COURT FILE NO.: CV-23-00000023-0000 DATE: 2023-07-17

SUPERIOR COURT OF JUSTICE – ONTARIO 10 Louisa Street, Orangeville ON L9W 3P9

RE: 2531812 Ontario Inc., Applicant

AND: 319175 Ontario Limited, Respondent

BEFORE: Justice M. Kurz

COUNSEL: Michael Simaan, for the Applicant – msimaan@kramersimaan.com Danielle Muise, for the Respondent – dmuise@airdberlis.com

HEARD: June 5, 2023, in person

ENDORSEMENT

Introduction

[1] The Applicant, 2531812 Ontario Inc. (the “Purchaser”), applies for the return of its $200,000 deposit (the “Deposit”), paid to 319175 Ontario Limited (the “Vendor”) for the purchase of the assets of a Volkswagen dealership in Orangeville, Ontario.

[2] The Purchaser argues that it terminated the Asset Purchase Agreement between the parties (the “APA”), which included the deposit, because it was unable to fulfill two conditions necessary to complete the terms of the APA. Those conditions were the approval of the Ontario Motor Vehicle Industry Council (“OMVIC”) and Volkswagen Group Canada (“VW Canada”) to the transaction contemplated by the APA (the Transaction”).

[3] The Purchaser never received the approval of OMVIC. VW Canada originally granted but later withdrew its conditional approval of the Transaction. Because of the failure to obtain those consents, the Purchaser claims that it is entitled to the return of the deposit under the terms of the APA.

[4] The Vendor refuses to return the Deposit. It argues that the Purchaser breached its contractual obligations under the APA to:

a. “take all reasonable steps on a timely basis to apply for the requisite approvals of the manufacturer and OMVIC”; and

b. “use all reasonable efforts to obtain the consent of and satisfy any requirements of the Manufacturer and OMVIC in order to obtain such approvals.”

[5] For the reasons that follow, I find that the Purchaser breached the APA terms cited above. Thus, I dismiss this application and find that the Vendor is entitled to the release of the Deposit.

APA Terms

[6] The parties entered into the APA on August 27, 2021. The purchase price was $13,000,000. The parties entered into another agreement, which is not the subject of this proceeding, for the sale of the land under which the dealership operated.

[7] The “Closing Date” to complete the Transaction was defined in the APA as November 1, 2021. The APA also allowed for an extension of the closing to “such other date (no later than November 30, 2021) as the parties may agree in writing” in the event that the requisite consents were not obtained by the Closing Date, The term “Closing Time” was defined in the APA as “10:00 a.m. (Toronto time) on the Closing Date or such other time on the Closing Date as the parties may agree”.

[8] At s. 5.02(d) of the APA, the Purchaser covenants to “take all reasonable steps on a timely basis to apply for the requisite approvals of the Manufacturer and OMVIC which are referred to herein.”

[9] The terms of the APA also impose reciprocal obligations on the Vendor and Purchaser to act in a “commercially reasonable” manner, as set out below. For example, s. 6.01 [1] makes the Purchaser’s obligation to close the Transaction subject to a number of conditions, including the consent of VW Canada and OMVIC. It also requires the Vendor to “use its commercially reasonable efforts to ensure that such conditions are fulfilled”. Section 6.01 reads as follows:

6.01 Conditions to the Obligations of the Purchaser – Notwithstanding anything herein contained, the obligation of the Purchaser to complete the Transaction provided for herein will be subject to the fulfilment of the following conditions at or prior to the Closing Time, and the Vendor covenants to use its commercially reasonable efforts to ensure that such conditions are fulfilled.

[10] At the same time, s. 6.01(c) requires the Purchaser to “use all reasonable commercial efforts to obtain the consent of and satisfy any requirements of the Manufacturer [i.e., VW Canada] and OMVIC in order to obtain [their approvals to the Transaction]”. The provision reads in full as follows:

Approval of Manufacturer and OMVIC. On or before the Closing Date, the Manufacturer shall have approved the Purchaser as a dealer authorized to sell and service Volkswagen vehicles from the dealership premises, such approval to be on terms and conditions satisfactory to the Purchaser. Such approval shall be evidenced by execution and delivery of the Dealer Agreement between the Manufacturer and the Purchaser or a letter of intent, in form and substance acceptable to the Purchaser, to enter into the Dealer Agreement. In addition, the Manufacturer shall waive any right of first refusal it may have to purchase any of the purchased vehicles. Furthermore, on or before the Closing Date, the Ontario Motor Vehicle Industry Council (“ OMVIC ”) shall have approved the application for registration of the Purchaser. The Purchaser covenants and agrees it shall use all reasonable commercial efforts to obtain the consent of and satisfy any requirements of the Manufacturer and OMVIC in order to obtain such approvals.

