COURT FILE NO.: CV-17-00574671-0000

DATE: 20220222

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Margaret Mary Plewes

Plaintiff

– and –

Raana Chaudhry and Simran Chaudhry

Defendants

David Winer with Paul Casuccio (re the tax issues), for the Plaintiff

Matthew Morden, for the Defendants

HEARD: January 31 and February 1, 2022

Boucher J.

REASONS FOR DECISION

Introduction

[1] This trial involved a claim for breach of contract related to the interpretation of term 7 of the OREA standard form 100 agreement of purchase and sale, and its implications when circumstances changed post-closing. In this case, term 7 of the 2014 OREA standard form provided that if HST were payable on the transaction, that the HST was included in the purchase price. The purchasers paid the full price, HST inclusive, and the sale price was adjusted to reflect the price net of HST for the mixed-use property. The seller remitted the HST they allocated to the taxable portion of the property. CRA later reassessed the buyer for the applicable HST payable on the transaction, significantly increasing the HST payable, though the buyer obtained input tax credits for the assessment amount. The reassessment happened after the buyer became a HST registrant post-closing and sought input tax credits related to the purchase of the property.

[2] The vendor is the plaintiff, who started the action May 5, 2017, seeking that the defendant buyers pay her the remainder of the purchase price plus associated costs and interest, based on the vendor’s belief the buyer had misrepresented her HST registration status at closing which she believed then led her to not realize the full purchase price. The buyer then cross-claimed for the amount she claims to have lost through CRA’s re-assessment of HST on her. The buyer claimed that the purchase price should be adjusted to reflect the correct amount of HST as assessed by the CRA, because the HST should have been the vendor’s responsibility, not hers, according to the agreement.

[3] The vendor served a Notice of Discontinuance of her claim against the buyer, after being refunded by CRA for the HST remittance. The buyer continued with the crossclaim to trial. These are the reasons for decision from the trial of the crossclaim by the defendants, which trial was heard January 31 and February 1, 2022.

Factual background

The property

[4] Plewes and her husband owned a 14.7-acre property in Stouffville, Ontario. The property had a house, various barns, paddocks and pastures for horses and green space. Plewes’s husband was terminally ill and transferred the property to Plewes’s sole ownership. Plewes agreed to sell the property to Raana Chaudhry and her spouse, Simran Chaudhry, for the purchase price of $1.285 million.

[5] Plewes’s husband owned and operated an equestrian centre on the property. According to the municipal tax assessments, the property was situated on land partially within the Oak Ridges Moraine protected area, and for tax purposes, was designated as residential, commercial, agricultural, in differing proportions as set out in the assessments. I accept that a significant portion of the property was used by the equestrian centre and the horses that boarded there, contrary to Plewes’s solicitor’s characterization of the commercial use of the property being no more than 30%. I accept Raana Chaudhry’s evidence that her observations were that most of the land was used for the horse operation, because it was confirmed by Plewes’s own evidence on cross-examination at the discovery that the boarded horses used a significant proportion of the property, which was also consistent with those tax assessments. In any event, there was mixed use of the property for the three purposes listed in the municipal tax assessments, because there was also a residential portion of the property.

The sale – term 7 Agreement of Purchase and Sale

[6] The agreement of purchase and sale, signed February 4, 2015, provided in term 7 that if HST was payable for the transaction, HST was included in the purchase price. Neither party was an HST registrant for the Excise Tax Act. The responsibility fell to Plewes to collect and remit the HST on the transaction.

