In the decision of Southcott Estates Inc. v. Toronto Catholic District School Board, dealt with more fully by my colleague Stephen Mulrain, the Supreme Court of Canada addressed the question of whether a plaintiff seeking specific performance of a real estate transaction justifies a failure to mitigate its damages.
I disagree with Stephen, who argues that the minority judgment of Chief Justice McLachlin recognizes the inconsistency of requiring mitigation where a claim for specific performance is validly pursued.
In my opinion, the majority decision written by Justice Karakatsanis adds some welcome certainty with respect to the relationship between a claim for specific performance and the duty of a plaintiff to mitigate its damages. It is consistent with, and reaffirms the Supreme Court of Canada's prior cases on the availability of specific performance as a remedy in real estate development cases.
In its seminal case, Semelhago, the Supreme Court of Canada stripped real estate of its "unique" character, stating that "while at one time the common law regarded every piece of real estate to be unique, with the progress of modern real estate development this is no longer the case". As a result of that decision, specific performance became available only where money was inadequate to compensate fully for the loss, because of some "peculiar and special value" of the land to the plaintiff.
In real estate development, the interest in the property is monetary – the Courts have therefore stated that the appropriate remedy is monetary. If a plaintiff claims specific performance in a case where the goal is development and profit, it should be clear that a claim for specific performance will not obviate that party's obligation to mitigate its damages. Indeed, a claim for specific performance will never obviate the obligation to mitigate damages – rather, it "informs what is reasonable behaviour for a plaintiff in mitigation", as Justice Karakatsanis puts it.
Justice Karakatsanis further clarifies that in respect of the duty to mitigate, the question is whether the plaintiff's inaction was reasonable in the circumstances. If the plaintiff has a substantial justification or a substantial legitimate interest in specific performance, its refusal to purchase other property may be reasonable in the circumstances of the case.
It is noteworthy that although Southcott Estates, a so called "single use" corporation with no assets of its own, did not mitigate its damages by purchasing alternative land for the purpose of development, a related single use corporation did purchase a different piece of land for development.
In the case of a typical land development, although there may be a peculiar interest in a given piece of land and resources put into the development of that opportunity, the Supreme Court of Canada has made it clear that the developer will need to take reasonable steps to mitigate their damages or face a pyrrhic victory after trial.
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