Court File and Parties

COURT FILE NO.: CV-18-133985 DATE: 2022-03-29

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Reza Hassim Zadeh Tabrizi a.k.a. Reza Hassan Zadeh Tabrizi Plaintiff – and – Majesty Development Group Inc., Xing Quan Wang, Yu Sheng Xiao and Century 21 South Breeze Realty Inc. Defendants – and – Jason Katz, Alyssa Gayle Cohen, Farzaneh Heidarian, Forest Hill Real Estate Inc., May Young And Century 21 South Breeze Realty Inc. Third Party Defendants

Counsel: Yeganeh Pejman, for the Plaintiff Kenneth MacDonald, for the Defendants, Majesty Development Group Inc., Xing Quan Wang and Yu Sheng Xiao Jeffrey S. Klein, for the Third Party Defendants, Jason Katz, Alyssa Cohen, Farzaneh Heidarian and Forest Hill Real Estate Inc.

HEARD: November 22-26, 30, December 1-3, 6, 7, 9, 2021 and January 6, 2022

Reasons for Decision

DE SA J.:

Overview

[1] The Plaintiff, Mr. Reza Hassim Zadeh Tabrizi a.k.a. Reza Hassan Zadeh Tabrizi (the “Plaintiff”), is 49 years old and is married with children. He is a permanent resident. He moved to Canada from Iran in 2016.

[2] The Defendant, Majesty Development Group Inc. (“Majesty”), is a corporate developer, incorporated pursuant to the laws of the Province of Ontario.

[3] The Defendants, Xing Quan Wang and Yu Shen Xiao, are officers and directors of Majesty.

[4] The Plaintiff entered into an Agreement of Purchase and Sale with the Defendants dated March 10, 2017 (the “APS”) for the purchase of a property municipally known as 15 Blackforest Drive, Richmond Hill, Ontario (the “Property”).

[5] While the Plaintiff paid a deposit of $150,000 towards the purchase of the Property, he did not close on the transaction.

[6] Majesty ultimately sold the Property to another purchaser in February of 2019. Given a decline in the real estate market which occurred shortly after the original offer, Majesty received $610,000 less for the Property than the offer originally made by the Plaintiff.

[7] Majesty now seeks its damages for the breach of the original APS, including the loss of bargain, the carrying costs, and various other expenses associated with the breach.

[8] The Plaintiff takes the position that Majesty withheld its consent to permit the Plaintiff to apply for authorization to sever the Property. According to the Plaintiff, the authorization to sever was a fundamental term agreed to by the parties and justified his decision not to close. On the basis of this alleged breach by Majesty, he seeks the return of his deposit of $150,000.

[9] If the court concludes that he was liable for the breach, the Plaintiff seeks contribution and indemnity with respect to the damages awarded against him from his real estate agents, Jason Katz, Alyssa Gayle Cohen, Farzaneh Heidarian, and Forest Hill Real Estate Inc. (the Third-Party Defendants). He maintains that his realtors breached their obligations in failing to ensure that the authorization for severance was included in the APS.

[10] I have heard all the evidence in the main action, the counterclaim, and third-party action. I find in favor of Majesty on the issue of the breach. The particulars of the damages awarded to Majesty are outlined below.

[11] The Plaintiff’s action against Majesty and the third-party action as against the realtors are dismissed.

Summary of Evidence

The Offer on 15 Blackforest Drive

[12] The Plaintiff met Farzaneh Heidarian (“Farzaneh”) through a house listing she had placed on Telegram, a messaging service. The Plaintiff had been making some inquiries about locations for a possible townhouse development.

[13] Farzaneh has been a licensed realtor since 2016. She had placed some listings on social media. The Plaintiff initially contacted her about one of her listings.

[14] Farzaneh introduced the Plaintiff to Jason Katz (“Katz”). He worked in residential real estate. Katz was licensed in 2013. He worked with Farzaneh and another agent named Alyssa Cohen.

[15] The Plaintiff had been interested in 15 Blackforest for some time, including an “offer night” where he attended with Farzaneh and Katz and placed an offer on the Property. Ultimately, Majesty did not sell the Property at the “offer night” and changed their realtor before listing the Property again.

[16] Once the Property was relisted, the Plaintiff reached out to Farzaneh about putting an offer on the Property.

[17] Both Jason Katz and Farzaneh assisted the Plaintiff with putting in an initial offer on the Property at 15 Blackforest.

[18] According to the Plaintiff, he wanted to purchase 15 Blackforest to either sell the Property for a profit (assignment clause), or possibly develop it.

[19] The listing for 15 Blackforest referenced the opportunity for development. According to the Plaintiff, this signaled it could be used to develop townhouses.

[20] The initial offer he put in for 15 Blackforest was $1,910,000. The Plaintiff testified that he increased the offer to $1,960,000 and was willing to pay an extra $50,000 specifically to get:

1. The assignment clause
2. Longer closing
3. Permission to sever

[21] According to the Plaintiff, the agents did not go over the specific terms of the offer with him. He always believed the offer and the final purchase agreement had a term for severance. He did not read English very well, so he relied on their assurances. He trusted from his discussion with his agents that a severance condition had been included in the original offer.

[22] According to the Plaintiff, he told his agents (Katz and Farzaneh) that he wanted a major easement and a severance condition given his interest in development. The Plaintiff tendered various Telegram messages (in Farsi) showing his early discussions with Farzaneh regarding townhome development, including a specific reference to a property matching the size description of the 15 Blackforest location. In that conversation, Farzaneh stated the Property at 15 Blackforest would be exactly suitable for townhouses. According to the Plaintiff, this communication was part of the reason he was interested in 15 Blackforest.

