Suburban Activity Centre v., 2011 ABQB 419

Court of Queen ’ s Bench of Alberta Citation: Suburban Activity Centre v. 304629 Alberta Ltd., 2011 ABQB 419 Date: 20110712 Docket: 0701 09129 Registry: Calgary Between: Suburban Activity Centre and 1338259 Alberta Ltd. Plaintiffs - and - 304629 Alberta Ltd. And K.P. Manufacturers (Calgary) Ltd. Defendants - and - Kristine Smed Third Party _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice B.E. Romaine _______________________________________________________ Introduction

[ 1 ] The plaintiffs entered into an agreement with the defendants to purchase commercial property that was to be leased back to the defendants and a related tenant by the new owners. The defendants purported to terminate the agreement prior to closing. The plaintiffs claim damages, specifically for the loss of an opportunity to profit from the resale of the property.

The primary issue is whether the defendants were entitled to terminate the agreement, either for conduct by the plaintiffs that the defendants submit was a breach of the agreement or because a “true condition precedent,” the execution of a lease by a third party, was not satisfied, such that neither party had a right to performance. The defendants counter-claim for damages arising from the termination of the agreement. Also at issue is the validity of a caveat that was filed on property arising from negotiations that followed the termination. Facts [ 2 ] In March, 2007, K.P.

Manufacturers (Calgary) Ltd. was in difficult financial circumstances. The president and principal shareholder of K.P., Kristine Smed, decided to sell the buildings in which K.P. and Dirtt Environmental Solutions Ltd., a corporation owned and managed by Ms. Smed’s brother, had their main offices and carried on manufacturing activities, (the “Properties”), with the idea of having these Properties leased back to K.P.and Dirtt by the new owner.

She contacted Robert Thomas, a mortgage broker with Norcal Realty whom she had previously retained on other transactions and advised him that she wished to sell the Properties. [ 3 ] Ms. Smed gave Mr. Thomas a two-page information sheet on the Properties (the “Marketing

Summary”). The Marketing

Summary stipulated a sale price of $7.5 million and made it clear that the Properties would be leased to two tenants, K.P. and Dirtt. [ 4 ] Mr. Thomas contacted Jerol Fleishman, the principal owner of the Marlborough Group, real estate development and investment companies, sometime around April 15, 2007 about this opportunity and he indicated an interest. Mr. Thomas had had previous business dealings with Mr. Fleishman, as had Ms. Smed. The first meeting between Ms. Smed, Mr. Fleishman and Mr.

Thomas with respect to the possibility of a sale and purchase of the Properties took place at K.P.’s offices in late April, 2007. [ 5 ] Mr. Fleishman’s recollection of the meeting was that the parties discussed the sale in general terms and that Ms. Smed expressed unhappiness with her last lawyer and lawyers in general. She said she did not want to sell the Properties as they originally had been purchased and developed by her father. Ms. Smed made it clear, however, that she wanted to close a sale as soon as possible.

She wanted $6.6 million for the Properties and advised that the annual income to the new owner from the two leases would be about $525,000. [ 6 ] One of the main areas of contention between the parties to this litigation is what was discussed at this meeting about Mr. Fleishman’s future plans for the Properties. Ms. Smed testified that Mr. Fleishman assured her that he was going to hold on to them as investment property. She said that she knew that Mr.

Fleishman was in the business of buying and selling land, but that she told him she was only interested in selling to someone who would be K.P.’s landlord, as she needed to know the terms of the leases. She testified that Mr. Fleishman told her that one of his companies would remain as the landlord. [ 7 ] Mr. Fleishman denied that he had given Ms. Smed this assurance.

He testified that he indicated to her that one of his companies would negotiate a purchase and sale agreement for the Properties and negotiate the leases with K.P. and Dirtt, but that he did not promise that a member of his corporate group would keep the Properties forever. Mr. Fleishman testified that he recalled Ms. Smed asking about his companies remaining as landlord. He advised her that it was part of their business to buy and sell properties, and that he did not know if they would sell the Properties, but that this was possible.

He confirmed, however, that the purchasing company would negotiate the leases as part of the purchase and sale. [ 8 ] In support of her testimony on this issue, Ms. Smed testified that, at the first meeting in April, she introduced Mr. Fleishman to one of her employees, Ken Mix, and her daughter, Korina Dvorkin, as “your potential landlord.” [ 9 ] Ms. Dvorkin confirmed that Mr. Fleishman was introduced to her as the new landlord. She said that Mr. Fleishman told her that he would be keeping the Properties as investment property for the future. Mr. Fleishman testified, however, that he thought he had not met Ms.

Dvorkin until a later meeting.

[ 10 ] Ms. Dvorkin’s testimony was clearly tailored to support her mother on this point. She was mistaken with respect to certain key dates and hazy with respect to what had actually occurred at various meetings. I have concerns about the accuracy of her memory of these events and how it may have changed through discussions about the litigation with her mother. Her testimony was not helpful in corroborating Ms. Smed’s testimony due to these weaknesses. [ 11 ] Mr. Mix testified that he was the person who took Mr. Fleishman around on his first visit, and Mr. Fleishman confirmed this. Mr. Mix said that Ms.

Smed introduced Mr. Fleishman as the person who was “going to continue to rent to us”. Even if this comment was made, it does not corroborate Ms. Smed’s version of her discussions with Mr. Fleishman on his long-term plans. [ 12 ] Ms. Smed also called a cousin who is one of her employees, Erik Madsen, who testified that Mr. Fleishman was introduced to him as the “new landlord”, and that Mr. Fleishman had indicated that he was setting himself up for retirement and was interested in the Properties for that reason. Mr. Madsen appeared confused about the circumstances and timing of this incident.

According to his recollection, Ms. Smed asked him to escort “three gentlemen”, possibly including Mr. Fleishman, on a tour of the building. However, both Mr. Fleishman and Ms. Smed agree that it was Mr. Mix who escorted Mr. Fleishman on a tour during his first visit. This confusion calls into question the accuracy of Mr. Madsen’s memory. I note that he is both an employee and a relative of Ms. Smed whose testimony may suffer from the same lack of objectivity as Ms. Dvorkin’s. [ 13 ] Mr. Thomas’ recollection of the conversation at the first meeting was that it was focused on price, and that Ms.

Smed spoke a little about her reluctance to sell the Properties. He did not recall any conversation about Mr. Fleishman’s intentions with respect to the resale of the Properties. [ 14 ] I accept Mr. Fleishman’s testimony that he agreed that he would, through one of his corporations, negotiate the agreement of purchase and sale and the leases, but that he did not commit to keep the Properties indefinitely. [ 15 ] During Mr. Fleishman’s first tour of the buildings with Mr. Mix, he could see that there had been roof leakage problems that he wanted to discuss with Ms.

Smed, but he did not look at the operating systems of the buildings. Mr. Fleishman said that he could see that the Dirtt premises were being renovated and improved. [ 16 ] After the tour, Mr. Fleishman went back and asked Ms. Smed about the roof problems. She indicated that she had recently spent a great deal of money maintaining the roof, and that it should not be a problem. She said that K.P. was to be responsible for the maintenance of the roof under the lease, and also for the HVAC systems, which would not in Mr. Fleishman’s view be typical of a commercial lease. [ 17 ] Ms. Smed indicated to Mr.

