



COURT OF APPEAL FOR ONTARIO

CITATION: Akelius Canada Ltd. v. 2436196
    Ontario Inc., 2022 ONCA 259

DATE: 20220330

DOCKET: C68832

Lauwers, Harvison Young and
    Sossin JJ.A.

BETWEEN

Akelius Canada Ltd.

Appellant

and

2436196 Ontario Inc. and BNai
    Fishel Corporation

Respondents

Daniel S. Murdoch and Isabelle Eckler,
    for the appellant

Mark A. Ross and Eric Brousseau, for
    the respondents

Heard: September 27, 2021 by video conference

On appeal from the order of Justice Edward
    M. Morgan of the Superior Court of Justice, dated October 13, 2020, with
    reasons reported at 2020 ONSC 6182.

Harvison Young J.A
.:

Overview

[1]

What remedies are appropriate for an innocent
    purchaser of real property when a breaching vendor fails to close on the date
    pursuant to the agreement of purchase and sale? In particular, is the purchaser
    entitled to claim the profits that the vendor made two and a half years later
    when the vendor sold the property for $56 million more than its value on the
    closing date? As the motion judge put it, [c]an a Europe-based, worldwide real
    estate investor whose contract was breached by a seller in Toronto be awarded
    damages based on lost opportunity to cash in on the local real estate boom?

[2]

Akelius Canada Ltd. (Akelius) appeals from the
    motion judges finding that it was not entitled to such damages but was
    restricted to its damages as at the closing date. The respondents cross-appeal
    the motion judges award to Akelius of its costs thrown away, and both parties
    appeal from the motion judges decision not to award costs to either party.

Factual Background

[3]

The factual context giving rise to this appeal
    is straightforward.

[4]

On August 25, 2015, the parties entered into an
    agreement of purchase and sale under which the appellant agreed to buy from the
    respondents seven residential apartment buildings for an overall purchase price
    of $228,958,320 (the APS). The buildings were all in the Parkdale
    neighbourhood in Toronto. It is common ground that this was the market value of
    the properties as of the date of breach.

[5]

The deal did not close as contemplated on January
    7, 2016 because of the vendors breach in failing to remove certain
    encumbrances from title which, as of December 15, 2015, totalled $48,855,474.32.
    The appellant had paid the deposits required pursuant to the APS in the total
    amount of $10 million, with the outstanding balance payable on closing.

[6]

When the deal did not close, the deposits were
    returned to the appellant which returned the funds to its parent company, a
    Sweden-headquartered investment corporation with international holdings in various
    countries including Scandinavia, the United Kingdom, central Europe, the United
    States, and Canada.

[7]

Two and a half years later, in September 2018,
    the respondents sold the properties to a new purchaser. According to Land
    Transfer Tax affidavits filed by the new purchaser at that time, the properties
    were sold for 25% more than the purchase price, some $56,544,318. This is the
    amount the appellant claims as its loss of the value of the transaction.

Decision Below

[8]

The matter proceeded on a motion for summary
    judgment. Neither party disputes the appropriateness of summary judgment in
    this case.

[9]

The motion judge found that the respondent
    vendors breached the APS, and he awarded the appellant
$775,855.46
,
    finding that these were costs reasonably incurred and thrown away by the appellant
    as a result of the respondents breach of the APS.

[10]

The lions share of the damages claimed by the
    appellant arose out of the fact that more than two years after the breach of
    the APS, the respondent vendors resold the properties to another purchaser for
    approximately $56,544,318 more than its market value on the date of breach. In
    assessing damages, the motion judge stated, at para. 22:

First, in
    assessing damages, the basic principle is that damages should put the injured
    party as nearly as possible in the position it would have been in had the
    contract not been breached. In the ordinary case of an aborted purchase and
    sale of real estate, this principle is put into effect by assessing damages at
    the date that had been set for closing:
100 Main Street Ltd. v. W.B.
    Sullivan Construction Ltd.
(1978), 20 O.R. (2d) 401 (Ont CA). There is,
    however, flexibility in this approach. As Laskin JA observed in
6472047
    Ontario Ltd. v. Fleischer
(2001), 56 O.R. (3d) 417, at para. 42 (Ont CA),
    The date for the assessment of damages is determined by what is fair on the
    facts of each case.

