Yu et al. v. Falkovsky et al., 2022 ONSC 4058

COURT FILE NO.: CV-17-576579

DATE: 20220711

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Xinshui Yu and Yan Fan

Plaintiffs/Defendants by Counterclaim

– and –

Nikolai Vassiliev, Nina Vassiliev, Evgueni Vassiliev and Leo Falkovsky

Defendants/Plaintiffs by Counterclaim

Self-represented

Karp. E. for the Vassiliev Defendants

Boggs, R. for Leo Falkovsky

HEARD: November 8, 9,10,12,13 and December 8,9,10, 2021

P.T. SUGUNASIRI, j.:

Overview:

1On March 20, 2017 Mr. Yu, a real estate agent, and is wife, Ms. Fan, entered into an Agreement of Purchase and Sale (“APS”) to buy 36 Lissom Crescent in Toronto, from the Vassilievs, after registering a bully offer one day before the formal offer day. Prior to confirming their intention to make an offer, Yu and Fan allege that Yu spoke with Mr. Falkovski, the listing agent, who told him that there were two other offers “up to $1.9m”. Prior to formally registering the $1.91m offer, Falkovsky stated in a text that there was a “similar offer”. On March 20, 2017 the Vassilievs accepted the offer of $1.91m with a $90,000 deposit and a closing date of July 4, 2017. The list price was $1.688m.

2According to Yu and Fan, the problem arose when they found out on April 28, 2017 that 38 Lissom Crescent was sold for only $1.715m and that there were no other registered offers on 36 Lissom contrary to what they believe Falkovksy had advised. At around the same time the Ontario government announced proposed legislation that would tax foreign owners of Ontario real estate. Yu and Fan retained a lawyer and served the within Statement of Claim on June 7, 2017 (“Claim”) suing Falkovsky for fraudulent misrepresentation and holding the Vassilievs and Royal LePage liable for any such deceit. Yu and Fan seek to rescind the contract, recover their $90,000 deposit and receive $100,000 in punitive damages from Falkovsky and Royal LePage.

3The Vassilievs treated service of the Claim as a repudiation of the APS. Yu and Fan did not close the transaction. The Vassilievs ended up selling the property in September for $1.33m. They counterclaim for breach of contract and losses sustained because of the failed transaction.

4For the reasons that follow, I dismiss Yu and Fan’s action and allow the Vassilievs’ counterclaim. I award the Vassilievs damages in the amount of $514,841. I find that Yu and Fan breached the APS and owe damages to the Vassilievs less their $90,000 deposit. There is no legal basis to rescind the APS regardless of whatever Mr. Falkovsky might have represented. Further, there can be no claim for punitive damages where there is no claim for compensatory damages.

Analysis:

Yu and Fan are bound by what they ask for in their Statement of Claim

5This was an eight-day trial. Much of the focus was on the meaning, purpose, truth and impact of Falkovsky’s representation that there was a “similar offer”. There was also much time spent on the details of the execution of the APS to address Yu and Fan’s late breaking allegation that the APS was not valid because of various defects in its execution. Despite several days of evidence from seven witnesses, the trial decision turns largely on the legal viability of Yu and Fan’s Statement of Claim.

6What Yu and Fan ask for in the Claim is critical. The Claim, and their Reply and Defence to Counterclaim, was drafted by a lawyer. As noted by the Court of Appeal in Mihaylov v 1165996 Ontario Inc.: “it is fundamental to the litigation process that lawsuits be decided within the boundaries of the pleadings.”¹ I break down the remedies as among the defendants:

a. As against Mr. Falkovksy, Yu and Fan seek punitive damages and the return of the deposit. As against the Vassilievs (vendors of 36 Lissom);

b. As against the Vassilievs, they seek a declaration that the Vassilievs are “liable for the misdeeds and fraud” perpetrated by Falkovksy and clarify in the Reply that this is by virtue of their vicarious liability; and

c. As against Royal LePage, Yu and Fan claim a return of the deposit and punitive damages of $100,000 jointly with Falkovsky as his employer. This means that Yu and Fan first must prove that they have a case against Falkovsky in order to rescind the APS and have Royal LePage pay money for punitive damages.

