Custom Single Use Commercial Property Qualifies for Specific Performance

Matthew Brady Self Storage Corporation v. InStorage Limited Partnership, 2014 (OCA)

Two storage companies jointly acquire property. InStorage runs short of money, so Matthew Brady completes purchase and renovates to suit InStorage.

Ultimately, Matthew Brady insists that it can force InStorage to acquire the property at an appraised value to be established by an Appraiser.

Agreement:           Two Parties acquire together, joint purchase

Matthew Brady:    put up all the money

InSorage:              occupied, operated the storage business

Renovations:         completed by Matthew Brady to suit InStorage

Option to Sell:      Matthew could force the sale to InStorage

OCA:                    3 December 2014, agreed, specific performance

SCC:                     25 June 2015, dismissed application, upheld COA

The Court stated:

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, 1 Sim. & St. 607, at p. 240 E.R.: [page129]

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.

 [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. Paramadevan1996 CanLII 209 (SCC), [1996] 2 S.C.R. 415, [1996] S.C.J. No. 71, 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), 1995 CanLII 1004 (ON CA), 25 O.R. (3d) 628, [1995] O.J. No. 2819 (C.A.), at p. 636 O.R., 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, 4th ed., looseleaf (Toronto: Canada Law Book, 2012), at paras. 8.100 to 8.220; Dick v. Dennis, [1991] O.J. No. 2347, 20 R.P.R. (2d) 264 (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 ThornhillDick v. Dennis, at para. 38; [page130] Westwood Plateau Partnership v. WSP Construction Ltd., 1997 CanLII 2085 (BC SC), [1997] B.C.J. No. 1294, 37 B.C.L.R. (3d) 82 (S.C.), at paras. 148-56, 163; and Comet Investments Ltd. v. Northwind Logging Ltd., [1998] B.C.J. No. 1622, 22 R.P.R. (3d) 294 (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), 2001 CanLII 28012 (ON SC), 56 O.R. (3d) 341, [2001] O.J. No. 4397 (S.C.J.), at para. 59, affd (2003), 2003 CanLII 52131 (ON CA), 63 O.R. (3d) 304, [2003] O.J. No. 350 (C.A.), at paras. 37-39, 43-44, leave to appeal to S.C.C. refused [2003] S.C.C.A. No. 145, 223 D.L.R. (4th) vi; Monson v. West Barrhaven Development Inc., [2000] O.J. No. 5209, 102 A.C.W.S. (3d) 824 (S.C.J.), at paras. 8-9; 1174538 Ontario Ltd. v. Barzel Windsor (1984) Inc., [1999] O.J. No. 5091, 28 R.P.R. (3d) 256 (S.C.J.), at paras. 7-8; 365733 Alberta Ltd. v. Tiberio, [2008] A.J. No. 1097, 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 plaintiff’s loss.

. . . . .

An award of damages presumes that the plaintiff’s 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 [page131] 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 [at para. 335] “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

  • 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;
  • whether the vendor has established some fair, real and substantial justification for the granting of specific performance; and
  • 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 InStorage’s 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 InStorage’s 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 [page132] 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 Mart’s CEO, 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 InStorage’s 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.

COMMENT

There was no duty placed upon Matthew Brady to mitigate. They sold there other 7 storage facilities. If they have this property, they are stuck with a single use storage business, and they are no longer in that business.

The Ontario Court of Appeal granted specific performance and an appeal to the Supreme Court of Canada was dismissed when leave was refused. So, we effectively have the Supreme Court of Canada placing its own stamp of approval on this decision.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com

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