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Posted on August 1, 2009 | Posted in Lawyers' Issues

As we all know, a vendor who has to comply with a condition prior to closing must use its best efforts to do so. In addition, if a purchaser incurs damages because the vendor fails in its obligations, the purchaser has a duty to mitigate its damages. Both of these issues arose in Southcott Estates Inc. v. Toronto Catholic School Board 2009 W.L. 253328, 2009 CarswellOnt 494 (Ont S.C.J.).

The Deal

The Catholic School Board was selling land that was surplus to its needs. On June 14, 2004, it entered into an agreement with a purchaser for the sale of lands, adjacent to an existing school, for $3.44 million. The agreement had a 30-day due diligence condition that the purchaser ultimately waived; the agreement also had a clause that required the Board to comply with the Planning Act, which in this case, meant that the Board had to obtain Committee of Adjustment approval for the severance.

The purchaser was a wholly owned subsidiary of a developer. It was incorporated for one purpose: to buy and develop the lands.

Through a number of letter amendments to the agreement, the parties extended the closing date to 15 days after a favourable severance decision, but no later than January 31, 2005. The Board was unable to obtain the necessary severance approval on time and returned the deposit. The purchaser took the position that the Board could not rely on what the purchaser referred to as the Board’s own default and commenced an action for specific performance or, alternatively, damages.

Best Efforts

Liability depended on whether the Board had used its best efforts to obtain the necessary severance. The judge set out a litany of facts leading him to conclude that the Board did not: the Board delayed in submitting the application, failed to discuss the application with the City of Toronto in advance, did not obtain the necessary survey until three months after the agreement was signed, initially submitted an improper survey, and ignored the City’s advice as to missing elements in the application.

The judge found that had the Board “not breached the obligation to use its best efforts, it could have obtained a hearing before the COA much earlier than it did. However, even if the hearing was held as late as December 16, 2004, I find that in the absence of an objection from the Planning Department …, the severance would likely have been granted and the transaction would have been completed by January 31, 2005.”

Accordingly, the judge held that the Board breached the agreement and this breach caused loss to the purchaser, namely the chance to close the transaction.

Specific Performance

Land used to be considered sufficiently unique that the courts would routinely grant specific performance if the vendor breached an agreement for the sale of land. However, after the 1996 Supreme Court decision in Semelhago, the test for specific performance is no different for land than it is for anything else. A purchaser must prove that the land, or other thing, is sufficiently unique that damages will not be an adequate remedy.

The purchaser claimed that the lands it was purchasing were unique. The judge dealt with this claim as follows:

“There is no disagreement about the … purchaser’s intentions. It intended to develop and build houses on the subject lands, and sell them for a profit. Accepting the purchaser’s contention that the property had a number of attractive qualities which were not easily replicated I find that these were not aesthetic, ethereal or non-economic features which can (be) linked to (the purchaser). They were rather qualities related solely to the profitability of the development which are compensable by monetary damages. I conclude that the subject lands do not have the quality of uniqueness, beyond that of being, perhaps, a ‘uniquely good investment’.”

The judge denied specific performance and turned next to damages.


The purchaser did not claim a loss of bargain. It agreed that the value of the lands had not increased between the date of the agreement and the date of closing. Rather, the purchaser claimed that it had consequential damages: it lost the profit it would have made had it been able to develop the lands.

The Board claimed that the purchaser had not mitigated its damages and that it had mitigated them completely. “How so?” you ask, because this seems contradictory.

The Board argued that the purchaser had mitigated its damages completely because between the closing and trial dates, the purchaser’s parent corporation had bought lands for development. The purchaser argued that the parent had the funds to do so and would have done so regardless of the lost deal for the lands. The judge agreed that the Board should not receive the benefit of the parent’s purchases.

The Board then argued that the purchaser had not even attempted to mitigate its damages by purchasing replacement lands. The judge agreed and stated, “The plaintiff admitted that it never had any intention and never tried to mitigate the damages. The plaintiff was a single purpose company incorporated solely for the purposes of this project with no assets other than the money advanced to it by (the parent) for the deposit. It was never intended that it would purchase other land.”

The Board’s expert witness testified that a number of sales of raw land had taken place between the closing and trial dates. The judge disregarded this evidence, stating that there was no evidence that these properties (i) were available to the public, only that they had been sold;  (ii) could be developed; and (iii) were comparable to the lands.

The judge therefore held that the Board failed to prove that the purchaser did not mitigate its damages.

We have some problem with this finding. We understand that the standard for mitigation is very low and that the onus is on a defendant to prove that there was no mitigation. However, we would have thought that once the purchaser admitted that it made no effort to mitigate and had no intention of mitigating, the onus regarding mitigation should shift to the purchaser to prove that its lack of effort in mitigation did not prejudice the Board.


The plaintiff claimed that it had lost $3.9 million in profit. The judge cut that down to $3.2 million for contingencies. He first reduced the damages by $400,000 because he felt that the plaintiff was too optimistic about the speed of the development and therefore would have had more carrying charges. He then reduced the damages by another $300,000 to account for our current adverse economic cycle. 

However, the analysis did not end there. The judge had originally determined that the Board’s actions caused the purchaser to lose a chance to obtain the severance in time to meet the January 31, 2005 closing date. The value of the chance was not 100%. The judge analysed the matter further and concluded that there had been a 60% probability of a successful severance application before the scheduled closing date. Accordingly, he multiplied the damages by 60% and awarded damages of $1.9 million.


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