Fleishman that the existing lease between Dirtt and 304629 Alberta Ltd., a numbered company she controlled, would be terminated and replaced with a new one. She advised him that she would be responsible for preparing the new leases and negotiating their terms on behalf of both K.P. and Dirtt. Mr. Fleishman testified that he was of the impression that the two leases would be exactly the same except for the square footage and rental amounts. He asked Ms. Smed to provide Mr. Thomas with a break-down of the rent for different portions of the Properties, and this was later provided. [ 18 ] Mr.

Fleishman testified that he also received copies of two recent appraisals of the Properties from Mr. Thomas at about this time. Mr. Thomas testified that, in addition to the Marketing

Summary he received at the beginning of this engagement from Ms. Smed, he had in his possession two appraisal reports on the Properties, which he had received when he did some prior work on financing the buildings. Mr. Thomas’ recollection was that these appraisals were given to Mr. Fleishman at the first meeting in Ms. Smed’s office, or possibly some time around April 5, 2007, although he conceded, since this was more than three years ago, he did not have a clear recollection of when he provided Mr. Fleishman with the appraisals. Ms.

Smed asserts that she had not provided the appraisals or the Marketing Information to Mr. Thomas before the execution of the offer to purchase, but I prefer Mr. Thomas’ testimony, corroborated by Mr. Fleishman, about when he received these documents from Ms. Smed and when, approximately, he provided them to Mr. Fleishman. [ 19 ] Mr. Fleishman submitted an offer to purchase dated May 1, 2007 through Mr. Thomas. The proposed purchaser was to be Suburban Activity Centre Inc., one of Mr. Fleishman’s companies, “or its nominee”.

[ 20 ] Mr. Fleishman recalled that Ms. Smed asked him the reason for the “nominee” reference and that he advised her that it was the Marlborough Group’s normal practice to assign the agreement to a new company. He testified that, at this time, he was not anticipating that the Properties would be immediately resold. [ 21 ] The purchase price offered by Suburban was $6.6 million. The offer to purchase provided that the vendor, 304629 Alberta Ltd., was to provide leases with K.P. and Dirtt with five year terms and an option to renew at market rates.

K.P. was to be responsible for the maintenance of the roof and HVAC systems for the Properties. The square footage and annual rental for both leases were set out in the offer to lease and were based on Mr. Fleishman’s understanding of what Ms. Smed wanted. [ 22 ] The vendor was to provide, among other documents, an up-to-date floor plan showing the exact size of the leased premises for each tenant., Mr.

Fleishman testified that, although this would not change the rental as specified in the offer to purchase, he felt he should know how much of the floor plan was occupied for each manufacturing function. [ 23 ] The leases were to be “net absolute” and K.P.’s lease was to include a personal guarantee from Ms. Smed, which Mr. Fleishman understood she was prepared to provide. Ms. Smed noted that in fact she offered to provide a personal guarantee. [ 24 ] Mr. Fleishman received a manually-revised counter-offer from Ms. Smed through Mr.

Thomas on May 4, 2007, and further changes were negotiated, culminating in an offer to purchase with hand-written revisions executed by both parties on May 7, 2007. The revisions that are material to this litigation include changes to the annual rental amount for K.P. and the annual rental amount and leased square footage for Dirtt, and provisions for options to renew the leases for three five year terms. The parties agreed to Mr. Thomas acting in a dual agency capacity for the transaction.

The revised offer to purchase provided that the purchaser would have the right to register a caveat on the Properties after the removal of the conditions. Closing was to occur thirty days after the satisfaction and waiver of all of the purchaser’s conditions precedent. [ 25 ] Mr. Fleishman testified that, after the first meeting with Ms.

Smed, he and his sons (who are partners in his business) decided that since industrial property was not part of the Marlborough Group’s main activities, they would try to remarket the Properties as quickly as they could, to take advantage of the then strong market and considerable interest from REITs in this kind of property. Mr. Fleishman contacted David Wallach of Barclay Street Real Estate Ltd. in mid-May, 2007 to discuss whether Barclay had a client interested in this kind of opportunity. Mr. Fleishman was asking for $7.5 million for the property, conditional upon a closing with Ms. Smed. Mr.

Fleishman provided Mr. Wallach with the appraisals and rental information he had received from Ms. Smed. Within a few days, Mr. Fleishman received an offer to purchase the Properties from Leben Investment Corporation, which he accepted on May 16, 2007. [ 26 ] The offer from Leben was by way of a letter of intent for a purchase price of $7.5 million. It was to be a “skip-transfer” directly from 304629 Alberta to Leben and was conditional upon closing of the purchase from 304629 Alberta.

Closing was to occur on August 15, 2007. [ 27 ] This letter of intent was shortly followed by a purchase agreement between Suburban and Leben executed on May 24, 2007. For the purposes of this litigation, the following portions of the purchase agreement are relevant:

a) Suburban as vendor to Leben was described as the purchaser of the Properties under an offer to purchase, with title as of closing of that offer to purchase;

b) the agreement contained a “skip-transfer” provision;

c) the agreement included a “Rent Roll”

schedule that set out certain provisions of the anticipated leases with K.P. and Dirtt, including annual rent but not including square footage. [ 28 ] Mr. Fleishman acknowledged that he did not tell Ms. Smed he was marketing the Properties. He testified that he was not

required to do so and would normally not disclose plans to remarket to an original vendor. However, he did advise Mr. Thomas of his intentions in this regard on about May 10, 2007. [ 29 ] Mr. Thomas recalled Mr. Fleishman advising him of his intention to resell and his concerns about the financial viability of K.P. as a tenant. [ 30 ] Mr. Fleishman commissioned a building condition report on the Properties in mid-May, which he described as normal due diligence.

The report of Jacques Whitford dated June 6, 2007 revealed minor deficiencies, including deterioration of the roof and indicated that repair of physical deficiencies in the Properties over the next ten years would probably cost $419,500. [ 31 ] Mr. Fleishman testified that he was to receive certain documentation in accordance with the offer to purchase by May 12, 2007. Mr. Thomas had prepared a list of such documents on May 7, 2007 when the offer was finalized. Suburban received some of these documents by May 12, 2007, but not all. One of the required documents was a breakdown of building operating expenses. Ms.

Smed provided a document that gave only approximations for most of these expenses and an out-of-date property tax assessment. Mr. Fleishman responded to Mr. Thomas indicating that there was missing information, that he particularly required an updated real property report, and inquiring as to when Suburban would receive a form of lease and the personal guarantee. [ 32 ] Mr. Fleishman testified that he approached Ms. Smed directly about the form of leases and guarantee, as he thought, reasonably, that it was her responsibility to provide the first drafts under the offer to purchase. After a couple of requests, Ms.

Smed indicated that Suburban should prepare these documents, so Mr. Fleishman made arrangements to do so. [ 33 ] The 60 day due diligence review period under the offer to purchase was to commence upon the receipt of the last of the vendor’s documents. On May 9, 2007, Mr. Thomas sent Mr. Fleishman a letter indicating that he believed the 60 day period should commence on that date. At trial, Mr. Thomas recalled that the response from Mr. Fleishman was that there were still vendor’s documents missing at that point, including, a current real property report. Mr.

Thomas agreed that these documents had still not been provided by Ms. Smed. Suburban took the position that it had not received all of the vendor’s documents until July 30, 2007 when it finally received an updated real property report. [ 34 ] Mr. Fleishman testified that at this point he was becoming concerned about Ms. Smed’s co-operation on the sale. Ms. Smed was frequently in the Bahamas, both in May and July of 2007, and Mr. Fleishman was frustrated by her lack of diligence in providing the documents and information that were to be received from the vendor. [ 35 ] One of Mr.