[7] Plewes came up with an allocation for the HST applicable part of the property and determined that $45,500 would be remitted to CRA as HST. The amount was arrived at based on descriptions of the use of the property from Plewes’s solicitor as approximately 30% of the property being used for commercial uses and the remainder for residential and personal uses, which representations were taken by PWC to come up with advice for allocations and amounts of tax. The Chaudhrys took no issue with the number presented, and accepted Plewes’s allocations without discussion, and the statement of adjustments on closing reflected a reduction in the sale price of the property that was net of HST and showed a separate line item for HST of $45,500, resulting in a net purchase price of $1,239,500. The transaction closed May 15, 2015. Plewes remitted the HST to CRA shortly afterwards and received a Notice of Assessment in July 2015 for $45,500 payable for the transaction which was noted as received with no balance owing.

Use of the property after the sale

[8] As a term of the APS, Plewes remained in residence in a lease-back situation until August 2015, to allow her to vacate the property and deal with the remaining equipment and inventory for the business. Plewes paid no rent in the initial period but paid one month of rent at the end because of the extension of the lease beyond the term specified in the APS, to permit her to carry on vacating the premises and selling off the associated equestrian property.

[9] Before the deal closed, Chaudhrys’ solicitor communicated to Plewes that the Chaudhrys intended to use the property for residential purposes. After Plewes vacated, the Chaudhrys did not move in. They rented the property to an equestrian related commercial tenant and a residential tenant. Raana Chaudhry collected rents and HST on the rents. She also had a rental arrangement with her father to store items at the property for several months following the closing. Raana Chaudhry collected cash for this arrangement, but the father never actually stored anything at the property.

Registration for HST

[10] At tax time, Raana Chaudhry’s accountant advised her to apply for HST registration status to enable her to remit the HST and that she should also apply for input credits related to the purchase of the property. On March 29, 2016, CRA confirmed Raana Chaudhry’s registration status. On April 20, 2016, Raana Chaudhry asked for the registration date to be retroactively effective to May 15, 2015, the closing date for the property, based on having collected HST at the property since May 15, 2015. CRA granted that request in August 2016. When Raana Chaudhry registered for HST, she also claimed input credits for the purchase of the property. Initially, she requested credits related to HST being payable for the whole purchase price. Raana Chaudhry acknowledged this first request for inputs was an error, and that she should have accounted for the residential portion in her request.

Reassessment of the HST payable

[11] After reviewing Raana Chaudhry’s request for input credits, CRA then informed Raana Chaudhry on November 23, 2016, there would be an examination of her HST return, and posed questions to Raana Chaudhry about her business activities and the commercial and residential uses of the property. Raana Chaudhry was given until December 23, 2016, to respond. Raana Chaudhry responded in a letter, pointing to the municipal tax assessment, which showed approximately 79% of the property as agricultural related and the remainder as residential, and submitted the statement of adjustments from the APS showing a portion of the price attributed to HST.

[12] Raana Chaudhry and her solicitor emailed Plewes’s solicitor, requesting Plewes’s HST registration number from her because they needed to identify for CRA who had initially remitted the HST for the transaction. Upon receiving the request, Plewes’s solicitor issued a demand letter to Raana Chaudhry for return of the HST money, even though term 7 specified that the purchase price included HST, because of their view regarding Raana Chaudhry’s attempt to obtain input credits for the HST paid.

[13] CRA wrote to Raana Chaudhry on June 1, 2017, proposing changes to her HST assessment that was an assessment of $130,466.88 payable in HST for the transaction, based on the municipal tax assessment for the property showing 34% commercial and 44% farmland, with the remainder residential, and inviting any further submissions before reassessing the return, with a deadline of July 4, 2017. Raana Chaudhry sent representations asking for the $45,500 instead as originally submitted based on the vendor’s calculations. On August 18, 2017, CRA wrote advising Raana Chaudhry that it had reviewed her representations, and that it had not modified the proposed adjustments, and that the HST payable for the taxable portion of the property was $130, 466.88.