Fan has no claim against Falkovksy

7Yu and Fan are separate plaintiffs. This means that they each must prove a claim against each of the defendants. It is clear from the evidence, including that of Fan, that Falkovsky made NO representations whatsoever to her. I find that Fan relied entirely on Yu both as her husband and as an agent. She agreed that she relied on him because he was a professional. Ms. Fan’s action against all defendants rises or falls on the allegation that Falkovsky fraudulently mislead her. I dismiss her action because Falkovski made no representations to Fan whatsoever.

8Even if I am incorrect in my analysis above, Fan’s claim fails for the same reasons that Yu’s claim must fail. I explain below.

No viable cause of action against the Vassilievs

9Yu urges that the Vassilievs are liable for Falkovski’s deceit warranting recission of the APS and a return of the deposit. I need not decide whether there was any such deceit. Assuming Yu can prove fraudulent misrepresentation, the principle of vicarious does not apply to hold the Vassilievs responsible for any misdeeds of Falkovski (to be clear, I am not concluding that Falkovski misled Yu).

10The term “vicarious liability” refers to a circumstance when one person is held responsible for the misconduct of another because of their relationship. Vicarious liability is imposed in situations where one person has control or is presumed to have control over the deeds of another. The most common relationship that gives rise to vicarious liability is an employee and employer relationship. In this case, if the Vassilievs had control over what Falkovksy told Yu, they could be vicariously liable for his actions.² Even after adept cross-examination by Fan, the evidence was clear from both Falkovsky and Mr. Vassiliev that they had not discussed the Yu/Fan offer at the time Falkovksy was discussing it with Yu, or before Yu/Fan registered their offer. While Fan and Yu offered case law and information from legal texts about other aspects of their case, I was not provided with any case law in which a vendor/listing agent relationship gave rise to vicarious liability for the misdeeds of the listing agent. It may be possible, if perhaps the vendors had instructed the listing agent to make certain representations to a potential buyer that they knew were false or misleading. In this case however, there is simply no evidence that the Vassilievs had any prior knowledge of these conversations or had any influence over Falkovsky’s representations. It would be unjust to impose vicarious liability on the Vassilievs in these circumstances.

11If the Vassilievs are not vicariously liable for any misrepresentation by Falkovksy, they are protected by the entire agreement clause found in section 26 of the APS to hold Yu and Fan to the terms of the APS, including closing the transaction on July 4, 2017. That clause limits the APS to the clauses within the document and nothing else.³ Yu prepared the APS and as a real estate agent. On cross-examination he agreed that he understood the entire agreement clause and explained it to Fan.

12For these reasons, I dismiss Yu and Fan’s Claim against the Vassilievs. The Vassilievs cross-claimed against Falkovsky at paragraphs 49-53 of their defence. I dismiss the crossclaim as well. This takes me to my conclusion that Yu and Fan also have no viable claim against Falkovksy.

No viable cause of action against Falkovsky

13Yu and Fan allege fraudulent misrepresentation against Falkovksi. Yu made some submissions about negligent misrepresentation but the allegations in the Claim do not support negligence, even if not specifically requested in the Claim. There is no allegation for example that Falkovsky owed a duty of care to Yu and Fan and fell below it. Rather the Claim talks about fraud and deceit throughout.