[11] Section 6.02 stipulates that the conditions set out in s. 6.01 are “for the exclusive benefit of the Purchaser”, who may waive them “in whole or in part at any time”. It reads as follows:

6.02 Waiver or Termination by Purchaser - The conditions contained in Section 6.01 hereof are inserted for the exclusive benefit of the Purchaser and may be waived in whole or in part by the Purchaser at any time. The Vendor acknowledges that the waiver by the Purchaser of any condition or any part of any condition shall constitute a waiver only of such condition or such part of such condition, as the case may be, and shall not constitute a waiver of any covenant, agreement, representation or warranty made by the Vendor herein that corresponds or is related to such condition or such part of such condition, as the case may be. If any of the conditions contained in Section 6.01 hereof are not fulfilled or complied with as herein provided by Closing or such earlier time as provided above, the Purchaser may, rescind this Agreement by notice in writing to the Vendor and in such event the Purchaser shall be released from all obligations hereunder and, unless the condition or conditions which have not been fulfilled are reasonably capable of being fulfilled or caused to be fulfilled by the Vendor, then the Vendor shall also be released from all obligations hereunder.

[12] Section 6.03 places conditions on the Vendor’s obligations to the Purchaser. Those obligations are subject to the fulfillment of certain terms by the Closing Time. The provision adds that the Purchaser “will use its commercially reasonable best efforts to ensure that such conditions are fulfilled”. While the conditions enumerated under s. 6.03 include the consent of VW Canada, they do not include the Purchaser’s the approval of OMVIC. The provision reads as follows:

6.03 Conditions to the Obligations of the Vendor - Notwithstanding anything herein contained, the obligations of the Vendor to complete the Transactions provided for herein will be subject to the fulfilment of the following conditions at or prior to the Closing Time, and the Purchaser will use its commercially reasonable best efforts to ensure that such conditions are fulfilled:

(d) Approval of Manufacturer . The Manufacturer shall have approved the Purchaser as a dealer authorized to sell and service Volkswagen vehicles from the dealership premises, such approval to be on terms and conditions satisfactory to the Purchaser. Such approval shall be evidenced by the execution and delivery of the Dealer Agreement between the Manufacturer and the Purchaser or a letter of intent, in form and substance acceptable to the Purchaser, to enter into the Dealer Agreement. In addition, the Manufacturer shall waive any right of first refusal it may have to purchase any of the purchased vehicles.

[13] Section 6.04 is similar to s. 6.02, except that its terms are for the exclusive benefit of the Vendor, who may waive them in whole or in part at any time. The Vendor also may rescind the APA if any of the terms of s. 6.03 (including the consent of VW Canada) are not fulfilled or complied with by Closing. The provision reads as follows:

6.04 Waiver or Termination by Vendor - The conditions contained in Section 6.03 hereof are inserted for the exclusive benefit of the Vendor and may be waived in whole or in part by the Vendor at any time. The Purchaser acknowledges that the waiver by the Vendor of any condition or any part of any condition shall constitute a waiver o of such condition or such part of such condition, as the case may be, and shall not constitute a waiver of any covenant, agreement, representation or warranty made by the Purchaser herein that corresponds or is related to such condition or such part of such condition, as the case may be. If any of the conditions contained in Section 6.03 hereof are not fulfilled or complied with as herein provided by Closing or such earlier time as provided above, the Vendor may rescind this Agreement by notice in writing to the Purchaser and in such event the Vendor shall each be released from any obligations hereunder and unless the conditions or conditions which have not been fulfilled are reasonably capable of being fulfilled or caused to be fulfilled by the Purchaser, then the Purchaser shall also be released from all obligations hereunder.

[14] Under s. 1.08, time is of the essence in regard to the terms of the APA.