[14] In its June 2017 correspondence, CRA also noted that Raana Chaudhry received input tax credits, or ITCs, in the amount of $130, 466.88. In the Notice of Reassessment dated August 31, 2017, CRA also granted Raana Chaudhry a refund of $45,500 in respect of HST paid to Plewes on the transaction. Raana Chaudhry says she was entitled to the refund because of the offset from her ITCs that were applied to the transaction and the HST assessed against her for it, as reflected in the Statement of Examination Adjustments - Final. Raana Chaudhry never paid any money in relation to the HST applicable for the transaction, because CRA credited her with ITCs equivalent to the assessment amount.

[15] CRA also issued a refund to Plewes on October 13, 2017 for the HST plus interest in relation to her earlier HST remittance on the transaction, for a total of $48,832.41, effectively wiping clean the HST remittances from the vendor Plewes, because the HST was instead assessed and CRA collected the remittances from Raana Chaudhry.

Issues

1. Are the Chaudhrys statute barred from claiming against Plewes?

2. What is the interpretation of article 7 of the parties’ APS?

3. What is the amount of HST for the transaction?

4. Is there a requirement to adjust for the reassessed HST amount?

5. What is the relevance of Raana Chaudhry’s retroactive registration as an HST registrant and obtention of input tax credits?

6. Damages?

7. Clean hands?

Analysis

1) Are the Chaudhrys statute barred from claiming against Plewes?

[16] Plewes argues that the Chaudhrys are statute barred from making a claim against her regarding the HST, by virtue of s.224.1 of the Excise Tax Act. Section 224.1 reserves for the Crown the right to bring proceedings for the collection of tax.

No action for collection of tax

224.1 No person, other than Her Majesty in right of Canada, may bring an action or proceeding

against any person for acting in compliance or intended compliance with this Part by collecting

an amount as or on account of tax.

[17] Section 224.1 provides immunity to Crown intermediaries that collect tax on behalf of the Crown. The Chaudhrys’ action is for breach of contract for not adjusting Raana Chaudhry’s purchase price as she says was required and is not an allegation that Plewes improperly collected or remitted tax. Moreover, Plewes is not alleged to be holding tax money in trust for the Crown at this point: the HST payable for the transaction on the property was accounted for through the assessment on Raana Chaudhry and refunds to Plewes and Raana Chaudhry for the amount initially collected and remitted by Plewes. There is no argument that Plewes improperly collected or retained tax. Section 224.1 has no application to this matter.

2) What is the interpretation of article 7 of the parties’ APS?

[18] The parties contracted in the APS regarding the issue of HST. Term #7 reads:

7. HST: If the sale of the property (Real Property as described above) is subject to Harmonized Sales Tax (HST), then such tax shall be “included in” the Purchase Price. If the sale of the property is not subject to HST, Seller agrees to certify on or before closing, that the sale of the property is not subject to HST. Any HST on chattels, if applicable, is not included in the Purchase Price.

[19] Term 7 was a standard term in the 2014 OREA standard form 100 APS used by the parties. Prior cases have interpreted the meaning of term 7 in accordance with the “grammatical and ordinary sense” of the words in the term. There are two possible outcomes when using this term: HST is either “included in” or “in addition to” the purchase price. Bumac Properties Incorporated, Plaintiff and 1221 Limeridge Inc., Defendant 2000 CarswellOnt 4819 (ONSC) at para.41. There is no ambiguity in the meaning of this term from a writing perspective, looking at the ordinary sense of the words in the context. It means that all the risk regarding HST is allocated to the vendor. Gillespie v. 1766998 Ontario 2014 ONSC 6952 at paras. 11-12.

[20] Moreover, there is nothing from the context of the transaction that would challenge the reliance on the plain meaning of the provision, as interpreted by case law. The context of this transaction was that the property sale was subject to HST. The parties are ad item that they each understood HST to be applicable to the sale because of commercial and/or farming activity on the property.