Fleishman’s sons drafted the leases, using both an industrial form lease that he had available and a draft form of lease he had obtained from Leben. The first draft of the leases was provided to Ms. Smed between June 8 and 13, 2007 . Ms. Smed reviewed her concerns with respect to the drafts with Mr. Thomas at her office, and those concerns were conveyed to Mr. Fleishman. Mr. Fleishman testified that Suburban agreed to many of the changes and wished to negotiate others. The process continued during June and into early July. [ 36 ] Mr. Fleishman’s son had also drafted a form of personal guarantee. Ms.

Smed conceded she could have received this draft but said that she had not provided any comment. Ms. Smed complained that the draft guarantee was not fully completed, although she conceded she knew what the basic terms would be from the offer to purchase. Ms. Smed also conceded that she “could have received” a later draft, then entitled an “ indemnity agreement” but that, since it included some blanks, she “wouldn’t have looked at it”.

The drafts are standard forms that merely required the insertion of the appropriate party names. [ 37 ] On June 26, 2007, the purchase agreement between Suburban and Leben was terminated. Mr. Wallach testified that the termination was due to delay in finalizing the leases. Mr. Fleishman testified that, nevertheless, Suburban was committed to proceeding with the offer to purchase the Properties from Ms. Smed, and he was confident that Suburban would be able to resell the Properties, given time. Mr. Wallach was told to continue his marketing efforts. [ 38 ] At a meeting on the draft leases in early July, 2007, Mr.

Fleishman referred Ms. Smed to the Jacques Whitford report which he had previously forwarded to her, and advised her that, since the roof had obviously not been maintained as she had suggested,

Suburban would require it to be replaced. The parties agreed that the projected cost of replacing the roof, $310,000, would be deducted from the sale proceeds and deposited in trust to be used solely for the replacement of the roof. Suburban was to be responsible for any costs over $310,000, and K.P. would receive what remained in trust if the cost was less than $310,000. An Addendum to the Purchase Agreement to that effect, which also included some other minor changes, (including an adjustment in the first year’s rent to the benefit of K.P.) was executed on July 9, 2007 by Ms.

Smed on behalf of both the numbered company and K.P. (which was now the registered owner of the Properties). [ 39 ] At this point, an updated real property report had still not been received by Suburban. Mr. Thomas attempted to assist the parties with this. They executed an Addendum to Purchase Contract (2) on July 9, 2007 which provided that:

a) Suburban accepted all of the vendor’s documents as provided other than the real property report;

b) the condition with respect to the vendor’s documents was thus extended for 30 days and Suburban would have a maximum of two days after delivery of the updated real property report to remove the condition;

c) Suburban accepted the current condition of the Properties other than the roof, as set out in the previous Addendum;

d) the condition in the offer to purchase with respect to negotiation of the new lease agreements and the personal guarantee would be extended for seven days;

e) closing would be twenty days from the removal of all conditions; and

f) Suburban’s deposit would be increased to $150,000. [ 40 ] Mr. Fleishman indicated that the impetus for this Addendum so far as Suburban was concerned was that he had learned that Ms. Smed was returning to the Bahamas, and he wanted to get the leases and guarantee worked out before she left. He noted that Suburban had still not received an adequate breakdown of building operating expenses, but he agreed to the Addendum anyway so that some progress towards closing could be made. [ 41 ] Suburban sent execution copies of the revised leases and the personal guarantee (now entitled the indemnity agreement) to Ms.

Smed by courier on July 13, 2007. After a telephone conversation with Mr. Fleishman in which Ms. Smed told him that she didn’t think she had received the Dirtt lease, Mr. Fleishman provided Ms. Smed with a fax copy of the Dirtt lease and the indemnity agreement. [ 42 ] Mr. Fleishman testified that, in a second telephone conversation on July 13, 2007, Ms. Smed told him that the leases looked fine, and that she was sending the Dirtt lease to Dirtt for execution.

She said that she was signing the K.P. lease and would leave it with her lawyer, and that she would execute the indemnity agreement when she got back from the Bahamas. Mr. Fleishman agreed that this was satisfactory. Mr. Fleishman testified that he then asked Mr. Thomas to prepare an addendum that would confirm that the leases and personal guarantee were approved. [ 43 ] Later, at about 5:30 that afternoon, Ms. Smed phoned Mr. Fleishman and said she had one change to make to the leases. Ms. Smed testified at trial that this change had been agreed to in prior negotiations, but Mr. Fleishman did not agree. Mr.

Fleishman testified that he was unhappy with the proposed change of the lease at the last moment, but agreed to it, indicating to Ms. Smed that he would replace the existing pages of the leases with revised pages. Apparently, Ms. Smed did sign the lease on behalf of K.P. before leaving for the Bahamas, as a signed copy, with the last change she had requested marked and initialled by her, was delivered to her lawyer and produced during the course of the litigation. [ 44 ] In the meantime, Mr.

Thomas had prepared Addendum to Purchase Contract (3) which confirmed that the condition relating to the completion of negotiations for the new lease agreements and personal guarantee had been met and the form of these documents approved. The Addendum also provided that all other terms and conditions of the offer to purchase remained in effect. This Addendum

was signed by Ms. Smed on July 13, 2007 and by Suburban on July 16, 2007. The last condition remaining at this point in time was receipt of the updated real property report. [ 45 ] On July 16, 2007, Mr. Fleishman faxed a letter to Mr. Thomas in which he summarized what had happened during his various conversations with Ms. Smed on July 13, 2007 and noted: We are concerned with the one charge (sic) that was made to the K.P. Manufacturers lease because of all of the other changes that were required and made.

We will not be in a position to remove our last condition until this matter is discussed and resolved with Kristine Smed on her return to the city. In addition, it is our intention to have the office space that is occupied by Dirtt measured in accordance with applicable standards as we believe that the size of the said office space has been increased substantially. Please pass this information onto Christine so there is no misunderstanding at a later date. [ 46 ] Mr.

Fleishman testified that he never intended to change the rental on the Dirtt lease, as the lease was finalized, but that he wanted to know what the actual square footages were. [ 47 ] On July 17, 2007, Mr. Thomas advised Mr. Fleishman that he had delivered the documents, including the offer to purchase and the addendums, to Ms. Smed’s lawyer. [ 48 ] Ms. Smed testified that Ms. Dvorkin sent her a copy of Mr. Fleishman’s July 16, 2007 letter to Mr. Thomas while she was in the Bahamas, and she was not happy about it. She testified that she had expected the transaction to close earlier and that she needed the money.

She took the reference to measuring the Dirtt space as a “hostile statement”. She also testified that she felt that the request was a ploy to allow Suburban to increase Dirtt’s rent. [ 49 ] On July 18, 2007, Mr. Thomas advised Mr. Fleishman that Ms. Dvorkin was meeting with Dirtt on July 23, 2007 and that Dirtt wanted changes made to the lease. Mr. Fleishman told Mr. Thomas that he could not agree to changes to the Dirtt lease because that would mean that changes would also have to be made to the K.P. lease. [ 50 ] Nevertheless, Mr.

