Sale of Business was Unique

McCleary Animal Hospital - 981 Clarkson Rd S, Mississauga, ON L5J 2V8,  Canada

Paterson v. Stilton 2019 (COA): Specific Performance

This case involved to sale of a business and a real estate location between two veterinarians.

Seller:                   Stilton, Dr. McCleary

Buyer:                   Marjorie Paterson

Employment:        Paterson works at Stilton

Purchases:             the veterinary practice

Lease:                   the building, 5 years

Option:                 to purchase the building

Lawsuit:                settlement, lease extension and future sale at $1,250,000

Seller:                   refused to close, 1 February 2018, reneges upon sale

COA:                    September 21, 2019

Below you will see some comments made by the Ontario Court of Appeal in this case:

(4)         Is specific performance the appropriate remedy?

 [22]      Specific performance is a discretionary equitable remedy that should be granted “where damages cannot afford an adequate and just remedy in the circumstances”: Matthew Brady Self Storage Corporation v. InStorage Limited Partnership, 2014 ONCA 858, 125 O.R. (3d) 121, at para. 29, leave to appeal refused, [2015] S.C.C.A. No. 50.

In determining whether to exercise this discretion I consider below

(1) whether the property is unique,

(2) whether the respondent remained ready, willing and able to close,

(3) whether the respondent is disentitled to an equitable remedy and

(4) whether damages are a suitable and just alternative in this case. For the reasons that follow, specific performance was the appropriate remedy.

(1)         Is the property unique?

[23]      The Supreme Court of Canada has held that in the case of a breach of a contractual obligation to sell real property, specific performance should not be granted “as a matter of course absent evidence that the property is unique to the extent that its substitute would not be readily available”: Semelhago v. Paramadevan1996 CanLII 209 (SCC), [1996] 2 S.C.R. 415, at para. 22.

Real property will be unique when it has a quality that cannot be replicated elsewhere that relates to the proposed use of the property and makes it particularly suitable for the purpose for which it was intended: John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd. (2001), 2001 CanLII 28012 (ON SC), 56 O.R. (3d) 341 (S.C.), at para. 73, aff’d 2003 CanLII 52131 (ON CA), 63 O.R. (3d) 304 (C.A.), leave to appeal refused, [2003] S.C.C.A. No. 145.

[24]      In her evidence, Dr. Paterson lists a number of features that make the property uniquely suited to Paterson Veterinary’s needs as the owner of the practice, including that it:

(1) is currently set up as a veterinary clinic,

(2) is a free-standing bungalow building,

(3) has 11 parking spots,

(4) is situated on a quiet street for walking dogs in her preferred neighbourhood, and

(5) has capacity to board approximately 80 animals….

[25]      Perhaps most significantly, it is undisputed that the clinic has operated out of the property since 1974. In that time, goodwill value has been accumulated.

This goodwill attaches not only to the veterinary practice but also to the property on which it has operated during this period. Indeed, it is common ground that in negotiating the sale of the practice,

Dr. Paterson was adamant that Paterson Veterinary would only buy if it was able to eventually purchase the building. Dr. Paterson’s evidence is that ownership of the property is “critical” to the business, and the respondent negotiated accordingly.

[26]      This fact scenario is very similar to that in The One Stop Fireplace Shop Ltd. v. Parigon Industries Inc.2013 ONSC 1562, 31 R.P.R. (5th) 277. There, a tenant under a commercial lease brought an application to compel a landlord to sell the leased premises. On the issue of whether the property in question was unique, thereby entitling the tenant to specific performance, Nightingale J. found that the property was unique to the tenant because they had been operating their business out of the location for several years. As the property had accumulated “considerable goodwill value” to the tenant with its customers, it was unique to the tenant: at para. 72. Similarly, in this case, the goodwill value attached to the property makes it particularly suitable for the purpose of continuing to operate the veterinary practice.

[27]      I would also note the fact that the respondent negotiated with the appellant for title in the property not only when it purchased the veterinary practice, but also after settling the 2013 litigation. The consistency with which Dr. Paterson has pursued legal title in the property provides further support for the conclusion that it is uniquely suited to Paterson Veterinary’s purpose. In addition, despite somewhat bald statements by Dr. McCleary on cross-examination that there are other similar or better properties nearby, Stilton has not provided specific details of any such property, for example, real estate listings of properties for sale.