[21] The decision to have term 7 read “included in” was an express choice, a purposeful election by the vendor Plewes. The words were voluntarily added: Plewes herself typed the words “included in” into the document, with no evidence of duress or compulsion to have to do so. Rather, the evidence was that Plewes chose to have HST “included in”, rather than “in addition” to the purchase price, on the advice and direction of her husband, despite the advice of her lawyer, Mr. Summerville, that choosing “included in” would be unwise because she would assume the risk of HST. The choice was made irrespective of the risk of assuming the cost of HST. The motivation for having chosen “included in” appears to be expediency and certainty of the closing date, as her husband was terminally ill.

[22] The timing of the decision to include HST supports the interpretation that the risk belonged to the vendor. Plewes’s decision regarding HST was made prior to the offer being accepted by the buyers. By January 25, 2015, the purchasers were informed that HST would be included in the price. The APS and its schedules were dated February 3, 2015. The sale was set to close May 15, 2015. The risk was assumed even before knowing the amount of HST to be attributed. The parties understood this to be a good situation for the buyer and a risky one for the vendor. The buyer’s solicitor’s evidence was compelling and credible in this regard, having advised his clients that this was in their interest and avoided their exposure to a high tax payment. The seller’s solicitor’s correspondence clearly showed his appreciation of the risk to his client, with his efforts to try to lower the amount of tax payable.

[23] Any suggestion that the deal was somehow premised on a fixed amount of HST at a point in time is not credible. There was no correspondence or discussion proximate to the signing of the agreement about permanently fixing the vendor’s risk regarding HST to a named amount, nor ever any agreement or undertaking that would have limited the vendor’s risk regarding possible reassessments by CRA in future, nor any indication that this was just a provision that related to the remittance of HST, irrespective of its impact on price.

[24] Indeed, the decision on the amount to allocate to HST in the statement of adjustments happened well after the agreement was signed. Mr. Summerville’s affidavit, at para. 46, explains that it was “as the sale approached” that he started seeking guidance about the amount to allocate towards HST. A series of emails was sent in April 2015 where Mr. Summerville obtained advice from PWC. Those emails reflected no given conclusion at the outset as to the amount of HST payable. In his questions to PWC, Summerville narrowly characterized the property use in terms of a commercial equestrian business with barns and structures and did not refer to the potential issue that most of the property was designed agricultural and had been assessed for tax purposes this way, with a smaller proportion designated as a residential component; agricultural or farmlands having their own overall HST implications and exemption criteria different from the property description put forward by Mr. Summerville to PWC. Mr. Summerville then relied on PWC’s advice in concluding that the amount of HST to allocate and reflect in the statement of adjustments was $45,500. The purchasers, Raana and Simran Chaudhry, accepted that allocation for the statement of adjustments, at that point.

[25] However, Mr. Summerville’s conclusion regarding HST was never accepted by the parties as a final determination of the vendor’s absolute liability for HST in terms of the reflection in the purchase price of the property, in the sense that the conclusion would be immune from CRA approval or review or readjustment. There were no express limitations, agreements, or undertakings that this was the permanent and fixed amount of HST for which the vendor was responsible, with no readjustment possible. In fact, just the opposite is clear: the vendor was aware that CRA could assess them for a different amount of HST payable on the transaction. The APS provided a term to adjust for taxes and other charges. The parties signed undertakings to adjust for items including taxes.

[26] The outcome always was understood to mean a net reduction in funds retained by the vendor for the amount attributable to HST, because the vendor was assuming all the risk of HST in terms of how much the vendor would retain, with all the protection to the buyers in never having to pay more than the total purchase price of $1.285 million. This is patently the reason why Mr. Summerville tried to make the taxable liability as small as possible, so that the vendor would retain more of the funds; all his correspondence to PWC demonstrates his intention to reduce the overall tax payable, understanding that the risk was on the side of the vendor.

