



COURT OF APPEAL FOR ONTARIO

CITATION: Matthew Brady
    Self Storage Corporation v. InStorage Limited Partnership, 2014 ONCA 858

DATE: 20141203

DOCKET: C57707

Doherty, Blair and Tulloch JJ.A.

BETWEEN

Matthew Brady Self Storage Corporation

Plaintiff (Respondent)

and

InStorage Limited Partnership and InStorage
    Trustee Corp.

Defendants (Appellants)

Robert Malen and Robert Drake, for the appellants

Clifford Lax, Q.C., and Shaun Laubman, for the
    respondent

Heard: October 29, 2014

On appeal from the order and judgment of Justice Richard
    C. Gates of the Superior Court of Justice, dated July 6, 2012 and August 30,
    2013, respectively, with reasons for the judgment reported at 2013 ONSC 4345,
    35 R.P.R. (5th) 232.

By the Court:

Background

[1]

In 2007 the principals of Matthew Brady Self Storage Corporation (Robert
    and Michael Siskind) agreed with the principal of the InStorage appellants
    (James Tadeson) that they would jointly purchase a vacant factory in Windsor
    and convert it into a self-storage facility.  The InStorage appellants (InStorage)
    were part of a group of corporations in the business of operating self-storage
    facilities and had approximately 50 sites in operation at the time. Matthew
    Brady was incorporated for the purpose of acquiring and converting the property
    for the joint venture.

[2]

The agreement was that each party would provide one-half of the purchase
    price and they would each have an equal interest in the property during the
    period of time it took Matthew Brady to convert it into the self-storage
    facility.  InStorage would then buy the whole property from Matthew Brady and
    operate it as an InStorage location.

[3]

However, InStorage ran into financial difficulties before the purchase
    was to take place, and this led to further negotiations and another arrangement. 
    Under the new arrangement, the Siskinds agreed to put up the entire purchase
    price, and Matthew Brady would become the sole owner of the property pending
    completion of the project.

[4]

In addition, the parties entered into an Offer to Purchase and Sell
    Agreement (which we will refer to as the Put/Call Agreement).  Under this
    latter agreement, Matthew Brady could force InStorage to purchase the property
    through a Put and InStorage could force Matthew Brady to sell the property to
    it through a Call, beginning one year following substantial completion of the
    retrofit and for three years thereafter.

[5]

In substance, the Put/Call Agreement provided that, in the event of a
    Put or a Call, the parties would have 15 days to agree on a purchase price.  If
    they did not agree, an appraiser was to be retained to determine the purchase
    price and, in the absence of manifest error, the appraisers determination of
    Fair Market Value, as defined, would bind the parties.  There was not to be
    an exercise of competing expert appraisals.  By agreement, Valco Consultants
    Inc. was named as the appraiser.

[6]

It is the language of the Fair Market Value definition, in conjunction
    with the manifest error caveat that lies at the heart of this appeal.  Fair
    Market Value was defined as follows:

1.1(m) Fair Market Value
means, in respect
    of the Property,
the most probable price which the Property should bring in
    a competitive and open market under all conditions requisite to a fair sale
,
    the buyer and seller each acting prudently and knowledgeably and without
    compulsion and
with the primary consideration being the net cash flow being
    generated from the Property
, and assuming the price is not affected by
    undue stimuli in circumstances where: (i) both parties are typically
    motivated; (ii) both parties are well informed or well advised, and acting in
    what they consider their best interests; (iii) a reasonable time is allowed for
    exposure of the Property in the open market; (iv) payment is made in terms of
    cash in Canadian dollars or in terms of financial arrangements comparable
    thereto; and (v) the price represents the normal consideration for the Property
    sold, unaffected by special or creative financing or sales concessions granted
    by anyone associated with the sale. [Emphasis added.]

[7]

On July 21, 2009  a little more than a year after substantial
    completion  Matthew Brady exercised the Put.

[8]

In the meantime, however, InStorage had been acquired by a large American
    self-storage business, Storage Mart, in a hostile take-over.  Storage Marts C.E.O.,
    Michael Burnham, did not favour the Windsor project and, on the evidence before
    the trial judge, actively sought ways to get out of it and to avoid having to
    comply with the Put/Call Agreement.  He had been advised by his lawyers in both
    Ontario and the United States that he was bound by InStorages obligations
    under the Put/Call Agreement.  He decided, nonetheless, that he would force
    Matthew Brady to sue and that he would negotiate in court.

