COURT FILE NO.: CV-15-64620
DATE: 2022/01/05
COURT OF ONTARIO,
SUPERIOR COURT OF JUSTICE
RE: Tega Homes (Attika) Inc., Plaintiff
AND:
Spencedale Properties Limited and Markton Properties Limited, Defendants
BEFORE: Regional Senior Justice Calum MacLeod
COUNSEL: David Cutler, for the Plaintiff
Thomas G. Conway & Kevin Caron, for the Defendants
HEARD: October 4 -7, 2021
DECISION AND REASONS
Introduction
[1] The plaintiff had an agreement with the defendants to acquire commercial property occupying most of a block on Parkdale Avenue in the Hintonburg area of Ottawa. The plan was to build a multi-storey residential condominium for which approvals had been obtained. On April 17, 2015, the defendant vendors refused to close the sale and the project subsequently collapsed. The plaintiff sues for damages.
[2] Earlier in this litigation, the issue of liability was determined by way of a summary judgment motion.[^1] As a consequence, the issues for trial were narrow. The sole questions to be determined by the trial judge are the quantification of damages and the extent to which there should be a set-off by way of counterclaim. The plaintiff seeks significant damages including gain-based damages in the form of disgorgement of profit. The defendants argue that the plaintiff’s damages are nominal and that the plaintiff’s lost investment is not causally related to the breach of contract.
[3] As I will explain, I disagree with this assessment, but I also find it unnecessary to award an extraordinary gain-based remedy. The plaintiff should be made whole and put in the position it would have been in had the contract been fulfilled. This will be achieved if the plaintiff receives compensation for the value of the land and reimbursement of the expenses incurred in pursuing the redevelopment of that land.
The Trial
[4] The trial took place by videoconference (Zoom) while documentary evidence was uploaded to a document sharing platform (CaseLines) but it was supported by a registrar and reporter in a physical court room. Documents marked as exhibits were transmitted to the registrar and placed in an electronic exhibit folder. All of the documents presented in evidence were scanned electronic copies of printed documents and there were no issues of authenticity.[^2]
[5] A preliminary issue was the extent to which determinations made in the context of the summary judgment motion were res judicata and therefore binding for purposes of the trial. Justice Gomery had dismissed the plaintiff’s separate claim for unjust enrichment and had determined that the defendants were liable to the plaintiff for breach of contract. In the process she had also heard evidence about the value of the properties. Justice Gomery also permitted the plaintiff to withdraw an admission and to amend the reply and defence to counterclaim.
[6] Generally speaking, in the absence of an order under Rule 20.04 or Rule 20.05 that declares specified facts to be undisputed, the extent to which findings of fact made at a summary judgment motion bind the parties is a matter of context. Where a motions judge denies summary judgment (on the basis that there is a genuine issue requiring a trial) it follows that the final determination of the issue and the fact-finding exercise is reserved to that ultimate adjudication. On the other hand, where summary judgment is granted, the findings of fact that are necessary to that decision are binding. It is not open to the parties to reargue the motion or to make a collateral attack on the findings.[^3] In the instant case, neither party disagreed with this fundamental proposition and as the evidence unfolded, it was not necessary for me to finely parse the reasons of the motions judge to make this determination.
[7] I heard evidence from Spyridon Dimitrakopoulos, owner and CEO of the Tega Group which owns and controls the plaintiff corporation. I also heard evidence from Douglas Edwards who occupies a similar position with the defendants. Apart from these two witnesses who were directly involved in the events at the heart of the litigation, no other fact witnesses were called. The only other witnesses were professional witnesses. Gina Gallant and Tony Capordelis are appraisers called by the plaintiff. Oliver Tighe was an appraiser called by the defendant.
[8] While there was no dispute concerning the experience and expertise of the professional witnesses, the defendant did object to the admissibility of one of the plaintiff’s experts. In the submission of counsel for the defendant, the plaintiff had not proven the basis for relevance and the evidence of Mr. Capordelis did not meet the necessity test in Mohan.[^4] The concern was the relevance of the current value of the property. I concluded that the present value is relevant to the issues I have to decide and I allowed the evidence. There was no objection to opinion evidence relating to the value of the land on the date when the sale was to have closed or the value in 2010 although there was debate about the accuracy of the values.
[9] As the trial unfolded, it became apparent that between the facts already determined at the summary judgment motion and admissions made at the trial itself, there were very few facts that are actually in dispute. During the trial Mr. Edwards was a very careful witness who appeared to be scrupulously honest in his answers. He did not shy away from answers that might harm his position. Mr. Dimitrakopoulos was more combative and did not always wait for questions to be asked before he tried to answer them. Still, he was quite frank when pinned down and I found his answers to be truthful. His narrative did not significantly diverge from that of Mr. Edwards. This is a case in which the essential facts are to be found in the documents and very little of what I have to decide hinges on credibility.
Background & Findings of Fact
[10] As mentioned above, the sequence of events is not in dispute. They are broadly outlined in the first paragraph of Justice Gomery’s decision, which reads as follows:
- This litigation arises from a failed real estate deal. In 2011, the plaintiff Tega Homes (Attika) Inc. ("Tega") entered into a joint venture with the defendants Spencedale Properties Limited ("Spencedale") and Markton Properties Limited ("Markton") to redevelop two properties in the Hintonburg neighbourhood in Ottawa. This agreement terminated before the necessary governmental approvals for the development were obtained. In 2013, Tega entered into a further agreement with the defendants, this time to purchase the Properties. On the eve of closing in April 2015, the defendants announced that they would not go through with the sale. Although the parties entered a further conditional agreement of purchase and sale later in 2015, it lapsed after Tega failed to get financing or waive the financing condition.
