Place Concorde East Limited Partnership et al. v. Shelter Corp. of Canada Ltd. et al., (2006) 211 O.A.C. 141 (CA)

• Judge: Feldman, Blair and LaForme, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: May 18, 2006
• Jurisdiction: Ontario
• Citations: (2006), 211 O.A.C. 141 (CA)

Place Concorde East v. Shelter Corp. (2006), 211 O.A.C. 141 (CA)

MLB headnote and full text

Temp. Cite: [2006] O.A.C. TBEd. MY.076

Place Concorde East Limited Partnership by its General Partner 1049015 Ontario Inc. et al. [names of other plaintiffs omitted] (plaintiffs/appellants(repondents by cross-appeal)) v. Shelter Corporation of Canada Limited, also known as 177061 Canada Ltd., 72085 Manitoba Limited, 72092 Manitoba Limited, Shelter Financial Corporation, Barclays Bank of Canada and Household Trust Company (defendants/respondents (appellants by cross-appeal))

Barclays Bank of Canada ((plaintiff (by counterclaim)/respondent (appellant by cross-appeal)) v. Edith Bunting et al. [names of other defendants omitted] (defendants (by counterclaim)/appellants (respondents by cross-appeal))

Household Trust Company ((plaintiff (by counterclaim)/respondent (appellant by cross-appeal)) v. Peter Abbott et al. [names of other defendants omitted]

(C41123)

Indexed As: Place Concorde East Limited Partnership et al. v. Shelter Corp. of Canada Ltd. et al.

Ontario Court of Appeal

Feldman, Blair and LaForme, JJ.A.

May 18, 2006.

Summary:

The plaintiffs were investors in a failed apartment redevelopment project. As part of their consideration for acquiring their interests, they had given the defendant Shelter promissory notes. Shelter had sold or assigned the notes to the defendants Barclays Bank and Household Trust (the financial institutions). The plaintiffs brought an action against the defendants for an order that they were entitled to rescind their investment contracts in the project, together with an order that the defendants deliver up to the plaintiffs each of their notes for cancellation and return all amounts paid under the notes, and, in the alternative, damages of $10,684,000 against Shelter, together with an order permitting each limited partner to set-off their individual damages award against the amounts unpaid on their notes. The financial institutions cross-claimed for the unpaid amounts owing on the notes.

The Ontario Superior Court, in a decision reported at [2003] O.T.C. 1144, dismissed the request for rescission and the claim for damages. The plaintiffs were liable for the amounts owing on the notes. In obiter, the court indicated that had damages been proven, the plaintiffs would have had a right of equitable set-off against the amounts owing on the notes. The court granted judgment in favour of the financial institutions on their cross-claim, but set aside the post-default rate of interest specified in the notes as an unenforceable penalty and substituted the Courts of Justice Act rate of interest. The plaintiffs appealed and the financial institutions cross-appealed, regarding equitable set-off and the rate of interest.

The Ontario Court of Appeal allowed the plaintiffs' appeal to the limited extent of awarding nominal damages of $1.00 per limited partner. The cross-appeal was dismissed. The plaintiffs were entitled to their costs of the trial of the action.

Contracts - Topic 3666

Performance or breach - Repudiation - What constitutes acceptance of repudiation - The plaintiffs were investors in a failed apartment redevelopment project - In their action for rescission and/or damages, they argued at trial that breaches by the defendant Shelter of the investment contract entitled them to rescission - The trial judge held that Shelter had breached its agreement and that the breaches caused the plaintiffs' losses of their units - However, rescission was not available - The plaintiffs had derived tax relief benefits from the investment - Further, the breaches were not fundamental - The plaintiffs appealed, asserting, inter alia, that there was a fundamental breach by Shelter that constituted repudiation and that service of their statement of claim provided timely notice of the plaintiffs' election to accept Shelter's repudiation - The Ontario Court of Appeal dismissed this ground of appeal - The court was prepared to assume without deciding that an election to accept a repudiation could be made through issuance of statement of claim - However, there was nothing in the plaintiffs' statement of claim that indicated acceptance - The various orders requested by the plaintiffs reflected their position that the agreements were void ab initio on the basis of rescission - See paragraphs 66 to 69.

Contracts - Topic 3730

Performance or breach - Fundamental breach - What constitutes a fundamental breach - The plaintiffs were investors in a failed apartment redevelopment project - In their action for rescission and/or damages, they argued at trial that breaches by the defendant Shelter of the investment contract entitled them to rescission - The trial judge held that Shelter had breached its agreements including commitments to make timely payments to third parties, provide cash flow loans, complete renovations, guarantee repayment of a second mortgage, provide third mortgage financing to cover shortfalls, provide good property management and make adequate reports - However, the breaches were not fundamental - The plaintiffs appealed - The Ontario Court of Appeal dismissed this ground of appeal - The plaintiffs had not established the unreasonableness of the trial judge's conclusion that the breaches were not fundamental - The plaintiffs had invested in the project to earn income, participate in capital appreciation, and take advantage of income tax deferrals - The project failed to earn income due to Shelter's breaches - However, the plaintiffs did receive the benefit of potential capital appreciation if the market went up and tax benefits - It could not be said that the entire foundation of the contract was undermined - See paragraphs 61 to 65.