[28]      Overall then, the respondent has met its burden of establishing that the property is unique. The property logically has a number of features that make it uniquely suited to the purpose of carrying on a veterinary practice that has in fact operated there for decades.

Even if the physical features could be replicated elsewhere, an alternative location would be an inadequate substitute because the goodwill associated with the practice is intertwined with this property.

It is common ground that the respondent would not have purchased the practice without the option to own the property and has twice negotiated its purchase. As the combination of the goodwill and physical features cannot be replicated elsewhere and are uniquely suited to the continuation of the veterinary practice by the respondent, the property is unique for the purposes of the Semelhago analysis.

(2)         Was the respondent ready, willing and able to close?

[29]      A party seeking a sale of real estate to be specifically performed must remain ready, willing and able to close on the purchase of the property: Silverberg v. 1054384 Ontario Limited (2008), 77 R.P.R. (4th) 102 (Ont. S.C.), at para. 110, aff’d 2009 ONCA 698, 266 O.A.C. 216.

[30]      Paterson Veterinary was and is clearly ready, willing and able to purchase the property as of the date agreed upon in the settlement agreement. The closing date set out in the settlement agreement is February 1, 2018. On January 26, 2018, Stilton’s lawyer wrote to Paterson Veterinary’s lawyer confirming that he represented Stilton, requesting that any further correspondence be directed to him, and expressing that Dr. McCleary did not want to sell the property.

It is uncontested that on the agreed upon closing date a representative of Paterson Veterinary attempted to deliver closing documents, including certified trust cheques, to Stilton’s lawyer. Dr. McCleary’s evidence is that he instructed his lawyer not to accept any documents related to the purchase of the property. It was the refusal of Stilton to sell, and not unwillingness or inability on the part of Paterson Veterinary that prevented the deal from closing. As in Silverberg, at para. 112, the commencement of the application for specific performance is evidence that Paterson Veterinary continues to be ready, willing and able to purchase the property.

(3)         Is the respondent disentitled to equitable relief?

[31]      A relevant consideration in deciding whether to order specific performance is the behaviour of the parties having regard to the equitable nature of the remedy: Matthew Brady, at para. 32.

Equitable relief may be refused if the party seeking relief has been guilty of misconduct in relation to the contract that party seeks to enforce: Silverberg, at para. 120.

Here, there are no facts disentitling the respondent to equitable relief. Paterson Veterinary has clean hands, there was no delay in bringing this application, and no disentitling circumstances were seriously alleged.

[32]      To the contrary, the equities of this case clearly favour the respondent. It seeks to enforce a settlement agreement that was negotiated between two commercial parties represented by counsel. That settlement agreement was itself the product of a lawsuit seeking an agreement of purchase and sale concerning this property to be specifically performed.

As discussed above, Stilton’s position that the settlement agreement was not enforceable is without merit. The agreement was breached. Dr. McCleary’s evidence is that he felt that the settlement agreement was no longer in full force and effect because there had been a dramatic increase in the property’s value and that the “property is [his] baby”. This did not justify Stilton’s refusal to honour the settlement agreement. Here, the equities clearly favour the respondent who seeks to enforce a valid settlement agreement in face of the appellant’s clear breach.

(4)         Are damages a suitable alternative in this case?

[33]      Damages are not a suitable alternative to specific performance on the facts of this case. As discussed above, the property is uniquely suited to Paterson Veterinary’s business and even a substantial damages award would not allow it to purchase a readily available substitute.

Further, the damages caused by Stilton’s breach would be difficult if not impossible to accurately quantify given the intertwining of the goodwill in the business with the goodwill in the property.

It would be inequitable to force the respondent to engage in this exercise. It had already sued the appellant to specifically perform the sale and entered into a valid settlement agreement under which the appellant agreed to sell before finding itself in court again seeking specific performance of the same sale. As the application judge highlighted, there is value in parties being able to rely on settlement agreements and thus avoiding a “never-ending spiral” of litigation. Damages would therefore be inadequate and inequitable in the circumstances.

(5)         Conclusion on the appropriate remedy

[34]      Given that the property is unique, that Paterson Veterinary was and is willing and able to close the transaction, that there are no facts disentitling it to equitable relief, and that damages are not a suitable alternative, specific performance is the appropriate remedy

COMMENT

This property was unique since a “business” operated there. There was clearly “goodwill” associated with both the business and the location.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com

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