[23] According to Farzaneh, when she initially met the Plaintiff, he had come with two other people: an agent by the name of Peyman, and an investor by the name of Ali Zacherian (“Zacherian”). Zacherian was a businessman and investor. Zacherian was primarily interested in building townhomes but left for California in February. According to Farzaneh, the Telegram messages in February referencing townhomes relate to her searches for properties for Zacherian. The Plaintiff was acting as the middleman for him. According to Farzaneh, the Plaintiff himself never expressed any real interest in developing townhomes.

[24] Both Jason Katz and Farzaneh testified that the Plaintiff presented himself as an experienced businessman looking to purchase multiple properties. The Plaintiff had always intended to purchase the property at 15 Blackforest to “flip it”. Katz testified that the Plaintiff never mentioned severance to him. The Plaintiff did not give any indication of an intention to build on the Property in his discussions with Katz. Katz acknowledges that he signed an affidavit as part of the litigation which states that Majesty always knew about the Plaintiff’s interest in severance. Katz maintained that his sworn affidavit in this regard is inaccurate and was prepared to assist the Plaintiff at the behest of the Plaintiff’s lawyer prior to the commencement of the third-party claim.

[25] According to Katz, he and Farzaneh went over the conditions of the offer with the Plaintiff and the Plaintiff always knew there was no severance condition. They went through the buyer representation agreement with the Plaintiff and went through the proposed offer line by line. The initial offer of $1,910,000 also had the assignment clause, and a longer closing. It was refused by Majesty because it was too low in price.

[26] According to Katz, the Plaintiff wanted an assignment clause and longer closing date to take advantage of the increasing market. After discussions with the Plaintiff, they crossed out the due diligence clause as Majesty wanted a clean offer. The Plaintiff was aware of this as he wanted to make sure he got the Property. According to Katz, the Plaintiff had been expressing interest in other properties with the intention of taking advantage of the increasing real estate market. At the time, he wanted to purchase multiple properties.

Drop in Market, The Amendment, and Attempts to Obtain Consent to Severance

[27] Majesty entered the Agreement of Purchase and Sale with the Plaintiff for $1,960,000 on March 10, 2017, with two deposits owing: an initial deposit of $100,000 which was due on signing and the second deposit of $50,000 which was due on May 31, 2017.

[28] Tabrizi executed the APS on March 11, 2017 and paid the first deposit.

[29] Shortly after buying the Property, the Plaintiff had Farzaneh and Katz speak with the municipality to confirm development was possible. He even looked for other properties in the area for investment and made offers on other houses, including 11 Strauss Road.

[30] In April 2017, the real estate market began to cool down significantly. The government imposed a foreign buyer’s tax which had a direct impact on the housing market and house prices.

[31] On May 31, 2017, the Plaintiff failed to make the payment of the second deposit ($50,000).

[32] On June 15, the Plaintiff indicated to Farzaneh that he was having issues with financing. That same day, the Plaintiff’s lawyer (“Mr. Bhatia”) sent a letter setting out various problems with the APS and asking Majesty for the return of the deposit. Majesty refused.

[33] On June 27, 2017, with the assistance of counsel, the Plaintiff signed an Amendment to the APS which extended the date for payment of the deposit from May 31 to August 15 and extended the closing date from August 15 to December 15, 2017 (the “Amendment”).

[34] On July 24, 2017, the Plaintiff and Katz met for dinner. The Plaintiff mentioned he wanted to do something with the Property to increase the value. In an email of July 25, he asked Katz to obtain permission from the landlord with a view to having the Property severed/rezoned.

[35] At the direction of the Plaintiff, Katz drafted the initial permission letter requesting authorization to sever the Property.

[36] In an email to Katz on July 27, 2017, May Young stated that Majesty “would prefer to sign the Permission Letter upon receipt of the additional deposit of $50,0000 as per the accepted amendment.”

[37] After receiving the email from May Young, Jason Katz emailed the Plaintiff advising that Majesty “agrees to sign the permission letter as soon as the $50,000 supplemental is received.”

[38] The Plaintiff advanced the additional $50,000. The deposit check was received on August 17, 2017.

[39] Mr. Yu Sheng Xiao (“Xiao”), a director of Majesty, testified that he never read the actual email sent by May Young to the Plaintiff on July 27, 2017, however, he maintained that Majesty never agreed to sign the permission for severance. He always intended to have the documents reviewed by his lawyer. However, he expected the deposit to be paid first before signing any authorization.

[40] After reviewing the proposed authorization, Xiao/Majesty was informed by their lawyer that there were risks with the signing of the authorization. Given those risks, Majesty did not agree to sign the authorization. Majesty indicated it would agree to an earlier closing to allow the Plaintiff to apply directly for severance with the municipality.

[41] In August, the Plaintiff also asked for a price reduction based on a lower appraisal value of the Property provided by the lender. Majesty refused.

The Plaintiff Refuses to Close

[42] On September 15, 2017, the Plaintiff’s lawyers sent over a more formal letter for permission and again indicated the Plaintiff’s interest in applying for severance.

[43] The Plaintiff hired an engineer and got his lawyer to prepare the authorization. He assumed these costs (close to $12,000) on the basis that Majesty would cooperate with the authorization.

[44] On September 21, 2017, Majesty again sent a letter indicating that they would not consent to the severance application.