Contracts - Topic 3742

Performance or breach - Fundamental breach - Rescission - Repudiation - The plaintiffs were investors in a failed apartment redevelopment project - In their action for rescission and/or damages, they argued at trial that breaches by the defendant Shelter of the investment contract entitled them to rescission - The trial judge held that Shelter had breached its agreement and that the breaches caused the plaintiffs' losses of their units - However, rescission was not available - The plaintiffs had derived tax relief benefits from the investment - Further, the breaches were not fundamental - The plaintiffs appealed, asserting, inter alia, that there was a fundamental breach by Shelter that excused them from future performance of their contractual obligations and that the trial judge had erred in not considering the issue - The Ontario Court of Appeal dismissed this ground of appeal - The remedies the plaintiffs requested at trial were consistent only with rescission, returning the parties to the position they would have been if not for the agreements - The trial judge was not asked to consider whether Shelter's breaches would justify future non-performance of the plaintiffs' obligations - It would not be appropriate to allow the appeal on the basis of repudiation when the plaintiffs had not argued that at trial or in their pleadings - See paragraphs 48 to 60.

Contracts - Topic 4048

Remedies for breach - Liquidated damages and penalties - Penalty - What constitutes - The plaintiffs were investors in a failed apartment redevelopment project - As part of the consideration for acquiring their interests, they gave the defendant Shelter promissory notes - The notes provided for interest of prime plus 1.75% before default and prime plus 6% after default - The defendant financial institutions acquired the notes - The plaintiffs brought an action for rescission and/or damages - The trial judge concluded that the plaintiffs were liable on the notes and granted judgment for the financial institutions on their cross-claim for the unpaid amounts - However, the trial judge held that the default interest rate was not commercially reasonable - It was set aside as an unenforceable penalty and replaced with the Courts of Justice Act interest rate - On the plaintiffs' appeal, the financial institutions cross-appealed regarding the interest rate - The Ontario Court of Appeal dismissed the cross-appeal - The financial institutions had not pointed to any clear evidence to show that a 4.25% step-up was commercially reasonable - The court also rejected the financial institutions' arguments that (i) the court should only refuse to enforce a penalty where that was necessary to provide relief against oppression and (ii) the trial judgment should be varied to award interest at the pre-default rate rather than the Courts of Justice Act rate - See paragraphs 83 to 90.

Contracts - Topic 4183

Remedies for breach - Rescission - When available - General - [See Contracts - Topic 3742 ].

Damages - Topic 1103

Liquidated damages - What constitutes a penalty - [See Contracts - Topic 4048 ].

Damages - Topic 1202

Nominal damages - For breach of contract - The plaintiffs were investors in a failed apartment redevelopment project - They brought an action against the defendants for rescission and/or damages - The trial judge concluded that the plaintiffs' loss of their units was due to the defendant Shelter's breaches of its contractual commitment but there was no basis for rescission - Further, the plaintiffs had not suffered any provable damages in the form of loss of capital appreciation or income - Even if Shelter had fulfilled its commitments, the project was too heavily leveraged to allow it to be refinanced in the prevailing market conditions - The plaintiffs appealed, asserting, inter alia, that the trial judge had erred in refusing to award nominal damages - The Ontario Court of Appeal allowed this ground of appeal - Shelter breached the majority of its commitments to investors - An award of nominal damages of $1.00 per limited partner was appropriate because the plaintiffs had successfully made out their claim for breach of contract - Since the court awarded nominal damages, rather than true damages, the plaintiffs were also entitled to their costs of the action regardless of any offers to settle that might have been made - See paragraphs 70 to 78.

Damages - Topic 1206

Nominal damages - Where no loss or injury - [See Damages - Topic 1202 ].

Practice - Topic 1850

Pleadings - Counterclaim and set-off - Set-off - Equitable set-off - The plaintiffs were investors in a failed apartment redevelopment project - As part of the consideration for acquiring their interests, they gave the defendant Shelter promissory notes - The defendant financial institutions acquired the notes - The plaintiffs brought an action for rescission and/or damages - The trial judge dismissed the claim for rescission and found that no damages had been proven - In obiter, however, the trial judge indicated that had damages been proven, she would have allowed the plaintiffs to set-off the damages against the amounts owing on the notes - The judge concluded that the plaintiffs were liable on the notes and granted judgment for the financial institutions on their cross-claim for the unpaid amounts - The plaintiffs appealed and the financial institutions cross-appealed regarding whether equitable set-off was available - The Ontario Court of Appeal dismissed the cross-appeal - An appeal or cross-appeal was from the trial judge's order, not the reasons - Her order did not include any declaration in respect of set-off - The appeal court's conclusion that the plaintiffs were entitled to nominal damages had no practical implication in the context of a right of set-off against the financial institutions' multi-million dollar claim on the notes - See paragraphs 80 to 82.

