Gambling on Specific Performance

The OBA is running an early morning one hour program on Wednesday 12 December on the Supreme Court of Canada’s recent decision Southcott Estates Inc v. Toronto Catholic District School Board. This is the latest word on the law of mitigation in Canada. You can register to attend on-line or in person here.

The panel includes counsel who appeared in Ottawa for the appellant and respondent – Thomas Curry and Andrew Robinson.

The School Board sold surplus land to a corporation incorporated solely to purchase the land. The purchaser was a wholly owned subsidiary of a real estate developer. The sale was conditional on the Board obtaining severance before closing. The Board applied for severance but failed to satisfy this condition in time. The Board refused to further extend the time for closing. It treated the agreement as at an end and returned the purchaser’s deposit.

The purchaser sued for specific performance alleging breach of the Board’s obligation to use best efforts to obtain the severance, and sought damages in the alternative. It chose not to attempt to mitigate.

The trial judge dismissed the claim for specific performance but awarded $2 million damages calculated as loss of a 60% chance to make profit.

The Ontario Court of Appeal reduced the damages award to one dollar on the basis that the purchaser “unreasonably” failed to take steps to mitigate.

The majority of the SCC upheld that decision ruling that a purchaser is not entitled to recover losses it could reasonably have avoided.

In a powerful dissent the Chief Justice said she would have allowed the appeal and restored the trial judgment saying, “A plaintiff acting reasonably cannot pursue specific performance and mitigate it’s loss at the same time”. To do so would effectively “concede defeat”, potentially leaving the purchaser with two properties – one it wanted and one it did not.

Should a developer ever gamble again on specific performance? How can it improve the odds?