[45] According to the Plaintiff, he did not close on December 15, 2017 because Majesty did not follow through with their promise to sign the authorization. The agents always assured him that Majesty would sign the permission letter and Majesty did not. In his view, Majesty breached the agreement.

[46] According to the Plaintiff, the agents encouraged him to stay in the agreement longer than he normally would. According to the Plaintiff, if he knew that Majesty would not cooperate, he would never have entered the agreement.

[47] According to the Plaintiff, he would have been ready to close if Majesty cooperated with the severance.

Attempts to Resell the Property after the Plaintiff Exits

[48] After the Plaintiff refused to close on the APS, Majesty, with the assistance of May Young, put 15 Blackforest back on the market in January 2018.

[49] In July 2017, when they arranged the mortgage from Gingko, the appraisal estimated the Property’s value at $1,650,000. In January 2018, the Property was listed for $1,760,000 given the prior sale of $1,960,000.

[50] May Young testified that she kept the Property on MLS and had showings throughout. She also paid to advertise the listing in other publications.

[51] In January 2018, Majesty received an offer from LuLu Holdings (the “LuLu offer”). LuLu Holdings offered $1.6 million but the LuLu offer included a severance term and a long closing. Majesty countered for $1.75 million, struck out the severance requirement and reduced the time for closing. LuLu Holdings never signed the offer back.

[52] Between March and June, there were no offers on the Property. In April 2018, Majesty had the Property appraised again, and it was valued at $1,550,000. Accordingly, the Property listing was reduced to $1,598,800.

[53] Given the absence of any offers, on August 20, 2018 the Property was dropped to $1,499,900 and again to $1,435,000 in November 2018. No offers were made on the Property for the balance of 2018.

[54] Upon the advice of their agent May Young, Majesty paid for various improvements to the Property in January 2019 to try and increase its appeal. Majesty carried out the following improvements to the Property:

1. Flattened the land and installed new grass
2. Installed a new deck
3. Repainted the interior of the house
4. Installed new counter tops in the kitchen and changed the bathrooms vanities
5. Made changes to the lighting fixtures
6. Made improvements to the fence

[55] The costs for these improvements were just over $40,000. According to Xiao, everything was done at the least expensive cost with a view to selling the Property.

[56] On January 18, 2019, Majesty received an offer by a corporation named ANIX Developments. ANIX initially offered $1.2 million for the Property. Majesty signed back the offer at $1.415 million with the deposit amount increased from $20,000 to $100,000. Majesty also did not accept the severance/zoning term. They also struck out the assignment clause limiting the liability of the purchaser upon assignment.

[57] ANIX submitted another offer of $1.5 million but again included a requirement that the Property be severed prior to closing. Majesty did not sign back the offer. In Xiao’s view, it was clear that ANIX was insisting on conditions that were not possible. ANIX wanted a confirmation that the Property was two severed lots. This was a confirmation that Majesty could not give.

[58] On February 19, 2019, Ms. Samantha Lenuzza (“Ms. Lenuzza”) offered $1.1 million for the Property (the “Second APS”). Majesty countered with an offer of $1.35 million with a deposit of $50,000. This counteroffer was accepted by Ms. Lenuzza with a closing date of April 5, 2019. Ms. Lenuzza closed on the agreed to terms.

[59] This Second APS was $610,000 less than the original APS entered into by the Plaintiff. The appraisal of March 5, 2019 put the value of the house at $1.3 million.

Borrowing for 10th Concession Road

[60] Prior to the sale of the Blackforest Property to the Plaintiff, Majesty had purchased a property at 17305 10th Concession Road (the “Concession Road Property”). This property was purchased on January 12, 2017 for $3,420,000. The Concession Road Property was vacant land bought by Majesty as an investment property.

[61] Once the Blackforest Property was sold in March 2017, Majesty anticipated that the funds from the sale of 15 Blackforest could be used to pay a portion of the purchase price on the Concession Road Property.

[62] When the Plaintiff asked to delay the closing, Majesty asked the owners of the Concession Road Property if they could delay the closing but the seller refused. Accordingly, Majesty had to go to a private lender to get the necessary funds to close the purchase.

[63] Majesty was expecting $1.366 million from the sale of 15 Blackforest, which was the net proceeds from the sale less the existing mortgage and expenses.

[64] Majesty borrowed $1,450,000 from Ginkgo MIC. This amount covered the $1.366 million required for closing the Concession Road Property, together with the transaction fee and interest for the period (the “Ginkgo Mortgage”).

[65] The Ginkgo Mortgage was arranged for 11 months at 10.95%. If renewed, it would be 13.95%.

[66] Majesty had to go to a private lender like Ginkgo because the bigger banks would not lend money on vacant land. The other shareholders in Majesty were also not able to advance the funds. Majesty itself had not had “income” in the three years preceding the purchase.

[67] When the Plaintiff initially placed the offer on 15 Blackforest, the Plaintiff was not aware of Majesty’s purchase of the Concession Road Property. However, on August 15, 2017, Majesty informed the Plaintiff that they expected the closing to go as planned in December as the funds from 15 Blackforest were required to finance the Concession Road Property.

Analysis

A. Was Majesty’s cooperation with the Plaintiff’s efforts to make inquiries of the City and/or submit an application to the City for the severance of the Property a term of the APS?

[68] Expressly, the APS contained the following terms:

• Price of $1,960,000
• First Deposit: $100,000 payable at signing
• Additional Deposit: $50,000 payable June 15, 2021
• Closing Date: August 15, 2017
• Assignment Clause

[69] There is no express term relating to severance in the APS, nor is there a term which requires Majesty to cooperate with applying for severance.