Practice - Topic 7248

Costs - Party and party costs - Offers to settle - Costs to successful plaintiff - [See Damages - Topic 1202 ].

Cases Noticed:

Kingu v. Walma Ventures Ltd. (1986), 10 B.C.L.R.(2d) 15 (C.A.), refd to. [para. 30].

Eastwalsh Homes Ltd. v. Anatal Developments Ltd. (1993), 62 O.A.C. 20; 12 O.R.(3d) 675 (C.A.), leave to appeal refused [1993] 3 S.C.R. vi; 162 N.R. 399; 67 O.A.C. 79, refd to. [para. 31, footnote 5].

P.I.A. Investments Inc. v. Deerhurst Ltd. Partnership (2000), 20 C.B.R.(4th) 116 (Ont. C.A.), refd to. [para. 36, footnote 7].

Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423; 247 N.R. 97; 126 O.A.C. 1, refd to. [para. 48].

Abram Steamship Co. v. Westville Shipping Co., [1923] A.C. 733 (H.L.), refd to. [para. 48].

Chapman v. Ginter, [1968] S.C.R. 560, refd to. [para. 50].

Syncrude Canada Ltd. et al. v. Hunter Engineering Co. and Allis-Chalmers Canada Ltd. et al., [1989] 1 S.C.R. 426; 92 N.R. 1, refd to. [para. 51].

968703 Ontario Ltd. v. Vernon et al. (2002), 155 O.A.C. 386; 58 O.R.(3d) 215 (C.A.), refd to. [para. 53].

Rodaro et al. v. Royal Bank of Canada et al. (2002), 157 O.A.C. 203; 59 O.R.(3d) 74 (C.A.), refd to. [para. 60].

Canadian Financial Co. v. First Federal Construction Ltd. et al. (1982), 34 O.R.(2d) 681 (C.A.), leave to appeal refused [1982] 1 S.C.R. viii; 41 N.R. 353, refd to. [para. 71].

Serban v. Egolf & Anas Associates (1983), 43 B.C.L.R. 209 (S.C.), refd to. [para. 76].

Marsh v. Royal Bank of Canada (1922), 63 D.L.R. 659 (Sask. C.A.), refd to. [para. 78].

Dunlop Pneumatic Tyre Co. v. New Garage and Motor Co., [1915] A.C. 79 (H.L.), refd to. [para. 83].

869163 Ontario Ltd. v. Torrey Springs II Associates Ltd. Partnership (2004), 243 D.L.R.(4th) 502 (Ont. Sup. Ct.), refd to. [para. 86].

Peachtree II Associates - Dallas L.P. et al. v. 857486 Ontario Ltd. et al. (2005), 200 O.A.C. 159; 76 O.R.(3d) 362 (C.A.), refd to. [para. 87].

Pizzey Estate v. Crestwood Lake Ltd. et al. (2004), 181 O.A.C. 383; 69 O.R.(3d) 306 (C.A.), leave to appeal refused (2005), 334 N.R. 197; 206 O.A.C. 393 (S.C.C.), dist. [para. 88].

Authors and Works Noticed:

McCamus, John D., The Law of Contracts (2005), pp. 641, 642 [para. 50].

McGregor, Harvey, Damages (17th Ed. 2003), para. 10-006 [para. 76].

Waddams, Stephen M., The Law of Contracts (5th Ed. 2005), para. 587 [para. 52].

Waddams, Stephen M., The Law of Damages (4th Ed. 2004), paras. 10.10, 10.30 [para. 78].

Counsel:

Timothy Pinos and David S. Ward, for the appellants/respondents by cross-appeal;

Catherine Patterson, for the respondents/appellants by cross-appeal, Shelter Corporation of Canada Limited, also known as 177061 Canada Ltd., 72085 Manitoba Limited, 72092 Manitoba Limited and Shelter Financial Corporation;

R. Bruce Smith and Christopher A.L. Caruana, for the respondents/appellants by cross-appeal, Barclays Bank of Canada and Household Trust Company.

This appeal and cross-appeal was heard on November 28 and 29, 2005, by Feldman, Blair and LaForme, JJ.A., of the Ontario Court of Appeal. LaForme, J.A., released the following judgment for the court on May 18, 2006.