1534818 Alberta Ltd. Plaintiff - v. -, 2011 ABQB 75

Court of Queen’s Bench of Alberta Citation: 1534818 Alberta Ltd. v. Tissot Management Ltd., 2011 ABQB 75 Date: 20110210 Docket: 1003 13388 Registry: Edmonton Between: 1534818 Alberta Ltd. Plaintiff - and - Tissot Management Ltd. Defendant And Between: Tissot Management Ltd. Plaintiff by Counterclaim (Defendant) - and - 1534818 Alberta Ltd., Harold Hinz and Skovberg Hinz Defendants by Counterclaim (Plaintiff) _______________________________________________________

Memorandum of Decision of the Honourable Madam Justice M.T. Moreau ______________________________________________________ I. Introduction [ 1 ] This action arises from the execution by 1534818 Alberta Ltd. (“153") as purchaser and Tissot Management Ltd. (“Tissot”) as vendor of an Offer to Purchase a downtown Edmonton commercial condominium unit. Tissot refused to complete the sale of the unit having rejected the personal financial information provided by 153's principals, Harold Hinz and Douglas Skovberg. 153 sued Tissot for specific performance of the Offer to Purchase or damages in the alternative and Tissot counterclaimed for damages. [ 2 ] Applications and cross-applications for

summary relief were converted by consent into a

summary trial of all issues except the parties’ respective claims for damages. II. Factual Background [ 3 ] Tissot owns newly-constructed commercial condominium units in two adjacent downtown Edmonton buildings known as “Icon I” and “Icon II” on 104 Street north of Jasper Avenue. Skovberg and Hinz, who have been practising law in partnership since 1996 in downtown Edmonton, were interested in purchasing office space in a suitable downtown location.

On April 19, 2010, they provided a Letter of Intent to Tissot, offering to purchase 2,750 square feet of unimproved space on the third floor of Icon I for $825,000 ($300 per square foot) with a closing date of August 1, 2010. [ 4 ] Tissot indicated through its listing agent Kevin Petterson that it was prepared to sell the entire third floor of the Icon I tower (Unit 256 consisting of approximately 4,500 square feet) at $282 per square foot, for a total price of $1.2 million.

Reza Mostashari, the president of Tissot, testified that selling the entire floor would reduce Tissot’s expenses relating to the development of the common areas and washrooms.

Discussions ensued between Chad Boddez, a realtor retained by Skovberg and Hinz, and Petterson regarding Skovberg and Hinz’s request that the difference in price associated with the increased square footage be funded through a Vendor Take-Back mortgage (“VTB”). [ 5 ] Skovberg and Hinz had sought financing for their original proposed purchase and on April 19, 2010, each had provided a Personal Financial Statement and Privacy Agreement to the TD Bank. Tissot subsequently raised a concern as to the amount of equity in the property because a VTB would be a second charge to any TD Bank financing on Unit 256.

In response to this concern, on May 11, 2011 Skovberg and Hinz gave Boddez, for delivery to Tissot, the first two pages of the Term Sheet supplied to them by the TD Bank setting out the proposed loan facilities for 153's purchase of Unit 256.

Petterson pointed out in a May 12, 2010 email to Boddez that based on a total financing package from the TD Bank of $1.27 million (a portion of which was earmarked for lessees’ improvements), there was not sufficient equity in the property to secure the VTB. [ 6 ] To address this concern, on May 13, 2010, Skovberg and Hinz offered to provide limited personal guarantees as additional security for the VTB. While initially indicating that they were not prepared to supply personal statements of assets and liabilities to Tissot, Skovberg relented on May 19, 2010.

The Letter of Intent in relation to the larger space was executed by Tissot and returned to Skovberg and Hinz on or about May 19, 2010.

[ 7 ] In the meantime, Skovberg and Hinz entered into discussions regarding a cost-share arrangement with another law firm to assist them in defraying the costs of the larger space 153 would be acquiring. [ 8 ] On May 27, 2010, Petterson, on Tissot’s behalf, forwarded to Boddez a formal Offer to Purchase prepared by its solicitors with attached forms for the VTB and personal guarantees. Skovberg and Hinz requested some changes to the Offer to Purchase but also expressed concerns about delays in view of the August 1, 2010 closing date and their anticipated November 1 st move-in.

Revised documents were not sent by Tissot to Boddez until June 17, 2010. The Offer to Purchase set the purchase price at $1.2 million, payable by an initial cash deposit or letter of credit in the amount of $50,000, a $400,000 VTB (with a 6.5% per annum interest rate) secured by the personal guarantees of Skovberg and Hinz limited to $250,000 each, and cash to close of $750,000. [ 9 ] Skovberg and Hinz executed the Offer to Purchase on behalf of 153 on June 17, 2010 and returned it that day to Tissot’s solicitors for signature. [ 10 ] The Offer to Purchase contained the following clause: 23.