[70] At trial, the Plaintiff testified that he expressly told his agents that he wanted to buy a property for investment purposes to develop it and that he specifically intended to build townhouses.

[71] According to the Plaintiff, he always believed that the APS included a term for severance based on his discussions with his agents. He maintains that he never reviewed the actual APS but merely proceeded with the purchase based on the discussions he had with his agents.

[72] According to the Plaintiff, both Majesty and his agents were aware that he intended to sever the lots into two residential parcels and develop them.

[73] The Plaintiff relies on the fact that there were written messages between the Plaintiff and Farzaneh from mid-February 2017 (before any offers were made on the Property) whereby Farzaneh specifically referred to a property that is identical in description to 15 Blackforest.

[74] In these messages, Farzaneh expressly indicated that this property would be suitable for townhouses.

[75] The agents also spoke to the municipality regarding severance which was also consistent with his understanding that the Property was suitable for development.

[76] Even if it was not a term at the outset, the Plaintiff argues that on July 26, 2017, when Majesty’s agent, May Young, agreed Majesty would sign the authorization to apply and obtain zoning after receiving the $50,000 deposit, this made the severance a term of the APS. Majesty was bound by the representations made by their agent, May Young.

[77] The Plaintiff argues that encouraging the Plaintiff to obtain an engineer and engage a lawyer demonstrates that severance was contemplated to be a term of the APS. Appellate jurisprudence in Ontario has established that post contract events may add new obligations/terms to an agreement of purchase and sale in respect of a property notwithstanding an entire agreement clause: Soboczynski v. Beauchamp, 2015 ONCA 282, 125 OR (3d) 241.

[78] I do not accept the Plaintiff’s evidence regarding his understanding of the terms of the APS.

[79] On the evidence, I am satisfied that Majesty was looking for a “clean offer”. I find that the Plaintiff was clearly interested in purchasing the Property and was aware that anything less than a clean offer would not be accepted. He had been interested in the Property for some weeks, including the “offer night” where he placed a similar offer on the Property.

[80] I accept Farzaneh’s and Katz’s evidence that the Plaintiff understood the terms of the APS. He entered the APS with Majesty understanding the offer was a “clean offer”. I accept that the agents went through the terms with him, and that he fully understood the terms of the APS.

[81] I reject the Plaintiff’s claim that he believed that a severance term was included in the APS. While the Plaintiff may have been interested in severing the Property for resale, given the market conditions prior to April of 2017, I find that the Plaintiff was willing to take the risk of waiving the conditions expecting that the Property values would continue to rise.

[82] I accept the evidence of the agents that the Plaintiff’s primary purpose was to purchase the Property and then flip it. He had made similar offers on other properties around the same time. Obviously, no one expected that the real estate market would decline in the way that it did.

[83] When the housing prices fell, the Plaintiff wanted to exit the APS. When he was not permitted to exit the APS in June of 2017, he looked for ways to increase the Property’s value. I accept Katz’s evidence that at the dinner meeting in July, the Plaintiff wanted to enhance the value of the Property by obtaining authorization to sever the Property. He had a strong interest in pursuing severance with a view to increasing the value of the Property to assist with selling the Property.

[84] I do not accept that May Young’s representation of July 26, 2017 revised the terms of the original APS. At its highest, the Plaintiff was encouraged to send the $50,000 deposit earlier than he would have otherwise sent it. The Plaintiff was always obligated under the original APS to send the deposit.

[85] Severance was never a term that had been negotiated as between the parties. Nor was it fundamental to the agreement that had been reached by the parties at the time of the original APS. Accordingly, Majesty’s refusal to cooperate with the severance request was not a basis for the Plaintiff to exit the Agreement.

[86] I find that the Plaintiff breached the APS when he made the decision not to close. In my view, his decision to exit the APS related primarily to the drop in the real estate market.

[87] The jurisprudence makes clear that a drop in the market is not a valid basis for being let out of an Agreement of Purchase and Sale. See Perkins v. Sheikhtavi, 2019 ONCA 925; Burkshire Holdings Inc. v. Ngadi, 2021 ONSC 2550; and Forest Hill Homes v. Ou, 2019 ONSC 4332.

[88] Majesty takes the position that the Plaintiff’s failure to close related to his inability to obtain the requisite financing. According to the Plaintiff, he had the equivalent of close to $1,000,000 in an Iranian bank account. He had his own home to get a line of credit for financing. He had a commitment from the bank for close to $1,000,000 ($930,000 based on appraised value of $1.7 million). He was positioned to pay for the Property on closing.

[89] In my view, whether or not the Plaintiff actually had sufficient funds to close is unclear on the evidence. But even if he did, that does not change the fact that he breached the Agreement by refusing to close on the Property.

[90] I find no breach or repudiation of the Agreement on the part of Majesty.

The Assessment of Damages

[91] The judgment of Morden J.A. in 100 Main Street Ltd. v. W.B. Sullivan Construction Ltd. (1978), 20 OR (2d) 401, 88 DLR (3d) 1 (ONCA), is the principal authority on the assessment of damages for breach of an agreement of purchase and sale. In that case, the court summarized the relevant principles in determining the damages as follows:

(1) The basic principle for assessing damages for breach of contract applies: the award of damages should put the injured party as nearly as possible in the position it would have been in had the contract been performed. (2) Ordinarily courts give effect to this principle by assessing damages at the date the contract was to be performed, the date of closing. (3) The court, however, may choose a date different from the date of closing depending on the context. Three important contextual considerations are the plaintiff’s duty to take reasonable steps to avoid its loss, the nature of the property and the nature of the market. (4) Assessing damages at the date of closing may not fairly compensate an innocent vendor who makes reasonable efforts to resell in a falling market. (5) Therefore, as a general rule, in a falling market the court should award the vendor damages equal to the difference between the contract price and the “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”. (6) Where, however, the vendor retains the property in order to speculate on the market, damages will be assessed at the date of closing.

