In my view, it would be anomalous for me to calculate the plaintiff’s economic damages arising from the delayed sale of the property at a significantly higher interest rate than the published interest rate, at least in the absence of any evidence that the plaintiff and/or the Boutets and Shobridges would actually have invested the sale proceeds in a manner that would have generated a substantially better return for them.

[42] Accordingly, while I agree that the plaintiff is entitled to additional damages for the delay in receiving sale proceeds, I would calculate these damages based on the published pre-judgment interest rate rather than on the basis of a presumed 3% annual return, as follows:

April 7 to June 30, 2020 (84 days) at 2% annually: $31,958.57 July 1 to October 7, 2020 (98 days) at 0.5% annually: $9,321.25

TOTAL: $41,279.82

5. Conclusions re actual damages

[43] Adding these three amounts together, I would compute the plaintiff’s actual ascertainable damages arising from the defendants’ breach of contract as:

i) $112,810 arising from the difference in the sale proceeds when the property was sold to the eventual buyers in October 2020;

ii) $81,759.36 for property tax payments and other carrying costs expended by the plaintiff during the six months it took to resell the property;

iii) $41,279.82 to reflect the time value of money and the six-month delay in completing the eventual sale.

[44] This comes to a total of $234,849.18.

B. Equitable relief from forfeiture

[45] On my calculations and findings, as set out above, the plaintiff has established that the defendants’ breach of the contract to purchase the 875 Dillingham Road property caused the plaintiff to suffer $234,849.18 in actual damages.

[46] However, the plaintiff seeks judgment awarding it the full amount of the defendants’ $400,000 deposit. In view of my findings above, this would mean that the plaintiff would receive $164,150.82 more than its actual established damages.

[47] I would add that a judgment that summarily awards the plaintiff the full amount of the $400,000 deposit would constitute full rather than merely partial summary judgment, since the plaintiff’s established damages are less than the deposit amount.

[48] The defendants argue that I should exercise my equitable discretion not to grant forfeiture of the full deposit amount, and that I should only award the plaintiff its actual established damages.

[49] The parties agree that I have the discretion to relieve the defendants from forfeiture of the full deposit amount. However, they disagree about the legal test that applies in cases involving forfeiture of real estate purchasers’ deposits, and disagree further about whether the applicable legal test is satisfied in the circumstances here.

1. The applicable legal test

[50] In Ontario (Attorney General) v. 8477 Darlington Crescent, 2011 ONCA 363 at paras. 86-88, Doherty J.A. explained:

Courts of equity have always had the power to relieve against the forfeiture of property consequent upon a breach of contract: see McBride v. Comfort Living Housing Co-Op (1992), 7 O.R. (3d) 394 at 402 (C.A.). That power is now expressed in various statutes dealing with specific kinds of contracts ( e.g. contracts of insurance, leases) and has been given more general expression in s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43:

A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.

The power to relieve from forfeiture is discretionary and fact-specific: Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490 at p. 504. The power is predicated on the existence of circumstances in which enforcing a contractual right of forfeiture, although consistent with the terms of the contract, visits an inequitable consequence on the party that breached the contract. Relief from forfeiture is particularly appropriate where the interests of the party seeking enforcement by forfeiture can be fully vindicated without resort to forfeiture. Relief from forfeiture is granted sparingly and the party seeking that relief bears the onus of making the case for it: 1497777 Ontario Inc. v. Leon’s Furniture Ltd. (2003), 67 O.R. (3d) 206 at paras. 67-69, 92 (C.A.).

In Saskatchewan River Bungalows, at p. 504, Major J. identified the factors relevant to the exercise of the power to grant relief against forfeiture:

... The factors to be considered by the court in the exercise of its discretion are the conduct of the applicant, the gravity of the breaches, and the disparity between the value of the property forfeited and the damage caused by the breach.

[51] The defendants in this case rely on the Saskatchewan River Bungalows formulation of the test.

[52] However, the plaintiff observes that when addressing the forfeiture of deposits put up by purchasers in sale of land cases, the Ontario Court of Appeal has frequently applied what is arguably a somewhat different test. As Pepall J.A. explained in Ching v. Pier 27 Toronto Inc., 2021 ONCA 551 at para. 70:

Other authorities that have examined relief from forfeiture in the context of real estate deposits have applied an arguably different test. See for example: Varajao v. Azish, 2015 ONCA 218; Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, 137 O.R. (3d) 374; and Azzarello [Azzarello v. Shawqi, 2019 ONCA 820, 439 D.L.R. (4th) 127, at para. 45, leave to appeal refused, [2019] S.C.C.A. No. 521]. This test for relief from forfeiture, which is based on the English Court of Appeal decision of Stockloser v. Johnson, [1954] 1 Q.B. 476 (C.A. (Eng.)), poses two questions: (i) is the forfeited deposit out of all proportion to the damages suffered; and (ii) would it be unconscionable for the vendor to retain the deposit?