[11] A few more details are necessary, but the above summary accurately outlines the timeframe and the three separate contracts involving the parties to the litigation. It is the second of these contracts which was the Agreement of Purchase and Sale breached by the defendants and it is under that agreement that damages are to be calculated. I will refer to these contracts as the “Joint Venture Agreement “or “JVA”, the “Agreement of Purchase and Sale” or “APS” and as the “Second Agreement of Purchase and Sale” or the “Terminated APS”.
[12] The plaintiff is a special purpose corporation and is part of the Tega Homes group of companies controlled by Spyridon Dimitrakopoulos. Tega Homes is in the business of developing residential condominiums. I understand that most of Tega’s projects are low rise projects of three or four stories whereas the proposed development would have been a two-tower high-rise project. Tega Homes (Attika) Inc. was the corporate entity created for the purpose of that project. The directors of the corporation include Mr. Dimitrakopoulos and his business partner, a lawyer named Stephane Lalonde. Tega Holdings Inc. is another of the Tega entities. I will refer to the plaintiff corporation as “Attika” to avoid confusion. When I use the term “Tega” it refers either to Tega Holdings Inc. or the Tega Group.
[13] The defendants are two corporations controlled by Douglas Edwards. What is important about the corporations is their ownership of two buildings which take up most of the block bounded by Parkdale Avenue, Spencer Street, Hamilton Street North, and Armstrong Street. The building at the corner of Armstrong and Hamilton is known as 233 Armstrong and the building running the length of the block along Spencer Street. is known as 3 Hamilton Avenue North or as 340 Parkdale Avenue. I will refer to the former as “Armstrong” and the latter as “Hamilton”. At all relevant times, the Armstrong property was used for commercial tenancies and the Hamilton property was used for commercial tenancies and a mini-storage business.
[14] Both Mr. Edwards and Mr. Dimitrakopoulos are experienced and sophisticated businessmen. As established at the trial, both also had ready access to legal advice at any time they required it.
[15] By complete coincidence, Mr. Edwards also has a business partner with the surname Lalonde. In 2011, Mr. Edwards and Mr. Gerald Lalonde were attempting to develop the Armstrong building and to market it as a small condominium project. It was at that time in the sales office they had opened at 233 Armstrong that they met Mr. Dimitrakopoulos. During a conversation, Mr. Dimitrakopoulos learned that Mr. Edwards also had the property to the north and proposed a joint venture to develop both properties.
[16] The site was not without problems. For one thing there was soil contamination which was not an issue for its current use but would have to be remediated if the property was to be excavated to include underground parking. In addition, the property would have to be rezoned to permit a high-rise development. Negotiations with the City and site plan approval would be required. Typically, in such a project, the developer would have to obtain the approvals, market the project and obtain sufficient pre-sales to qualify for construction financing. Significant investment of time, capital and expertise would be required before the proposed condominium project could be realized.
[17] Tega incorporated the plaintiff corporation and the parties negotiated an agreement. The JVA was signed on May 13, 2011.[^5] Under the agreement, Attika would be jointly owned by Tega and Gerald Lalonde (as nominee of the defendant’s shareholders) and Attika would acquire the shares of the defendant corporations rather than buying the land directly.[^6] I need not detail all of the terms of the joint venture agreement, but essentially it involved Attika taking all of the necessary steps to have the lands rezoned, obtain site plan approval, obtain building permits and obtain financing. Another key term was for the existing encumbrances on the lands to be refinanced by a $2.5 million mortgage. That mortgage was ultimately to be paid off by Tega if the approvals were obtained and the condominium project proceeded.
[18] The structure of the JVA was for each of the parties to contribute $4.5 million in cash or in kind. Tega’s contribution would be in cash by paying the initial project expenses and the balance owing under the mortgage for a total of $4.5 million. The vendors would contribute their equity stake in the lands which was agreed to be worth $4.5 million. The latter was based on an agreed land value of $7 million less the $2.5 million mortgage. Upon closing, the vendor shareholders and Tega would be equal owners of Attika and share equally in the profits of the condominium project – if the development was able to proceed.
[19] There were two aspects of the JVA which Mr. Edwards found particularly attractive. Firstly, it was a sale of shares and not a sale of the land. Mr. Edwards believed that this was advantageous for he and his family from a tax perspective. Secondly, there were potential benefits for the vendors beyond the purchase price because they would share in the profits if the project was successful. In addition, as described above, Tega would be responsible for all of the up-front costs of approval and development with no risk to the defendants if Tega was unable to obtain approval within the defined timeframe.
[20] There was no risk to the vendors because they would continue to operate the existing commercial premises in the interim and would be under no obligation to repay Tega if the joint venture agreement expired without closing. The JVA provided that if the approvals were not obtained by the closing date (or an extended closing date) then the joint venture agreement was to end. Tega would then become the sole owner of Attika, but Attika would not acquire the shares of the landowning corporations.