[92] The main heads of damages sought by Majesty are:

a) the $610,000 difference in the sale price upon re-sale; b) $41,798.54 in improvements made to help sell the Property; c) $439,577.65 in financing costs for 10th Concession Road, which Majesty had planned to pay for with the sale proceeds of 15 Blackforest; and d) $49,570 in carrying costs.

[93] The Plaintiff takes the position that even if he is responsible for the breach, Majesty is not entitled to the damages sought for the following reasons:

1. Majesty did not mitigate damages and the loss to Majesty flows from an improvident sale of the Property;
2. The improvements to the Property were unnecessary, and should not be compensated; and
3. The financing costs for 10th Concession Road were not a foreseeable consequence of the breach and therefore should not be compensated.

1. Did Majesty resell the Property improvidently thereby failing to mitigate its damages?

[94] According to the Plaintiff, Majesty failed to mitigate its damages because it accepted an offer for resale at $1,350,000 in February 2019, despite having received an offer for $1,600,000 as early as January 2018 (the LuLu offer).

[95] Had Majesty accepted the LuLu offer, it would have saved more than a year of holding costs as well as improvement costs and costs of borrowing for its other property located at 10th Concession Road.

[96] The Plaintiff takes the position that Majesty is not entitled to receive damages which flow from its decision not to sell the Property in January of 2018 at the price of $1.6 million.

General principles of law regarding mitigation

[97] The duty to mitigate is to “take reasonable steps” to minimize the loss. As Perell J. wrote in Deco Homes (Richmond Hill) Inc. v. Serikov, 2021 ONSC 2079, [2021] O.J. No. 1434, at para. 9: “In assessing the innocent party’s efforts at mitigation, the courts are tolerant, and the innocent party need only be reasonable, not perfect; in deciding what is a reasonable way to mitigate the effects of a breach of contract, the innocent party is not to be held to too nice a standard; it need only act reasonably, using what it knows then, without hindsight, and it need not do anything risky.” [Emphasis added.]

[98] The Defendant has the burden of proof to show Majesty failed to make reasonable efforts to mitigate, and to show mitigation was possible: Deco Homes, at paras. 7-8.

[99] In certain instances, that burden can entail leading expert evidence to show the efforts to mitigate were unreasonable and that the vendor could have obtained a higher price: Cuervo-Lorens v. Carpenter, 2016 ONSC 4661, aff’d 2017 ONCA 109, at paras. 2-3. See also Gamoff v. Hu, 2018 ONSC 2172, Marshall v. Meirik, 2021 ONSC 1687, Pomata Investment v. Yang, 2021 ONSC 6786, and 100 Main Street Ltd. v. W.B. Sullivan Construction Ltd. (1978), 20 OR (2d) 401, 88 DLR (3d) 1 (ONCA).

[100] In case of doubt the plaintiff will usually receive the benefit, because it does not lie in the mouth of the defendant to be over-critical of good faith attempts by the plaintiff to avoid difficulty caused by the defendant’s wrong: Stephen Waddams, The Law of Damages, loose-leaf (Carswell), at s. 14.140. See also Saramia Crescent General Partner Inc. v. Delco Wire and Cable Limited, 2018 ONCA 519.

[101] Majesty received the following offers and made the following counters:

1. Offer from LuLu dated January 2018 at $1,600,000 with $50,000 deposit. Majesty countered with $1,750,000 with $100,000 deposit. No further negotiations took place as LuLu did not respond to the counter offer (Exhibit 44).
2. First Offer from ANIX dated January 18, 2019 for $1,200,000 with a $20,000 deposit. Majesty countered at $1,450,000 with a $100,000 deposit (Exhibit 53).
3. Second Offer from ANIX dated January 29, 2019 for $1,500,000 with a $20,000 deposit. (Exhibit 54), no further negotiations.
4. Offer from Samantha Lenuzza (Ms. Lenuzza) on February 19, 2019 at $1,100,000 at $50,000 deposit. Multiple back and forths, ultimately sold for $1,350,000 with $50,000 deposit (Exhibit 55).

[102] The Appraisals for the Property were as follow:

• Appraisal for Ginkgo, July 30, 2017 for $1,650,000 (Exhibit 45)
• Appraisal for Majesty dated March 21 2018 for $1,550,000 (Exhibit 47)
• Appraisal for Majesty dated March 5, 2019 for $1,300,000 (Exhibit 56)

[103] In my view, Majesty made reasonable efforts to mitigate its losses. Majesty moved quickly to resell 15 Blackforest. Majesty engaged an experienced realtor in early January 2018 who listed the Property on MLS from the outset, held open houses, and advertised the Property until the house finally sold. The listing price was reduced five times in 2018 to attract buyers.

[104] After trying to sell the Property for several months and getting just a single offer, Majesty made several upgrades to the house to attract buyers.

[105] Having made these efforts, Majesty was finally able to sell the house in April 2019 for $1,350,000 (Exhibit 55), $50,000 above the then appraised value (Exhibit 56).