[27] The vendor’s knowledge of this inherent risk that the allocations to tax could change was demonstrated further in a letter sent by Mr. Summerville to the Realty Brokerage on May 19, 2015, five days after the transaction had closed. Mr. Summerville informed the brokerage that their real estate commission would not be paid until Plewes received her Notice of Assessment from CRA “confirming” acceptance of the vendor’s HST calculations at $45,500. CRA provided its initial assessment of the HST payable, based on the information provided by the vendor, on June 2, 2015, well after the transaction had closed. Mr. Summerville then waited four months to send the commission, noting in a September 11, 2015 letter that the enclosed commission payment was still at that point subject to readjustment and reassessment by the Canada Revenue Agency in the event that the net sale price set out [in the prior letter] is readjusted and/or reassessed by the CRA in future. This correspondence and series of events is further evidence that the vendor was aware of the ongoing risk that CRA could readjust the HST amount, that this would then impact the sale price for the house relative to the amount attributable to tax, and that this readjustment could occur after the payment of the commission based on the CRA’s first assessment.

[28] Given the plain wording of the contract and the undertakings, the evidence of express decision making on the issue of assuming the risk, the evidence of knowledge of assuming the risk, and evidence of the vendor’s understanding of the scope of the risk not being limited in that the amounts were always uncertain or never final, and the timing of CRA’s initial assessment after the closing of the transaction, I conclude that Plewes accepted all the risks associated with including the HST in the purchase price as term 7 of the APS required. Plewes understood it would be risky to her interests to agree for a HST inclusive price, and as it turned out, it was, because CRA did reassess the amount of HST payable for the transaction, with Plewes having taken no protections to limit the potential liability to adjust the value attributable to tax. Term 7 of the agreement means that the seller accepted all the risk of HST and was responsible for it.

3) What is the amount of HST for the transaction?

[29] The amount of HST payable for the transaction is the amount assessed by the Minister: s.299(3) Excise Tax Act. This fact was acknowledged by Mr. Summerville in his letter to the brokerage, as referenced above. This court does not have to make a determination of the correct amount of HST payable other than by reference to the CRA’s determination, because there is evidence of the CRA’s sequential determinations of the amount of HST payable, first in accordance with the vendor’s suggestion of $45,500, then refunding that amount to both parties, and reassessing on June 1, 2017 and re-assessing again on August 18, 2017 at $130,466.88 the 13% HST payable for the transaction, representing the taxable 78% portion of the purchase price according to CRA’s adjustment of the amount payable.

[30] There has not been a sufficient reason put forward for the court to choose the first assessment of $45,500 as the correct or final amount of the vendor’s responsibility for HST. The language of the agreement and undertaking does not suggest that the parties understood anything other than that the HST amount would be that as approved by the Minister, which at this point is $130,466.88. As noted above, the HST amount in the transaction as a fluid potential liability for the vendor was clearly understood from the vendor’s communications, and the undertakings signed at closing to adjust for such items. If the tax amount had been final as decided by the parties, there would have been no reference by the vendor to the CRA’s role in the endeavour; the parties would have instead specifically contracted for a set amount irrespective of a CRA determination, or the vendor would have off-loaded the risk to the buyer in making the HST “in addition” to whatever purchase price they set.

[31] While the parties were free to allocate amounts of the taxable versus non-taxable portions of the split-use property for the HST return, their allocation was not final for all purposes as against the Minister, which fact is apparent in the face of the subsequent assessment of the tax payable, and the refund to Plewes of the initial assessed amount of $45,500 plus interest. In refunding that money, CRA was effectively wiping clean that transaction and the HST deemed payable, reassessing it through the buyers’ perspective once it was registered, all of which happened according to the proper operation of the statutory provisions of the Excise Tax Act.

[32] The HST amount in the statement of adjustments was understood by the parties to be subject to reassessment by the CRA according to operation of the Excise Tax Act, and subject to their duties to adjust. This understanding was confirmed in the correspondence filed, where the vendor’s solicitor, following the initial assessment by CRA, that the $45,500 deductible from the purchase price was subject to change in future if CRA reassessed.