[53] Pepall J.A. observed further that the parties in Ching had not raised the issue of whether the Saskatchewan River Bungalows test applies in the real estate deposit forfeiture context, and ultimately held (at para. 74) that “it is unnecessary to determine which test applies” and that the question was best left for another day when it had been fully argued.

[54] My own view is that there may not be much substantive difference between the two tests. The first Stockloser question, namely: “is the forfeited deposit out of all proportion to the damages suffered?”, is substantially the same as the third Saskatchewan River Bungalows factor, which requires courts to consider “the disparity between the value of the property forfeited and the damage caused by the breach”.

[55] It also seems to me that the first and second Saskatchewan River Bungalows factors, which call on courts to examine the conduct of the party seeking relief from forfeiture and the “gravity of the breaches”, will be highly relevant when answering the second Stockloser question, namely: whether it “would it be unconscionable for the vendor to retain the deposit?”.

[56] That said, I agree with the plaintiff that regardless of how the legal test is formulated, it must be applied with due regard to the special nature of deposits in real estate sale contracts. As Miller J.A. explained in Benedetto v. 2453912 Ontario Inc., 2019 ONCA 149 at paras. 5-6 (citations omitted):

Where a payer (usually the purchaser) gives a vendor a deposit to secure the performance of a contract for purchase and sale of real estate, the deposit is forfeit if the purchaser refuses to close the transaction, unless the parties bargained to the contrary …

The deposit stands as security for the purchaser’s performance of the contract. The prospect of its forfeiture provides an incentive for the purchaser to complete the purchase. Should the purchaser not complete, the forfeiture of the deposit compensates the vendor for lost opportunity in having taken the property off the market in the interim, as well as the loss in bargaining power resulting from the vendor having revealed to the market the price at which the vendor had been willing to sell.

[57] Miller J.A. observed further at para. 14:

[A] forfeited deposit does not constitute damages for breach of contract, but stands as security for the performance of the contract. A purchaser’s obligations under a contract of purchase and sale are thus distinct from the obligation incurred by the payer of the deposit.

[58] The two are not entirely distinct, since the amount of the forfeited deposit will generally be credited to the purchaser against any damages that are awarded to the vendor, in order to prevent double recovery: see, e.g., Tang v. Zhang, 2013 BCCA 52 at para. 29. However, the vendor does not have to establish any damages to claim entitlement to the deposit. As Newbury J.A. explained for the British Columbia Court of Appeal in Tang, supra at para. 30, in real estate cases:

The deposit constitutes an exception to the usual rule that a sum subject to forfeiture on the breach of a contract is an unlawful penalty unless it represents a genuine pre-estimate of damages. However, where the deposit is of such an amount that the seller’s retention of it would be penal or unconscionable, the court may relieve against forfeiture …

2. Should the defendants be relieved from forfeiture of the full amount of their deposit?

a) Disproportionality

[59] As Doherty J.A. explained in Ontario (Attorney General) v. 8477 Darlington Crescent, supra at para. 92:

The third factor identified in Saskatchewan River Bungalows engages a kind of proportionality analysis. If there is a large difference between the value of the property to be forfeited and the amount owing as a result of the breach, equity will favour relief from forfeiture.

[60] As I have already noted, the first branch of the Stockloser test essentially asks this same question. However, in real estate cases where what is at issue is the forfeiture of the purchaser’s deposit, courts often also assess proportionality by comparing the size of the deposit to the overall sale price. Indeed, in the real estate context it is not uncommon for vendors to be awarded the purchaser’s deposit even when they have suffered no loss as a result of the purchaser’s breach of contract, and even when they have actually benefitted from the breach by reselling the property to a different purchaser at a higher price.

[61] As Lauwers J.A. noted in Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282 at para. 18, “[t]he analysis of unconscionability requires the court to step back and consider the full commercial context”. He observed further at para. 25 that a “finding of unconscionability must be an exceptional one, strongly compelled on the facts of the case”.

[62] In my view, when the deposit in this case is measured against either the amount of the plaintiff’s actual damages or the value of the property, there is no glaring disproportionality that would on its own be sufficient to support a finding that it would be unconscionable to award the plaintiff the full deposit amount.

[63] 1854329 Ontario Ltd.’s actual damages, as I have computed them, total $234,849.18. Accordingly, awarding it the full $400,000 deposit would mean that the plaintiff would receive $164,150.82 more than its established damages or, put another way, that it would recover approximately 1.7 times its actual damages.