[9]

Not surprisingly, the parties could not agree on a price.  Valco was
    retained to conduct the appraisal called for under the Put/Call Agreement and James
    Telford of that firm did so.  He concluded that the fair market value of the
    property was $7.3 million.

[10]

InStorage
     now controlled by Storage Mart  refused to accept the appraisal.  Mr.
    Burnham took the position that Mr. Telford had made a manifest error in
    failing to found his conclusion about fair market value on the income approach
    to valuation, thereby ignoring the provision in the Put/Call Agreement that the
    primary consideration in establishing fair market value was to be the net
    cash flow being generated from the Property.
[1]

[11]

Not
    surprisingly, Matthew Brady sued.

[12]

At
    trial, InStorage attempted to introduce the report and evidence of a different
    appraiser, Mr. Bower, who calculated fair market value at less than $5 million,
    using primarily the income approach.  At the conclusion of all of the evidence
    bearing on the manifest error argument, Matthew Bradys counsel moved for an
    order excluding Mr. Bowers report.

[13]

The
    trial judge excluded the evidence, and in the course of his mid-trial ruling on
    the issue he also concluded that Mr. Telford had made no manifest error in
    arriving at his fair market value conclusion.  This ruling effectively took
    manifest error off of the table for further argument at the conclusion of
    trial.

[14]

In
    the end, the trial judge ruled in favour of Matthew Brady and awarded it
    specific performance of the Put/Call Agreement; InStorage is therefore required
    to accept a conveyance of the property and to pay Matthew Brady the $7.3
    million purchase price.  Damages of $728,080.05 were awarded for other matters,
    but they are not the subject of appeal.  In addition, the trial judge awarded
    Matthew Brady costs in the amount of $415,000 plus HST, in part on a partial
    indemnity basis, but also on a substantial indemnity basis from the time of an
    email offer to settle made by a principal of Matthew Brady, Michael Siskind,
    directly to Mr. Burnham on behalf of InStorage.  Matthew Brady bettered this
    offer at trial.

Issues

[15]

On
    appeal, InStorage raises essentially three issues.  It submits that the trial
    judge erred:

a)

in substance, by concluding
    that Mr. Telford had not made a manifest error in his valuation, and
    procedurally, by making that decision mid-trial  in the context of the motion
    to exclude Mr. Bowers evidence  without giving InStorages counsel the opportunity
    to argue the issue more fully at the conclusion of trial;

b)

in awarding Matthew
    Brady specific performance and in finding that Matthew Brady did not have a
    duty to mitigate; and

c)

in awarding costs on a
    substantial indemnity basis and, in any event, awarded costs that were
    excessive.

Discussion

[16]

We
    would not give effect to these grounds of appeal for the following reasons.


Manifest Error


[17]

InStorage
    argues first that the trial judge erred in finding that Mr. Telford had not
    made a manifest error in his valuation. It submits that under the terms of the
    Put/Call Agreement, the appraiser had to use the income approach to valuation
    as at least one of the methods of appraisal and that in failing to do so Mr. Telford
    committed a manifest error.

[18]

We
    disagree that the language of the Put/Call Agreement required the appraiser to
    use the income approach as one method.  Instead, he was required to give that
    approach primary consideration.  Ultimately, however, it was open to the
    appraiser, after considering it, to determine that the income approach was not
    helpful in the circumstances.  Mr. Telford did so and explained why he reached
    the conclusion he did on valuation.

[19]

InStorage
    further argues that the trial judge erroneously determined the manifest error
    issue mid-trial when it was only necessary to determine the admissibility of
    the opinion of its expert appraiser, Mr. Bower. The trial judges determination
    was a procedural failing that deprived InStorage of the opportunity to make
    full submissions on the manifest error point, it submits.

[20]

For
    the purposes of disposing of the appeal, we are prepared to assume that the
    trial judge should not have made a finding that there was no manifest error
    in the Telford appraisal in the course of his ruling as to the admissibility of
    the Bower opinion.  We are also prepared to assume that the trial judge should
    have determined only whether the Bower opinion went to the question of whether
    there was a manifest error but should have left the ultimate determination of
    that issue to the end of the case.