Fleishman was copied with an email from Scott Jenkins, the chief financial officer of Dirtt, to Ms. Dvorkin dated July 19, 2007 with respect to eight changes Dirtt wanted made to the lease. The email notes that “(t)here are many more items we would like to see changed but understand time is of the essence and that this agreement is critical to K.P. ... so we will move forward without the other items”. [ 51 ] Mr. Fleishman received another offer to purchase the Properties through Mr. Wallach on July 22, 2007. The purchaser was to be Sunstone Opportunity Fund

(2006) Limited Partnership for a purchase price of $7.5 million. Suburban ultimately accepted this letter of intent to purchase on July 27, 2007. It was a key condition of the letter of intent that the purchaser be satisfied with the leases. As the purchase and sale was not to close until after the purchase from K.P., this sale was not to be effected by skip-transfer. [ 52 ] Despite his earlier expressed concern about changing the Dirtt lease, Mr. Fleishman passed on his comments on the requested changes to the Dirtt lease to Ms.

Dvorkin on July 23, 2007, accepting some and rejecting others. [ 53 ] On July 24, 2007, Mr. Fleishman had a telephone conversation with Ms. Smed who was still in the Bahamas. Mr. Fleishman testified that Ms. Smed was upset with her brother and concerned about Mr. Fleishman’s request to measure the Dirtt premises. He said that he assured her that he did not intend to change the Dirtt lease despite this request. Ms. Smed denied at trial that she expressed frustration about with her brother during this telephone conversation, but conceded that she was frustrated with the delay. [ 54 ] In the meantime, Mr.

Thomas was attempting to move matters along. On August 1, 2007, he faxed a message to Ms. Smed as follows:

Kristine, I spoke with Jerry Fleishman this morning. There is no problem with [the change to the lease Ms. Smed had requested on July 13, 2007]. He just want it typed in rather than written. He has not completed the operating costs budget but would be completed prior to closing. The [real property report, which was received by Suburban on July 30, 2007] is ok . . . I would like to talk to Scott Jenkins at Dirtt about the lease. Is that ok with you. [ 55 ] Ms. Smed said that she gave Mr. Thomas approval to negotiate directly with Mr.

Jenkins but testified, rather incredibly, that she didn’t realize he was working with Mr. Fleishman. She maintained that she was not aware of the negotiations between Mr. Thomas and Mr. Jenkins over the changes to the lease. [ 56 ] Mr. Fleishman testified that the operating costs budget that he was to provide pursuant to the leases was a problem since he had never received a satisfactory breakdown of current operating costs from Ms. Smed, as required by the offer to purchase.

He didn’t consider this something that could not be resolved prior to closing as K.P. and Dirtt, being existing tenants, knew what the operating costs would be. [ 57 ] Ms. Smed testified that, after she found out that Mr. Jenkins was not happy with the Dirtt lease, she told him when she returned from the Bahamas on about July 30, 2007 that, if negotiations were not going well, he should not sign the lease. She testified that when she received Mr. Thomas’ August 1, 2007 letter, she was unhappy with waiting until closing for the operating costs budget. Ms.

Smed testified that this was essential information under the leases. This is not credible, given that Ms. Smed would have known better than Mr. Fleishman what the current operating costs would be, and given that she had herself been delinquent in providing the necessary information under the offer to purchase that would enable Mr. Fleishman to provide the operating costs budget.

She testified, inconsistently, that she didn’t think that her failure to provide the necessary information under the offer to purchase would be a problem, since K.P. had occupied the building since 1983. [ 58 ] After receiving permission from Ms. Smed to contact Mr. Jenkins, Mr. Thomas acted as a facilitator to negotiate the terms of the Dirtt lease with Mr. Jenkins and Mr. Fleishman. A number of emails were exchanged. On August 10, 2007, Mr. Fleishman received a copy of an email from Mr. Jenkins to Mr. Thomas indicating that Mr.

Jenkins had left a message with Dirtt’s legal counsel with respect to one issue that was in the process of resolution and had also left a message with Dirtt’s insurance agent to satisfy a request made by Mr. Fleishman. Mr. Jenkins then indicated in the email that “I think I’m going to send a copy of the lease over to our counsel for a quick review. I will let you know if they have any comments.” [ 59 ] Mr. Fleishman testified that he took this to mean that Dirtt was satisfied with the lease. Mr. Thomas agreed in his testimony that it was his understanding that all of the eight items raised in Mr.

Jenkin’s July 19, 2007 email to Ms. Dvorkin had been discussed and resolved and that the only thing left was a review by Dirtt’s lawyer. Mr. Jenkins testified, however, that he did not in fact send the draft Dirtt lease to his counsel. [ 60 ] Mr. Jenkin’s testimony is problematic. Despite conceding that Ms. Smed had the authority to negotiate the lease on behalf of Dirtt, Mr. Jenkins testified that he advised Ms. Smed shortly after receiving a copy of the proposed lease that Dirtt was not prepared to sign it. [ 61 ] Mr.

Jenkins testified that he did not send the draft lease to his lawyer to review, not because Ms. Smed told him the deal was off, but because he had concerns over having a new landlord and having the rental space re-measured. He conceded that he had never expressed his concern about the measurement issue to either Mr. Thomas or Mr. Fleishman. When faced with the emails between himself and Mr. Thomas which appear to resolve a number of lease issues, he conceded that he had not told Mr.

Thomas what he was thinking, and testified that he may have been more polite in the emails and negotiations than what he was actually thinking. [ 62 ] He conceded that when he initially saw the draft lease on about July 16, and sent his July 19, 2007 email about his concerns,

he was under a great deal of pressure from his boss, Mr. Smed, and from Ms. Smed to move things along and negotiate an acceptable lease since it was so critical to K.P. [ 63 ] Mr. Jenkin’s testimony at trial about advising Ms. Smed that Dirtt would not execute the lease did not accord with the tenor of his emails. His testimony that he would not have allowed Dirtt to sign the lease was inconsistent with his concession that he was under pressure from Mr. Smed and Ms. Smed to negotiate an acceptable lease so that K.P. could benefit from the transaction. It is also inconsistent with his concession that Ms.

Smed had authority to negotiate the lease on Dirtt’s behalf. I cannot accept that Mr. Jenkins on his own initiative refused to proceed with negotiations over the lease, and I find that he only did so when Ms. Smed told him that Dirtt was free to refuse to sign the lease in August, 2007. [ 64 ] I find that Mr. Jenkins had negotiated the Dirtt lease to the point of it being acceptable to him pending final review by his counsel, in accordance with the perceptions of Mr. Fleishman and Mr. Thomas, and that he stopped that process when he was advised by Ms. Smed that she no longer required his cooperation. [ 65 ] Ms.

Smed testified that she was beginning to feel uncomfortable about closing the transaction at about this stage and phoned Mr. Thomas to tell him she was terminating the agreement. [ 66 ] On Monday, August 13, 2007, Mr. Thomas telephoned Mr. Fleishman and advised him that Ms. Smed had called him late on Friday, August 10, 2007 to tell him that she was not going through with the sale to Suburban, and that things were not going well with the lease with Dirtt. Mr. Fleishman testified that Mr. Thomas told him that Ms. Smed instructed him not to talk to Mr.

Jenkins or Dirtt any longer, that the deal was off and that K.P. would no longer be selling the Properties. Mr. Fleishman was very upset. [ 67 ] Mr. Fleishman testified that he then received a disturbing phone call from Ms. Smed, telling him that the sale was not going to proceed. He testified that she insulted him personally during the conversation. He advised her that Suburban was ready and willing to close but she responded with more insults. [ 68 ] Mr. Fleishman phoned Mr. Thomas and told him about the phone call. Mr. Thomas advised him, and confirmed at trial, that Ms.