[15] One key provision of the APA, s. 2.08(ii) concerns the forfeiture of the Deposit if the APA is not closed for any reason other than the failure to satisfy the conditions under s. 6.01(c). [2] Section 2.08(ii) includes the following terms:

If the Transaction is not completed for any reason other than failure to satisfy the conditions set out in section [6.01(c)] on or prior to November 30, 2021, unless the Vendor and Purchaser agree in writing to extend the time for satisfying such condition, the deposits shall be immediately forfeited and paid by the Vendor’s Solicitor to the Vendor.

Summary of Steps Taken by the Parties Following the Signing of the APA

[16] While the APA’s original closing date was to be November 1, 2021, the parties later extended it to November 30, 2021.

[17] Despite those Closing Dates and the fact that the parties signed the APA on August 27, 2021, the Purchaser did not submit his application to OMVIC until November 30, 2021. It had submitted its application for approval to VW Canada 29 days earlier, on November 1, 2021.

[18] The Purchaser blames the Vendor for its own failure to submit the OMVIC application earlier than November 30, 2021. It points to the s. 6.01 obligation on the Vendor to use its “reasonable commercial efforts” to ensure that the requisite consents are obtained. The Purchaser says that the Vendor never told it of the need to apply earlier for the OMVIC consent, but it should have done so.

[19] The Purchaser says that it finally applied for OMVIC approval the day after a November 29, 2021 meeting with a representative of VW Canada, where it was advised to take that step.

[20] Upon submitting its application to OMVIC, the Purchaser received an automated message which stated, “our registration department is currently experiencing a high volume of applications and a delay in processing time”. The Purchaser states that it received no substantive response from OMVIC for over five weeks, until January 6, 2022.

[21] On December 23, 2021, the Purchaser received a Letter of Intent from VW Canada (the “LOI”), along with a Franchise Disclosure Document (the “document”) The LOI offered VW Canada’s conditional approval of the Transaction. However, that approval was subject to conditions which included:

a. The Purchaser was to download and review the Document for a period of at least fourteen days.

b. Sign the LOI and return it to VW Canada after the 14-day Document review period had commenced, but in any event, no later that January 27, 2022.

[22] The LOI expressly provided that it would only remain open for acceptance until January 27, 2022.

[23] Also on December 23, 2021, the parties signed another written agreement, titled the First Asset Purchase Amending Agreement (“FAPAA”). It allowed for a further extension of the closing date to three days following receipt of the latest of the two requisite approvals. But “in no event” was the Closing Date to occur later than January 26, 2022. The FAPAA did not set out what would occur if the Transaction did not close by that date.

[24] From January 27, 2022 to February 2, 2022, counsel for the parties exchanged proposals for extending the APA, but were unable to come to an agreement.

[25] On January 5, 2022, VW Canada’s Manager, Network Optimization, emailed the Purchaser to advise that the 14-day disclosure period has ended and that VW Canada was in a position to accept back the executed LOI.

[26] On January 6, 2022, the Purchaser received a list from OMVIC, setting out the additional information and documentation required to process its application. Among those items were bank statements that were to have been submitted with the initial application. In addition, the principal of the Purchaser, Shaun Gupta, was required to complete the Georgian College Automotive Certification/OMVIC Certification test. Before taking the test, he was required to take a course at Georgian College. However, Mr. Gupta failed to register for the course until January 27, 2022. That was one day following the last agreed upon closing date for the Transaction and the date by which he was to supply VW Canada with a signed copy of its LOI.

[27] Both Mr. Gupta and the Vendor’s former president, John Leeder, agreed that the chances of being turned down in an OMVIC application were small. In Mr. Gupta’s words, those chances were “miniscule”. Mr. Leeder stated that the application process was akin to a “rubber stamp”. He opined that an OMVIC application would not be refused without a “serious…criminal reason or something like that.”

[28] On February 4, 2022, Michael Ricciuto, Director, Dealer Development and Training for VW Canada wrote to the Purchaser. He stated that VW Canada considered the LOI expired because it had not been executed and returned. He added that VW Canada was not “in a position to extend the LOI any further and has effectively withdrawn its approval of the proposed Asset Acquisitions”. In his cross-examination upon his affidavit, Mr. Gupta conceded that VW Canada would not have withdrawn its conditional acceptance had he signed and returned the LOI in time.