[21]

We
    are also satisfied that it is at least arguable that InStorage did not get a
    full opportunity at trial to address whether there was manifest error in the
    Telford appraisal.  It is accepted that all of the evidence relevant to that
    issue was heard, but counsel for InStorage maintains that, given the way the
    trial judge decided the issue, he never had a full opportunity to argue it. He
    agrees that the Bower report did not address the issue of manifest error
    directly.

[22]

The
    question then becomes whether this procedural failing resulted in any prejudice
    to InStorage at trial.

[23]

InStorages
    prejudice argument rests on the assertion that, had counsel been able to argue
    the manifest error issue at the conclusion of trial, he could have raised
    aspects of the Telford appraisal and aspects of Telfords cross-examination
    which may have convinced the trial judge that the appraiser had made a manifest
    error in not using the income approach.

[24]

Counsel
    provided us with three examples.  We do not propose to examine these examples
    in detail.  We do not agree than any could support a finding of prejudice.  For
    example, while it is true that Telford did not refer specifically to the terms
    of the Put/Call Agreement and, specifically, to the provision relating to the
    determination of fair market value, in his report, in his evidence he made it
    clear that he was fully aware of the terms of the Put/Call Agreement and
    explained his reasons for following the course he did.  The fact that he did
    not mention the terms of the Put/Call Agreement in his report would not provide
    fodder for the kind of argument needed to demonstrate manifest error in the report.

[25]

We
    reject this ground of appeal.

Specific
    Performance and the Obligation to Mitigate

[26]

In
    this case, the arguments relating to specific performance and mitigation are
    intertwined.  If Matthew Brady is entitled to specific performance there can
    have been no duty to mitigate by selling the property and crystallizing its
    claim in damages.  Otherwise, the claim for specific performance would become
    moot.

[27]

The
    issue, therefore, is whether Matthew Brady was justified in pursuing its claim
    for specific performance in the circumstances.  The trial judge found that it
    was and granted specific performance.  We see no basis for interfering with that
    decision.

[28]

As
    Matthew Brady points out in its factum, the trial judge granted specific
    performance because (i) the property was unique, (ii) damages would not be an
    adequate remedy, and (iii) there was a fair, real and substantial justification
    for specific performance.  Although InStorage does not contest that these are
    the appropriate principles, it submits that the trial judge erred in all three
    respects nonetheless. It says that specific performance should not have been
    granted because Matthew Brady is a
vendor
seeking specific performance
    of an agreement for the sale of a non-unique investment property whose losses
    can readily be compensated for in damages.

[29]

In
    its essence, specific performance is a discretionary equitable remedy granted
    where damages cannot afford an adequate and just remedy in the circumstances.  Almost
    200 years ago, the principle was described by Sir John Leach, V.C., in
Adderley
    v. Dixon
(1824), 57 E.R. 239, at p. 240:

Courts of Equity decree the specific performance of contracts,
    not upon any distinction between realty and personalty,
but because damages
    at law may not, in the particular case, afford a complete remedy
.
    [Emphasis added.]

[30]

Although
    specific performance is not in principle granted on the basis of any distinction
    between contracts for the sale of land and contracts involving personal
    property, until relatively recently that distinction has prevailed as a matter
    of course. That is because the law has traditionally viewed land as inherently
    unique such that damages could not sufficiently compensate its prospective
    purchaser.

[31]

In
Semelhago v. Paramadevan
, [1996] 2 S.C.R. 415, the Supreme Court of
    Canada discarded that approach, however. The Court confirmed that specific
    performance was not to be available automatically as the default remedy for
    breach of a contract for the sale of lands absent evidence that the property
    is unique to the extent that its substitute would not be readily available or
    absent a fair, real and substantial justification for the claim to specific
    performance (at para. 22).

[32]

Whether
    specific performance is to be awarded or not is therefore a question that is
    rooted firmly in the facts of an individual case.  In
Landmark of Thornhill
    Ltd. v. Jacobson
(1995), 25 O.R. (3d) 628 (C.A.), at p. 636, this Court
    identified three factors bearing on the exercise of discretion in favour of
    specific performance: (i) the nature of the property involved; (ii) the related
    question of the inadequacy of damages as a remedy; and, (iii) the behaviour of
    the parties, having regard to the equitable nature of the remedy.

