When assessing damages for breach of contract, the date at which the losses are assessed can have a significant impact on the final award for damages. For example, if two parties were to enter into a contract for the sale of raw materials for a discounted price, and the seller failed to close the transaction, how would the purchaser’s losses be determined? Would the damages reflect the difference in the price to the purchaser when they were forced to go to another vendor for the same materials? What if the purchaser planned to use those raw materials to make another product, which would then be sold to a third party for a profit? Would the vendor include the reduction in that eventual profit due to the higher cost it had to pay for the raw materials? When does the examination of the impact of the breach end?
In a recent case, the Ontario Court of Appeal had to address just this issue, when a commercial real estate transaction failed due to the fault of the vendor. The purchaser sought damages including the loss of significant profits the vendor eventually made when it later sold the same properties to a new purchaser.
Commercial Transaction Ends in Breach After Vendor Fails to Remove Encumbrances
In the case at hand, Akelius Canada Ltd. v. 2436196 Ontario Ltd, the purchaser, Akelius Canada Ltd. (“Akelius”) was a real estate investment company based out of Sweden but with holdings in several countries, including Canada. In 2015, Akelius entered into an Agreement of Purchase and Sale with the vendor for a group of apartment buildings. The agreed-upon price for the properties was $228,958,320.00. There were encumbrances on the buildings which the vendor had agreed to remove prior to closing. When the vendor failed to do so, the deal fell through, and the vendor returned the deposit funds, which totalled $10 million, to Akelius.
Two and a half years later, in 2018, the vendor sold the same properties to a new purchaser for a price more than 25% higher than the purchase price under the original 2015 contract. Akelius then brought a claim for breach of contract against the vendor, looking to recoup the loss of profit it claimed it had suffered as a result of the failed contract in 2015, which totalled over $56 million.
The motions judge found that the vendors had been in breach of the contract, however, when assessing damages, the judge awarded just $775,855.46, reflecting costs reasonably incurred by Akelius as a result of the breach. The judge held that the loss of profit should not be included in the assessment of damages, since Akelius had expressly stated that it had intended to purchase the properties as long-term investments and had no intention of re-selling them quickly for a profit. The judge said the fact that the purchasers had made a speculative profit when reselling the properties two years later did not entitle Akelius to that value as part of the damages stemming from the breach. Akelius appealed the decision.
Assessing Damages for Breach: When is the Appropriate Date?
In making the lower court decision, the motions judge cited the principle that an assessment of damages for breach of contract should be completed with the goal of putting the wronged party into the position it would have been had the contract been completed. To this end, the judge relied on a 1978 case called 100 Main Street Ltd. v. W.B. Sullivan Construction Ltd., which held that damages for breach of a real estate contract should be assessed as of the date the deal had been set to close. He further relied on a 2001 case, 642947 Ontario Ltd. v. Fleischer, which held that there is flexibility in the assessment of damages, enabling a judge to base a damages award on what is fair given the facts of a specific case.
Akelius, in this case, argued that the judge misapplied the principles set out in Fleischer. It argued that rather than putting Akelius in the position it would have been had the contract been performed as intended, it put Akelius in the position it would have been in had the contract never existed. Akelius argued that, had the contract been completed, it would have been in a position to sell the property in 2018, therefore enjoying the additional $56 million in profit realized by the vendor instead.
On appeal, the Court rejected Akelius’ claim that the damages should be assessed as of the date the vendor re-sold the properties to a new purchaser. To establish a precedent in which damages are assessed at their highest possible point would only serve to undermine the certainty and predictability created by a history of legal precedents which stated that damages for breach of contract should be assessed as of the date of the breach.
Further, to assess the damages as of the date of sale to the new buyer is counter to Akelius’ own statement that it had intended to purchase the properties as a long-term investment. There was no reason to think Akelius would have been looking to sell the properties in 2018, had the original contract proceeded as planned. If it had purchased the properties with a stated intention to flip them in the short term, it may have been possible to factor this into the assessment in consideration of Fleischer. However, given the facts of the case, the Court of Appeal found that there was an insufficient connection between Akelius’s preferred assessment date and the date of the breath or the parties’ stated intention behind the original contract.
Contact Milosevic & Associates in Toronto for Skilled Representation in Breach of Contract and Real Estate Disputes
If your real estate transaction failed, contact the Toronto commercial real estate lawyers at Milosevic & Associates. Where a commercial real estate transaction or breach of contract results in a legal dispute, we will represent you in litigation at all levels of court. Our impressive litigation and appeals track record speaks for itself. Call us at 416-916-1387 or contact us online to learn how we can help.