Commercial Contracts and Failed Real Estate Transactions

On July 16, 2020, the Supreme Court of Canada dismissed an application for leave to appeal involving a failed real estate transaction. In Telsec Developments Ltd v Abstak Holdings Inc, 2020 ABCA 40, the Alberta Court of Appeal provided a compendium of principles to consider in these types of cases. They are a useful reminder to anyone involved in real estate.

In brief, the purchase and sale agreement contained a condition requiring the purchaser to obtain a development permit from the city by a particular date. The city did not grant the development permit. The purchaser appealed the city’s decision, but on the evening before the appeal hearing it withdrew its appeal and terminated the agreement. The vendor sued the purchaser.

Following trial, the judge found that the condition contained in the agreement contemplated an appeal and not just the initial application to the city. As a result, the purchaser breached this condition. Further, the judge found that the purchaser had breached its duty of good faith in contractual performance.

On appeal, the Court considered:

• The interpretation of the condition requiring an appeal;
• The duty of honest performance;
• The weighing of expert opinions;
• The loss of chance;
• Mitigation of loss; and
• Forfeiture of the deposit.

Below is a summary of some of the Alberta Court of Appeal’s findings:

Contractual Interpretation

The Alberta Court of Appeal summarized a number of principles when interpreting commercial contracts, such as:

• it is an error of law to fail to consider the surrounding circumstances or factual matrix of a contract;
• surrounding circumstances consist of objective evidence of the background facts at the time of the execution of the contract – knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting; and
• commercial contracts must be interpreted in accordance with sound commercial principles and good business sense.

The Duty of Honest Performance

• this duty does not require that a contracting party act to serve the interests of the contracting partner;
• it requires that a party not undermine the interests of the contracting party in bad faith;
• at a minimum, acting in good faith in relation to contractual dealings means being honest, reasonable, candid and forthright.

Expert Opinions

• admission or rejection of expert evidence is owed deference;
• where a trial judge is presented with competing expert opinions, there is no reversible error when the judge makes a reasoned choice between the two;
• there is no principle in law that the expert with the best qualifications must, or even should, be accepted; and
• expert qualifications are but one factor a trial judge must consider.

Loss of Chance

• this concept provides that where performance of the contract may, apart from the wrongdoer’s breach, have been prevented by some other intervening factor, courts apply a discount to the calculation of damages;
• this principle separates the question of causation from the question of loss;
• the burden rests on the plaintiff alleging the breach of contract to prove that the breach and not some other intervening factor has caused its loss;
• the proof of the loss of a mere chance is not enough;
• the plaintiff is entitled to compensation when it shows that the chance lost was sufficiently real and significant to rise above mere speculation.

Mitigation

• Damages for breach of contract in sale of land cases are usually assessed at the date of breach unless there are special circumstances that make assessment at that date inappropriate; and
• Unless damages are assessed at the date of breach, damages would be reduced or inflated based on the luck of the draw.

Deposit

As mentioned in an earlier post, there has been some uncertainty as to whether the deposit should be treated as part payment and credited toward damages, or whether it should be retained in addition to the damages. The Alberta Court of Appeal found that the amount of the deposit ought to be credited toward the damages award. This is consistent with British Columbia in Albrechtsen v. Panaich, 2017 BCSC 1361 and with Ontario in Azzarell v. Shawqui, 2019 ONCA 820.