14For a successful claim of fraudulent misrepresentation, Yu and Fan must prove the following five elements:

i. Mr. Falkovsky made a false representation of fact;

ii. He knew the statement was false or was reckless as to its truth;

iii. He made the representation with the intention that it would be acted upon by Yu and Fan;

iv. Yu and Fan relied upon the statement; and

v. Yu and Fan suffered damage as a result.⁴

15Part v requires Yu to provide evidence that he suffered damages from Falkovsky’s alleged misrepresentation. Again, I need not decide whether any such misrepresentation occurred. As submitted by Mr. Karp, there is no evidence of the loss suffered because of the misrepresentation. The totality of the evidence is that Fan and Yu would have only paid $1.5m had Yu not spoken to Falkovksi. Yu also testified that 38 Lissom Crescent sold for $1.715m. However, there is no evidence of what the market value of 36 Lissom was at the time they signed APS. Merely saying that they would pay less is not enough. Loss is a constituent element of fraudulent misrepresentation.

16To complicate matters, inherent to a bully offer is the risk of over-paying. On offer day, the Vassilievs might have received a higher price from a bidding war, or a lower price. There was no evidence about the market forces at the time that might have influenced price (beyond Falkovksy’s evidence that it was a drought sellers’ market) and the likely value of 36 Lissom as of March 20, 2017 based on those market forces. This is often established by an expert. I am not suggesting that Yu was required to obtain an expert. My conclusion is that Yu has not tendered any meaningful evidence of loss. The little that he did did not prove loss “on a balance of probabilities”. This means that he has not persuaded me that it is more likely than not that he suffered a loss because of the alleged misrepresentation.

17I would add that Yu has not in any event sought damages arising from the misrepresentation in his Claim. Again, this Claim was drafted by a lawyer who is familiar with these principals. Even giving the widest latitude to the Claim, there is no request for what is referred to as compensatory damages; that is, money to compensate Yu for the misrepresentation. All that Yu claims for Falkovsky’s alleged deceit is punitive damages. Punitive damages are intended to punish a defendant for high-handed, reprehensible and oppressive behaviour.⁵ In the context of the tort of fraudulent misrepresentation, I am unaware of any basis to award punitive damages where no award of compensatory damages is requested or warranted.

18For these reasons, I dismiss the action as against Falkovksy. I now turn to Royal LePage.

Royal LePage has no liability independent of Falkovsky

19Royal LePage is the brokerage associated with Falkovsky. Yu claims against Royal LePage as Falkovksy’s employer – a more common relationship that can give rise to vicarious liability. However, the claim against Royal LePage rises and falls with the claim against Falkovksy. Having concluded that there is no viable claim against Falkovksy, there is also no viable claim against Royal LePage. I dismiss the action as against Royal LePage.

Other reasons for recission not supported the Statement of Claim

20The parties spent a great deal of time eliciting evidence on the formation of the APS. Yu and Fan suggest that their signatures were not appropriately witnessed, and that Yu signed for Fan without her authority. There is nothing in the Claim that supports the new theory that the APS is invalid because if problems with its execution. It is too late for Yu and Fan to raise these issues at trial.

Yu and Fan owe damages to the Vassilievs for breach of the APS

21What remains is the Vassilievs’ counterclaim against Yu and Fan for damages arising from Yu and Fan’s breach of contract for failing to close. Yu and Fan have no real defence to the counterclaim beyond their allegations that it is Falkovski’s fraud that caused any damages. Having dismissed the claim against Falkovski, Yu and Fan have no defence to the allegation that they repudiated the contract by not closing and are liable for damages.

22It is undisputed that the Vassilievs re-listed 36 Lissom on July 11, 2017 for just under $1.7m due to a decline in the market. After two months and only a few showings, they lowered the price to $1.65m based on comparable properties in the area and through the advice of a marketing company. At the beginning of September of 2017, they had another open house and again lowered the list price to $1.4m. At the beginning of September, the Vassilievs received an offer for $1.36m. They counter-offered at $1.4m but the buyer rejected the counter offer and ceased negotiations. The Vassilievs received another offer at $1.3m and counter-offered at $1.35m. The seller ultimately agreed to purchase 36 Lissom at $1.33m and entered into a new agreement of purchase and sale for 36 Lissom dated September 27, 2017 with a closing on December 18, 2017. An appraisal of 36 Lissom as of October 4, 2017 was $1.4m. I accept this uncontroverted evidence from Mr. Vassiliev.