[21] There was no provision for Tega to recoup its investment in the project. Until closing, the vendors would continue to carry the costs of the building and the land and be entitled to collect the rents, but Tega would incur all of the costs of designing the project, obtaining professional planning assistance and applying for municipal approvals. The termination clause read as follows:
3.6 In the event a building permit and construction financing are not available for closing or for the Extended Closing Date in the event closing is extended, Lalonde shall transfer his shares of Attika to Tega for $1.00, all drawings, studies, documentation and other material pertaining to the Project shall be delivered to Lalonde, each of the parties hereto shall release the other of them from all claims they have against the other of them with respect to the Project and the Project shall be at an end. In such event all agreements of purchase and sale or reservations for the purchase of units in the Project shall be terminated and all deposits refunded.
[22] By 2013, Tega had not been able to obtain the necessary approvals to obtain building permits and the conditions required for closing had not been met. Although the time had been extended, the JVA eventually expired. This was not the end of the project, however. Tega continued to work on approvals and to develop a marketing plan. It continued to pay rent for a sales office (although it had never been opened) and the parties continued to co-operate with a view to concluding a new agreement. It was generally anticipated that a new JVA would be negotiated.
[23] There was another wrinkle. At the time of the joint venture agreement, it had been discovered that Spencedale Properties Limited had been dissolved for failure to comply with government requirements for corporations. This meant that technically its lands would have escheated to the Crown in Right of Ontario unless the corporation could be revived. The joint venture agreement provided that steps would be taken to revive the corporation, but that had still not occurred when the joint venture agreement terminated.
[24] A new agreement was concluded in November of 2013. This agreement was significantly different. It was simply an agreement of purchase and sale whereby Attika (now owned 100 percent by Tega) was to acquire the land for $7 million. Spencedale had still not been revived so the agreement provided that Tega would undertake the necessary accounting work at its expense (to be credited against the purchase price).[^7]There were other benefits to the Edwards family. Specifically, they could continue to occupy an apartment in the Hamilton property until the building had to be demolished. But there would not be a joint venture and the defendants would not be joint owners of Attika. This agreement was a sale of the underlying lands and not a sale of the shares.
[25] According to Mr. Edwards, he was presented with the terms of the proposed APS rather than a new JVA and he was not happy with it. Ultimately, however, he accepted it. It would have resulted in the sale of the land for $7 million which would have put $4.5 million in the hands of the vendors after the mortgage was paid. But it was an asset sale and not a share sale and there was no provision for a share of future profits. In his words, he felt he had “been snookered” but he also felt he had no one to blame but himself and ultimately that he had no choice.
[26] The reason he had no choice was because the refinancing of the $2.5 million mortgage arranged at the beginning of the joint venture agreement was through family relations of Mr. Stephane Lalonde. That financing was subject to a condition that the mortgage be guaranteed by Mr. Dimitrakopoulos. The mortgage had come due. Mr. Dimitrakopoulos had indicated that he would not guarantee a new mortgage without a new agreement satisfactory to him and Mr. (Stephane) Lalonde had indicated that his family would not renew the mortgage without the guarantee. It may be surmised that since Spencedale had not been revived, and there were outstanding municipal taxes, Mr. Edwards may have been having cash flow issues. He had no practical ability to arrange alternative mortgage financing for an acceptable interest rate. Although Mr. Edwards originally stormed out of the meeting, he eventually decided to accept the agreement. Mr. Edwards signed the Agreement of Purchase and Sale but it “left a bad taste in his mouth”.
[27] There is a big difference between pressure and duress. Mr. Edwards was asked about this. He did not allege that the APS was unenforceable.[^8] His evidence was that while he found himself in a predicament and had little choice but to accept the agreement, it was a predicament of his own making. He testified that while he felt he “got snookered”, he knew that Mr. Dimitrakopoulos was within his legal rights and was entitled to insist on a new agreement. In his trial evidence, Mr. Edwards not only acknowledged that the APS was enforceable, he also acknowledged that it was not objectively unfair.
[28] The expired JVA had not contained any guarantee that the condominium project would be successful and under the JVA, after Tega had contributed $4.5 million, the parties would have had to contribute equally or would have had to borrow the funds necessary to complete the project. Under the APS there was no share of potential profits, but there was also no share of risk if the project failed. Attika would become the owner of the lands and the vendors would be relieved of the mortgage indebtedness, would receive most of the purchase money immediately and would have a small vendor take back mortgage for the rest. At the time Mr. Edwards believed that $7 million was a fair price.
[29] One of the features Mr. Edwards was upset about was the change from a share purchase to a real estate purchase. Whether it is accurate that a share purchase was better for the vendor than an asset purchase is not an issue I have to decide. Mr. Edwards believed it was and he also believed that it should make no difference to the purchaser. He made various attempts to get Mr. Dimitrakopoulos to restructure the agreement as a share purchase and according to Mr. Edwards he believed that would occur. It did not. The suggestion was finally put to rest in an email from Stephane Lalonde in which he advised Mr. Edwards that the purchaser would not agree to convert the land purchase into a share purchase.
[30] The closing date for the APS had been extended, but it was eventually scheduled to close in April of 2015. It is important to note that between 2011 and 2015, Attika or Tega had continued to work through the planning process during which the proposed condominium development had faced considerable opposition from a community group and from the City of Ottawa. The project had been reworked and revised and ultimately scaled back. On December 2, 2014, Attika was successful in an appeal to the Ontario Municipal Board which resulted in an order rescinding two by-laws and approving the rezoning of the lands to allow the project to proceed.[^9]
[31] On April 17, 2015, with the OMB decision in hand, and with Spencedale having been revived on March 14, 2014, the plaintiff was ready, willing and able to close. Mr. Edwards, however, decided not to close the deal. He instructed his real estate lawyer (the late Abe Feinstein) to advise the plaintiff’s lawyer (J. Brian Hebert) that the defendants would not close. While in the pleadings and at earlier stages in the litigation, the defendants had sought to justify this breach, Justice Gomery determined that this repudiation of the agreement by the defendants constituted breach of contract. There is no evidence of any legal basis for breaching the APS by refusing to close. This was not an innocent breach, but a calculated decision not to honour the agreement.