[29] While the Purchaser wishes to refer to other potential motivations for VW Canada’s withdrawal of its LOI, it provides no evidence of VW Canada’s reasons save Mr. Ricciuto’s letter, which is self-explanatory.

[30] Also on February 4, 2022, following receipt of the Ricciuto letter, the Purchaser’s counsel wrote to counsel for the Vendor to indicate that the APA was at an end. Purchaser’s counsel stated that the conditions precedent to the closing of the APA could not be satisfied and thus the Purchaser was seeking the return of its Deposit. Later that same day, counsel for the Respondent stated that the APA was terminated but that the Purchaser had failed to use reasonable commercial efforts to obtain the requisite approvals on a timely basis. Thus, the Vendor was keeping the Deposit.

[31] The automotive dealership subject to the APA was later sold to a third party. The Vendor does not make any claim against the Purchaser for damages but does insist that it is entitled to keep the Deposit. John Leeder deposed that the Vendor had spent significant time and money on the aborted Transaction, including $132,786.35 in legal fees.

Issues

[32] This application raises the two following issues:

1. Was the failure to close the APA Transaction a result of the Purchaser’s breach of its obligations under the APA?
2. If so, is the Vendor’s Deposit forfeited under s. 2.087(ii) of the APA?
3. If not, is the Purchaser entitled to the return of the Deposit?

Issue 1: Was the failure to close the APA Transaction a result of the Purchaser’s breach of its obligations under the APA?

Arguments

a. Purchaser’s Arguments

[33] The Purchaser argues that it is entitled to the return of its Deposit because fault for the failure to obtain OMVIC approval is immaterial. While both parties were bound by covenants to use reasonable commercial efforts to obtain OMVIC approval, the failure to obtain that approval prior to the January 26, 2022 closing date brought the APA to an end.

[34] The Purchaser argues that the completion of the APA was dependant on the approval of two third parties. Absent that approval it was entitled to withdraw from the APA. It relies on Shah v. Ahuja, 2012 ONSC 1479. There, a partner in a gas station agreed to buy out the remaining interest of another partner in the business and provided a $60,000 deposit. But that agreement was conditional on the respondent purchaser obtaining a release for the applicant vendor from guarantees the applicant had granted to third parties. When those third parties refused to release the applicant, Bielby J. ordered the return of the deposit to the respondent. He found at para. 35 that “[t]he agreement of purchase and sale did not fall through because of the default of the respondent. It fell through because a third-party dependent condition could not be fulfilled.”

[35] The Purchaser adds that the s. 6.02 term, requiring OMVIC consent to the Transaction was solely for the benefit of the Purchaser. That offers a further justification for the termination of the APA and return of its Deposit.

[36] Moreover, the Purchaser contends that with the passage of the January 26, 2022 Closing Date, time was no longer of the essence. In order to reinstate a time is of the essence term to the APA, one of the parties would have had to provided the other with a fresh notice, setting a new and reasonable closing date. That did not occur.

[37] Furthermore, the Purchaser argues that it did not breach its obligation to use reasonable commercial efforts to obtain the requisite consents. Its explanation for the delays is reasonable and thus it breached no covenants of the APA.

b. Vendor’s Arguments

[38] For its part, the Vendor argues that the Purchaser did breach its duty to act in a commercially reasonable manner to obtain the requisite consents. It failed to apply for the OMVIC consent within a reasonable period of time, and when it did, it failed to provide all of the necessary documents. Its principal, Mr. Kumar, did not apply for the course he was required to take before sitting for the OMVIC test until after the January 26, 2022 Closing Date for the Transaction. The Purchaser failed even to sign and return the LOI to VW Canada during the period that it was required to do so. Thus, under s. 2.08, the Vendor is entitled to retain the Deposit. The failure to close the Transaction was solely caused by the Purchaser’s breach of its contractual duties of reasonable commercial and reasonably timely conduct regarding the OMVIC and VW Canada consents.

Applicable Law

[39] Contracts, like the APA, are required to be read by decision makers as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para. 47.

[40] A deposit is paid as a guarantee for the performance of the contract. Where the contract goes off by default of a purchaser, a vendor is entitled to retain the deposit: De Palma v. The Runnymede Iron & Steel Company, 1950 O.R. 1 (O.C.A.) [QL].

