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Wednesday, October 17, 2012 | Issue No. 63
SupremeAdvocacyLett@r, Eugene Meehan Q.C.

In this Issue

Today: The S.C.C. just released 1 judgment this morning.

 
 APPEAL (1)
REAL PROPERTY: SPECIFIC PERFORMANCE; MITIGATION
Southcott Estates Inc. v. Toronto Catholic District School Board (Ont. C.A., May 03, 2010)(33778)

“The appellant S is a single-purpose company incorporated solely for the purpose of  a specific land purchase, with no assets other than money advanced to it by its parent company for the deposit relating to such purchase.  It entered into an agreement of purchase and sale for a specific property with the respondent.  When the respondent failed to satisfy a condition and refused to extend the closing date, S sought specific performance of the contract.  It argued that it was not required to mitigate its losses.  The trial judge refused to award specific performance but awarded damages to S in the amount of $1,935,500.  The Court of Appeal concluded that the respondent had breached its contractual obligations but that S had failed to take available steps to mitigate its losses.  It reduced the damage award to a nominal sum.”

The S.C.C. held (6:1) that the appeal and cross-appeal is dismissed.

Justice Karakatsanis wrote as follows (at paragraphs 1-5, 29, 39-41, 45-47, 59-62):

"Real estate developers frequently create single-purpose corporations for the sole purpose of purchasing and developing properties for profit.  The corporation has limited liability and no assets other than those that arise from the particular real estate investment.  The issue raised in this appeal is whether such a single-purpose corporation is excused from mitigating its losses when the vendor breaches the agreement of purchase and sale, and particularly when it has promptly brought an action for specific performance.  The further issue is whether the trial judge erred in his finding that there were no other “comparable” properties available to mitigate the loss.

The appellant, Southcott Estates Inc., was part of the Ballantry Group of associated companies that acquired and developed land in the Greater Toronto Area (“GTA”).  Southcott was a single-purpose corporation, without assets, created for the sole purpose of developing the property that is the subject of this action.  When the vendor, the Toronto Catholic District School Board, failed to satisfy a condition and refused to extend the closing date, Southcott sought specific performance of the contract.  It argues that it was not required to mitigate its losses.

The trial judge ((2009), 78 R.P.R. (4th) 285) found that the Board had breached the agreement of purchase and sale and had failed to prove that Southcott could have mitigated its damages.  He awarded damages for loss of chance of profit.  He refused to order specific performance, finding that the property was not “unique” and damages were an adequate remedy.

The Ontario Court of Appeal (2010 ONCA 310, 104 O.R. (3d) 784) concluded that while the trial judge correctly found that the Board had breached its contractual obligations, he had erred in his approach to mitigation.  The court concluded that Southcott had unreasonably failed to take available steps to mitigate its loss and reduced the damage award granted at trial to a nominal sum.

Southcott did not appeal the trial judge’s refusal to award specific performance.  However, it maintains its losses were not avoidable.  The questions raised in this appeal are:

1.   Should a Single-Purpose Company Mitigate its Losses?

2.   To what extent must a plaintiff mitigate where the plaintiff has made a claim for specific performance?

3.   Did the trial judge err in concluding that there was no evidence of comparable profitable properties available for mitigation?

In the absence of actual evidence of impecuniosity, finding that losses cannot be reasonably avoided, simply because it is a single-purpose corporation within a larger group of companies, would give an unfair advantage to those conducting business through single-purpose corporations.  In addition, not requiring single-purpose corporations to mitigate would expose defendants contracting with such corporations to higher damage awards than those reasonably claimed by other plaintiffs, based solely upon their limited assets.

The overriding issue is ... whether Southcott’s inaction was reasonable.  Southcott argued at trial that the fact that the property was uniquely well situated gives it the unique character required to constitute a fair justification for specific performance (para. 119 of the trial judge’s decision).

I agree with the courts below that this is not a case where the plaintiff could reasonably refuse to mitigate.  The trial judge made clear findings that the land was nothing more unique to Southcott than a singularly good investment and that this was not a case in which damages were too speculative or uncertain to be a satisfactory remedy.  The unique qualities related solely to the profitability of the development for which damages were an adequate remedy (paras. 126 and 128).  The calculation of profits was not conjectural or speculative as the proposed development was not complex, and the only disagreement between the parties regarding the quantum of damages related to the timing and rate of sale of completed units (paras. 130 and 132).

A plaintiff deprived of an investment property does not have a “fair, real, and substantial justification” or a “substantial and legitimate” interest in specific performance (Asamera, at pp. 668-69) unless he can show that money is not a complete remedy because the land has “a peculiar and special value” to him (Semelhago, at para. 21, citing Adderley, at p. 240).  Southcott could not make such a claim.  It was engaged in a commercial transaction for the purpose of making a profit.  The property’s particular qualities were only of value due to their ability to further profitability.  Southcott cannot therefore justify its inaction.

As noted above, where it is alleged that a plaintiff has failed to mitigate damages, the onus of proof on a balance of probabilities lies with the defendant, who must establish not only that the plaintiff failed to take reasonable efforts to find a substitute, but also that a reasonable profitable substitute could be found. [emphasis in  original].

Thus, it would be an error to suggest that the defendant did not have the burden of showing that mitigation was possible even where the plaintiff made no attempt to do so.  Further, while I agree that the trial judge erred in dealing with the Board’s evidence regarding the availability of the 81 properties, the error is best approached as an evidentiary issue rather than as one engaging the burden of proof.

The finding about whether Southcott could have mitigated involves applying a legal standard; it is a question of mixed fact and law.  Whether or not there were comparable properties and whether they were profitable is a finding of fact.  Implicit in the Court of Appeal’s decision is the conclusion that the trial judge’s findings of fact were unreasonable.

As the Court of Appeal concluded (at paras. 25-26), the Ballantry Group’s purchases of other properties was evidence that other suitable development lands were available and the decision not to purchase them in Southcott’s name was based on other considerations.  I agree with the Court of Appeal that the trial judge erred in failing to consider these purchases as evidence of other available and comparable development properties.

In conclusion, the trial judge erred in failing to consider relevant evidence and made a palpable and overriding error of fact in concluding that Southcott could not have reasonably avoided its loss.

He failed to take into account in his analysis of the mitigation issue that Southcott had simply refused to take any mitigatory action.  He failed to consider the evidence of Ballantry’s purchases as supporting the inference that alternative parcels were available and that their development was sufficiently profitable to meet Ballantry’s requirements.  He conflated a lack of evidence regarding the marketing of parcels with a lack of evidence that any of the parcels had been available for sale.  He failed to consider whether the fact that all of the properties the Board’s expert testified were development properties capable of being brought to development in a year could support an inference that their development was profitable.  Finally, he failed to consider the fact that Southcott did not lead evidence to challenge the Board’s evidence regarding alternative development opportunities.

In these circumstances, the Court of Appeal was entitled to look at the record and conclude that the trial judge’s findings regarding mitigation were not available to him on the evidence.  The evidence of the Ballantry purchases, in the context of Southcott’s refusal to mitigate, established that there were opportunities to mitigate by purchasing other development land in the GTA.  Failure to mitigate reduces damages.  The Court of Appeal concluded that, based upon the investment properties purchased by Ballantry, and in the absence of evidence to the contrary, the Board discharged the burden of showing that other investment properties were available in the relevant time period to mitigate the losses and that the trial judge’s finding that there were no comparable properties was not open to him on the evidence.  I agree."

 

Click here for full text of judgment



 

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