[32] Mr. Edwards was candid at the trial. He was motivated by the breakdown in the relationship after he was offered the APS in place of a new JVA. He was angry that Mr. Dimitrakopoulos would not agree to convert the APS back to a share purchase. He testified that he decided not to close at least two months before the extended closing date, but he did not disclose this intention to the plaintiff until the eve of the closing. In fact, his lawyers carried on as if they intended to close. Draft documents were exchanged and adjustments calculated as if the transaction was to close as planned.
[33] Mr. Edwards did not close the transaction because he thought that Tega would be pressured into offering him a better deal. He miscalculated. Firstly, the plaintiff commenced this litigation in which it originally sought specific performance. Secondly, the parties did sign a new Agreement of Purchase and Sale in September of 2015. But it was not a better deal. It was the original deal with a penalty - a credit to the buyer for legal costs and other expenses. It was also conditional on financing.
[34] Unfortunately, by September of 2015, although it had most of the necessary municipal approvals (having won the OMB appeal), Tega was not able to arrange satisfactory financing. The defendant was not willing to provide further extensions and as a consequence the new APS was terminated. The litigation then continued although the plaintiff had withdrawn its claim for specific performance and prepared a new pleading.
[35] The second APS was not intended to release the rights of the parties under the first APS or their rights in the litigation if the transaction became void. As found by Justice Gomery and in accordance with the provisions of the agreement itself, upon Tega’s inability to obtain financing or its unwillingness to waive the condition, the agreement was at an end. Had it closed, the litigation would have been resolved, but since it did not close, the litigation could continue. Mutual releases were to have been delivered in escrow, but they would be effective only if the transaction closed or if the buyer, having waived the condition, refused to close.
[36] The condition was not waived and the defendants refused to extend the condition. Consequently, the second APS was “null and void and at an end.” Due to the failure of the terminated APS, the defendants remain in breach of contract under the original APS and the plaintiff is entitled to damages.
[37] I do not accept the argument made by the defendants in their submissions that the failure to close the second APS was the cause of the plaintiff’s losses. The second APS was an attempt to mitigate those losses and an attempt to settle the outstanding litigation. The failure to close was due to the inability of the plaintiff to waive the financing condition and the refusal of the defendants to extend it.
[38] The second APS was not breached. It was terminated in accordance with its terms. The effect of the termination clause and the releases that were held in escrow is to treat the second APS as if it did not exist. The parties reverted to their precontractual positions under the original APS and the extant litigation. The plaintiff is entitled to damages.
[39] As indicated, however, there is a counterclaim for monies owed to the defendants by the plaintiff. This also requires some explanation. In the APS there was originally no deposit, but the plaintiff was entitled to extend the closing date on payment of a $300,000.00 deposit. The deposit was paid but the plaintiff then borrowed it back under a separate agreement. Mr. Edwards agreed to lend the deposit back to Tega on terms. It is acknowledged that there is money owing to the defendants.
[40] Under all of the agreements, the plaintiff was to pay rent to the defendants for a sales office. That rent was paid during most of the time in question although the sales office was never set up. It is acknowledged that up to the date of closing, any rent that was unpaid would have been owing.
[41] There was also a period of time in which Tega leased a sales office to promote a different condominium project. All of the rent relating to that project (The Rhombus Project) was paid. One interesting feature of that project is that Tega closed its sales office and sold the project to another developer, Brigil. This is just one of the myriads of possibilities that could intervene between the approval of a project and “shovels in the ground”. No evidence was led about what profit, if any, Tega derived from its sale of the Rhombus project. It has no direct relevance to the issues I have to decide as there is no rent owing for Rhombus.
[42] There was another completely separate rental agreement which forms the largest part of the counterclaim. Certain commercial space at the Armstrong property had been leased to SuzyQ Donuts. SuzyQ never went into occupation and it planned to surrender the lease. Mr. Edwards planned on renting out the vacant space, but Mr. Dimitrakopoulos did not want to have a tenant in the space when the plaintiff acquired the property. It was agreed that the plaintiff would take an assignment of the SuzyQ. lease. Attika took an assignment of the SuzyQ lease on January 27, 2015 and Markton (the landlord of that space) consented.
[43] Had the sale closed on April 17, 2015, the plaintiff would then have become both the tenant and the landlord of the demised space and the lease would either have merged or could have been terminated. But because the closing did not take place, the lease continues. The defendant argues that the assigned lease was a separate and distinct contract to which the defendant consented in consideration of not renting the premises at a higher rent to a new tenant. The question for trial is whether the defendant should be able to enforce the assigned lease against the plaintiff when the defendant breached the agreement of purchase and sale.
The Law of Contractual Damages
[44] The ordinary measure of damages for wilful breach of contract by a defendant is compensation for the loss incurred by the plaintiff due to that breach. That is an award of monetary damages “measured according to the position which the plaintiff would have occupied had the contract been performed.”[^10] This is sometimes referred to as expectation damages.