[41] As a matter of law, where a purchaser fails to perform a contract, and the contract does not otherwise provide for the return of the deposit, the deposit is forfeit: J.E.R. Harrison Estates Ltd. v. 1205458 Ontario Ltd., [2003] O.J. No. 2225, at para. 20, citing DePalma v. Runnymede Iron & Steel Co.; Urac v. Ferawana, 2017 ONSC 385.

[42] A vendor may keep a deposit when a contract is breached, even if no loss is suffered, unless the agreement states otherwise: Iyer v. Pleasant Developments Inc., 2006 CarswellOnt 2050, 210 O.A.C. 90 (Div. Ct.) at paras. 6-7.

[43] In Westmount-Keele Limited v. Royal Host Hotels and Resorts, 2018 ONSC 5170, at para. 80, Koehnen J. adopted the summary of the concept of reasonable commercial efforts, set out by Geoff R. Hall in Canadian Contractual Interpretation Law, 3d ed. at pp. 286-289: The critical elements of that concept, as set out by Mr. Hall are as follows:

a. It is a lower standard than best efforts. b. The "reasonable" element implies sound, sensible judgment, somewhat akin to business judgment. c. The "commercial" element allows a party to have profit or financial gain as opposed to loss as a primary objective. It allows the party bearing the obligation to have regard for its own economic well-being. It does not require the obligor to subordinate its economic interests to those of the beneficiary. d. It does not require the obligor to exhaust all possible means of fulfilling a condition. The obligor can cease making efforts when the economics of those efforts from its own perspective cease to make sense. e. While a court will not closely scrutinize commercially reasonable efforts or second-guess them, the obligation nevertheless imposes a constraint on the obligor. The obligor does not have an option about whether to perform. A self-created incapacity to achieve a particular result does not constitute a commercially reasonable effort.

Analysis

a. Argument that Fault is Irrelevant

[44] The Purchaser’s first argument is that fault is irrelevant since it was entitled to rescind the APA and demand the return of the Deposit due to its failure to obtain the OMVIC consent. In saying this, the Purchaser relies on s. 2.08(ii) of the APA. To repeat, that contractual term requires the forfeiture of the Deposit if the Transaction is not completed by the closing date for any reason but that set out in s. 6.01(c). The Purchaser relies on the s. 6.01 term whereby the Vendor “covenants to use its commercially reasonable efforts to ensure that the conditions of s. 6.01 (a) – (h) are ‘fulfilled’”.

[45] In its factum, the Purchaser argues that s. 6.02 “specifically releases the Purchaser from all obligations hereunder in the event that the Vendor fails to fulfil a condition, including specifically the OMVIC Approval”.

[46] But under s. 6.01(c), the Purchaser also covenants and agrees to “use all reasonable commercial efforts to obtain the consent of and satisfy any requirements of the Manufacturer and OMVIC in order to obtain such approvals”. Thus, even 6.01(c) does not represent a “get out of jail free” pass for the Purchaser. It cannot rescind the APA if it fails to meet its own obligations under s. 6.01(c).

[47] Further s. 5.02(d) imposes a timeliness obligation on the Purchaser. It requires the Purchaser to “take all reasonable steps on a timely basis to apply for the requisite approvals of the Manufacturer and OMVIC” [emphasis added].

[48] I add that to the extent that the Purchaser relies on Shah v. Ahuja, that case was not one of fault or breach. In fact, Bielby J. wrote at para. 21: “ I agree that the deposit would be forfeited to the applicant if the respondent breached a covenant.”

[49] Thus, the court may still consider whether the failure to obtain the approval of OMVIC or VW Canada is the result of a breach of either party’s contractual obligations to the other.

b. The APA Remained in Force After January 26, 2022

[50] The Purchaser argues that the Agreement expired on January 26, 2022, the last agreed upon closing date, when the parties failed to close or agree to a new closing date. Therefore, the Purchaser’s failure to obtain the OMVIC consent by January 26, 2021 is irrelevant because the agreement had come to an end.