[33] While the court is not required to assess the correctness of the CRA’s assessment, the evidence presented at trial demonstrates an ample basis to conclude correctness. The HST assessed as payable by the CRA was in line with the portion of the property designated as agricultural or farmland by the municipality: the municipal tax assessments showed the property to be approximately 79% agricultural. By contrast, the initial amount allocated by the vendor as taxable reflected only a relatively small commercial portion of the overall property. The vendor’s solicitor’s evidence that only a small portion of the property was used by the equestrian business did not line up with either the municipal tax evidence nor Plewes’s discovery evidence about the boarded horses’ use of a large amount of the agricultural property, or with Chaudry’s observation evidence about the property’s use. There was no evidence that she qualified for an exemption from HST. As such, the agricultural portion of the property would have been subject to HST, in addition to the commercial component, as CRA had assessed.

[34] The HST payable as set out in the statement of adjustments was not an amount fixed in stone, as it remained subject to reassessment by the CRA according to operation of the Excise Tax Act, which was consistent with the language used in the context and the actions of the parties. As noted above, the vendor communicated that understanding in the letter to the brokerage following the initial assessment by CRA, that the $45,500 deductible from the purchase price was subject to change in future if CRA reassessed. While the parties were free to allocate amounts of the taxable versus non-taxable portions of the split-use property, their determination was not final for all purposes as against the Minister, which is plainly obvious in the face of the subsequent assessment of the tax payable, and the refund of the initial assessed amount of $45,500 to Plewes. In refunding that money, CRA was effectively wiping clean that transaction and the HST deemed payable, reassessing it through the buyers’ perspective once it was registered, all of which happened according to the proper operation of the statutory provisions of the Excise Tax Act.

[35] Moreover, even if the court had to assess the correctness of the CRA ruling, there is plenty of evidence to support a conclusion of correctness. The HST assessed as payable by the CRA was in line with the status of the property as agricultural or farmland, whereas the initial amount allocated by the vendor was not in line with that use. Agricultural or farmland is subject to HST; the municipal tax assessments showed the property to be approximately 79% agricultural, which was in line with CRA’s decision to assess the taxable portion of the property at 78%, based on that tax assessment. There was no evidence or insufficient evidence that the vendor met the exemptions for HST regarding farmland. The vendor’s counter evidence about the use of the property at no more than 30% for the “commercial aspect” based on the solicitor’s experience or knowledge as the mortgager and visitor did not line up with neither the maps, photographs or diagrams tendered in evidence, nor the agricultural designation of 79% of the land, nor the evidence read in from the discovery about the extent of running and grazing pasture for the horses encompassing most of the property. Further, the vendor evidence was inconsistent with the evidence that having land be designated as agricultural required active steps: the designation was in place by the municipality and so Plewes must have taken active steps to have agricultural designation for the land. As such, the agricultural portion of the property would have been subject to HST, in addition to the commercial component.

[36] The Minister’s most recent assessment of the HST payable at $130,466.88 is the relevant amount at issue in terms of any potential price adjustment.

4) Is there a requirement to adjust for the reassessed HST payable?

[37] Plewes suggests that she has no duty to adjust because there was no evidence that HST would be deducted from the price, or no agreement that there would be an adjustment of price for HST, relying on, for example, Governor's Hill Developments Ltd. v. Robert, 1993 CarswellOnt 618. However, according to my conclusions above, the vendor’s undertaking of May 7, 2015, provides the basis for finding such a duty, given that document plus the ample evidence of a meeting of the minds on this issue, as detailed throughout this decision, in terms of the assumption of risk by the vendor and expressions of knowledge of the ongoing nature of the risk, and the reflection of a price adjustment in the statement of adjustments.