[45] In a sale of land when the vendor refuses to close, if the land is worth more than the purchase price, one measure of damages is the difference in value.[^11] In order to make the plaintiff whole however it may also be necessary to require compensation for expenses reasonably incurred in preparation for closing and for other foreseeable damages naturally flowing from the refusal of the vendor to perform the contract. In some instances, courts have allowed damages for loss of a collateral benefit, loss of profits or loss of a chance to earn a profit. [^12]
[46] The ordinary measure of damages can be elastic. For example, courts have allowed recovery of pre-contractual expenses in some instances[^13] and in other instances have calculated the damages by taking the value of the land at the date of trial. In Bank of America Canada v. Mutual Trust Co.[^14], the Supreme Court of Canada added compound interest to the judgment in order to ensure the plaintiff was fully compensated and to provide for the diminishing value of money in a rising market. This was done to ensure that the award of expectation damages was full compensation and to ensure the defendant was not benefitting at the plaintiff’s expense by having the use of the plaintiff’s money. In each case the objective is to make the innocent party whole.[^15] Whole but not enriched. The ordinary measure of damages is also subject to principles of reasonableness, mitigation, remoteness and foreseeability.[^16]
[47] In exceptional cases, the court may award restitution damages, which is a gain based remedy such as disgorgement of profits in which the court transfers some or all of the benefit obtained by the party who breaches the contract to the innocent party.[^17] Generally speaking, courts avoid restitution damages because the law permits what is often called “efficient breach of contract.”[^18]
[48] A breach in which the innocent party is made whole but the breaching party still gains an advantage is said to be “efficient” because the plaintiff effectively gets the benefit of the contract but the defendant (upon paying compensation) is free to make a better deal. In those circumstances, the law is not concerned if the defendant goes on to make a profit or a better bargain. In many cases such a result is a win-win or at least a situation in which nobody loses. The defendant’s gain is not in such circumstances at the expense of the plaintiff because the plaintiff has been fully compensated. [^19] The Supreme Court has stated that gain-based damages are only appropriate if the ordinary remedies of “damages, specific performance and injunction” are inadequate.[^20]
[49] Another way to look at this is that breach of a commercial contract is not treated as a question of morality or dishonesty. There is no general principle that breach of a contract is a wrong from which the party in breach should not be allowed to benefit.[^21] The wrong is in depriving the innocent contracting party of the benefit of the bargain. Providing the benefit is paid in the form of damages and in the absence of dishonesty, fraud, breach of fiduciary duty or other factors giving rise to more than an ordinary contractual obligation, full compensation is appropriate and there is no basis in law or equity to impose a gain based remedy. Expectation damages are the ordinary measure of damages where the interest in performance is purely economic because the law deems that full compensation for the loss triggered by breach of contract is both fair and sufficient. [^22]
[50] In the case at bar, although there was at one time a claim for specific performance, that claim was abandoned, and the claim was amended to seek only damages. The plaintiff’s claim must now be measured by the damages sought in the Fresh Statement of Claim dated June 11, 2015. In that pleading, the damages sought by the plaintiff are $2,323,000.00 which it says is the increase in value accruing to the defendants as the result of the development work done by the plaintiff. This is categorized as disgorgement of profits.
[51] Alternatively, the pleading asserts damages of $1,504,002.00 comprised of the difference between the purchase price ($7 million) and the actual value on the closing date ($7,323,000.00) plus reimbursement of the expenses incurred by the plaintiff in pursuing the redevelopment approval ($1,181,002.00).
[52] There is no claim for lost profit on the condominium project and the plaintiff did not lead evidence that would have been necessary to prove such damages had they been pleaded. Similarly, the plaintiff does not seek recovery of any lost opportunity cost and did not lead any evidence about other projects it might have pursued had it not been preoccupied with this project.
[53] In summary, the plaintiff seeks damages equivalent to the enhanced value of the land consequential to the development approvals obtained by the plaintiff. Alternatively, the plaintiff seeks to be made whole by payment of the difference between the sale price and the actual value on the date of closing plus full reimbursement of all of its out of pocket costs.
[54] As I will discuss, momentarily, I do not consider this a case for disgorgement of profits. For one thing, there has been no profit realized. The defendants continue to own the land and they have reverted to operating it as buildings with commercial tenancies. They have not proceeded with the condominium project and may never do so. Apart from the increased value of the land with development approval, it remains to be seen if the defendants will ultimately benefit from the work undertaken by the plaintiff. More importantly, in this case, a properly crafted damages award will make the plaintiff whole and there is no need to look at more exotic remedies.
[55] As a consequence I do not have to determine what weight to give to the plaintiff’s evidence that the property was only worth $6 million in 2010 and is currently worth over $10.6 million. I will just note that there is significant difficulty with the 2010 appraisal because it looked at the properties individually and did not consider them as a single development site. The valuation for Hamilton in isolation seems particularly low. In any event, the parties themselves agreed that the value of the land was $7 million when they signed the JVA and, as noted, they contemplated investing $9 million prior to moving forward with redevelopment. Mr. Capordelis’ opinion of current value is based on the assumption that the contamination has been remediated and the existing buildings demolished. Neither of these have occurred. It would be necessary to subtract the cost of remediation and demolition from his opinion.