[51] The comments of Lauwers J., as he then was, in 1250364 Ontario Ltd. (cob Lionshead Homes) v. Townend, 2012 ONSC 3576 dispose of that argument. He wrote at para. 35:

35 The applicable law can be briefly stated. A "time of the essence" clause is enforceable in accordance with its terms. As the Court of Appeal observed in Domicile Developments Inc. v. MacTavish (1999), 45 O.R. (3d) 302, [1999] O.J. No. 1998 (C.A.) per Laskin J.A. at para. 11, the applicable propositions are:

1.When time is of the essence and neither party is ready to close on the agreed date the agreement remains in effect.

2.Either party may reinstate time of the essence by setting a new date for closing and providing reasonable notice to the other party.

[Emphasis added.]

[52] In a supplementary submission that I invited, counsel for the Purchaser relied on the decision of the Supreme Court of Canada in Focal Properties Ltd. v. George Wimpey Canada Ltd., [1978] 1 SCR 2, at para. 16, to argue that the APA expired when the Transaction failed to close on January 26, 2022. There, Judson J., writing for the court, wrote:

I would affirm the judgment at trial and that of the Court of Appeal on the one ground that the contract came to an end on March 15, 1973. It is unnecessary to deal with the question of frustration.

[53] But as the Vendor’s counsel points out in its supplementary submission, the agreement in that case required the subject transaction to close within five years, failing which the parties’ agreement was null and void. When that agreement failed to close in five years, it “came to an end”. A similar term is not found in the APA.

[54] Here, neither party signalled its readiness to close, but neither party reinstated the time is of the essence term. Thus the APA remained in force but without a time is of the essence term.

c. Did the Purchaser or Vendor Breach the APA?

[55] The Purchaser argues that it did not breach its contractual obligation to act in a commercially reasonable manner to obtain the consents of VW Canada and OMVIC. In its factum, it summarizes its arguments on this point, writing:

With respect to the Vendor’s allegations as to a breach of covenant, it is respectfully submitted that the Purchaser’s explanation for the delay is reasonable in that:

a. It received no guidance or assistance from the Vendor as to how and when the application was to be made;

b. It did not make sense to apply to OMVIC until it had some provisional approval from the Manufacturer;

c. Upon receiving specific advice from the Manufacturer to go ahead with the application, it applied the very next day;

d. The delay appeared to be an institutional delay – internal to OMVIC in that they did not initially respond for more than one month; and,

e. There is no evidence that OMVIC would have ever provided the approval.

[56] Shaun Gupta, the principal of the Purchaser, claims that he had no experience in purchasing an automotive dealership. He expected the assistance of the principal of the Vendor to make up for his own inexperience. Thus, the Purchaser contends that its delay in applying for OMVIC’s consent is understandable. Besides, argues the Purchaser, the Vendor was obliged to use its commercially reasonable efforts to ensure that such conditions are met. Thus, any failure can be placed at the feet of the Vendor and its failure to ensure that the Purchaser received the requisite approvals.

[57] There are a number of problems with that argument, as set out below:

a. The Purchaser signed the APA, which explicitly spoke to the need to obtain the OMVIC consent, on August 27, 2021. Yet the Purchaser failed to apply for that OMVIC consent for over three months after signing the APA, until November 30, 2021.

b. The Purchaser’s OMVIC application form was submitted on November 30, 2021. That was 29 days after the original November 1, 2021 Closing Date and on the date to which the Closing Date had first been extended.

c. When it did apply to OMVIC, the Purchaser failed to provide all of the necessary documentation necessary for that first level of application.

d. Similarly, Mr. Gupta failed to even apply for the course necessary to take the OMVIC test until January 27, 2022, the day that the LOI was rescinded by VW Canada.

e. Both before and during Mr. Gupta’s cross-examination, the Purchaser were asked to produce copies of all of its correspondence with OMVIC and VW Canada. Mr. Gupta undertook to do so. Counsel for the Vendor then followed up on the undertaking following the cross-examination. The Vendor’s counsel explicitly explained that it was seeking the documentation to determine whether the Purchaser breached its obligations under the APA. Nonetheless, the Purchaser’s responses were deficient. References to those deficiencies took up three pages of the Vendor’s factum. Many of the items requested by OMVIC and VW Canada were missing.

f. I draw a negative inference regarding the reasonableness of the Purchaser’s efforts to obtain the OMVIC and VW Canada consents from the failure to produce the documentation requested. It was open to the Purchaser to produce documentation which would demonstrate the reasonableness of its efforts to obtain those consents, but it failed to fully produce the documentation requested and undertaken.