[33]

What
    makes this case unusual is that it is the
vendor
rather than the
    purchaser seeking to have these factors reviewed in its favour.  In such
    circumstances, damages will often be an adequate remedy.  Indeed, there is a
    debate about whether the arguments in favour of granting specific performance
    to a vendor are weaker than those in favour of the purchaser: see Robert J.
    Sharpe,
Injunctions and Specific Performance
, looseleaf (Toronto:
    Canada Law Book, 2012), at paras. 8.100 to 8.220;
Dick v. Dennis
(1991), 20 R.P.R. (2d) 264 (Ont. Gen. Div.), at paras. 31-33.

[34]

But
    it will not always be the case that damages are an adequate remedy where the
    vendor is the plaintiff, and there are authorities supporting the granting of
    specific performance in favour of a vendor: see, for example,
Landmark of
    Thornhill
;
Dick v. Dennis
, at para. 38;
Westwood Plateau
    Partnership v. WSP Construction Ltd.
(1997), 37 B.C.L.R. (3d) 82 (S.C.),
    at paras. 148-156, 163; and
Comet Investments Ltd. v. Northwind Logging
    Ltd.
(1998), 22 R.P.R. (3d) 294 (B.C. S.C.), at paras. 35-39.

[35]

In
    an analogous context, where the claim relates to an investment property and any
    unique characteristics can be reflected in the sale price or profits from the
    investment and, therefore, give rise to quantifiable damages, courts have taken
    the position  following the approach taken in
Semelhago
 that there
    is no clear rule one way or the other as to whether specific performance is
    available.  Its availability will turn on the uniqueness of the property and
    whether there is a fair, real and substantial justification for the claim. See,
    for example,
John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd.
(2001), 56 O.R. (3d) 341 (S.C.), at para. 59, affd (2003), 63 O.R. (3d) 304
    (C.A.), at paras. 37-39, 43-44, leave to appeal to S.C.C. refused, (2003) 223
    D.L.R. (4th) vi;
Monson v. West Barrhaven Developments Inc.
, [2000]
    O.J. No. 5209 (S.C.), at paras. 8-9;
1174538 Ontario Ltd. v. Barzel Windsor
    (1984) Inc.
(1999), 29 R.P.R. (3d) 256 (S.C.), at paras. 7-8;
365733
    Alberta Ltd. v. Tiberio
, 2008 ABCA 341, 440 A.R. 177, at paras. 10-12.

[36]

In
    our view, in the context of vendor claims  consistent with the approach taken
    in
Semelhago
 there is no absolute rule, one way or the other.  The
    following passage from the Sharpe text, at paras. 7.210 and 7.220 is
    instructive:

Where the subject-matter of the contract is unique
,
    a strong case can be made for specific performance.
The more unusual the
    subject-matter of the contract
, the more difficult it becomes to assess
    the plaintiffs loss.



An award of damages presumes that the plaintiffs expectation
    can be protected by a money award
which will purchase substitute
    performance
.  If the item bargained for is unique, then there is no exact
    substitute. [Emphasis added.]

[37]

Two
    considerations emerge from that passage.  First, it is the subject-matter of
the
    contract
, not the land alone that must be unique or unusual.  Second, the
    measure of the adequacy of a money award is whether it will purchase
    substitute performance.  These considerations help shed light on the analysis
    where the vendor is the plaintiff.

[38]

The
    uniqueness analysis in such circumstances has a slightly different focus than
    in the usual case where the purchaser seeks the remedy.  There, the issue is
    whether
the land itself
has some peculiar or special value
to the
    purchaser
who is seeking to obtain it and whether there is a reasonable
    substitute readily available.  That paradigm does not fit into the analysis as
    readily where
the vendor
seeks specific performance.  In one sense,
    there is nothing unique about the property the vendor receives when such an
    order is made.  The vendor receives the purchase price  the value of the land
    in money according to the contract.

[39]

It
    does not follow, however, that there may not be uniqueness, or a special
    character, to the circumstances of
the transaction
 the
    subject-matter of the contract viewed more broadly  that will justify specific
    performance.  Where the vendor seeks the remedy the focus should be on the transaction
    as a whole.