[38] The vendor points to authority from cases such as King Road Paving, that there is no responsibility for the seller to adjust a price once the sale is concluded because by legislation, the buyer is ultimately responsible for the payment of HST: “where, through oversight or other error, the supplier omits or incorrectly states the HST on the contract the recipient of the goods or services remains responsible for the full amount of the tax. To conclude otherwise would make the tax collector personally liable for the payment of the tax with no right of recourse against the tax payor.” King Road Paving 2017 ONSC 557 at para. 78; see National Money Mart Company v. 24 Gold Group Ltd., 2018 ONCA 812. This proposition may be true in cases where there is no specific contract speaking to the inclusion of HST in pricing, but it would not be similarly true in cases where the parties have specifically allocated the risk of HST to the vendor by contract. In that regard, the case law clearly supports the enforceability of the seller’s obligation for that risk, see for example Gillespie v. 1766998 Ontario 2014 ONSC 6952 at paras. 11-12.

[39] Not every case where a vendor has some responsibility for HST payment would merit a price adjustment, or a discount to the buyer, for example, if the party were HST exempt, as in Global Learning Group Inc v. Eskasoni First Nation 2013 ONCA 325 or there was no HST payable in the circumstances on the court’s determination, as in Rive v. Newton 2001 CarswellOnt. 2854 (SC), or if the contract were silent with respect to HST as in King Road Paving v. Plati 2017 ONSC 227.

[40] I do not see this as upending the normal operation of the Excise Tax Act or providing enrichment routes for buyers against sellers who are required to remit HST. This case is not aimed at effecting the operation of the Excise Tax Act. Rather, what happened here is that the parties specifically contracted for the effective sale price of the property to be net of the HST payable, stated unambiguously with unambiguous associated undertakings, and the buyer would be entitled to an adjustment of the price to reflect the actual HST payable according to the CRA’s determination, as in my conclusions above regarding the interpretation of s.7 and the relevant amount of HST, but subject to my conclusions as to damages.

5) Damages?

Are the Chaudhrys entitled to damages for non-performance of the term of the agreement?

[41] The Chaudhrys seek damages to compensate Raana Chaudhry for the loss of a price adjustment from the seller on the transaction. In terms of the quantum, Raana Chaudhry says that it would be a monetary award of the amount assessed by CRA as the HST payable, or alternately as said in evidence, an approximate number of $85,000 was proposed as the amount of loss associated to the non-performance of the term of the contract, essentially the HST assessed minus the refund related to HST paid through Plewes.

[42] In a breach of contract case, the court may award damages that would, from a monetary perspective, place the aggrieved party in the same position as if the contract had been performed.

[43] In this case, Raana Chaudhry does not need a remedy from the court to put her in the same position had the term operated as agreed. Raana Chaudhry suffered no loss. Any damages suffered were completely mitigated by the receipt of input tax credits for the HST assessed as payable for the transaction. Raana Chaudhry never paid any money towards HST tax for the transaction. In terms of her total cash paid payment, she never paid more than the agreed purchase price total of $1.258 million, and any tax consequences had no evidentiarily established impact on her financial position. Raana Chaudhry’s assertion that she could have used the ITCs for other purposes was a bare assertion, with no details or specifics to enable the court to accept that claim as to whether there was indeed another purpose for use or that she in fact suffered loss, or if there were any associated time limits or other restrictions.

[44] Plewes also argues that Raana Chaudhry received an extra $45,000 windfall when CRA refunded her the same amount as it did for Plewes related to HST Plewes remitted. The court does not have enough information about Raana Chaudhry’s commercial operations to understand the full extent of Raana Chaudhry’s entitlements under the Excise Tax Act framework, although given the concordance between the refund amount to Raana Chaudhry being the same as the refund to Plewes presents as a curious choice that may well have enriched Raana Chaudhry beyond normal entitlements.