Smed had made many similar insulting comments about Mr. Fleishman’s race and religion to Mr. Thomas during the telephone conversation of August 10, 2007. Mr. Fleishman asked Mr. Thomas to have Norcal write a letter confirming the satisfaction of outstanding conditions under the offer to purchase. [ 69 ] Further to this request, an officer of Norcal, Howard Chisholm, wrote a letter dated August 15, 2007 to Suburban and K.P. as follows: Pursuant to the conditions of the [offer to purchase and addendums], the purchaser has advised that all conditions have been satisfied.

It is our understanding the complete deposit of $250,000 has been sent to the purchaser’s solicitor. The expected closing date for the sale is August 31, 2007. [ 70 ] Ms. Smed submits that this letter was a forgery, but that is a perversion of Mr. Chisholm’s testimony. [ 71 ] On August 15, 2007, counsel for Suburban advised counsel for K.P. that Suburban was proceeding to register a Purchaser’s caveat against the Properties as all conditions had been removed. The letter suggests a closing date of August 31, 2007. [ 72 ] Mr. Thomas attempted to contact Ms.

Smed to discuss her position further, but was advised not to call her back. He sent her a fax dated August 23, 2007 as follows: Kristine I realize you asked me not to call you, but I thought I would send you this fax to keep you up-to-date with what is happening. I was

advised the Purchaser did register a caveat as contemplated in the offer and they would still like to close the sale if at all possible. I would hate to see this go to litigation and perhaps have the property tied up for a long period of time. Anyhow I was hoping you might reconsider your position on this matter. Regards, Bob Thomas [ 73 ] Ms. Smed testified that she considered this a “threatening” letter, that it “got her back up” and she decided she was not going to be bullied into closing. [ 74 ] By letter dated August 24, 2007 (which Mr.

Fleishman testified he received on August 22, 2007), counsel for K.P. indicated that K.P. considered the offer to purchase terminated. The letter raised the issue of the requested measurement of the Dirtt premises as a problem as well as Mr. Fleishman’s concern over the change to the K.P. lease requested by Ms. Smed in his July 16, 2007 letter to Mr. Thomas. The letter also raises the outstanding issues with the Dirtt lease as of August 1, 2007 and Mr. Fleishman’s inability to provide an operating costs budget before closing.

This was the first time these issues were formally raised as impediments to a closing. [ 75 ] On August 28, 2007, counsel to Suburban reiterated Suburban’s willingness to close the transaction and advised that Suburban had the necessary cash to close. Suburban advised Mr. Wallach at this time that it did not appear that it would be able to complete an offer to purchase with Sunstone because of K.P.’s failure to close.

Even though Suburban followed up with a confirmation to that effect late in September, it received a letter months later indicating Sunstone would still be interested in purchasing the Properties. [ 76 ] Ms. Smed testified that in early September, 2007, shortly after the transaction failed to close, she met with Mr. Jenkins. Mr. Smed’s companies had been lending money to Ms. Smed’s companies throughout 2007 to keep them afloat. Ms. Smed testified that Mr.

Jenkins suggested that, although Dirtt was not then in a position to finance her through her difficulties, it could keep lending her enough to cover her payroll obligations until Dirtt could secure the financing necessary to purchase the Properties. [ 77 ] In fact, by September 10, 2007, Mr. Jenkins provided Ms. Dvorkin with a draft offer to purchase based largely on the one K.P. had signed with Suburban, and suggested meeting to discuss the offer to purchase and update Ms. Smed and Ms. Dvorkin on Dirtt’s financing plans.

The purchase price was still to be $6.6 million, but there would be no real estate commission, no necessity for a personal guarantee from Ms. Smed and K.P. would receive $500,000 immediately upon execution of the offer. [ 78 ] The offer to purchase was accepted on September 27, 2007, although it did not close until February, 2008 when Dirtt finalized a $25 million financing. [ 79 ] Ms. Smed testified that Dirtt needed title to the Properties to be clear of Suburban’s caveat in order to close a sale, so she offered Suburban other land that she owned personally as security under the caveat. [ 80 ] Ms.

Smed testified that she was unhappy that Mr. Fleishman refused to remove the caveat from the K.P. lands and accept her personal property in exchange until she had paid the outstanding taxes on her personal property. She complained that Dirtt had to pay her $95,000 so that she could pay the taxes and have the Suburban caveat removed. [ 81 ] By this time, K.P. was in bankruptcy proceedings. Guy Odhams, who was K.P.’s trustee in bankruptcy from December 21, 2007 testified that one of the “hoped-for” outcomes of the bankruptcy was that shareholder loan losses would be crystallized to be offset against Ms.

Smed’s personal tax liability. Initially, only Ms. Smed was listed as a creditor in the bankruptcy but Mr. Odhams later invited Suburban to file a claim. Ms. Smed conceded that she was to receive certain personal benefits from the bankruptcy. [ 82 ] Mr. Odhams was aware of the negotiations that led to a consent order relating to the removal of the caveat over the Properties and the substitution of Ms. Smed’s personally-owned property. As a result, Suburban did not file a claim in K.P.’s bankruptcy proceedings.

Issues [83] In order to determine whether the defendants were entitled to terminate the offer to purchase and whether the plaintiffs areentitled to a remedy and in what amount, the following issues must be addressed: 1. Did the defendants have any contractually justifiable reason to terminate the offer to purchase?

a) Did the offer to purchase include a condition or representation that the plaintiffs would continue to own the property in their corporategroup?

b) Was the obligation to provide an executed lease from Dirtt a true condition precedent, the non-performance of which brought theagreement to an end? 2. Are the plaintiffs entitled to damages for loss of opportunity to resell the Properties, and if so, in what amount? 3. If the defendants were entitled to terminate the agreement, what is their entitlement to damages? 4. Is the caveat on the substituted lands valid?

Analysis [84] The main issue in this litigation is whether the defendants had any contractually justifiable reason to terminate the offer topurchase or whether their refusal to close constituted a breach of the offer to purchase. Alleged Breaches of Offer to Purchase [85] While Ms. Smed alleges that Mr. Fleishman represented that he or one of his companies would continue to own theProperties, I do not find her testimony credible. Ms.

Smed changed her testimony frequently at trial to rationalize her current position.There were many inconsistencies between her evidence at trial and her evidence during examinations for discovery, and even from timeto time during the trial depending on the position she was attempting to assert. Her evidence was inconsistent with the documentaryevidence.

In particular, there is nothing in the offer to purchase to support an alleged condition or representation that the plaintiffs wouldcontinue to own the Properties. [86] In fact, the offer to purchase contains a clause that stipulates that there are no representations or collateral agreements thathave not been expressed in the agreement in writing. While clauses such as this will not bar claims of fraudulent misrepresentation norclaims of negligent misrepresentation (Anderson Consulting Ltd. v. Canada (Attorney General) (2001), (ON CA), 150O.A.C. 177 (Ont.

C.A.) at paras. 20 and 21), there is no persuasive evidence of either. This offer to purchase was not a pre-determinedform foisted on Ms. Smed but was negotiated between parties of equal strength and sophistication. [87] Had the issue of Surburban holdings the Properties as landlord been as crucial as Ms. Smed now alleges, she had theopportunity to include a representation to that effect or a limitation on remarketing in the offer. [88] Ms. Smed is an experienced business woman who was not loath to negotiate and require changes to the offer to purchase.

Theleases to be negotiated as part of the purchase and sale, including options for the tenants to renew for three five year terms, wouldprovide certainty for the tenants in their essential terms no matter who the landlord would be in the future. Ms. Smed was aware that Mr.Fleishman’s companies were in the business of buying and selling properties. It is noteworthy that Mr. Thomas, who acted for bothparties in this transaction does not recall this issue being discussed at the first meeting, particularly since Mr. Thomas was within a fewweeks apprised of Mr.