23Prior to the failed transaction with Fan and Yu, the Vassilievs had purchased their new home at 117 Turner Drive on January 7, 2017 with a closing date of October 18, 2017. They bought the home pre-construction, for $917,000. At the time of purchase, the 36 Lissom mortgage was approximately $950,000. The new property required a deposit of a few thousand and then installments totalling approximately $100,000. The Vassilievs would have received net proceeds of sale of approximately of $965,000 if Yu and Fan had not breached the APS. The Vassilievs planned to use this anticipated equity to purchase 117 Turner Drive without a mortgage. On December 7, 2017 the Vassilievs moved into Turner Drive. They required a mortgage of $590,183.81 to close the Turner Drive transaction. I accept this uncontroverted evidence from Mr. Vassiliev.

24The quantum of damages should be the amount required to put the plaintiffs in the position they would have been in had the contract been completed. In a case of this nature, that would normally be the difference between the contracted price and the market price at the date the repudiation of the contract is accepted, plus any consequential damages. The ultimate sale price of the property is not determinative but is often the best evidence of the market price.⁶ In a falling market, the court should award the vendor damages equal to the difference between the contract price and the highest price the vendor can obtain within a reasonable time after the failed closing date.⁷

25In this case, the Vassilievs re-listed within one month of repudiation. There was no real challenge that the list price was appropriate and comparable to similar properties in the area. There was also no real dispute about the government’s implementation of a tax on foreign ownership of real estate in the summer of 2017. Falkovsky testified that in his experience as an agent, this had the effect of cooling the market between June and September of 2017. I accept his evidence on this point. I also accept that the Vassilievs re-listed 36 Lissom at the appropriate list price and ultimately accepted the best offer they were able to receive having attempted to counter-offer to obtain the appraised value of $1.4m. The difference between the APS price and the ultimate sale price is $585,000. Yu and Fan are liable for this amount.

26In addition to this amount, the Vassilievs claim $2090 for property tax (from July 4 to December 7, 2017), $641 for hydro, $613.10 for Enbridge and $735 for utilities. I was only provided partial supporting documents for hydro, Enbridge and utilities and it is unclear how the Vassilievs arrived at the number for the property taxes they had to cover. The final bill found at exhibit 23 does not assist. I agree with Fan and Yu that these expenses are not properly supported and are not recoverable. The same applies for the Vassilievs’ claim for the cost of moving the closing date of 36 Lissom from December 18 to December 7, 2017. There is a number noted in the Vassilievs’ damages chart and Mr. Vassiliev explained that it was the amount needed to pay the bridge loan to hold both properties between the 117 Taylor closing date in October and the Lissom closing date in December of 2017. However, it is unclear how the Vassilievs arrived at the figure of $8496 that they now seek. I do not allow recovery of that expense.

27Finally, the Vassilievs’ damages calculation includes additional mortgage payments between July and December of 2017 in the amount of $19,841. I am satisfied that they have proven this head of damage by providing the Scotia mortgage transactions statements for July to December of 2017. In total, I award the Vassilievs $604,841 in damages arising from Fan and Yu’s breach.

The Vassilievs have not established entitlement to recovery of additional mortgage interest payments

28The more controversial head of damage is the carrying cost of the mortgage on 117 Turner. As Mr. Vassiliev testified, the family purchased 117 Turner before entering into the APS with Fan and Yu on March 20, 2017. The price they accepted from Fan and Yu ensured that the Vassilievs would not have a mortgage on 117 Turner because of the equity in the 36 Lissom property. The Vassilievs argue that as a result of Yu and Fan’s breach, they were compelled to obtain a mortgage to close the purchase of 117 Turner in the amount of $590,183.81. They seek to recover interest payments on that mortgage up to November of 2021 in the amount of $56,369. They argue that but for Yu and Fan’s breach, they would not have incurred these charges.