[45] Finally, I note that any negative consequences for Raana Chaudhry were directly a result of her initial over-ask of CRA for the whole value of the farm property. Had she merely requested input credits for the initial $45,500 remitted, it is likely that CRA would not have reassessed the amount payable. In any event, it does not appear that Raana Chaudhry suffered any actual loss or negative consequences in the circumstances that would entitle her to a remedy for breach of contract, and likely Raana Chaudhry indeed benefitted from the situation, including having obtained a $45,000 refund and over $130,000 in input credits.

[46] The court finds that Raana Chaudhry and Simran Chaudhry are not entitled to compensatory damages in these circumstances and the court makes no such award.

6) Cleans hands/retroactive registration/ ITCs

[47] Plewes had also argued that Raana Chaudhry’s actions in seeking retroactive HST registrant status presented a situation that should be viewed as one of “unclean hands”, which Plewes says disentitles Raana Chaudhry to relief. I do not view that doctrine as applying in the case, because the concept of “clean hands” figures into requests for equitable relief rather than legal relief. Here, the Chaudhrys sought damages for breach of contract related to expectation performance, and the damages were not characterized as restitutionary or disgorgement related as might possibly engage equitable relief doctrines.

[48] To the extent that equitable relief was being sought, there is insufficient evidence to show fraud on Raana Chaudhry’s part. Although the invoices said to be from the father appear to be questionable, given the date errors, lack of electronic documentation and no actual storage having occurred, the link between those invoices and the issue of the effective date of the registration was not clearly outlined in the evidence. While there may have been a link between those events, it was not established.

[49] I also note that I do not accept that Raana Chaudhry ever assured or guaranteed Plewes that she would not become a registrant, or that there were multiple conversations or requests to the buyers about this topic. There was no correspondence or other documentary evidence supporting that assertion, and if Plewes had wanted such a guarantee she could have contracted for it or otherwise limited her exposure on this issue since the contract term provided no such protection. The Chaudhrys disputed the suggestion of a guarantee, saying only that they only ever indicated not being registered, but never making any assurances about the future nor ever being asked about the future of Raana Chaudhry’s registration status, and that such statements would not have been likely from her because of the impossibility of knowing the future regarding HST status. The Chaudhrys’ solicitor, Mr. Skryzlo, said he would not have been able to bind his clients about their future registration status, which stands to reason given the context, as it would have impacted their future business prospects; he merely communicated that they had a residential intention. Moreover, term 9 of the APS specifies that there were no representations or warranties about future use of the property, further supporting the suggestion that there was no agreement about whether there would be HST relevant purposes for the property on transfer.

[50] There was no wrongdoing associated with the act of registration itself. Raana Chaudhry was legally entitled to seek to register, and the CRA was entitled to issue ITCs for the HST payable. According to the Excise Tax Act, Raana Chaudhry was entitled to register as a person collecting HST in a commercial context, and the Minister had the discretion to accept her as a registrant. Excise Tax Act s.299(3). The start date of registrant status was also up to the Minister. Excise Tax Act s.241. Under the Excise Tax Act, Raana Chaudhry was also entitled to receive input tax credits or ITCs in respect of the HST payable for the property transaction in question.

[51] Finally, even if wrongdoing were established, there was no deprivation or loss to any party such that the equitable doctrine would have been engaged.

[52] The clean hands doctrine does not apply to this case because it is not a claim for equitable relief, but if it did, there would be insufficient evidence to engage that theory.

Conclusion on trial of counter-claim

[53] While I conclude that Plewes assumed the risk of HST in the APS, and that there is a duty to adjust for changes to the assessment of HST by the CRA, no damages are awarded because Raana Chaudhry sustained no loss in the circumstances.

[54] If the parties are unable to agree on costs, they may file written submissions of no more than two pages plus cost outlines and any offers to settle in accordance with the following schedule:

(a) Submissions of Chaudhrys – ten days after the release of this decision;

(b) Submissions of Plewes – five days after Chaudhrys; and

(c) Submissions – Reply of Chaudhrys – five days after Plewes.

Boucher J.

Date: February 22, 2022