[56] It is reasonable to believe that the property was worth $7 million as a potential redevelopment site when the JVA was signed, that it was worth $7.323 million on the day the defendants refused to close and that is currently worth more than $9 million. But as I indicated above, I do not consider it necessary to look to gain based damages because on the view I take of the matter, the plaintiff’s alternative position is more reasonable. If the plaintiff is allowed to recover its sunk costs plus the loss of the bargain, then it will be fully compensated. In this case I consider that to be a reasonable and fair outcome consistent with the notion of efficient breach of contract.
Analysis & Quantification of Damages
[57] One measure of damages is the difference between the purchase price and the actual value of the land on the date when the transaction was to close. The evidence before the court establishes that the actual value of the land on the date of closing was $7,323,000.00. In their submissions, both parties accept that if expectation damages are appropriate, this figure should be used. Therefore, at a minimum, the plaintiff is entitled to $323,000.00. I agree with the plaintiff that an award limited to this amount is insufficient to make the plaintiff whole.
[58] In my view, the plaintiff is also entitled to full recovery of its out of pocket expenses. The defendants characterize this as “reliance damages” and argue that such damages are not appropriate because there are no exceptional circumstances and a large portion of the expenses were incurred during the JVA period and not in reliance upon the APS.
[59] I disagree with this submission. In the first place it appears to me that there are exceptional circumstances. In the second place, I do not agree that damages are properly assessed by adopting arbitrary categories or airtight silos. In PreMD Inc., mentioned above, the Court of Appeal labelled the ordinary measure of damages in contract as “expectation damages” and in tort as “reliance damages” and went on to speak about compensation for expenses incurred in reliance on the contract as a means to put the injured party in the position it would have been in had it never entered into the contract. That is clearly a different approach than the ordinary premise of putting the injured party in the position it would have been had the contract been performed.
[60] It does not follow that expenses incurred by a plaintiff which are foreseeable damages flowing from the defendants wrongful refusal to close a sale of land can never form part of an expectation analysis. To the contrary, as discussed above in the section of these reasons dealing with the law of damages, it may very well be necessary to reimburse a plaintiff for costs incurred in order to make the plaintiff whole and to put the plaintiff in the position it should have been in had the contract been performed. I have already referred to paragraphs 77 & 78 of the PreMD case. The Court of Appeal does not rule out recovery of precontractual expenses if it would have been the reasonable expectation of the parties that those costs would be recouped during the performance of the contract.
[61] In this case, the defendants knew that the plaintiff was substantially out of pocket, the defendants benefitted from the continued expenditure of funds by the plaintiff and the defendants knew there was a reasonable probability the plaintiff would recover those expenses after closing. More importantly, the defendants knew that if they refused to sell the property, those expenses would become realized as losses. The failure to close would require the plaintiff to “eat those losses”. Only by awarding the plaintiff damages for loss of its bargain and refunding the out of pocket expenditures can the plaintiff be made whole. This will be fair because the defendant will still benefit from the increased value of the land.
[62] The defendants acknowledge that the plaintiff had incurred over $700,000 in expenses during the JVA and prior to the signing of the APS. It is accurate that after the expiry of the JVA and until the APS was signed, the plaintiff had no legal right to recover this expenditure and would have written it off. The plaintiff started spending money on the proposed redevelopment even before the JVA was signed, continued to spend pursuant to the JVA and then after the JVA terminated and prior to the signing of the new APS. In these circumstances, had the JVA terminated and not been renewed and had the parties never signed the APS, all of Tega’s sunk costs would have been spent with no way of recovering them. This was a risk Tega assumed when it incorporated Attika and signed the JVA.[^23]
[63] It is also factually accurate that funds the plaintiff had spent before the parties signed the APS in 2013 could not have been made in reliance on an agreement which did not yet exist (the APS). This, however, is a simplistic analysis. The funds already expended were known to the parties when they signed the APS. Indeed, it was the need to recoup the funds already spent and the need to keep on spending money in the face of development approvals that were more challenging than anticipated which appears to have been one of the reasons, Mr. Dimitrakopoulos decided to end the joint venture and insist on an outright purchase.
[64] There was a similar risk under the APS. Between the date on which the agreement was signed in November of 2013 and the date of the extended closing, the plaintiff continued with its development work with the knowledge and consent of the defendants. The plaintiff incurred further expenses of approximately $282,000 after the APS was signed and prior to the date set for closing. This included the OMB appeal. There was no provision in the APS for the plaintiff to receive a credit for this expenditure if the transaction closed and no provision for the plaintiff to recover these expenses if the plaintiff was the party in breach and was unwilling or unable to close. The only way for the plaintiff to recoup its expenses was to complete the purchase.
[65] It is also true that had the purchase closed, the plaintiff would not have received instant reimbursement for its development expenses at the time of the closing. To the contrary, the plaintiff would have been obligated to pay the purchase price of $7 million on top of the funds it had already spent. The ability to recover these expenditures would have been dependent upon either successfully developing the condominium project or selling the property to a third party at a significant profit.
[66] It does not follow that the plaintiff should not be able to recover these out of pocket expenses from the defendants. It is worth noting that under the JVA, although the parties agreed that the raw value of the land was $7 million, the agreement contemplated a global investment of $9 million. The defendants were to contribute their $4.5 million equity. The plaintiff or Tega would also contribute $4.5 million (by paying off the $2.5 million mortgage and contributing $2 million in development costs). Similarly, under the APS, it would have been evident to the defendants that the cost to Tega would approximate $9 million. On closing, Tega would have had to pay the purchase price of $7 million in addition to the funds it had already spent to obtain the development approvals.
