Canada: "Hard and Pointed" Conduct Does Not Pay

Last Updated: March 4 2015
Article by A. Irvin Schein

Originally published at irvinschein.com.

The recent decision of the Ontario Court of Appeal in High Tower Homes Corporation v. Stevens is a useful illustration of the extent to which the court will go to deprive a party of relief where that party has acted in a way which some might consider unfair, even if the conduct was not unlawful.

In this case, a vendor owned two adjacent properties. One contained the principal residence of the vendor and his wife. They decided to sell the properties together, having decided that doing so would maximize their value.  For tax planning purposes, they wanted to allocate as much of the total purchase price for the properties as possible to one containing their personal residence.

The purchaser, a builder, submitted offers to buy both properties. The first offers contained conditions that made the sale of each property conditional on the sale of the other. After a series of revised offers went back and forth, the purchaser revised the offer for the parcel that did not contain the principal residence to provide that the sale of that property was not conditional on the sale of the property containing the principal residence. That change was not black-lined or otherwise drawn to the vendor's attention. No such change was made to the corresponding clause in the offer involving the principal residence. The vendor did not notice the change.

As the vendor had preferred, the bulk of the amount offered for the properties together was attributed to the property containing the principal residence.

The agreement for the property that did not contain the principal residence had a clause making the purchaser's obligation to close that purchase conditional on a variety of items.  The clause indicated that if the conditions were not waived by a particular time "by notice in writing to the seller", the agreement would become null and void.

The two agreements were signed. On the deadline date for the waiver of conditions with respect to the property that did not contain the principal residence, the purchaser attempted to waive those conditions by delivering a notice to that effect to the vendor's lawyer by fax.

By doing so, it appears that the vendor tried to put into effect a plan that it must have concocted right at the outset. That plan involved purchasing the property that did not contain the principal residence at a bargain price while allowing the agreement for the other parcel, in respect of which the price was somewhat inflated, to go by the wayside.

As the Court of Appeal indicated, "the vendor was stunned when he learned of his mistake, and the purchaser's attempt to take advantage to buy only Blue Water at a bargain price."

The vendor refused to proceed. The purchaser sued for specific performance and in the alternative, damages of $5 million. The purchaser brought a motion for partial summary judgment.

The motion judge declared the agreement unenforceable on the very technical ground that notice of the waiver of conditions should have been delivered personally to the vendor and not by fax to his lawyer.

The purchaser appealed to the Court of Appeal, arguing in essence that the delivery of the notice by fax to the vendor's lawyer was good enough based on a variety of legal doctrines.

The only doctrine that would appear to have had a glimmer of hope of success for the purchaser involved the equitable doctrines of waiver and promissory estoppel. The purchaser argued that by his conduct throughout, directly and through his lawyer, the vendor had demonstrated that he was not going to insist on strict compliance with the requirement that the purchaser's notice in writing of its waiver of the conditions be delivered personally to the vendor. The purchaser argued that having been led to believe that strict compliance would not be required, he had somehow acted to its financial detriment in proceeding with the transaction, at least up to the date that the vendor pulled the plug on it.  As a result, it would be unfair for the vendor to be able to terminate the deal.

The Court of Appeal dismissed these arguments for a number of reasons. Most interestingly, however, the Court of Appeal pointed out that promissory estoppel is equitable relief. Therefore, a party seeking to invoke it must show that its past record in the transaction is clean. In this case, the Court of Appeal stated that it would decline to grant relief to the purchaser in view of the purchaser's conduct at the outset. The motions court judge had concluded that while the purchaser's conduct in changing the condition clause without notifying the vendor was not equivalent to fraud, the purchaser must have known that it was important to the vendor that the properties be sold together. The motion judge characterized the purchaser's conduct as "hard and pointed". Given that conduct, the purchaser was held not to be entitled to equitable relief.

The law now appears to be clear that there is a duty of good faith on parties to a transaction in terms of the manner in which they deal with each other after an agreement is made. There is no such duty on parties before they enter into a transaction.  Accordingly, this purchaser's conduct during the negotiation process was not unlawful.  However, as it learned the hard way, conduct that might be characterized by a court as "hard and pointed" – to say the least – may well give rise to a negative result in court later on.

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.

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