g. I add that the productions which the Purchaser did provide revealed its delays and inconsistencies in providing the documentation required by both OMVIC and VW Canada. For example, it took the Purchaser 23 days to return certain forms that VW Canada requested, and even then, two of these forms were missing.

h. Most significantly, VW Canada rescinded its conditional consent to the Transaction simply because the Purchaser failed to sign and return the LOI by the clearly articulated deadline. During his cross examination, Mr. Gupta admitted that the failure to punctually return the LOI to VW Canada was intentional. He stated that he did not wish to return the LOI, and thus commit himself to VW Canada, because he was still awaiting the approval of OMVIC. In other words, he chose to miss the clear VW Canada deadline despite his own view that the chances of rejection by OMVIC were “miniscule”. He never asked the Vendor for guidance in that regard. In his own words, he was “guiding [himself] through the process”.

i. The recission of the LOI by VW Canada spelled the end of the APA. VW Canada was clear that it was not going to revisit its position. Thus the Purchaser would be unable to operate a VW Canada dealership.

j. While the Purchaser has pointed its metaphorical finger at the Vendor for failing to ensure that the OMVIC consent was received, it fails to delineate exactly what the Vendor could and should have done. The Purchaser was represented by counsel throughout the process. It was aware of the need to apply for the OMVIC consent. The requirements for that consent were plainly posted on the OMVIC website. Moreover, the Purchaser offers no evidence of any attempts to reach out to the Vendor for assistance in ensuring the receipt of the necessary consents.

k. In any event, the Purchaser cannot blame the Vendor for its own failure to comply with VW Canada’s clearly expired deadline to simply sign and return the LOI.

[58] For the reasons cited above, I find that the Purchaser failed to use all reasonable commercial efforts to obtain the consents of VW Canada and OMVIC to the APA Transaction. It further failed to act in a reasonably timely manner to seek those consents. In saying that, I am not imposing a best efforts standard on the Purchaser or saying that it should have taken steps that were contrary to its commercial interests. Rather, in the circumstances, its conduct was unreasonable. It did not need to engage in extraordinary efforts in regard to obtaining the two consents. It simply needed to act reasonably and expeditiously, taking the steps that were manifestly required of it. It seems to have easily obtained the conditional consent of VW Canada, but it failed to follow up as clearly required. It made a bad business decision in refusing to sign and return the LOI, although it was instructed to do so.

[59] Based on the evidence before me, the Purchaser did not require any extra assistance from the Vendor to obtain the consents. It simply needed to expeditiously follow the instructions of the two institutions from which it was seeking consents. It failed to do so. It follows that the Vendor did not breach its obligations to the Purchaser.

Issue No 2: Is the Vendor’s Deposit forfeited under s. 2.08(ii) of the APA?

[60] Under s. 2.08(ii) of the APA, the Deposit is forfeit unless it is not completed under s. 6.01(c). Here, the cause of the failure to complete the agreement was the Purchaser’s breach: its failure to act in a commercially reasonable manner and to take all reasonable steps on a timely basis to obtain those approvals. As set out above, where a purchaser fails to perform the contract, and the contract does not otherwise provide for the return of the deposit, the deposit is forfeit.

[61] Thus, the Deposit is forfeit.

Issue No 3: Is the Purchaser entitled to the return of the Deposit?

[62] In light of the answers to issues 1 and 2 above, it is not necessary to answer this question.

Conclusion

[63] For the reasons cited above, I dismiss this application. Counsel for the Vendor may release the Deposit to her client.

Costs

[64] The parties have agreed that the winner of this motion would be entitled to costs of $25,000. Accordingly, the Applicant shall pay costs of $25,000 to the Respondent.

Kurz J.

Released: July 18, 2023

Footnotes

[1] In the APA itself and the parties’ materials, the provisions of the APA are variously referred to as articles, sections, or clauses. For simplicity, I refer to those provisions as sections and use the abbreviation of “s.”

[2] Note: The text of s. 2.08 of the APA refers to s. 6.01(d) but the parties agree that this is a typographical error and that it should refer to s. 6.01(c). I also note that s. 6.01 of the APA actually contains two separate subsection (c)’s. Here and throughout this endorsement I refer to the same s. 6.01(c) described above.