ONTARIO – Appeals – Standing – Where a party’s non-lawyer representative was permitted to represent the appellants and make submissions on their behalf at trial, and no challenge was brought either prior to or during the trial, it was an error for the trial judge to strike the appellants’ statement of defence based on a lack of standing. The trial judge had discretion under Rule 2.03 of the Rules of Civil Procedure to dispense with compliance with the Rule 15.01(1) requirement that the appellants be represented by a lawyer.
ONTARIO – Damages – Breach of an Agreement of Purchase and Sale – Absent special circumstances, the ordinary measure of damages arising from breach of a purchase and sale agreement is the difference between the contract price and the property’s value at the time of the breach, not at the time of trial.
ONTARIO – Damages – Breach of an Agreement of Purchase and Sale – Mitigation – A party alleging failure to mitigate damages arising from the breach of an agreement of purchase and sale of real property has the onus to establish that it made reasonable efforts to find a substitute property and that a reasonable substitute could not be found.
Preiano v. Cirillo
2024 ONCA 206 (March 21, 2024)
Ontario Court of Appeal (Roberts, Sossin, and Dawe JJ.A.)
This appeal arose out of a failed real estate transaction. The appellants refused to close the transaction on the scheduled closing date. The respondents brought an action for specific performance, or in the alternative, for damages. (para. 1)
The trial judge had allowed the respondents’ action on two grounds: 1) The appellants’ daughter (Ms. Cirillo) lacked standing to act as their estate’s representative without a lawyer, which resulted in the court striking the appellants’ statement of defence; and 2) the appellants breached the purchase agreement, for which the court awarded the respondents damages of $1 million. (para. 2)
The appellants appealed the determination of Ms. Cirillo’s standing and the assessment of damages, including the trial judge’s finding that the respondents were not required to mitigate. (para. 3)
Standing Issue
The Court of Appeal held that the trial judge erred by striking the appellants’ statement of defence on the basis that Ms. Cirillo did not have standing because she was not a lawyer. The trial judge made this determination on their own initiative after the trial. At trial, Ms. Cirillo had been permitted to represent the appellants and to make submissions on their behalf. The respondents had not challenged Ms. Cirillo’s standing prior to the trial, nor had her standing been challenged by any presiding judge in the history of the proceedings. The Court of Appeal held that it was in the trial judge’s discretion under Rule 2.03 of the Rules of Civil Procedure to dispense with compliance with the requirement under Rule 15.01(1) that the appellants be represented by a lawyer. The Court held that “at this very late stage of the proceedings, his failure to exercise his discretion and his conclusion that Ms. Cirillo lacked standing amounted to procedural unfairness.” (para. 5)
The Court of Appeal did not order a new trial because this finding was an alternative basis for the trial judge’s decision. The Court found that the trial judge’s judgment was primarily based on a thorough merits review after a thorough review of the evidence and submissions of the parties, holding that: “His judgment on the merits was not tainted by his error regarding Ms. Cirillo’s standing. As a result, no trial unfairness, prejudice, or miscarriage of justice resulted from the trial judge’s error. Nor did his error affect the outcome of his decision on the issue of the appellants’ breach of the agreement of purchase and sale.” (para. 6)
The appellants did not appeal the decision on the merits, nor did they point to any reversible error in the trial judge’s factual and credibility findings, which the Court of Appeal found were “anchored firmly in the evidence and fully ground his conclusion that the appellants breached the agreement.” The Court concluded that there was no basis to order a new trial.
Damages Issues
The Court of Appeal determined that the trial judge made an error of law by awarding $975,000 in damages to the respondents. The trial judge made the award for two reasons: 1) He accepted an appraisal expert’s evidence that $1 million was the difference between the contract price and the fair market value of the property at the time of trial; and 2) He concluded that the respondents did not need to mitigate their damages because “they had a reasonable and fair chance of obtaining specific performance, although they did not get it.” (paras. 8-9)
- Measure of Damages
The Court of Appeal held that absent special circumstances, the ordinary measure of damages arising from a breach of a purchase and sale agreement is the difference between the contract price and the property’s value at the time of the breach, not at the time of trial. The trial judge erred by using the property’s market value at trial, not at the time of the breach. (para. 10)
The Court found that the trial judge had applied the law based on an “erroneous interpretation” of two cases: Semelhago v. Paramadevan, 1996 CanLII 209 (SCC) and Sivasubramaniam v. Mohammad, 2018 ONSC 3073 [aff’d, 2019 ONCA 242]. In Semelhago, the court would have ordered specific performance but the plaintiffs elected to forgo that remedy and to accept damages. In Sivasubramaniam, the court awarded specific performance. (para. 12) In contrast, the trial judge in the current appeal expressly held that the respondents were not entitled to specific performance. The damages the trial judge awarded were therefore not awarded “in lieu of specific performance”. (para. 13)
Based on this error of law, the Court of Appeal set aside the trial judge’s incorrect award of damages and considered the issue afresh on what it held was an adequate evidentiary record. (para. 14) The Court recalculated damages based on the difference between the contract price and the property’s appraised value as of the date of breach. In doing so, it relied on the only admissible evidence of the appraised value as at the date of August 21, 2013, which if found was sufficiently close to the November 2013 breach date, there being no evidence that property values went down between August and November 2013. The Court noted that in taking this approach, it was following the direction of the Supreme Court of Canada in Wood v. Grand Valley Rway Co., (1915) 1915 CanLII 574 (SCC) “to do the best we can in assessing damages with the evidence that we have.” (paras. 16-17)
- Mitigation
The appellants argued that the respondents were not entitled to damages because they failed to mitigate their damages by trying to find a comparable property or make other accommodation arrangements. The Court held that “[w]hile the trial judge’s conclusion appears inconsistent with his finding that specific performance was not available to the respondents as a remedy, this apparent inconsistency in his reasoning did not affect the result. This is because the appellants did not meet their onus to prove that the respondents failed to mitigate their damages.” (paras. 18-19)
For the appellants to meet their onus to show on a balance of probabilities that the respondents failed to mitigate, they had to establish that the respondents failed to take reasonable efforts to find a substitute and that a reasonable substitute could be found. No evidence was led to establish that the respondents could have purchased or rented a comparable property. The Court of Appeal therefore held that the appellants failed to meet their onus to show that the respondents failed to mitigate their damages. (para. 20)
The appeal was allowed in part. The Court of Appeal ordered that the appellants pay damages to the respondents in the amount of $45,000, plus interest. The respondents were entitled to the return of their $25,000 deposit plus interest accumulated in the real estate agent’s trust account. (para. 22)