[40]

The
    trial judge recognized this.  He said that the adequacy of money damages will
    turn on the question of whether the subject matter of the contract is generic
    or unique.  InStorage argues he was wrong in taking this approach and that it
    is the land, and not the subject-matter of the contract, that must be unique. 
    We do not agree.  The special character of the land may remain a factor for
    consideration but the key factors, looking at the contract broadly, are (i)
    whether on the facts as a whole, damages will afford the vendor an adequate and
    complete remedy or whether a money award will be sufficient to purchase
    substitute performance; (ii) whether the vendor has established some fair, real
    and substantial justification for the granting of specific performance; and,
    (iii) whether the equities as between the parties favour the granting of
    specific performance.

[41]

The
    trial judge found that those criteria were met.  We see no error in his
    conclusion that Matthew Brady was entitled to specific performance.  There were
    ample circumstances justifying the award.  These included the following:

a)

InStorage was always
    intended to be the sole owner of the property.  As its pre-takeover principal,
    Mr. Tadeson, testified, the Put/Call Agreement was entered into so that
    InStorage would not have to outlay the necessary capital for its acquisition
    immediately.

b)

Matthew Brady
    renovated the subject premises to InStorages specifications and design
    criteria.  The property had a high ratio of climate controlled storage units
    and was the only Class A self-storage facility in Windsor.

c)

But for InStorages
    commitment to owning the property, Matthew Brady would not have acquired it and
    done the retrofit.  Its principals were out of the self-storage business,
    having sold their seven outlets to InStorage previously.  The deal did not contemplate
    Matthew Brady being left holding a single-purpose and specially-designed
    building suitable only for carrying on a business in which it and its
    principals were no longer engaged.

d)

InStorage had
    occupied, managed and operated the building (under the brand InStorage, and
    later Storage Mart) since the completion of the retrofit  the state of affairs
    contemplated by the parties from the very outset of their contractual dealings.

e)

InStorage had,
    admittedly, done a poor job in managing the property  something that would
    affect its value and impede a ready sale.

f)

Storage
    Marts C.E.O., Burnham, had candidly admitted that if there were no manifest
    error in the Telford appraisal, he would write a cheque.  He made no secret
    of the fact that he did not want anything to do with the Windsor project, had
    not understood the Put/Call Agreement, and that his strategy was to negotiate
    in court.  He purposely resiled from the contract, and repudiated the advice
    of both Ontario and U.S. counsel that InStorage was obliged to comply.

[42]

In
    all of these circumstances, the trial judge was entitled to conclude, as he
    did, that damages would not adequately and justly compensate Matthew Brady for
    InStorages refusal to abide by the Put/Call Agreement and that Matthew Brady
    had shown a fair, real and substantial justification to compel performance of
    the Agreement, and that the equities favoured Matthew Brady.  That being the
    case, there was no obligation on Matthew Brady to have attempted to mitigate by
    selling the property in an effort to crystalize its damages.

The
    Costs Award

[43]

Finally,
    InStorage attacks the trial judges costs award of $415,000 plus HST.  The
    award was made on a partial indemnity basis to the point of an offer to settle
    made by Matthew Brady (and not accepted by InStorage) and on a substantial
    indemnity basis thereafter.

[44]

InStorages
    principal attack is on the substantial indemnity aspect of the award.  InStorage
    submits that the offer to settle did not qualify as a Rule 49 offer to settle
    for costs purposes because, although it had been exchanged directly between the
    parties, it had not been served on InStorages solicitors, as required by rule
    16.01(4)(a) of the
Rules of Civil Procedure
, R.R.O. 1990, Reg. 194,
    which provides that:

Any document that is not required to be served
    personally or by an alternative to personal service,

(a) shall be served on a party who has a lawyer of
    record by serving the lawyer, and service may be made in a manner provided in
    rule 16.05.

[45]

We
    do not agree.  In
Igbokwe v. HB Group Insurance Management Ltd.
(2001), 55 O.R. (3d) 313 (C.A.), leave to appeal to S.C.C. refused, (2002), 166
    O.A.C. 200 (note), Labrosse J.A. ruled that, while an offer should be served on
    the solicitor of record, failure to comply with this technical requirement
    ought not to alter the nature and legal effect of the offer under Rule 49
    where, in the circumstances, the service of the offer to settle on the [party]
    did not create any difficulty, confusion or otherwise mislead the plaintiff
    (at paras. 10-11).