[67] All of the sunk costs were isolated in Attika and Attika’s sole purpose was to acquire and develop the land. Had the transaction closed, the expenditures incurred by Attika since the beginning of the JVA would have been costs chargeable against the condominium project or a future sale of the land. When the vendor refused to close, those costs remained isolated and the plaintiff immediately lost the ability to recoup them out of the sale or development of the subject lands. The vendor, on the other hand, retained the benefit.
[68] At the time when he decided not to close the APS, Mr. Edwards knew the plaintiff had spent the funds to obtain the rezoning and other approvals. The plaintiff had also incurred expenses for the revival of Spencedale for which it was to be reimbursed.
[69] Mr. Edwards knew that the plaintiff was continuing to expend funds even after he decided he would not close. He knew that if the transaction closed, the plaintiff would expect to recoup the development funds out of the proceeds of eventual development or sale of the property. In the case of the Spencedale revival, the expenses were to have been a credit on the statement of adjustments. Mr. Edwards knew that if he refused to close, those expenses would be orphaned and would be immediate losses to the plaintiff. The plaintiff’s ability to recoup the expenses was never guaranteed. The proposed development might have failed for various reasons. But it was highly probable. The loss, however, triggered by failure to close, was not only foreseeable, it was an inevitable consequence.
[70] The evidence of Mr. Edwards that he decided well in advance of the closing date that he would refuse to close could support a finding of bad faith. There is a fine line between legitimate reliance on the principle of “efficient breach” and actively misleading a contracting party by continuously indicating a false intention to perform a contract.[^24] But in my view it is not necessary to rely on bad faith. The principle of efficient breach requires that the innocent party be fully compensated for the loss of the bargain. In this case the plaintiff lost the opportunity to recoup the expenses it had incurred including pursuing and successfully obtaining the redevelopment approvals. The defendants might not have known the precise amount of those expenditures, but they knew they were significant. There was a high probability that the plaintiff would have recouped its investment had it become the owner of the land and no probability of recovering them if it did not.
[71] In my view, the plaintiff is entitled to recovery of the approximately $1.2 million spent by the plaintiff up to the date of the intended closing. Given the current land value of $9 million, it is highly probably that Attika would have recovered those expenses from the sale or development of the subject lands had it become the owner. I recognize that the recovery would have been deferred and the plaintiff would have had to carry the property until it could be sold at a profit or would have had to expend further funds to pursue the condominium project. No evidence was directed to the amount of such expenditures but in order to take them into account, it seems reasonable to discount the expenditures by 10 percent.
[72] Awarding the plaintiff the increase in value at the time of closing, but also providing for significant recovery of the funds it invested to pursue the project honours the principle of “efficient breach”. The defendants still reap a benefit by retaining the land and its subsequent increase in value, but the plaintiff is fully compensated and put in the position it would or should have been had the transaction closed.
[73] Counsel advised me that they had been reviewing the expenditures incurred by the plaintiff at different periods of time and they provided an updated chart. One issue was the fact that not all of the expenses have actually been paid. There are professional fees that have been invoiced, are accounts payable but remain owing. I am of the view that all of these expenses should be included in the damages on the plaintiff’s undertaking to pay the outstanding accounts out of the award.
[74] I believe the proper calculation is 90 percent of $1,181,002 which equals $1,062,901 but if that differs from the amount recognized in the final version of the agreed upon chart, counsel may advise of the correct amount or I will hear further submissions if they disagree.
The counterclaim
[75] It is also necessary to deal with the counterclaim. As noted earlier, the plaintiff acknowledges it owes two debts to the defendants. The first of these is the interest on the $300,000 deposit which was loaned back to Tega. The second is any rent owing for the sales office to the date of the intended closing. I believe counsel have calculated these amounts and the total to be set off against the plaintiff’s damages is $65,000.00
[76] The largest portion of the counterclaim is the ongoing rent for the SuzyQ space. The defendants attempt to characterize the assignment of lease as a separate contract for which the consideration was declining to rent the space to another tenant. That is accurate, but there is also no doubt that the plaintiff only accepted the obligation to pay rent under the SuzyQ lease because of the pending purchase. The plaintiff did not want to be burdened with a new commercial tenancy and agreed to pay the rent for the few months until closing.
[77] It would be fundamentally unfair to allow the defendants to wilfully breach the agreement of purchase and sale and then insist on collecting rent from the plaintiff beyond the closing date. In consequence, the sub-lease should terminate on the date of the breach and there should be no obligation to pay rent thereafter. This is the most efficient method of getting to a fair result. It is apparent that when the defendant agreed to assign the lease, the plaintiff assumed the obligation would terminate on closing. Breach of the Agreement of Purchase and Sale justifies relief from the obligation to pay rent. I would grant an order terminating the sub-lease as of April 17, 2015 and apart from the rent owing prior to that date (which is an obligation admitted by the plaintiff) I would dismiss this aspect of the counterclaim.
[78] It might be argued that the court has no jurisdiction to terminate the sub-lease because that relief was not claimed and that as a matter of law, the sub-lease and the Agreement of Purchase and sale are separate contractual obligations. Ultimately, however, that leads to the same result.
[79] Imagine if the rent for the SuzyQ space was not owing to the defendants. Suppose, for example, that the plaintiff had taken a sub-lease. In that case the ongoing obligation to pay rent on the space would be added to the plaintiff’s damages. Every month for which the plaintiff owed rent on the empty unit after April 17, 2015 would be an obligation that would have been avoided had the vendor completed the sale. It makes no practical sense to give damages to the defendant for breach of the obligation to pay rent and then to add those lease payments to the plaintiff’s damages against the defendants. The obligations would offset each other. I recognize that technically only one of the defendant corporations is the landlord, but they are jointly liable to the plaintiff.