[106] In my view, the decision to counteroffer on the LuLu offer was not an unreasonable one. No one could have known at the time that LuLu would just walk away from the negotiation. No one could predict there would be no other offers for over a year. LuLu’s conduct in response to the counteroffer clearly indicated they no longer had an interest in purchasing the Property.

[107] In my view, Majesty’s inability to resolve issues with ANIX also does not reflect a failure to make reasonable efforts to mitigate. ANIX was demanding that the land be severed prior to sale. In my view, it was not unreasonable for Majesty to not accept the ANIX offers given that Majesty was not in a position to comply with ANIX’s conditions.

[108] Again, it does not lie in the mouth of the Plaintiff to be over-critical of the efforts made by Majesty to rectify a situation caused by his own breach/wrongdoing: Stephen Waddams, The Law of Damages, loose-leaf (Carswell), at s. 15.140.

Were the financing costs of 10th Concession Road foreseeable?

[109] As noted above, the classic principle for damages for breach of contract is that the innocent party be put in the position he would have been in but for the breach. On that basis, Majesty also seeks the additional financing costs associated with the Ginkgo mortgage that was necessitated by the Plaintiff’s failure to close on the transaction.

[110] Majesty takes the position that given the “hot market” at the time of the purchase of the Concession Road Property, it was reasonable for Majesty to assume it would have been in a position to rely on the funds from the sale of 15 Blackforest.

[111] Significantly, Majesty advised the Plaintiff by letter of August 15, 2017 – four months before closing – that Majesty would have to borrow to replace the net sale proceeds, at around 10.5% plus incur a lender’s fee of 3% of the amount borrowed: Exhibit 27.

[112] In the circumstances, Majesty argues that it was clearly foreseeable that the Plaintiff’s breach would cause the damages Majesty now claims related to the additional interest incurred from the Gingko loan.

[113] Majesty relies on the case of Bang v. Sebastian, 2018 ONSC 6226, aff’d 2019 ONCA 501. There, Bang sold a house in Mississauga to Sebastian in May 2017, to close in August 2017. Bang had contracted to buy a house in Oakville and planned to use the proceeds of sale of the Mississauga house to pay for it.

[114] Sebastian decided not to close her purchase from Bang, saying she had been unable to get financing due to the drop in the real estate market. Bang had to borrow in order to complete his purchase of the Oakville house. Bang put his Mississauga house back on the market but it took several months to find a new buyer. Sebastian submitted the financing costs for the Oakville house were not foreseeable.

[115] The Court held that financing costs were foreseeable as was the fact that in a falling market it would take several months to re-sell the Mississauga house.

[116] In Kasekas v. Tessler, [1989] O.J. No. 644, 4 R.P.R. (2d) 110 (ONCA), the Court of Appeal held that where a vendor had planned to use the sale proceeds of a given property to buy a second property, and the purchaser fails to close its purchase of that first property thereby causing the vendor to incur costs in respect of the second property, those costs are reasonably foreseeable and the purchaser is liable for them.

[117] Finally, in Azzarello v. Shawqi, 2019 ONCA 820, the seller had planned to use the proceeds of sale of one house to pay for a second house he had contracted to buy, and had a bridging loan. The purchaser of the first house became aware of that second house and bridging loan when the purchaser sought an extension of the closing date and the seller agreed, if the purchaser pays the interest on the seller’s bridging loan. The purchaser ultimately failed to close the purchase. The Court awarded the seller damages for the interest on bridging loan.

[118] The Plaintiff takes the position that any damages arising from this transaction fall squarely on Majesty and are too remote as they do not flow from the subject transaction with the Plaintiff: Saramia.

[119] The test for remoteness of contract damages was set out in the seminal decision of Hadley v. Baxendale (1854), 156 E.R. 145 (U.K. Ex. Ct.), at p. 151 per Alderson B.:

Now we think the proper rule in such a case as the present is this: Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. [Emphasis added.]

[120] There are two branches to the Hadley v. Baxendale remoteness test. Damages may be recovered if: (i) in the “usual course of things”, they arise fairly, reasonably, and naturally as a result of the breach of contract; or (ii) they were within the reasonable contemplation of the parties at the time of contract: Saramia.

[121] Remoteness applies to the type of loss suffered, not the quantity of a proximate loss: 1298417 Ontario Ltd. v. Lakeshore (Town), 2014 ONCA 802, 122 O.R. (3d) 401, at para. 137.

[122] The test under the first branch of remoteness is an objective one: KPM Industries Ltd. v. Elmford Construction Co. (1996), 30 C.L.R. (2d) 245, 1996 CarswellOnt 3594 (Gen. Div.), at para. 152, aff’d, 113 O.A.C. 369.

[123] In Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, [2006] 2 S.C.R. 3, at paras. 54-55, the court held:

It follows that there is only one rule by which compensatory damages for breach of contract should be assessed: the rule in Hadley v. Baxendale. The Hadley test unites all forms of contractual damages under a single principle […] In all cases, these results are based on what was in the reasonable contemplation of the parties at the time of contract formation. [Emphasis added.]

[124] As explained in Saramia, the requirement to assess the parties’ reasonable contemplation at the time of contract also accords with one of the objectives of the second branch of Hadley v. Baxendale, which is to allocate the risk of loss for types of damages that do not arise naturally from a breach of the contract to the party that bargained to bear it. See, for example, Transfield Shipping Inc. v. Mercator Shipping Inc., [2008] U.K.H.L. 48 per Lord Hoffmann.

