Canada: Court Of Appeal For Ontario Looks To Uniqueness Of Transaction As Grounds For Specific Performance

Is specific performance, rather than damages, available to a party to a put/call agreement? In Matthew Brady,¹ the Court of Appeal for Ontario answered: Yes.

This case provides an interesting perspective on when specific performance may be available as a remedy for breach of contract. Depending on the special character and circumstances of a transaction, monetary damages may not be the only remedy.

The facts

The plaintiff, Matthew Brady Self Storage Corporation (Brady), and the defendant, InStorage Limited Partnership (InStorage), agreed to jointly purchase a vacant factory in Windsor, ON, and convert it into a self-storage facility. This agreement was subsequently renegotiated such that Brady would pay the entire purchase price and become the sole owner of the property pending completion of the project, at which point InStorage would purchase the property from Brady.

In addition, Brady and InStorage entered into a put/call agreement, allowing Brady to force InStorage to purchase the property through a put and allowing InStorage to force Brady to sell the property to it through a call. In the event either party exercised its put/call option, the sale price was to be mutually agreed upon, failing which a valuator would determine the fair market value of the property.

InStorage's refusal to comply

By all indications the arrangement between Brady and InStorage functioned well until InStorage was acquired by another company through a hostile take-over. The CEO of the succeeding corporation did not favour the Windsor project and actively sought to avoid the put/call agreement. When Brady exercised its put option, InStorage – under its new leadership – refused to comply and argued the assessor had erred in determining the fair market value of the property.

In response, Brady brought an action against InStorage for specific performance. At trial, Justice Gates granted specific performance to Brady on the basis that: (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.

Uniqueness and specific performance

On appeal, InStorage argued the trial judge should not have granted specific performance because Brady was a vendor seeking to enforce an agreement for the sale of a non-unique property and its losses could readily be compensated through damages. The Court of Appeal for Ontario rejected this argument and upheld the trial decision.

Referring to the Supreme Court of Canada decision in Semelhago v Paramadevan, the court held that an award of specific performance generally requires that the property at issue be unique to the extent that a substitute is not readily available. In most cases, specific performance is a remedy sought by the purchaser rather than by the vendor. The requirement of uniqueness creates difficulties for a vendor seeking to enforce an agreement through specific performance because what it seeks to obtain – the purchase price under the contract – is not inherently unique.

However, the court held that in cases where a vendor seeks specific performance a different approach is required. Rather than focusing on the uniqueness of the property that the vendor seeks to obtain, the appropriateness of specific performance will turn on the special character and circumstances of the transaction and the subject matter of the contract viewed more broadly.

Although the property's uniqueness may remain an important consideration, the key factors looking to the contract more broadly are whether: (i) damages will afford the vendor an adequate remedy; (ii) the vendor has established a fair, real and substantial justification for specific performance; and (iii) the equities between the parties favour a granting of specific performance.

In consideration of the contract and surrounding facts, the Court of Appeal was satisfied that these criteria had been met. In particular, the court noted that: InStorage was always intended by the parties to be the sole owner of the property; Brady renovated the property according to InStorage's specifications; InStorage had poorly managed the facility; and Brady would not have bought the property but for its agreement with InStorage. It was never contemplated in the agreement that Brady would be left holding a single-purpose property suitable only for carrying on a business in which Brady was not engaged.

The court further noted that InStorage's new CEO had actively sought to avoid the put/call agreement and had conceded he intended to force Brady to sue and "negotiate in court." At trial, the court concluded that in these circumstances an award of damages would be unequitable and the burden and associated risks of selling the property should rest with InStorage. The Court of Appeal upheld this decision and concluded that the agreement's subject matter was sufficiently unique to justify an award of specific performance.

The author wishes to thank Jonathan Preece, student at law, for his help in preparing this legal update.

Footnote

1 Matthew Brady Self Storage Corporation v InStorage Limited Partnership, 2014 ONCA 858

Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global legal practice. We provide the world's pre-eminent corporations and financial institutions with a full business law service. We have more than 3800 lawyers based in over 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members ('the Norton Rose Fulbright members') of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.