In Akelius Canada Inc. V. 2426196 Ontario Inc.,1 J. Morgan ruled on the matter of whether a European based real estate investor who suffered a breach of contract by a seller in Toronto could be awarded damages based on a loss of opportunity to cash in on a local real estate boom.
Facts
On August 25, 2015, the parties entered into an agreement of purchase and sale for seven residential apartment buildings for a total price of $228,958,320. The payments were to be made in three installments with two deposits of one million and nine million dollars respectively with the final remaining balance being transferred by the agreed-upon closing date of January 7, 2016. On October 23, 2015, the plaintiff noted encumbrances on several of the properties that were a part of the transaction and were not permitted by the initial agreement. It resulted that the defendant either could not or would not remove the encumbrances on the properties and attempted to negotiate a reduction in the purchase price with the plaintiff to resolve the matter. Ultimately the defendant was found to have breached the agreement and was liable for that breach.
Relevant Analysis and Findings
Counsel for the defendant made three primary arguments in opposition to this damages claim;
- the usual rule is that damages are assessed from the date of the breach,
- no appraisals were done for the September 2018 sale and the plaintiff could not rely on land transfer tax statements as an assessment of property value, and
- the plaintiff had an opportunity to mitigate their damages by deploying their money elsewhere.
J. Morgan noted the following in response:
...the lack of comparable purchase options was not a valid excuse... |
- While primarily the point of evaluation for assessing damages is the the date set for closing, 6472047 Ontario Ltd. v. Fleischer states that there is flexibility for determining the date set for damages based on what would be fair on the facts of the case at hand.2
- J. Laskin in Fleischer further went on to state however, that if the vendor retains the property in order to speculate on the market, damages should be assessed at date of closing.
- Because the plaintiff intended to utilize the property for income and not speculation, their claim to the differential between their contract price and the eventual sale price runs counter to their intentions for the property.
- The plaintiff had an obligation to mitigate their losses.3 The lack of comparable purchase options was not a valid excuse considering the plaintiff operated internationally and had purchased numerous other seemingly comparable apartment building packages in following the years.
- The booming Toronto market was not a differentiating factor that could be given significant weight without expert evidence attesting to the markets of comparable centres.
Conclusion
J. Morgan held that the plaintiff's claim for loss of opportunity damages should be dismissed. The plaintiff was still successful, however, in establishing defendant's liability for breach of contract. As such the plaintiff was awarded $775,855.46 in damages representing the sunk costs of legal and professional fees as well as due diligence from the failed transaction.
While there will always be merits to claims for sunk cost damages, the court remains firm in this decision that lost profit damages are not recognized. As well, the intent of the contract plays a substantial role in the availability of certain remedies.
Read J Morgan's full decision.
- Akelius Canada Inc. v. 2436196 Ontario Inc., 2020 ONSC 6182
- 6472047 Ontario Ltd. v. Fleischer (2001) 56 OR (3d) 417, at para 42 (Ont CA)
- Southcott Estates Inc. v. Toronto Catholic District School Board, [2012] 2 SCR 675, at para 30