[125] In Saramia, the claim arose out of the defendants’ repudiation of a commercial lease respecting a property owned by the plaintiff. Subsequent to the repudiation, the plaintiff had to sell the property as a consequence of no longer receiving the lease payments. The trial judge awarded damages for loss of rental profits as well as loss of capital appreciation on the property having been sold below market value. The trial judge’s decision was overturned and the loss of capital appreciation found to be too remote. In commenting on the issue, Nordheimer J.A. explained at paras. 47 and 48:

In the instant case, however, the trial judge appears to have first identified the unique circumstances of the breach, and the losses flowing therefrom, and then reasoned back to conclude that the parties would have contemplated that such losses were to be borne by the appellants. The trial judge did not, as she should have, begin her analysis with whether there was evidence that, at the time of contract, the loss of capital appreciation, in the face of a breach, would reasonably have been in the contemplation of the parties.

Indeed, apart from the appellants’ knowledge that Saramia wanted a long-term tenant, the remaining bases for the trial judge’s determination on this point were all events that arose after the Lease and the extension agreement were concluded. But it does not follow that knowledge that a landlord wants a long-term lease translates into knowledge that a landlord will be forced to sell the leased premises, much less sell at a loss, if the tenant repudiates the lease. There is simply no evidence that the parties, on or before November 15, 2011, reasonably contemplated who should bear the risk for lost capital appreciation. In my view, the claimed damages for lost capital appreciation on the Property were neither natural consequences of the breach of the Lease nor were they reasonably contemplated by the parties at the time of contract. As such, damages for lost capital appreciation are too remote in this case. [Emphasis added.]

[126] Having considered the relevant authorities, I agree with the Plaintiff that the borrowing costs sought in relation to 10th Concession Road are too remote.

[127] The losses for borrowing that are sought in relation to the Concession Road Property did not arise naturally as a result of the breach. The purchase of the Concession Road Property was also not a matter that was in the reasonable contemplation of the parties at the time that the contract was entered into. It was not what was known by the parties at the time of the breach: Saramia, at para. 43.

[128] Majesty points out that they informed the Plaintiff that the interest costs had been incurred and expected him to close in December. Majesty advised the Plaintiff by letter of August 15, 2017 – four months before closing – that Majesty would have to borrow to replace the net sale proceeds, at around 10.5% plus incur a lender’s fee of 3% of the amount borrowed: Exhibit 27.

[129] However, the relevant inquiry is not what the parties knew or contemplated the damages at the time of the breach. Rather, it is whether the parties reasonably contemplated that the type of damages claimed would be the probable result of a breach of the contract at the time of contract.

[130] In my view, the risk of the loss is also more properly assumed by Majesty, as a loss of this nature is not ordinarily contemplated when entering a purchase agreement and is not one that would naturally arise from the breach.

[131] As Abella J. (dissenting in part) said in RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc., 2008 SCC 54, [2008] 3 S.C.R. 79, at para. 64:

The principle of remoteness “imposes on damage awards reasonable limits which are required by fairness” […] It aims “to prevent unfair surprise to the defendant, to ensure a fair allocation of the risks of the transaction, and to avoid any overly chilling effects on useful activities by the threat of unlimited liability” […] This principle will be informed by the nature and culture of the business in question, and the particular contractual relationship between the parties… [Emphasis added.]

[132] In my view, the loss occasioned was not a result of the breach, but rather a conscious decision on the part of Majesty to continue pursuing the investment. They clearly could have sold the Concession Road Property if Majesty thought it was not a worthwhile investment in the face of the financing costs. These “investment” costs should not be borne by the Plaintiff in the circumstances.

[133] I would not grant Majesty the costs associated with financing the Concession Road Property.

The Improvements to the Property

[134] Majesty also seeks their costs associated with the improvements to the Property as part of its damages. As noted above, Majesty carried out the following improvements to the Property in an effort to resell it:

1. Flattened the land and installed new grass
2. New deck
3. Repainted the interior of the house
4. New counter tops were installed in the kitchen and the bathrooms vanities were changed
5. Changes were made to the lighting fixtures
6. Improvements were made to the fence

[135] The costs for these improvements totaled $41,798.54.

[136] The Plaintiff takes the position that the Property was sold as is to him for $1,960,000 in March of 2017. He maintains that the improvements were unnecessary and added no value to the Property. The Plaintiff argues that he should not be responsible for Majesty’s decision to spend money that was unnecessarily spent.

[137] In my view, the improvements/repairs were not adequately connected to the breach of contract to warrant damages against the Plaintiff. The deficiencies obviously existed prior to the original sale of the Property. If the improvements were required, this is a function of the Property itself, not the breach.

[138] I would not give effect to this aspect of Majesty’s claim for damages.

Third Party Action

[139] The Plaintiff submits that the Third-Party Defendants breached their representation agreement (breach of contract); fell below the standard of care of agents (negligence) and made negligent representations. As a result, the Plaintiff submits that the Third-Party Defendants owe damages to the Plaintiff with respect to the following:

i) Reimbursing the Plaintiff for any damages awarded to Majesty, if any, and any litigation or trial costs awarded to Majesty; ii) Returning his Deposit of $150,000 plus interest; iii) Paying all his litigation fees related to the Main Action and the Third-Party Action including litigation fees related to Majesty’s obtainment of a Mareva injunction against the Plaintiff’s residential property located at 68 McCallum Road, Richmond Hill, ON; and iv) Lost profits from the failed transaction including a severance into at least two lots.