[11]

The motion judge observed that the appellant had
    been clear that it was not in the business of flipping apartment buildings and
    had no intention of re-selling the properties for a quick capital gain. Rather,
    it is in the apartment investment and rental business and looks to purchase
    income-producing properties for long-term holds, typically seeking a seven
    percent return. Akelius did not seek damages for lost income, but only for the
    lost capital gains. The motion judge rejected this manner of measuring damages,
    finding it to be directly contrary to the express guidance of the Court of
    Appeal in
Fleischer
 and citing Laskin J.A.s direction in that case, at
    para. 41, that [w]herethe vendor retains the property in order to speculate
    on the market, damages will be assessed at the date of closing. The motion
    judge continued to say that if the respondents had breached in order to deprive
    a speculator (which the appellant was not), the measure of the appellants
    damages would have to be measured as of the closing date or date of breach.

[12]

In conclusion on this issue, the motion judge,
    referring to authorities on the issue, stated, at para. 30, that the fact that
    the respondents ultimately made a speculative profit does not give the
    appellant such profit as a measure of damages:

The measure of
    damages for failure to complete a purchase of land is the difference between
    the contract price and the market value of the land  which is intended to
    represent the lost benefit of the bargain to the vendor:
Marshall
, at
    para 12. The same principled approach applies to the purchaser where it is the
    party that lost what it bargained for. The damages must make up what the purchaser
    lost in value on the closing date, not what a property speculator standing in
    the purchasers shoes would have lost.

[13]

According to the motion judge, an innocent
    purchaser cannot access a measure of damages that has been specifically denied
    by this court, in particular, the profit that it would have made had it
    purchased the properties as a speculator intent on flipping them to a new
    purchaser two and a half years later.

[14]

With respect to the appellants duty to mitigate
    its loss, the motion judge found that, given the circumstances of the
    appellants business and the fact that the appellant had returned the deposit
    to its parent corporation, it had either mitigated its damages in full or had
    failed to mitigate. He noted that the appellant refused to disclose information
    relating to the buildings acquired subsequent to January 2016, which would have
    assisted with determining whether the appellant had mitigated its loss.

[15]

The motion judge declined to order costs in favour
    of either party in light of the mixed success on the motion.

The Issues on Appeal

[16]

The appellant argues that the motion judge committed
    reversible error on three issues. Its submissions are discussed further below,
    but in brief, it first argues that the motion judge erred in finding that he
    was bound by the case of
Fleischer
to assess damages as of the date of
    breach. Second, it submits that the motion judge erred in finding that the
    respondent vendors succeeded in showing that the appellant purchaser failed to
    mitigate or had, in fact, mitigated its damages (other than the costs thrown
    away). It lastly argues that the motion judge erred in failing to award the
    appellant its costs.

[17]

The respondents cross-appeal on two points. First,
    they argue that the motion judge erred in awarding Akelius every dollar of its
    sunk costs. Second, they argue that they ought to have been awarded their
    costs given their success defending the majority of the appellants claim for
    damages.

[18]

For the following reasons, I would dismiss both
    the appeal and the cross-appeal. I will address the issues in turn.

(1)

The Measure of Damages

(a)

The Parties Positions

[19]

The appellant submits that the motion judge misapplied
6472047 Ontario Ltd. v. Fleischer (
2001), 56 O.R. (3d) 417 (Ont. C.A.).
    According to
Fleischer
, it argues, the date for the assessment of
    damages is to be determined on what is fair on the facts of each case.
Fleischer
arose from a breach by a purchaser in a declining market. There, unlike the
    present facts, the vendor was innocent. The appellant, in its factum, states
    that
Fleischer
is clear that the decision to assess damages at the
    date of closing is driven by the innocent vendors decision not to mitigate its
    damages by selling the property as quickly as possible following the breach. The
    appellant argues that the application of
Fleischer
to the
    circumstances of an innocent purchaser, having appropriate regard to justice
    and fairness, supports assessing damages on the date that a defaulting vendor
    resells the subject property at a premium to what it would have received from
    the innocent purchaser.

