ONTARIO – Real Estate Transactions – Damages – The normal measure of damages when the vendor wrongly refused to close the transaction is the difference between the purchase price and the value of the property on the date of the breach. That normal measure of damages is not displaced by a purchaser’s intention to develop the land.

ONTARIO – Evidence – Findings on an interlocutory motion to set aside a Certificate of Pending Litigation are not binding on the trial judge. Lamba v. Mitchell, 2021 ONSC 1612 was wrongly decided and should not be followed.

The Rosseau Group Inc. v. 2528061 Ontario Inc.
2023 ONCA 814 (December 8, 2023)
Ontario Court of Appeal (Benotto, Trotter and Zarnett JJ.A.)

Overview

This appeal from the decision of Justice Kendra D. Coats addressed several issues arising from an aborted commercial real estate transaction, principally the correct measure of damages to be applied when the vendor refuses to complete the transaction. (para. 1)

The normal measure of damages for the innocent purchaser when the vendor refuses to complete the transaction is the difference between the purchase price and the market price on the date of the breach, which is typically the scheduled date of closing. (para. 62)

The trial judge held that the purchaser was entitled to loss of profit damages because the purchaser intended to develop the lands into serviced lots. (para. 66)  Zarnett JA, writing the unanimous decision of ONCA, held that there was no basis in the present case to apply a different measure of damages. The appeal was allowed as to the measure of damages and remitted for a hearing as to the quantum of damages. (paras. 89-90)

Factual Background

In 2017, the Appellant “252” and Rosseau entered into an Agreement of Purchase and Sale (“APS”) for Rosseau to purchase 45 acres of development land, of which only about 19 acres was eventually suitable for residential development. (paras. 7-10)

As a result of further negotiations between the parties, a disagreement arose about whether a $400,000 deposit, due upon waiver of conditions under the original APS, was still payable. Rosseau did not pay the $400,000 and 252 refused to close the transaction. The transaction did not close. (paras. 11-14)

Rosseau commenced an action claiming specific performance and obtained a CPL, which was eventually vacated on 252’s motion on the basis that the property was not unique. Rosseau abandoned its claim for specific performance. (paras. 15-18)

The Appeal as to Liability

The trial judge held that 252 breached the APS by refusing to complete the agreement. She held that the additional $400,000 deposit was not payable under the amended APS. (para.19-21) ONCA held that the trial judge’s interpretation of the amended APS did not raise any extricable questions of law and was therefore entitled to deference. Zarnett JA concluded that the appeal on the issue of liability should be dismissed. (paras. 27-28) Zarnett JA analyzes the circumstances in detail as to liability and whether Rosseau was ready, willing and able to close. (paras. 39-58)

The Appeal as to Damages

ONCA held that while the trial judge’s assessment of damages attracts deference on appeal, an assessment made on the basis of an error in principle or law requires appellate interference on appeal. (para. 59)

The trial judge awarded damages of $11 million to compensate Rosseau for its anticipated loss of profits for six years from the intended development of the lands. This assessment from the normal measure of damages, namely, the difference between the value at the date of the APS and on the assessment date, which is usually the date of the breach. The presumption to apply the usual measure is not easily displaced. (para. 62)

Zarnett JA explained in detail why the usual measure of damages is rarely displaced, namely, that: (1) damages are awarded to place the innocent party, as nearly as possible, in the position it would have been in if the contract had been performed, and (2) to provide commercial certainty through a predictable damages methodology. (paras. 64-65)  Zarnett JA noted that the concept of market value of the land takes into account the value the land has because it can be developed. (para. 71)

The Court also noted that the Court generally requires appraisal evidence to determine the difference between the fair market value at the time of the APS and at the time of the breach for the purpose of assessing damages. (para. 49)

ONCA also held that the trial judge was not bound by findings made on an interlocutory motion to vacate a CPL. To the extent the decision in Lamba v. Mitchell, 2021 ONSC 1612, suggested otherwise, Zarnett JA held that it is inconsistent with the jurisprudence of the Court of Appeal and should not be followed (paras. 50-52). Zarnett JA proceeded to explain why the findings on a CPL motion do not bind the trial judge. (paras. 54-57)