[64] In Redstone, the Ontario Court of Appeal awarded the vendor the full amount of the purchaser’s $750,000 deposit, even though there was no evidence that the vendor had sustained any damages, and Lauwers J.A. agreed that it was “fair to infer that it suffered none”. If it was not unconscionable per se for the vendor in Redstone to be awarded $750,000 when it had suffered no loss, I think the same conclusion must hold in the case at bar, where 1854329 Ontario Ltd. did suffer some damages, and would receive a much smaller windfall.

[65] Likewise, I do not think there was anything commercially unreasonable about the size of the deposit in this case when it is measured against the value of the property. In Redstone, where the $750,000 deposit was “slightly more than seven percent” of the $10.225 million sale price of a commercial building and land, Lauwers J.A. observed that there was “no evidence that this was a commercially unreasonable deposit”. I think the same is true here, where the $400,000 deposit was slightly more than 5.5% of the $7.25 million sale price.

b) Other factors

[66] Even when awarding the plaintiff the full deposit amount would not be grossly disproportionate on its face, the Saskatchewan River Bungalows test and the Stockloser test both require courts to consider other factors that may nevertheless support a finding of unconscionability. The Saskatchewan River Bungalows test calls for examinations of the conduct of the party seeking relief from forfeiture and the “gravity of the breaches”, while the Stockloser test directs courts to consider whether “it be unconscionable for the vendor to retain the deposit”.

[67] In Redstone, supra, Lauwers J.A. observed at para. 29-30:

Where, as here, there is no gross disproportionality in the size of the deposit, the court must consider other indicia of unconscionability. … The list of the indicia of unconscionability is never closed, especially since they are context-specific. But the cases suggest several useful factors such as inequality of bargaining power, a substantially unfair bargain, the relative sophistication of the parties, the existence of bona fide negotiations, the nature of the relationship between the parties, the gravity of the breach and the conduct of the parties.

[68] In the case at bar, there is no evidence of any inequality of bargaining power between the parties, who both appear to be relatively sophisticated business persons, or corporations controlled by such persons. There is also no basis to think that the bargain between the parties was substantially unfair. The defendants appear to have failed to complete the transaction only because their financing fell through, not because they were having second thoughts about the fairness of the sale price. Indeed, when the plaintiff put the property back on the market several months into the onset of the COVID-19 pandemic, it eventually sold for a price that was only slightly lower than what the defendants had agreed to pay.

[69] The main thrust of the defendants’ argument is that it would be unconscionable to penalize them, because their failure to close the deal was caused by the COVID-19 pandemic. For the defendants, Mr. Greenberg notes that an “unconscionable” result has been defined as “something which is shocking, oppressive, not in keeping with a caring society”: see Scheel v. Henkelman at para. 19 (Ont. C.A.); Dar v. The Yards Corporation, 2018 ONSC 5043 at para. 27. He argues that it would not be in keeping with a caring society to penalize the defendants, and give the plaintiff a substantial financial windfall, for consequences that resulted from a global pandemic which could not have been anticipated when the contract for the sale of the property was signed.

[70] Mr. Greenberg emphasizes that he is not trying to make the plaintiff absorb any share of the financial loss that resulted from the failure of the purchase agreement, pointing out that the plaintiff will be put back in the position it would have occupied if there had been no breach if it is granted judgment only in the amount of its actual damages, plus interest.

[71] This argument has considerable force. I agree that the global COVID-19 pandemic can be seen as an “exceptional” event that could be capable of supporting a finding of unconscionability in an appropriate case. I also agree with Mr. Greenberg that when a contract has failed because of the impact of COVID, it may in some cases be unconscionable to make one party not only absorb all of the resulting financial losses, but also pay an additional penalty, thereby giving the other party a windfall that may greatly exceed its actual damages, if there were any.

[72] However, it is the defendants’ burden to adduce evidence that supports the conclusion that awarding the full amount of the deposit to the plaintiff would be unconscionable in the circumstances here. I am not satisfied that they have done so, for three main reasons.

[73] First, the defendants’ evidence that their inability to obtain financing and close the deal was in fact caused by the COVID-19 pandemic is thin.

[74] In his affidavit, Mr. Cairo explains that when he waived the financing condition on January 24, 2020, he did so because he had received a “term sheet” from the Business Development Bank of Canada indicating that it was prepared to advance a $6.25 million loan on closing. However, when he later received an “offer of financing” from BDC on April 2, 2020, a few days before the scheduled closing date, BDC was only prepared to advance $5.4 million on closing. This left the defendants with a $1.125 million shortfall and insufficient funds to complete the transaction. Mr. Cairo states further:

I was advised by the representative of BDC and verily believe that the onset of COVID-19 resulted in concerns by BDC of the impact of the pandemic on the Purchaser’s business which in turn resulted in the requirement for the provision of substantial additional funds by the Purchaser on closing to secure financing.

