Legal Blog

All The Wrong Moves

Occasionally, we review a case and decide that one of the parties could star in his or her own movie, entitled “All the Wrong Moves.” Such was the case for the applicant in Scicluna v. Solstice Two Limited 2018 ONCA 176, a decision of the Ontario Court of Appeal.

Tears

Purchaser agreed to purchase a condominium unit for $372,000 and had paid a deposit of $294,000 by the time the transaction was ultimately to be completed in May 2011. Unfortunately, purchaser lost her job and was unable to pay the remaining $78,000 to complete the purchase.

The agreement provided, as usual, that if purchaser breached the agreement, vendor would retain the deposit as liquidated damages.

Staring disaster in the face, purchaser assigned into bankruptcy in July 2011. By virtue of that assignment, all of her property vested in her trustee in bankruptcy. However the trustee did not know about the lost deposit – because purchaser failed to disclose its existence to the trustee.

New deal

In October 2011, a mere 3 months after purchaser assigned into bankruptcy, purchaser and vendor made a deal: once the condo was re-sold, vendor would repay purchaser all of the deposit but $30,000. Purchaser fully intended to keep this money for herself; she cared not a whit about the trustee or her creditors.

In April 2012, vendor re-sold the condo for $435,000, $63,000 more than it would have received from purchaser had she closed as scheduled. Vendor fully intended to comply with its agreement with purchaser; all it demanded was a release from purchaser for the $30,000 that vendor was retaining from the deposit.

Purchaser misread the release and thought that vendor was retaining $60,000 from the deposit; this would have been contrary to the agreement reached with vendor and, being no one’s fool, purchaser refused to sign the release. Not surprisingly, vendor then refused to pay the $264,000 it had promised to pay.

Machinations

Purchaser never intended to allow her money to get away from her. On two separate occasions, while still an undischarged bankrupt and without informing her trustee, she attempted to sue vendor for the return of her money.

Her first attempt in 2011 was aborted because she could not secure legal funding. Her second attempt in 2013 was declared a nullity because, as an undischarged bankrupt, she lacked the capacity to sue.

Purchaser was discharged from bankruptcy in February 2014, but, as of the date of the application decision, her trustee had yet to be discharged.

In July 2016, about 2½ years after her last foray into court, and about 5 years after the aborted purchase, purchaser brought an application for the return of her deposit less $30,000. She made this claim despite her refusal to sign the release. She also joined her trustee in the application – presumably because vendor knew of the bankruptcy from prior actions and would have tattled on her had she not.

Positions

Purchaser argued that her trustee should not receive any money from vendor because it had failed to take action against vendor while purchaser was undischarged and, she alleged, must have decided that its possible claim against vendor was unrealisable property. She therefore claimed that her trustee was obliged under section 40 of the Bankruptcy and Insolvency Act to return to her the right to sue vendor to repay her funds.

As against vendor, purchaser claimed that she ought to be granted relief from forfeiture of the deposit under section 98 of the Courts of Justice Act.

By this time, vendor had had enough of purchaser’s shenanigans. It took the position, on the merits and because of an alleged expired limitation period, that it did not have to pay anything.

Limitation

The Court dealt with the limitations defence in a paragraph. Although the default period in the Limitations Act is 2 years, the default period in the Real Property Limitations Act is 10 years. The RPLA governs if the action is to recover land, which is defined as including money “laid out in the purchase of land.” Since the money that purchaser had paid was exactly as described, its characterisation as a deposit was irrelevant. The RPLA applied and the action was brought within time.

Forfeiture

In determining whether relief from forfeiture should be granted, a court reviews (i) whether a plaintiff’s conduct was reasonable in the circumstances, (ii) whether the object of the forfeiture was made to secure the payment of money, and (we suggest) most importantly, (iii) whether there was a substantial disparity between the value of the property forfeited and the damages to the vendor in the action.

Vendor argued that purchaser had to satisfy each of the three criteria for relief from forfeiture or its claim for relief would fail. Vendor then argued that purchaser’s conduct was not reasonable and therefore purchaser did not satisfy the first criterion. The court held that purchaser did not have to satisfy each of the criteria; the court’s decision was to be made looking at the three criteria as a whole.

The court held, in any event, that purchaser’s conduct was not so unreasonable to disentitle her to relief from forfeiture. She was unable to close the purchase because she lost her job and she did not sign the release because of a misunderstanding. The court held that the value of the property forfeited as compared to the value of the damages was so “manifest and so grossly disproportionate that relief from forfeiture is patently a correct result.” After all, vendor made a $63,000 profit on the re-sale, which, along with the $30,000 to be retained, was far more than it would have received had purchaser completed the transaction.

Vest

In Re Shelson (2014), 70 O.R. (3d) 171 (C.A.), the court held that a trustee’s inaction resulted in the trustee giving up its rights to the fruits of an action. However, in that case, the trustee knew about the action from the outset of the bankruptcy and had decided that the action was of little value and would not be pursued unless the creditors insisted. The trustee then changed its mind five years later, long after the discharged bankrupt had carried on the action.

The Shelson decision had far different facts than those in this case. Before a trustee can be held to have decided that an action or property is of little value, it has to at least know of its existence. In this case, because of purchaser’s lies, the trustee knew nothing of the deposit and purchaser’s right to claim for its return.

Purchaser’s argument that her trustee had released its interest in the deposit after she hid the deposit’s existence from the trustee is akin to a man who murders his parents and then throws himself on the mercy of the court because he is an orphan.

Outcome

The court ordered vendor to return $264,000 to the trustee, not to purchaser.

 

Image courtesy of clarita.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.