[20]

In addition, the appellant argues that the
    motion judges assessment of damages failed to put it in the position that it
    would have been in had the contract been performed. Rather, the motion judges
    award wrongly put the appellant in the position that it would have been in had
    the contract never been performed.

[21]

The respondents submit that the motion judge was
    correct in his application of
Fleischer
and that the date of closing is
    the appropriate date upon which to assess the damages. They further submit that
    in this case, the damages sought by the appellant for lost capital appreciation
    were not the type of damages that were in the reasonable contemplation of the
    parties at the time the APS was signed. The appellant intended to hold the
    buildings as a long-term investment, and while it may have eventually sold the
    buildings for a profit, its own evidence shows that it likely would not have
    sold the buildings in 2018. Thus, the motion judge was correct in finding that
    the appellant is not a property speculator and could not recover damages on
    that basis.

(b)

Law and Analysis

[22]

It has long been the case in the real estate
    context that the starting point for the assessment of damages for breach of
    contract is the date of breach. This principle was set out in
100 Main Street Ltd. v. W.B. Sullivan Construction
    Ltd.
(1978), 20 O.R. (2d) 401 (Ont. CA) and
    reaffirmed in
Fleischer
. In
Fleischer
, at para. 41, Laskin
    J.A. summarized the six propositions articulated by Morden J.A. in
Main
    Street
as follows:

(1) The basic principle for assessing damages
    for breach of contract applies: the award of damages should put the injured
    party as nearly as possible in the position it would have been in had the
    contract been performed.

(2) Ordinarily courts give effect to this
    principle by assessing damages at the date the contract was to be performed,
    the date of closing.

(3) The court, however, may choose a date
    different from the date of closing depending on the context. Three important
    contextual considerations are the plaintiff's duty to take reasonable steps to
    avoid its loss, the nature of the property and the nature of the market.

(4) Assessing damages at the date of closing
    may not fairly compensate an innocent vendor who makes reasonable efforts to
    resell in a falling market. In some cases, the nature of the property -- for
    example an apartment building-- hampers the vendor's ability to resell quickly.
    Thus, if the vendor takes reasonable steps to sell from the date of breach and
    resells the property in some reasonable time after the breach, the court may
    award the vendor damages equal to the difference between the contract price and
    the resale price, instead of the difference between the contract price and the
    fair market value on the date of closing.

(5) Therefore, as a general rule, in a falling
    market the court should award the vendor damages equal to the difference
    between the contract price and the highest price obtainable within a
    reasonable time after the contractual date for completion following the making
    of reasonable efforts to sell the property commencing on that date

(6) Where,
    however, the vendor retains the property in order to speculate on the market,
    damages will be assessed at the date of closing.

[23]

As Laskin J.A. explains in
Fleischer
,
    at para. 42, underlying these propositions is the simple notion of fairness.
    In determining the appropriate date for the assessment of damages, the court
    must have regard to what is fair in the circumstances.

[24]

In
Fleischer
, the innocent vendors
    claimed damages arising from the purchaser who refused to close when they realized
    that the market was falling. The trial judge found that the closing date in
    November 1990, the date of breach, was the appropriate date for the assessment
    of the vendors damages, at which point the property in issue was worth
    $1,130,000. On appeal to this court, the vendors argued that their damages
    should be assessed as at the date of trial some four years later, by which
    point the property in question had decreased in value to $410,000. This court
    disagreed. In finding that the date of breach was the correct date, Laskin J.A.
    stated, at para. 44, that the innocent vendors

cannot pick a
    date at random, nearly four years after the closing date, when the market was
    likely at its lowest, and reasonably expect the court to choose that date to
    measure their loss.

[25]

There are cases that support the view that, in
    some instances, it might be appropriate to move the date somewhat later;
    however, this has been done in cases where the plaintiff established that it
    was not in a position to re-enter the market as at the date of breach. In
Asamera
    Oil Corporation Ltd. v. Sea Oil & General Corporation et al.
, [1979] 1
    S.C.R. 633, the defendant was in breach of an agreement between the parties
    which required the return of Asamera shares that had been loaned to the
    defendant. The value of the shares fluctuated considerably from the date of the
    breach and the trial. The innocent plaintiff argued that the date of the
    assessment of damages should have been the dates those shares were at their
    highest prices. This view was rejected by the Supreme Court. Rather, the
    starting point continued to be the date of breach, and the damages were found
    to have crystallized at the earliest date upon which the plaintiffs could
    reasonably have re-entered the market.