[46]

That
    is the case here, in our view. The trial judge found that the offer
    represented a serious and reasonable attempt to settle the matter, that the
    parties had turned their minds to a settlement, within [the email exchange in
    which the offer was contained]. When asked during argument, counsel confirmed
    there was no evidence that InStorages lawyers were unaware of the offer. 
    Indeed, it appeared to the trial judge that Burnham had discussed it with
    counsel, because InStorage later delivered an offer to settle itself.

[47]

Rule
    2.01(1) provides that a failure to comply with the rules is an irregularity
    and does not render a proceeding or a step, document or order in a proceeding a
    nullity.  In the circumstances, we see no error in the trial judges
    conclusion that the lack of formal service on InStorages solicitors did not
    render the offer a nullity for Rule 49 purposes.

[48]

Even
    if he erred in concluding the offer met the requirements for Rule 49, however,
    the trial judge was still entitled to take the offer to settle into account in
    arriving at his award of costs: r. 49.13.  As this Court recently observed, in
Lawson
    v. Viersen
, 2012 ONCA 25, 108 O.R. (3d) 771, at para. 46, rule 49.13 allows
    a judge to consider offers even though the offers do not comply with [the]
    rules; it is not concerned with technical compliance and calls on the judge
    to take a more holistic approach.  That is what the trial judge did here.

[49]

InStorage
    also attacked the award on the basis that the substantial indemnity costs
    exceeded the 1.5 times multiplier provided for in the definition of
    substantial indemnity costs found in rule 1.03(1).  It states:

In these rules, unless the context requires otherwise,



substantial indemnity costs mean costs awarded in an amount
    that is 1.5 times what would otherwise be awarded in accordance with Part I of
    Tariff A.

[50]

Here,
    the context required otherwise, in our view.

[51]

Matthew
    Brady had originally agreed to costs on a partial indemnity basis in the amount
    of approximately $252,000, subject to the effect of the offer to settle. 
    Subsequently, the claim was made for substantial indemnity costs flowing from
    the offer to settle.  InStorage therefore argues that the substantial indemnity
    amount  taking into account the date of the offer  should have been approximately
    $334,000, based on the 1.5 times multiplier.  Instead, the trial judge awarded
    $415,000, amounting to a factor of about 1.65.

[52]

The
    trial judge was alive to the 1.5 multiplier, and took it as a starting point. 
    However, he exercised his discretion to increase that amount, based on InStorages
    conduct that had unnecessarily prolonged the trial (seeking to put forward the
    Bower report, a trial adjournment that required further preparation and the
    pursuit of an unmeritorious claim for deficiencies that was ultimately
    withdrawn).  In the end, the trial judge applied the proper balance by
    instructing himself on the basis of
Boucher v. Public Accountants Council
    for the Province of Ontario
(2004), 71 O.R. (3d) 291 (C.A.), at para. 26, that
    the objective is to fix an amount that is fair and reasonable for the
    unsuccessful party to pay in the particular proceeding.  He was entitled to
    take this approach in the exercise of his discretion, and there is no basis to
    interfere with his determination of the amount.

[53]

InStorages
    final attack on the costs award was to argue that it was simply too high.  The
    trial judge exercised his discretion after applying all of the proper
    principles.  There is no basis to interfere with the amount he ultimately
    arrived at.  In this respect we note that InStorages claim for costs on a
    partial indemnity basis only was approximately $300,000.

Disposition

[54]

For
    the foregoing reasons, the appeal is dismissed.  While leave to appeal costs is
    granted, the appeal as to costs is dismissed as well.

[55]

In
    accordance with the agreement of counsel, costs of the appeal are fixed in the
    amount of $30,000 all inclusive, in favour of Matthew Brady.

Released: R.A.B. December 3, 2014

Doherty J.A.

R.A. Blair J.A.

M. Tulloch J.A.





[1]
InStorage also argued that there had been deficiencies in the retrofit done by
    Matthew Brady.  That issue consumed a considerable amount of time at trial, but
    is not raised on appeal.