VENDOR’S CONDITION PRECEDENT The Purchaser and Guarantors shall provide personal financials to theVendor, provided in confidence.

The personal financials shall be provided upon acceptance of this Offer for review and approval by the Vendor on or before twenty (20) days from the date of execution of this Offer by the Vendor, failing which this Offer shall be null and void and be of no further force or effect and the Deposit hereinshall be returned to the Purchaser without delay and without setoff, deduction or abatement whatsoever and all obligations shall terminate such that neither party shall have any remedy or claim against the other. [ 11 ] Arrangements were made by Skovberg and Hinz for a designer to amend the floor plans to accommodate the increased square footage and for an appraisal of Unit 256 for the TD Bank.

Keith Fraser, a certified appraiser, completed the appraisal on June 11, 2010 and valued Unit 256 and the four parking stalls being purchased at $1.35 million. [ 12 ] However, on June 22, 2010, Petterson advised Skovberg and Hinz that Tissot had refused to execute the Offer to Purchase and was instead proposing the sale of a condominium unit in the Icon II tower.

After further discussions, Skovberg advised Boddez and Petterson on June 23, 2010 that 153 was not willing to purchase the Icon II premises and its offer on Unit 256 would be withdrawn if not accepted by the following day. [ 13 ] An executed Offer to Purchase was returned to 153 on June 25, 2010. Skovberg obtained an extension of the “subject to financing” condition to July 23, 2010 necessitated by Tissot’s delayed return of the documents. Skovberg and Hinz provided their personal financial information to Tissot’s solicitors under trust conditions protecting their confidentiality on July 15, 2010.

The trust conditions required their financial information to be reviewed at the solicitors’ offices. [ 14 ] Mostashari reviewed the financial information provided by Skovberg and Hinz for a half-hour to one hour with Tissot’s solicitors who then, as required by the trust conditions, returned the documents to 153. No financial information was received from 153.

Mostashari considered the financial information provided by the guarantors to be insufficient and unacceptable. [ 15 ] In a July 21, 2010 email to Boddez, Petterson stated: In speaking with [the vendor] today he indicated that he is willing to honor the price that we had previously agreed to for the floor, however, he is not willing to accept any VTB. [ 16 ] Petterson reiterated this to Boddez in a July 26, 2010 email.

Skovberg demanded in a July 27 th , 2010 email to Boddez that Tissot deliver the transfers of land for Unit 256 and the parking stalls, indicating that he and Hinz had a binding agreement with the vendor and that the vendor was required to act reasonably and in good faith in reviewing their net worth statements. Skovberg Hinz then

proceeded to register caveats on behalf of 153 against the titles to the units referred to in the Offer to Purchase. Skovberg and Hinzsigned the VTB on behalf of 153, along with the personal guarantees and forwarded the documents to Tissot’s solicitors. They alsosigned financing documents with the TD Bank. Commitment letters for the various elements of the TD’s financing package were issuedby the TD Bank on July 26, 2010.

Skovberg and Hinz confirmed by letter dated July 28, 2010 to Tissot’s solicitors that 153 was ready,willing and able to close the transaction, requested the closing documents and executed on behalf of 153 a first mortgage in the amountof $1.27 million in favour of the TD Bank on July 29, 2010. [17] On August 9, 2010, 153 commenced its action for specific performance and registered Certificates of Lis Pendens on the titlesto the premises referred to in the Offer to Purchase. III. Issues 1. Was Tissot reasonable in not approving the personal financials provided to it by Skovberg and Hinz? If the answer is “no”, 2.

Is Unit 256 unique such as to entitle 153 to specific performance? IV. Burden of Proof [18] In civil proceedings, the burden of proof refers to the obligation imposed on a party to prove or disprove a fact or issue on abalance of probabilities (the “persuasive burden”), otherwise that party loses on that issue: Bryant, Lederman and Fuerst, The Law ofEvidence in Canada (3d ed.) (Butterworths: Toronto, 2009) at paras. 3.2-3.3, 3.6, 3.11; R v. Fontaine, 2004 SCC 27 , [2004]S.C.J. 23 at paras. 10 and 78.

The burden of proof can also refer to the “evidential burden”, describing the responsibility of a party toinsure there is sufficient evidence of the existence or non-existence of a fact or of an issue on the record to pass the threshold test for thatparticular fact or issue: The Law of Evidence in Canada, at para. 3.7. As noted by Fish J., for the Court, in Fontaine, at paras. 11-12: An “evidential burden” is not a burden of proof. It determines whether an issue should be left to the trier of fact, while the “persuasiveburden” determines how the issue should be decided.