[26]

In
Domowicz v. Orsa Investments Ltd.
(1994)
, 20 O.R. (3d) 722 (S.C.), varied
    on other grounds, (1998) 40 O.R. (3d) 256 (C.A.), a case cited by the
    appellant, the innocent vendor plaintiff sought specific performance of an
    agreement to purchase an apartment building. The plaintiff filed detailed
    evidence as to its damages in light of its planned use for the property,
    including its loss of revenue. The trial judge noted that the plaintiff must
    prove its loss. He recognized that it may have taken some time to find a
    replacement property but rejected the argument that it could reasonably have
    taken the time the plaintiff was claiming, which was the date of trial some
    three years later. At the end of the day, the appropriate date for the
    assessment of damages was found to have been only three months later than the
    date of breach.

[27]

In all these cases, the date of breach remains a
    starting point for the assessment of loss, modified only to the extent that the
    innocent party satisfies the court that a later date is appropriate on the
    grounds that it is the first date upon which the party could reasonably have
    been expected to re-enter the market and mitigate its damages.

[28]

The appellant argues that the motion judge
    misapplied
Fleischer
because, in that case, the vendor was innocent. It
    further argues that when a vendor defaults on a real estate transaction in a
    rising market, the date of assessment of damages should be varied from the date
    of breach because an innocent purchaser such as the appellant may have
    difficulty attempting to purchase a comparable portfolio of properties in a rising
    real estate market. It relies on the case of
Domowicz
as authority for
    the proposition that assessing damages as at the date of breach would not satisfy
    the general principle that the non-breaching party should be put in a position
    in which he or she would have been in had the contract been performed.

[29]

I do not agree with the appellants
    interpretation of these cases. First, in
Fleischer
, the innocent
    vendors had retained the property and re-leased it, speculating that the market
    would eventually go back up. Laskin J.A. rejected the argument that because the
    vendors were innocent, they were entitled to deviate from the usual measure of
    damages as of the date of breach. He found that the appropriate date was the
    date of breach. I see no principled reason for the suggestion that the date
    should be different when the purchaser is the innocent party. Put another way,
    the fact that a party is innocent does not displace the date of breach as the
    presumptive date for the measure of damages in a real estate case.

[30]

Second,
Domowicz
does not assist the
    appellant. Unlike the plaintiff in
Domowicz
, the appellant did not
    provide evidence of its loss of revenue, claiming that it was not necessary
    because it was choosing not to claim its loss of revenue. However, in order to
    prove what it had actually lost, the appellant would have had to show not only
    what it lost in capital appreciation but also, as in
Domowicz
, what it
    would have made in capital appreciation had it sold in April 2018 when the
    respondents did.

[31]

Even if the appellant could have shown that it
    could not have bought other buildings that would have appreciated as much over
    the next two and a half years, the appellant has not established why it could
    not have re-entered the market over that period or why, for the purpose of mere
    capital speculation, it was necessary to purchase six buildings close to one
    another in Parkdale.

[32]

Moreover, the appellant argues that it is
    entitled to the loss of capital appreciation, but it has not explained why the
    loss of capital profit has to be assessed where all the synergies of the lost
    properties related to the long-term investment purpose. The evidence suggested
    that the desire to acquire the properties had to do with the synergies in
    having close buildings, with a view to maximizing the rental returns. No doubt,
    the ultimate return on the properties is part of the long-term planning, but
    the capital appreciation in and of itself some two and a half years later does
    not, in these circumstances, prove the appellants loss or the earliest date it
    could have re-entered the market. The capital appreciation of the properties would
    be relevant to the extent that it was in the reasonable contemplation of the
    parties at the time of the agreement: see for example
Kipfinch Developments
    Ltd. v. Westwood Mall (Mississauga) Limited
, 2010 ONCA 45, at paras.
    14-15. However, all the evidence indicates that, based on its business model,
    the appellant was not a property speculator but a long-term investor, and this
    would have informed the parties reasonable contemplation at the time of the
    agreement.