Fleishman’s intention to remarket the Properties. [89] Ms. Smed alleges that Mr. Fleishman deliberately hid his plans to remarket the Properties from her. Mr. Fleishman concedesthat he did not inform Ms. Smed of his plans, and says that he had no obligation to do so. I agree.

[90] As noted in DiCastri’s text The Law of Vendor and Purchaser 3rd ed., looseleaf (Toronto: Carswell, 1988) at para. 7-23, thereis no general obligation to volunteer information: The law is well settled that when parties are sui juris and deal at “arms length” and in no confidential relationship, the prospectivepurchase is under no obligation to volunteer information to the vendor. However, in these circumstances, if the vendor should makeinquiries as to material matters and the purchase undertakes to reply, the replies must be trustful. [91] I accept Mr. Fleishman’s evidence with respect to what he advised Ms.

Smed about his intentions. It makes sense that herconcerns about the negotiation of the lease would be resolved by the structure of the deal, pursuant to which the tenants would have thecertainty of the essential terms of their leases, no matter who the landlord may be. [92] At any rate, Ms. Smed concedes that the defendants were not aware of Mr. Fleishman’s plans to remarket the Propertiesbefore she terminated the offer to purchase, and this alleged breach therefore had nothing to do with the termination. [93] Ms.

Smed also alleges that Suburban breached the offer by providing information about the Properties to third parties. [94] While Suburban may have breached its confidentiality obligations under the offer to purchase by disclosing the appraisalsand other information to Leben, neither Ms. Smed nor anyone else in the defendant companies were aware of any possible breach of theconfidentiality provisions of the offer to purchase in this regard until after the litigation commenced. Nor was Suburban’s conduct inauthorizing Leben to check for municipal infractions with respect to the Properties known to Ms.

Smed or anyone else on behalf of thedefendants at the time of termination, whether or not it could be said to be a breach of the offer to purchase. Therefore it is clear that Ms.Smed did not terminate the offer for that reason. [95] Ms. Smed alleged, both at the time of termination and during subsequent litigation, that the defendants terminated the offer topurchase because Suburban was not going to produce the operating costs budget required under the leases until closing. As indicatedpreviously, this was a minor breach, if a breach at all, and Suburban’s inability to produce the document was due to Ms.

Smed’s failureto comply in a satisfactory way with an offer to purchase condition. Ms. Smed did not advise Mr. Fleishman or Mr. Thomas that thevendor intended to rely on a non-compliance with this requirement, nor give Suburban an opportunity to remedy any perceived breach. Alleged Failure to Satisfy a True Condition Precedent [96] Ms. Smed alleges that the defendants terminated the offer to purchase because Dirtt would not sign the lease. It is apparentfrom the evidence that Ms. Smed had Dirtt’s authority to negotiate the terms of the Dirtt lease.

On July 13, 2007, she signed Addendumto Purchase Contract (3) approving the form of both leases. Despite this, Mr. Fleishman entered into negotiations with Mr. Jenkins toresolve Dirtt’s remaining concerns, and had reached a point where Mr. Fleishman and Mr. Thomas were reasonably of the view thatthose concerns had been resolved. The delivery of executed leases in acceptable form was a condition of closing to be fulfilled by thevendor.

Suburban notified K.P. that all conditions had been satisfied on August 15, 2007. [97] The issue with respect to the Dirtt lease is whether Dirtt’s requirement to sign the lease is a “true condition precedent” to theoffer to purchase, the failure to occur being a justifiable reason for the defendants to refuse to perform the offer to purchase. If so, didthe plaintiffs effectively waive this condition precedent? [98] As noted in Kempling v. Hearthstone Manor Corp., 1996 ABCA 254 , 1996 CarswellAlta 611, 41 Alta.

L.R. (3d) 169, [1996] 8 W.W.R. 735, 137 D.L.R. (4th) 12, 184 A.R. 321, 122 W.A.C. 321, 3 R.P.R.(3d) 291 at para. 26-30, a true conditionprecedent depends on a uncertain event, the occurrence of which depends entirely on the will of a third party. Thus, until the eventoccurs, neither party has a right to performance. [99] Picard, J. A. noted at para. 27 of Kempling that, until the time a true condition precedent is to be satisfied, neither party is free

to withdraw from the contract, but if a true condition precedent is not satisfied, no contract exists. She also noted that whether aprovision is a mere contractual obligation or a true condition precedent is a question of construction of the contract. [100] The Court in Kempling commented as follows at paras. 28 and 29: The simplicity, and harshness, of the consequences of finding a condition to be a true condition precedent have caused difficulties for thecourts. The most obvious is the requirement of characterizing the clause as true condition precedent. (See McCauley v.

McVey (1979(,98 D.L.P. (3d) 577 (S.C.C.)). Another difficult arises because the reality is that a true condition precedent may require action on the partof one or both parties to fulfil it. In Dynamic Transport Ltd. v. O.K. Detailing Ltd. (1978), (SCC), 85 D.L.R. (3d) 19 [6Alta. L.R. (2d) 156], the Supreme Court of Canada held that in some circumstances a party will be found to have made an impliedpromise to attempt to bring about the event constituting the true condition precedent.

In other words, although the fulfilment of a truecondition precedent depends on the will of a third party, one or both of the parties to the contract may, in the circumstances, have someobligation to pursue that end. The most obvious example is the approval of zoning by a third party such as a city where there is arequirement to make an application and provide information. Perhaps the most difficult feature of the Turney decision is that a true condition precedent can never be waived unilaterally.

The strictapplication of this aspect of the decision has led to harsh results, where even the party for whose benefit the true condition precedent wasmade could not waive it. (See Westward Farms Ltd. v. Cadieux, (MB CA), [1982] 5 W.W.R. 1 (Man C.A.)). ... [101] The first issue is thus whether the Dirtt lease requirement is a true condition precedent. In determining this question it isnecessary to review the terms of the offer to purchase, the circumstances and the actions of the parties; Kempling at para. 32.

As notedby Picard, J.A., it is the intention of the parties that ultimately determines their duties under a contract like the offer to purchase whichincludes a conditional clause. [102] The offer provides that the vendor, Ms. Smed’s numbered company, agrees to provide the Dirtt lease. It provides that the termsof the lease must be negotiated and agreed upon during the 60 day due diligence period.

Under the offer, the vendor agreed to providethe executed Dirtt lease prior to closing. [103] The contractual provisions are not framed as a true condition precedent and the offer does not stipulate that the failure of thevendor to obtain an executed Dirtt lease would relieve the parties from performance of the offer. [104] Ms. Smed advised Mr. Fleishman, and both Ms. Smed and Mr. Jenkins confirmed in their evidence, that she had the authority tonegotiate the lease on behalf of Dirtt.

In fact, she did so up to the point of agreeing in the Addendum to Purchase Contract (3) that theform of the leases was satisfactory. [105] Although Mr. Jenkins was unhappy with the form of the Dirtt lease, the tone of his emails thereafter and his testimony at trialmake it clear that he knew that Dirtt would have to sign a form of lease with Suburban, as he had instructions from his President, Mr.Smed, that a lease had to be executed to help out Ms. Smed in closing the purchase and sale. [106] This was not a true condition precedent. The parties understood that Ms.