[80] In summary, the counterclaim is dismissed except for the admitted amounts and the rent owing on the SuzyQ space to the closing date.
Conclusion and Decision
[81] The plaintiff is entitled to damages of $323,000.00 which is the difference between the purchase price and the value of the land on April 17, 2015. The plaintiff is also entitled to reimbursement of 90 percent of the amounts spent by Attika or owed by Attika in pursuing the redevelopment of the land. The plaintiff submits that this amount is $1,181.002.00 which would generate a figure of $1,062,901 (at 90 percent) but if that amount does not accord with the updated chart then I will hear further submissions.
[82] Set off against the total will be the amount of the amounts owing under the counterclaim. This constitutes the interest on the $300,000.00 loan and amounts owing for the SuzyQ rent up to the date of the refusal to close. If counsel cannot agree on the amounts of the offset, I may be spoken to.
Costs
[83] The plaintiff is presumptively entitled to costs on a partial indemnity scale, but there may have been offers to settle or other factors which I am not aware of at this time. I encourage counsel to agree on the appropriate disposition of costs, but they may otherwise arrange a date to speak to costs.
[84] I wish to thank counsel and the parties for the efficient manner in which they organized the evidence and the materials so that the trial could proceed virtually.
Mr. Justice C. MacLeod
January 5, 2022
COURT FILE NO.: CV-15-64620
DATE: 2022/01/05
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: Tega Homes (Attika) Inc., Plaintiff
AND:
Spencedale Properties Limited and Markton Properties Limited, Defendants
BEFORE: Regional Senior Justice Calum MacLeod
COUNSEL: David Cutler, for the Plaintiff
Thomas G. Conway & Kevin Caron, for the Defendants
DECISION AND REASONS
Regional Senior Justice Calum MacLeod
Released: January 5, 2022
[^1]: See Tega Homes (Attika) Inc. v. Spencedale Properties Limited, 2018 ONSC 6048.
[^2]: A scanned copy of an original paper document or a scanned copy of a printed copy of an email chain is not an original document but is functionally equivalent to a photocopy. This is a useful and appropriate way to deal with routine documents whose authenticity is not disputed.
[^3]: See Ashak v. Ontario (FRO), 2013 ONCA 375 and Skunk v. Ketash, 2016 ONCA 841 and authorities cited therein.
[^4]: R. v. Mohan, 1994 CanLII 80 (SCC), [1994] 2 SCR 9, as more recently expanded upon in White Burgess Langille Inman v. Abbott and Haliburton Co., 2015 SCC 23, [2015] 2 SCR 182
[^5]: The JVN was marked as Exhibit 2
[^6]: For that reason, it was a multi-party agreement between Tega, Attika, the defendant corporations and the shareholders of the defendants which included Gerry Lalonde, a holding company and several members of the Edwards family.
[^7]: There were provisions for a discounted price if this could not be achieved but they became moot once Spencedale was put back into good standing.
[^8]: He could not have done so in this trial in any event because Justice Gomery had already made a finding that the agreement was valid, that it was breached and that damages were payable.
[^9]: Tega Homes (Attika) Inc. v. Ottawa (City), 2014CarswellOnt 3083 (O.M.B.)
[^10]: See Atlantic Lottery Corp. Inc. v. Babstock, 2021 SCC 19 @ para. 50
[^11]: See Di Castri, Victor, Law of Vendor and Purchaser, 3d Edition, updated to December 12, 2021, Thomson Reuters @ para.18.18 – normally the date fixed for completion but in some cases the date of trial or an intermediate date.
[^12]: See the extensive review of damages calculation in LaForest, Anne W. ed., Anger & Honsberger,Law of Real Property, Third Edition, updated to Nov 24, 2021@ § 23.30.30 pp. 23-49 to 23-63 in particular
[^13]: See PreMD Inc. v. Ogilvy Renault LLP, 2013 ONCA 412 @ paras. 77 & 78
[^14]: Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 SCR 601
[^15]: See Semelhago v. Paramadevan, 1996 CanLII 209 (SCC), [1996] 2 SCR 415; 136 DLR (4th) 1 in the context of damages in lieu of specific performance but see para. 17 emphasising the flexibility of the common law rule with respect to the date for the assessment of damages. See also Datta v. Eze, 2021 ONCA 340 @ para. 15
[^16]: PreMD Inc. @ para 92, Atlantic Lottery Corp.
[^17]: See Bank of America Canada v. Mutual Trust Co., supra @ para. 25
[^18]: Ibid, @ para. 56
[^19]: Ibid @ paras 30 & 31.
[^20]: Atlantic Lottery Corp Inc. v. Babstock, supra @ para.s 52 & 53
[^21]: See Bhasin v. Hyrnew, 2014 SCC 71, [2014] 3 SCJ 494 @ paras 65 – 70 and 86 - 87
[^22]: Atlantic Lottery Corp. @ para. 59
[^23]: One of the reasons, the plaintiff’s claim for unjust enrichment was dismissed by Justice Gomery.
[^24]: See C.M. Callow Inc. v. Zollinger, 2020 SCC 45, 452 DLR (4th) 44 (SCC) @ paras. 3 - 5