[33]

In effect, the appellant here is seeking to do
    what was rejected by the court in
Asamera
: begin with the amount that
    would represent the high point in the assessment of damages between the date of
    breach and the date of trial (or, as here, when the respondents sold the
    property). Such an approach would undermine the advantages of certainty and
    predictability arising from a long line of established and stable case law that
    presumes the date of breach for the assessment of damages for breach of
    contract.

[34]

Moreover, and as was also the case in
Asamera
,
    the appellants position presumes it would have sold at the high point. In
Asamera
,
    that made sense because in a fluctuating market for shares bought at different
    times, it would be assumed that the innocent party would have the perspicacity
    to sell at the high point for the shares. Here, it makes no sense because all
    the appellants own business plans reflected a pattern of keeping buildings as
    rentals for much longer periods of time.

[35]

For all the above reasons, it would not be fair
    in the circumstances to shift the date of the assessment of damages beyond the
    date of the breach. In short, the trial judge correctly found that there was no
    genuine issue requiring a trial on the date upon which the damages should be
    assessed. On that date, the market value and the contract price were the same;
    there was no loss. The appellant has not proven its loss, and the date it has
    chosen as the crystallization of its loss is not sufficiently connected to
    the date of breach or to the objectively understood purpose of the contract.

[36]

As the appellant failed to prove its losses, I
    would also not give effect to its mitigation argument because, having failed to
    establish that it suffered a loss as of the date of breach, there were no
    losses to be mitigated.

(2)

The Cross-Appeal

[37]

The respondents cross-appeal on two issues.
    First, they argue that the motion judge erred in awarding Akelius its costs
    thrown away (reliance damages) trying to pursue the aborted transaction in the
    amount of $775,855.46. Second, the respondents argue that they should have been
    awarded their costs, given their proportional success in defending against the
    appellants claim. The appellant agrees that the trial judge erred in not
    awarding costs to either party but argues that it should have been awarded
    costs, given its partial success at trial.

[38]

With respect to the claim of the costs thrown
    away, the trial judge clearly found that the respondents breached the APS. The
    appellant was entitled to these damages and I am not persuaded that the motion
    judge committed any reversible error in this respect, either in principle or in
    terms of the quantum.

[39]

The appeal of the order that there should be no
    costs must also fail. Costs awards are within the discretion of the court:
Courts
    of Justice Act
, R.S.O. 1990, c. C.43, s. 131(1). In
Przyk v. Hamilton
    Retirement Group Ltd. (The Court at Rushdale)
, 2021 ONCA 267, at paras.
    9-10, this court explained the threshold to be met before an appellate court
    may set aside a costs award:

[9]   An appellate court takes a deferential
    approach when reviewing a discretionary award of costs by a trial court
    (including a discretionary decision to deny costs). A costs award will only be
    set aside on appeal if the trial judge has made an error in principle or if
    the costs award is plainly wrong:
Hamilton v. Open Window Bakery Ltd
.,
    2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27.

[10]  This
    deferential approach requires that attention be paid not only to the nature of
    any error affecting a costs decision, but also to its extent. It is
    insufficient  to identify an error in principle in the course of the trial
    judges reasons without considering whether there is an independent basis to
    uphold the order. An appellate court should be reluctant to interfere with the
    exercise of discretion by a trial judge who had a much better opportunity to
    acquaint himself with, and have a feeling for, all of the factors that formed
    the basis for the award of costs:
Bell Canada v. Olympia & York
    Developments Ltd
., 111 D.L.R. (4th) 589 at para. 41. Even where a trial
    judge has relied on a factor that is unsupported by proper legal principles or
    considerations to deny costs to a successful party, an appellate court should
    not intervene unless it can find nothing in the factual circumstances or
    argument to support the order:
Bell Canada
at para. 42.

[40]

Success was divided at trial. It was within the
    trial judges discretion to decline to award costs. I am not convinced that
    appellate intervention is warranted.

(3)

Conclusion

[41]

For these reasons I would dismiss both the
    appeal and the cross-appeal.

(4)

Costs

[42]

Costs of the appeal to the respondents in the agreed amount of
    $25,000.

Released: March 30, 2022 P.L.

A. Harvison Young J.A.

I agree P. Lauwers J.A.

I agree L. Sossin J.A.


