



COURT OF APPEAL FOR ONTARIO

CITATION: DHMK Properties Inc. v. 2296608 Ontario Inc., 2017
    ONCA 961 DATE: 20171207

DOCKET: C63805

Rouleau, Benotto and Roberts JJ.A.

BETWEEN

DHMK Properties Inc.

Respondent

and

2296608 Ontario Inc. and Mund Real Estate Group Inc.

Appellants

Michael A. Katzman and Jessica R. Hewlett, for the
    appellants

Geoffrey D.E. Adair, Q.C., and Gordon McGuire, for the
    respondent

Heard: November 28, 2017

On appeal from the judgment of Justice Paul Perell, dated
    April 20, 2017, with reasons reported at 2017 ONSC 2432.

REASONS FOR DECISION

[1]

The appellants appeal from the judgment granted in favour of the
    respondent, DHMK Properties Inc., following a motion for summary judgment on the
    issue of damages.

[2]

Effective January 30, 2013, the appellant, Mund Real Estate Group Inc.,
    entered into an agreement of purchase and sale with DHMK to purchase DHMKs
    commercial property for the amount of $5,300,000. The agreement provided for
    the following warranty in paragraph 2:  The Vendor warrants that the reports
    of revenue and operating expenses to be given to the purchaser are true and
    correct in all respects, and the property will have a net cash flow prior to
    debt service (the Net Income) of not less than $441,925.00. The agreement
    also permitted Mund to conduct due diligence inquiries and to terminate the
    agreement by the Notice Date, which the parties subsequently agreed was June
    13, 2013. The transaction was scheduled to close at the end of June 2013.

[3]

Mund did not terminate the agreement before the notice date. Instead,
    Mund took the position that it would only close the transaction with a substantial
    abatement of the purchase price, alleging that the net income from the property
    was materially less than the amount warranted in the agreement. DHMK did not
    agree to close the transaction on this basis.

[4]

Mund brought an application for specific performance of the agreement
    with an abatement of the purchase price. In response, DHMK instigated an
    application for damages incurred as a result of the failed transaction.

[5]

The applications were heard by Justice Brian OMarra who found that Mund
    had breached the agreement of purchase and sale by failing to close without the
    abatement of the purchase price, stating that Mund had the option of either
    terminating the agreement by the notice date or closing and suing on the
    warranty. He ordered the forfeiture to DHMK of Munds $100,000 deposit, costs,
    and an assessment of the issue of DHMKs damages from the failed transaction.

[6]

The appellants abandoned their appeal from OMarra J.s judgment in
    August 2014.

[7]

The assessment of damages was heard by the motion judge. He found that
    the damages were the difference between the agreed upon price of the contract
    ($5.3 million) and market value of the land in August 2014 ($4.27 million). He
    did not discount the $5.3 million for the vendors potential liability under
    the warranty. Nor did he explain why he chose August 2014  the date the appeal
    from OMarra J. was abandoned  as opposed to the date of closing.

[8]

With respect to the damages assessment, the appellants raise several
    grounds of appeal.
[1]
However, to dispose of this appeal, it is necessary to address only the
    following:

i. The failure to take into
    account the effect of DHMKs warranty of the net income from the property when
    calculating DHMKs loss of bargain from the failed transaction;

ii. The choice of August
    2014, without reasons or analysis, as the date for the valuation of the
    property for the purpose of calculating DHMKs loss of bargain.

[9]

It is common ground that in assessing DHMKs damages arising from Munds
    breach of the agreement of purchase and sale, DHMK is entitled to be put, as
    far as damages permit, into the same economic position that it would have
    occupied had the transaction closed, subject to DHMKs duty to mitigate its
    damages:
Bank of America Canada v. Mutual Trust Co.
, 2002 SCC 43, [2002]
    2 SCR 601, at para. 26;
Dasham Carriers Inc. v. Gerlach
, 2013 ONCA
    707, at para. 29, 38 R.P.R. (5th) 183;
Asamera Oil Corporation Ltd. v. Sea
    Oil & General Corporation et al.
, [1979] 1 S.C.R. 633;
100 Main
    Street Ltd. v. W.B. Sullivan Construction
(1978), 20 O.R. (2d) 401 (C.A.),
    at p. 415. Although correctly referencing this principle at para. 47 of his
    reasons, the motion judge erred in failing to apply it.

[10]

Specifically,
    the motion judge erred by finding that because Mund breached the agreement, Munds
    potential claim for damages for DHMKs breach of warranty need not be
    considered. Notwithstanding Munds repudiation of the agreement, DHMKs
    prospective warranty obligations as embodied in the agreement are relevant, and
    are to be taken into account in the assessment of damages:
Keneric Tractor
    Sales Ltd. v. Langille
, [1987] 2 S.C.R. 440,  at p. 455.

[11]

As
    OMarra J. stated, Mund had the option of closing the transaction and suing for
    breach of DHMKs warranty concerning the net income from the property. It is
    not seriously contested that had the transaction closed, Mund would have sued
    for breach of the warranty. The motion judge should have taken this factor into
    account in his assessment of DHMKs damages.

[12]

However,
    DHMK submits that it would have made no difference to the outcome because
    Munds potential action for breach of warranty had no chance of success.

[13]

In
    our view, the effect, if any, that Munds potential lawsuit for DHMKs breach
    of warranty could have had on the assessment of DHMKs damages is best
    determined at first instance after full argument. In light of our disposition,
    we express no view on the merits of the potential claim.

[14]

We
    also conclude that the motion judge erred by selecting August 2014 as the date
    for assessing the value of the property for the purpose of calculating DHMKs
    loss of bargain without providing any analysis or reasons on this issue.  The
    absence of reasons precludes meaningful appellate review.

[15]

The
    choice of the August 2014 date departs from the general principle noted by the
    motion judge at para. 50 of his reasons that the proper date for taking the
    market value should be the time fixed for closing:
100 Main Street Ltd.
,
    at p. 415. Although there is judicial discretion to select another date than
    the closing date, the difficulty here is that the basis for the motion judges
    exercise of that discretion is not explained and the difference in the market
    valuation dates materially affects the assessment of DHMKs damages.

[16]

The
    difference in dates amounts to a substantial variance in damages of some
    $230,000:  the June 2013 appraised value of the property as at the date of
    closing is $4,500,000; whereas the appraised value of the property, over a year
    later, in August 2014 is $4,270,000.

[17]

There
    are other issues relating to the assessment of damages that we have not discussed
    in these reasons because it is not necessary to do so for the purposes of
    disposing of the appeal. However, by referring to only two of the arguments
    raised by the appellants, we do not wish to be taken as confirming any of the
    motion judges conclusions on the issue of damages, including the question of
    mitigation. These issues remain open for determination.

Disposition

[18]

As
    a result, the motion judges judgment shall be set aside, including the costs
    order. We remit the assessment of DHMKs damages to the Superior Court. The
    disposition of the costs of the motion are reserved to the judge hearing the
    matter.

[19]

With
    respect to the issue of the costs of the appeal, as agreed, the appellants as
    the successful party are entitled to payment of their costs in the amount of $30,000,
    inclusive of disbursements and applicable taxes.

Paul Rouleau
    J.A.

M.L. Benotto
    J.A.

L.B. Roberts
    J.A.





[1]

The parties are agreed that it was an error for the motion
    judge to award judgment against
2296608 Ontario Inc.


