Ruling will further limit corporate use of specific performance in real estate disputes, says lawyer

A recent Ontario Court of Appeal decision will further limit the availability of specific performance for corporations in real estate disputes, says Patrick Summers, who was counsel on the case.

Summers’ clients, Markandu and Mathivathana Vijayakumar, appealed a trial judge’s order that an agreement of purchase and sale of a Pickering, Ont. property be specifically performed. The court allowed the appeal and remitted the issue of damages to trial.

In a failed real-estate transaction, specific performance was always a “tougher result” to get than when the property was being purchased for residential use, says Summers, a commercial litigator at Chappell Partners LLP in Toronto. He says the result in 9725440 Canada Inc. v. Vijayakumar will put it further out of reach.

The Vijayakumars owned the house since 2013 and listed the property for $1,499,000 in 2017. In June of that year, the respondents, the Vijayakumars, and their agents met and entered into the agreement under which the respondents purchased the house for $1,620,000. The deal became binding on June 10 with the delivery of a waiver of its home inspection conditions. But the same day, the Vijayakumars communicated to their agent that they had decided not to sell and refused to complete the sale on the scheduled closing date.

The respondent, a numbered corporation controlled by Xiu Song Lin, brought an action seeking specific performance of the deal. The Vijayakumars responded with a motion for summary judgment, which was dismissed.

The motion judge found that a credibility issue required a trial. The issue was Lin’s reliability as a witness in determining his purpose in buying the home, whether it was intended for members of his extended family or as an investment opportunity.

In coming to his conclusion, the trial judge considered the warning from the Supreme Court of Canada in Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51:

“A plaintiff deprived of an investment property does not have a ‘fair, real and substantial justification’ or a ‘substantial and legitimate’ interest in specific performance unless he can show that money is not a complete remedy because the land has ‘a peculiar and special value’ to him.”

The judge found that it would be difficult for Lin to find the features of the Pickering property elsewhere but distinguished the case from Southcott in that Lin was “engaged in a commercial transaction for the purpose of making a profit” and “the property’s particular qualities were only of value due to their ability to further profitability.” But he nevertheless granted specific performance and costs of $150,000.

On appeal, the Vijayakumars admitted they breached the purchase-and-sale agreement but argued that the trial judge erred in finding that specific performance was available and appropriate.

When land is at issue in a dispute, damages may be insufficient, and the “overarching consideration” is whether the land better serves justice than its monetary equivalent, said Justice Lois Roberts, who wrote the reasons for the panel. Roberts adds that there is “no categorical presumption that all real estate is unique.” She said that when the property has been purchased solely for investment purposes, the courts should be reluctant to award specific performance because damages can adequately make up for a purely financial interest.

Determining that specific performance is the appropriate remedy is ordinarily afforded appellate deference, but Roberts said that a lack of evidence made that difficult partly because Lin never testified.

The court found the trial judge had relied on hearsay evidence from Lin’s son that indicated Lin intended to move his family into the home rather than use it merely as an investment. The available admissible evidence did not support the son’s claim, nor that the property held unique features for Lin.

“The evidentiary part of the ruling just highlights that if a corporation is going to try to prove that specific performance is an appropriate remedy, you better have somebody that is the principal, or an owner of the corporation, testify to that effect,” says Summers.

The court found that the structure of Lin’s corporation supports the view that Lin intended to buy the property as an investment as part of his estate planning. The “closely held” corporation’s officers, directors, and shareholders are all family members and four numbered companies owned by family members. A corporation cannot “live in a family home” or “fall in love with a property,” it can “purchase and hold assets,” objectives which can be compensated for with damages, said Roberts.

Expert testimony also suggested that the “most unique aspect” of the property was “its commercial development potential.” According to the Court of Appeal, the trial judge should have found that the respondent failed to show that specific performance was the appropriate remedy. Their “investment objectives and availability of funds to close another transaction” indicate that damages can adequately compensate for the loss.