29I am not prepared to award the Vassilievs this amount. They chose to purchase a property prior to listing 36 Lissom. To be mortgage free, they would have had to sell Lissom for at least $1.9m. If Fan and Yu had not made their offer, the Vassilievs might have had to obtain a mortgage in any event. Someone might have offered list price of $1.688m on offer day or something less. If that were the case, the Vassilievs would have required a mortgage to close Turner. In the absence of an expert, or anyone, to guide the court on such variables and on causation, the Vassilievs have not persuaded me on a balance of probabilities that but for Yu and Fan’s breach, they would have not had these mortgage costs. Falkovsky’s evidence that the market was “hot” and a listing of a few of the comparables in the area is insufficient for the Vassilievs to meet their burden of proof. It is conceivable that the Vassilievs might have had a smaller mortgage than the one they have now. However, without any evidence to guide the court in this calculation including possible interest rates for other amounts, a damages award would be nothing more than a guess. It was incumbent on the Vassilievs to prove causation and to provide evidence to anchor the calculation of this head of damage. They have not done so.

The Vassilievs are not entitled to retain the deposit of $90,000

30The parties agree that where a party to a failed real estate transaction seeks damages, they are not entitled to also retain the deposit. In this case however, the Vassilievs wish to retain the deposit to compensate Nina Vassilieva. Mr. Vassiliev testified that as a result of incurring the Turner mortgage, Nina was not able to retire and had to work an additional five years. I am not satisfied that Mrs. Vassiliev has proved that head of damage on a balance of probabilities. She did not testify, nor did Mr. Vassiliev provide details of the family’s full finances that would support such a claim. As such, the $90,000 deposit shall be deducted from the damages award.

31In sum, I allow the Vassilievs’ counterclaim and award them the sum of $604,841 less $90,000, for a total of $514,841.

Costs:

32The parties made some costs submissions at the end of the hearing. The Vassilievs and Falkovsky are entitled to costs. Scale and quantum remain and issue. I have reviewed the Bills of Costs uploaded to caselines. I direct Mr. Karp or Mr. Boggs to upload dockets in support of their respective Bills as required under the Rules. They may also each make further costs submissions in writing of no more than three-pages, double-spaced. They shall serve the submissions and dockets on Ms. Fan and Mr. Yu. Mr. Yu and Ms. Fan may respond in writing with submissions of no more than 3 pages each, double-spaced within 14 days of receiving the submissions and dockets from Mr. Karp and Mr. Boggs. All submissions can be served by email, filed through the portal, and uploaded to caselines with an email to my assistant Jessica.Perri@ontario.ca to notify me that they have been uploaded.

Footnotes

1. 1Mihaylov v 1165996 Ontario Inc., 2017 ONCA 116 at para. 123.
2. 2671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001] S.C.J. No. 61 at paras. 25-36.
3. 3I refer to a recent case of Pinto, J. in Grandfield Homes (Kenton) Ltd. v. Li, 2021 ONSC 2670 at para. 36-42 for a recent interpretation of an entire agreement clause found in most agreements of purchase and sale.
4. 4Mariani v. Lemstra (2004), 2004 CanLII 50592 (ON CA), 246 D.L.R. (4th) 489 (Ont. C.A.), at para. 12; Chaba v. Khan, 2020 ONCA 6403, at para. 15, leave to appeal to S.C.C. requested, 2021 CanLII 24825.
5. 5Hill v. Church of Scientology of Toronto, 1995 CanLII 59 (SCC), [1995] 2 S.C.R. 1130 at para. 196.
6. 6Gundy v Ghuman, 2021 ONSC 6036 at para. 40.
7. 7642947 Ontario Ltd. v. Fleischer, 2001 CanLII 8623 at para. 4 (OCA).