1. Did the Agents fall below the Requisite Standard of Care?

Expert Evidence on the Standard of Care

[140] Brian Madigan (“Mr. Madigan”) testified for the Plaintiff.

[141] He has been registered since 2007 in Ontario. He was a lawyer for 25 years. He deals largely with investment real estate and development property. He mediates real estate disputes. He has been qualified as an expert in residential real estate and commercial real estate, including development properties. He is familiar with the Code of Ethics and standards in the area.

[142] Mr. Madigan testified that the standard of care requires that agents review carefully the purpose for which the buyer is acquiring a property. According to Mr. Madigan, it would be expected that an agent would also make the requisite inquiries into the circumstances of their client including their experience, risk tolerance, knowledge, timing, means, mortgage approvals/financing, and intended uses of the property.

[143] If a client is interested in development, an agent must consider whether a property is useful for their needs. They would be required to investigate and verify information about the property, namely, the presence of factors restricting development, namely, “greenbelt, conservation, lake, pond and park”.

[144] It would be expected that the requisite terms and conditions be included prior to making an offer on a property purchased for development. A “due diligence” clause is also a standard term as is a financing and inspection term.

[145] Mr. William Johnston (“Mr. Johnston”) testified for the Third-Party Defendants. He also has been in the real estate business for some time. He was the President of the Toronto Real Estate Board. He is familiar with the standard of care in residential real estate transactions.

[146] Mr. Johnston similarly acknowledged that if the Property was being purchased for development, then certain clauses pertaining relating to “due diligence” should have been included.

[147] However, in my view, as I noted above, it was clear the Plaintiff was purchasing 15 Blackforest to flip the Property. The market prior to April 2017 was very hot. Majesty made it clear that a “clean offer” was required to purchase the Property. In my view, this was the situation facing the Plaintiff in March of 2017.

[148] Mr. Madigan acknowledged that a sophisticated buyer in a “hot” market may waive conditions to ensure that he gets the property assuming he has done his research independently, and the property will meet his needs.

[149] I am satisfied that the circumstances were adequately explained by the agents to the Plaintiff. I am also satisfied that he was sufficiently experienced to understand what it meant to put in a “clean offer”.

[150] The evidence makes clear that the Plaintiff was looking to purchase multiple properties with a view to exploiting the increasing market prices (11 Strauss was one such property). I accept Jason Katz’s evidence that he explained to the Plaintiff the importance of having sufficient funds to close. I also accept that the Plaintiff is sufficiently sophisticated to know the risks with trying to exploit the increases in a hot real estate market.

[151] While I have no doubt that the Plaintiff had an interest in potentially severing the Property to enhance its value, I do not accept that he expected that to be a term of the APS. Indeed, the evidence does not support this conclusion at all.

[152] None of his correspondence with the agents suggests that he believed that severance was a term of the APS. Even when he went to see Mr. Bhatia, a lawyer, in June of 2017, there was no issue raised with the absence of a severance condition.

[153] He acknowledged that the agents made inquiries with the municipality regarding whether the Property was likely severable and determined that it was suitable potentially for a few larger homes on separate lots, but not for townhomes. He was aware of this fact very early on in the transaction.

[154] In my view, the Plaintiff only made actual efforts to obtain authorization after a decline in the market. In my view, the Plaintiff was hoping to enhance the value of the Property given the steep decline in the market, and to reduce his loss prior to closing on the transaction. The agents cannot be blamed for not predicting a drop in the market.

[155] Katz encouraged him to close as he was aware that the Plaintiff had already agreed to purchase 15 Blackforest. In my view, there is nothing wrong about the agents’ efforts to salvage the transaction knowing the losses that would flow for all involved (primarily the Plaintiff) from its abandonment.

[156] In any event, the inclusion of a due diligence condition, or a financing condition would not have made a difference in the circumstances here. According to the Plaintiff, financing was not a concern for him.

[157] With respect to severance, the initial inquiries were made in March/April. The Plaintiff was informed that townhomes were not possible, but several larger homes were a possibility. Nothing regarding the potential for severability gave the Plaintiff any concerns with 15 Blackforest at this point. Again, it is only when the Plaintiff realized that the value of the Property had fallen that he started having concerns or issues with closing the transaction.

[158] Clearly, Farzaneh was wrong to state that 15 Blackforest looked suitable for townhomes prior to making the requisite inquiries. However, in my view, nothing flowed from this misstatement. Given the “hot” real estate market, I find that the Plaintiff was intent on purchasing the Property at the outset regardless of its severability.

[159] Finally, no evidence has been tendered by the Plaintiff to demonstrate that the Property could not be severed either for townhomes or for smaller homes.

[160] Even if the Plaintiff had the intention to sever the Property, he could have moved up the closing date, and applied for severance himself after closing. The choice to breach the Agreement, and the substantial damages that flowed from it, cannot be attributed to the agents. In my view, they are solely attributable to the conduct of the Plaintiff.

[161] I see no problem with the actions of the agents in the circumstances. The third-party action is accordingly dismissed.

Disposition

[162] Of the main heads of damages sought by Majesty, the following are ordered:

a. the $610,000 difference in the sale price; b. $49,570 in carrying costs.

[163] The deposit of $150,000 is to be paid to Majesty and deducted from the amounts owing by the Plaintiff.

[164] The Plaintiff’s action against Majesty and the third-party action are dismissed.

[165] I will receive costs submissions from the Defendants and the Third-Party Defendants within 3 weeks of this decision, and the Plaintiff has 2 weeks thereafter to respond.

Justice C.F. de Sa Released: March 29, 2022