Smed had the authority to negotiate the terms of anacceptable lease for Dirtt, as well as K.P. In fact, it was Ms. Smed and not Mr. Jenkins who sabotaged the process of negotiating the Dirttlease by advising Mr. Jenkins that she no longer required Dirtt to sign the lease. [107] It was thus Ms. Smed who caused the defendants to be in breach of their contractual obligation to negotiate and facilitate theprovision of the executed Dirtt lease. This is not a situation where non-fulfillment of a condition has the effect that no agreement was inexistence.

The defendants’ breach of their implied obligation with respect to the Dirtt lease and Ms. Smed’s subsequent attempt toterminate the offer give rise to the plaintiffs’ right to the remedy of damages. [108] As noted by Professor John D. McCamus in The Law of Contracts, Irwin Law, 2005 at page 680, a reason for implyingundertakings of facilitation and cooperation with respect to conditions such as the one in question “is to impose a contractual obligationon one or both parties to refrain from engaging in conduct that will defeat fulfillment of the condition precedent,” which was exactlywhat occurred in this case.

[109] In Farantos Development Ltd. v. Canada Permanent Trust Co. (1975 (ON SC), CarswellOnt 966, 7 O.R. (2d)721, 56 D.L.R. (3d) 481, a purchaser had agreed to buy property belonging to a vendor and his sister. Similar to the situation in this case,the vendor had full authority to sell the property on behalf of his sister. He died and the transaction did not close due to various problemsthat arose during the administration of his estate.

The contract included a clause that entitled the vendor to rescind if there was anobjection to title that the vendor was unable to remove, but the Court found that the benefit of this clause was not available to the estateor the vendor’s sister on the basis that the barriers to closing were matters of conveyance only.

The Court also noted that the estate hadnot taken reasonable steps to obtain the dower consent of the vendor’s widow. [110] O’Leary, J. noted long-settled law to the effect that a vendor could not rescind a contract “at his sweet will”, citing Mason v.Freedman, (SCC), [1958] S.C.R. 483 at p. 486-8 as follows: This proviso does not apply to enable a person to repudiate a contract for a cause which he himself has brought about... Nor does itjustify a capricious or arbitrary repudiation. I am content to adopt the words of Middleton J. in Hurley v.

Roy... that the provision “wasnot intended to make the contract one which the vendor can repudiate at his sweet will’. By signing this contract the vendor undertook todeliver a deed containing a bar of dower. He tried to excuse himself by pleading inability to obtain such a bar. His duty was, at the veryleast, to make a genuine effort to obtain what was necessary to carry out his contract and there can be no doubt in this case that he madeno such effort. The plain uncontradicted fact is that the husband made no genuine attempt to obtain a bar of dower.

He cannot takeadvantage of his own default and use the clause to escape his obligation. His duty was, as stated by Esten V.C. in Kendrew v. Shewan,supra, at p. 580, “to ascertain, bona fide, whether his wife was willing to bar her dower, and to induce her by any reasonable sacrifice onhis own part to do so”. . . . . There is a general principle to be deduced from the cases and it is the one I have already stated incidentally. A vendor who seeks to takeadvantage of the clause must exercise his right reasonably and in good faith and not in a capricious or arbitrary manner.

This measure ofhis duty is the minimum standard that may be expected of him, and there are cases where a cause which might otherwise be valid asjustifying rescission will not be available to him if he has acted recklessly in entering into a contract to convey more than he is able.

I would not characterize the conduct of the vendor in this case in entering into this contract as reckless, but his attempted rescission wasarbitrary and capricious and there was complete and deliberate failure on his part to do what an ordinary prudent man having regard tohis contractual obligations would have done. [111] Similarly, Ms. Smed did not make reasonable efforts to comply with the defendants’ contractual obligations with respect to theDirtt lease, and in fact, sabotaged the negotiation process at a time when the form of lease was either resolved or close to resolution.

Thedefendants were thus not entitled to rescind on the basis of a failure to negotiate an executed lease. [112] It cannot be said in the context of this contract and the commercial context that surrounded it that the parties intended that therewould be no contract for sale and purchase of the properties if the Dirtt lease was not finally negotiated to the purchaser’s satisfaction. [113] In any event, the condition was waived by the purchaser in a timely manner.

The production of executed leases at closing was afinal step in performance of closing, not a first step before performance could take place, and the rights and obligations of the partiesunder the contract were not contingent upon this final step. The defendants cannot rely on this condition to unilaterally terminate thecontract. Other Alleged Breaches [114] The defendants allege that there were other reasons why they were entitled to terminate the offer:

a) Mr. Jenkins testified that Dirtt was unhappy with the proposal to re-measure the Dirtt premises, and Ms. Smed testified that she had atheory that Suburban intended to use this as a pretext to increase rent. However, both conceded that they did not communicate thisconcern to either Mr. Fleishman or Ms. Thomas prior to the termination, other than Ms. Smed raising the concern during a telephoneconversation with Mr. Fleishman on or about July 24, 2007. Mr. Fleishman assuring her that he did not intend to change the Dirtt leaseas a result of measurement.

While it may be arguable that the landlord under the Dirtt lease would have the right under the lease asdrafted to adjust the rent based on rental area, this issue was not raised during the negotiations between Ms. Smed and Mr. Fleishmaninitially, nor later between Mr. Jenkins and Mr. Thomas with respect to the Dirtt lease, except peripherally during the July 24, 2007telephone conversation. No request to amend the form of lease was made prior to the termination, nor was Suburban given the

opportunity to change the lease to resolve this issue prior to Ms. Smed’s unilateral termination. In the circumstances, this failure by either Ms. Smed or by Mr. Jenkins to negotiate an acceptable provision in the lease to resolve their concern does not justify a termination. Ms. Smed alleges that Mr. Fleishman’s notes to file dated July 18, 2007 corroborate her fear that Mr. Fleishman intended to raise Dirtt’s rent. The notes referred to are Mr. Fleishman’s record of a message he received from Mr. Thomas, and not notes to himself as alleged.

b) Ms. Smed alleges that she was concerned that Mr. Fleishman expressed in his July 16, 2007 letter to Mr. Thomas an unwillingness to accept the change to the lease demanded by her on July 13, 2007. While it is true that Mr. Fleishman expressed frustration and concern over this change in the July 16, 2007 letter, Mr. Thomas had clarified by August 1, 2007 in a fax to Ms. Smed that there was no problem with the change. This was no longer an issue when Ms. Smed purported to terminate the offer to purchase.

c) Ms. Smed alleges that Surburban did not complete all the details of the indemnity agreement because Mr. Fleishman did not want to disclose that he was not going to be the landlord. This submission makes no sense, as the leases themselves include the name of the landlord. The indemnity agreement as forwarded was a typical form of agreement, and the missing information, primarily the names of the parties, would have been easy to insert when Ms. Smed met with her counsel. [ 115 ] None of the above complaints justified the defendants’ refusal to close the transaction.

The evidence satisfies me that the real reason Ms. Smed sought to terminate was impatience with the process, mounting concern about giving a personal guarantee and the developing possibility that Dirtt would be in a position to purchase the Properties, ensuring that they would remain in the Smed family. As is clear from the documentation, the sale to Dirtt resulted in fewer obligations and greater benefits for K.P. and Ms. Smed personally.