[75] Mr. Cairo’s belief that BDC changed the terms on which it was prepared to offer financing because of the COVID-19 pandemic is certainly plausible, and may very well be true. However, his evidence that he was told this by an unidentified BDC representative on an unidentified occasion is so bereft of detail that it leaves me ill-equipped to assess the accuracy of Mr. Cairo’s information.

[76] Second, while the onset of the COVID-19 pandemic may not have been reasonably foreseeable when the parties first signed the contract in November 2019, the situation had changed when Mr. Cairo decided to waive the financing condition on January 24, 2020. By this time, it had been two months after the initial outbreak of COVID-19. It was clear that the disease was spreading around the world, and it was widely expected that the SARS-CoV-2 virus would arrive in Canada within a matter of weeks, if it had not already done so.

[77] While it was still uncertain how long the global pandemic would last and how severe it would be, the possibility that it might affect Mr. Cairo’s ability to obtain financing was in my view something he could reasonably have anticipated. He knew that BDC’s term sheet was not a loan offer – it expressly said this in bold print on the first page – and he knew that under the terms of the purchase and sale agreement the defendants could get their deposit back if he simply declined to waive the financing condition. In these circumstances, Mr. Cairo ought reasonably to have known that waiving the financing condition without having guaranteed financing in hand would expose the defendants to some real risk. He could also have guarded against this risk by returning to the bargaining table and trying to obtain revised terms or an extension of the waiver deadline from the plaintiff. If this proved impossible, the defendants could simply have walked away from the deal and recovered their deposit instead of waiving the financing condition.

[78] Third, the defendants have adduced virtually no information about any negotiations they conducted with the plaintiff to try to save the transaction after their financing fell through. On April 6, 2020, the day before the scheduled closing date, their real estate lawyer wrote to the plaintiff’s real estate lawyer to advise that the defendants would be unable to close, and to request a six-month extension of the closing date. Significantly, she did not offer any form of compensation to the plaintiff in exchange for this proposed extension.

[79] It seems unlikely that the parties did not engage in further negotiations to try to salvage a deal of this size. However, neither party has adduced any evidence about any such negotiations, or about the positions that either party took during them.

[80] In my view, this information would be highly germane to the issue of whether it would now be unconscionable to award the plaintiff the full $400,000 deposit. If the plaintiff or the defendant had refused to negotiate, or if either took an unreasonable stance, this might weigh heavily against them when considering the equities of the situation.

[81] For instance, in McGregor v. Tucci, 2021 ONSC 4379, Belobaba J. concluded that it would not be unconscionable to award the vendors the full amount of deposit after the defendants failed to close, which they similarly attributed to the COVID-19 pandemic, even though the vendors had suffered no loss and indeed had resold the property to another buyer for a considerably higher price.

[82] However, in that case the vendors had offered to extend the closing date if the defendants would reimburse them a small sum for their increased legal fees, but the defendants had refused. As Belobaba J. explained (at para. 23):

The risk that materialized here — difficulties in securing financing — was a risk that [the defendants] decided to personally assume when they deliberately deleted the “conditional on financing” provision in their offer to purchase. Moreover, and at root, the closing of this $1.2 million transaction failed because [the defendants] refused to pay $500 plus tax (or $565 in total) to reimburse the plaintiffs’ related legal costs. Had they paid this modest amount, the closing date would have been extended. The plaintiffs acted reasonably; the … defendants did not.

[83] In contrast, on the record before me I do not know whether either or both parties acted reasonably after the transaction failed to close.

[84] It is the defendants’ burden to demonstrate that this is an exceptional case where it would be unconscionable to award the plaintiff the full amount of the deposit. In my view, the gap in the evidence on what I think is a potentially critical issue weighs heavily against them. In the absence of any evidence showing that the plaintiff behaved unreasonably or unfairly in the wake of the defendants’ failure to close on April 7, 2020, I am not satisfied that it would be unconscionable to award the plaintiff the full amount of the defendants’ deposit.

III. Disposition

[85] In the result, summary judgment is granted to the plaintiff 1854329 Ontario Inc., the claims of the Boutets and Shobridges having previously been dismissed. 1854329 Ontario Inc. is entitled to the $400,000 deposit that is currently being held in trust by Your Community Realty Inc., plus any accrued interest. An order will go accordingly. How 1854329 Ontario Inc. must divide these funds between itself and the Boutets and Shobridges is a matter for them to work out between themselves.

[86] I would urge counsel for the parties to try to reach an agreement on costs. If they are unable to do so, they may provide me with brief written submissions of no more than two pages in length, which may be submitted by email to my judicial assistant. The plaintiff’s submissions should be filed by February 1, 2022 and the defendants’ submissions two weeks later, by February 15, 2022.

Dawe J. Date: January 5, 2022