In addition to a immediate advance of $500,000 and the elimination of the guarantee requirement, K.P. would no longer be required to prepay rent, would no longer be required to fix the roof or be responsible for the HVAC system. There would no longer be a sales commission payable and the lease form was amended so that K.P.’s bankruptcy would no longer be

an act of default under the lease. [ 116 ] The offer to purchase was a valid and enforceable contract. The plaintiffs were ready and willing to close and had waived the remaining condition of receipt of a Dirtt lease in satisfactory form. The offer to purchase was breached by the defendants and the plaintiffs are entitled to damages. Damages [ 117 ] Damages for breach of contract in sale of land cases are usually assessed at the date of the breach: Kempling at para.50.

There are no special circumstances in this case that would justify departing from this general rule. [ 118 ] The date of the breach was August 10, 2007 when Ms. Smed notified Mr. Thomas that she was terminating the contract. The best evidence of damage in this case is the price that Suburban stood to obtain for the Properties from their resale to either Leben or Sunstone, $7.5 million. There is no evidence that Suburban would not have been able to close the sale to Sunstone had Ms. Smed not terminated the offer to purchase.

The fact that Suburban was able to obtain $7.5 million from two prospective purchasers without much time or effort supports this figure as the value of the opportunity lost by Suburban by reason of the breach. [ 119 ] The value of this lost opportunity to resell the properties must be considered in terms of whether such a loss is too remote to be recovered: S.M. Waddams, The Law of Damages (Canada Law Book, October 2009) at 1-59 to 1-64. Remoteness may have been an issue had there been a condition or representation that Suburban would not sell the Properties, but that was not the case.

The Defendants did not have a reasonable expectation that Suburban would retain the Properties long term. [ 120 ] Suburban was not able to mitigate its damages on the sale by purchasing a substitute property because its contracts with Leben and the Sunstone were specific to the Properties, part of a “string” of transactions involving particular properties. [ 121 ] While the idea of Suburban earning a substantial profit for a quick flip of the properties in the face of K.P.’s financial distress may be distasteful, that is the nature of the commercial real estate market.

Suburban’s business model of buying and selling real estate

was known to Ms. Smed. There is no legally justifiable reason to reduce damages for lost opportunity in this case, given that the parties had equal bargaining power despite K.P.’s vulnerability arising from its financial difficulty. It is clear that Ms.

Smed obtained the price she was seeking for the Properties when K.P. executed the offer to purchase, and a bad or improvident bargain is not a reason to reduce damages. [ 122 ] From the potential sale price of $7.5 million must be deducted $6.6 million, the amount Suburban would have paid for the Properties, and the normal expenses of resale, being the fee to Barclay Street Real Estate of $150,000, a mortgage commitment fee of $25,000 and a mortgage payment pending re-sale of $39,520. Suburban thus claims damages of $685,480 plus interest and I find that this is an appropriate amount of damages.

Suburban submits that the benefits to K.P. and Ms. Smed from the non-arms’ length sale to Dirtt (other than future rent) amounted to roughly $600,000, supporting its submission that its claim for $685,480 in lost opportunity damages is reasonable. Counterclaim [ 123 ] The defendants allege in their counterclaim that the plaintiffs “disparaged the Defendants’ interest in and title to the [Properties]” by filing their caveat.

They allege that this slander on title made it impossible to sell the Properties and resulted in the plaintiffs by counterclaim having to continue paying financing charges on the Properties, and having to obtain alternative non-traditional financing at a significantly higher cost. The counterclaim was for damages in the estimated amount of $100,000 and further damages to be established at trial. [ 124 ] The plaintiffs by counterclaim adduced no evidence to establish these claims, and the evidence at trial establishes a very different situation.

The defendants sold the Properties to Dirtt almost immediately after terminating the offer to purchase for consideration that was more favourable to K.P. and Ms. Smed personally than the offer to the purchase. [ 125 ] The plaintiffs were entitled under the terms of the offer to purchase to file their caveat. The counter-claim as described in the pleadings is dismissed. [ 126 ] At trial, Ms. Smed appeared to assert a different counter-claim, although her evidence on that issue was quite brief. Ms.

Smed alleged that, because of the delay in closing the sale of the Properties, she was forced to sell her personal residence, had to pay an additional seven months interest on high risk loans, and had her car repossessed. She appeared to blame the terminated transaction for K.P.’s bankruptcy, although it is clear that K.P.’s near-insolvency predated the sale of the Properties and that the bankruptcy had benefits for Ms. Smed personally.

As I have found that there were no breaches of the offer to purchase by the plaintiffs that would have justified the termination of the offer, neither the plaintiffs by counter-claim nor Ms. Smed personally are entitled to damages. [ 127 ] Any delay in closing the purchase and sale of the Properties must be attributed to Ms.

Smed’s lack of diligence in producing the required vendor’s documentation, particularly the updated real property report, her cavalier attitude to fulfilling the obligations of the defendants under the offer to purchase, and her frequent absences during the summer of 2007. [ 128 ] During argument, Ms. Smed attempted to reopen her case and put in evidence of particulars of damage. She had been advised during the trial that she should address her counter-claim while she was giving evidence, and I did not allow her to adduce additional evidence at the argument stage of trial.

Since I have determined that the plaintiffs by counterclaim are not entitled to damages in any event, further particulars of damages claimed would not have aided them. [ 129 ] The only possible breach of the offer by the plaintiffs was their conduct in passing information to potential purchasers. Even if this was a breach, there is no evidence of any damage flowing from it. Validity of Caveat [ 130 ] As previously noted, the parties entered into a consent order dated February 6, 2008 pursuant to which lands personally owned by Ms. Smed replaced the Properties as security under the caveat filed by the plaintiffs.

The order provides that the caveat would be the first financial encumbrance on the substituted lands and that Ms. Smed and the defendants would take all steps necessary to discharge

any current encumbrances. The order was consented to by counsel for the defendants and Ms. Smed personally. As the Registrar of Land Titles would not accept the new caveat as drafted, a new consent order dated February 28, 2008 with an acceptable caveat was granted. [ 131 ] Ms. Smed contests the validity of the caveat on her personal lands and this issue was directed by a case management justice to be determined at this trial. [ 132 ] Ms.

Smed submits that her then counsel should not have entered into the consent order on her behalf because the plaintiffs’ application for security for costs in the litigation was stayed by reason of K.P.’s bankruptcy. She submits that her counsel should have advised her that she did not have to agree to the consent order. However, Ms. Smed conceded that she instructed her counsel to consent to the order on behalf of the defendants and herself. [ 133 ] The caveat on Ms. Smed’s lands is valid and authorized by the consent order.

Conclusion [ 134 ] I have found that there was no condition or representation relating to the plaintiffs retaining the Properties that was breached, nor were there any other breaches of the offer to purchase that the defendants could rely upon to justify a termination of the offer to purchase.

I found that there was no unsatisfied true condition precedent that would relieve the defendants from performance of the agreement, and that the defendants breached the agreement both by terminating it unilaterally and by breaching their obligation to facilitate and cooperate in the fulfillment of the condition involving the Dirtt lease. [ 135 ] Therefore, the plaintiffs are entitled to the remedy of damages, and such damages are properly assessed at $685,480. plus interest. [ 136 ] The counter-claim is dismissed. The caveat on Ms.

Smed’s lands is valid. [ 137 ] If the parties cannot agree on costs, they may make written submissions to me , the plaintiffs within 30 days of this judgment and the defendants within 30 days of receipt of the submissions of the plaintiffs. Dated at the City of Calgary, Alberta this 12 th day of July, 2011.

B.E. Romaine J.C.Q.B.A. Appearances: Michael D. Aasen, Bryan & Company LLP for the Plaintiffs Kristine Smed on her own behalf and for the Defendants