These are fundamentally different questions. The first is a matter of law; the second, a question of fact. [Original text underlined.] [19] The persuasive burden lies with 153 to prove that in rejecting the personal financials of Skovberg and Hinz, Tissot breached itscontract of purchase and sale with 153.

It is not disputed by Tissot that where a contract of sale contains a condition precedent as to thevendor being satisfied with something, the vendor is obliged to act as would “a reasonable person with all of the subjective butreasonable standards” of a vendor: Castledowns Law Office Management Ltd. v. 1131102 Alberta Ltd., 2009 ABCA 148 at para. 37(“Castledowns”). The vendor’s duty is to “use reasonable efforts to satisfy the condition”: Castledowns, at para. 42. [20] In 3081169 Nova Scotia Ltd. v.

Lunar Fishing (New Brunswick) Inc., 2010 NSSC 147 (“Lunar Fishing”) Hood J., inreviewing the law relating to conditions precedent, referred at para. 51 to Marleau v. Savage, [2000] O.J. No. 2399 (Ont. S.C.J.).Lalonde J. said this at para. 57: Where a condition is inserted in an agreement for the benefit of one party, that party cannot take advantage of the condition unless itsatisfies the court that it took all reasonable steps or used its best efforts to fulfill the condition. The law implies a duty on the part of theperson for whose benefit the condition was inserted to take such steps.

I do not think that it makes much difference what words are usedto describe the duty, i.e. ‘best efforts’ or ‘all reasonable steps’ because what is required is that the party act in good faith in his or herefforts to have the condition fulfilled.

[Emphasis added] [21] Tissot acknowledged that it has an evidential burden to show what the subjective circumstances were in relation to its refusalto approve the financials. I find that Tissot bears an evidential burden in relation to whether it took all reasonable steps in thecircumstances to fulfill the Vendor’s Condition Precedent (“VCP”). [22] As for the burden of proof relating to the issue of whether the premises were unique such as to justify an order for specificperformance, counsel for Tissot referred to Semelhago v.

Parmadevan, (SCC), [1996] 2 S.C.R. 415 at para. 22(“Semelhago”): Specific performance should, therefore, not be granted as a matter of course absent evidence that the property is unique to the extent thatits substitute would not be readily available. The guideline proposed by Estey J. in Baud Corp. v. N.Y. Brook, (sub nom. Asamera OilCorp. v. Seal Oil & General Corp.), (SCC), [1979] 1 S.C.R. 633, with respect to contracts involving chattels is equallyapplicable to real property.

At p. 668, Estey J. stated: Before a plaintiff can rely on a claim for specific performance so as to insulate himself from the real consequences of failing to procurealternate property in mitigation of his losses, some fair, real and substantial justification for his claim to performance must be found. [Emphasis added] [23] Based on these principles, in relation to its claim for specific performance, 153 is required to establish on a balance ofprobabilities that the premises are unique in the sense described in Semelhago.

If, on the evidence adduced by 153, there is a basis toinfer that the premises are unique and Tissot adduces no evidence as to the lack of the uniqueness of the premises, it runs the risk ofspecific performance being granted to 153. To that extent there is a tactical burden on Tissot to adduce evidence or point to evidence onthe record challenging the finding that the premises are unique. If the evidence leaves the trier of fact in a state of uncertainty, thepersuasive burden is applied to the outcome: The Law of Evidence in Canada, para. 3.14, 3.23. V. Discussion Issue 1.

Was Tissot reasonable in not approving the personal financials provided to it by Skovberg and Hinz? The parol evidence rule [24] If the words of the contract are not ambiguous, the parol evidence rule prevents parties to the contract from altering,contradicting or varying the terms of the written document which is considered to be the final expression of their agreement: LunarFishing, at para. 22. Where the language used is ambiguous, extrinsic evidence can be admitted to resolve such ambiguity. As noted inLunar Fishing, at para. 24, citing RJB Investments Ltd. v. Ladco Co. (2001), 2000 MBQB 225 , 154 Man.

R. (2d) 183 (Q.B.): Parol evidence may not be adduced where the effect of such evidence would be to contradict the written contract. Where the intentions ofthe parties are not clear from the documents, then such evidence may be admitted to assist in interpreting the true intentions of theparties. The parol evidence rule is intended to avoid injustice. [25] Counsel for Tissot relied on clause 11 of the Offer to Purchase.

It provides that the agreement constitutes the entire contractbetween the parties and “that there are no representations, conditions or warranties expressed or implied which form part of thecontract.” Tissot submitted that 153 is not entitled to adduce evidence contrary to the contract, such as evidence to contradict therequirement of clause 23 of the Offer to Purchase that “[t]he Purchaser and Guarantors shall provide personal financials to the Vendor...”153 adduced evidence in the form of emails to attempt to demonstrate that it was never the intent of Tissot to require financialinformation from 153.

In response, 153 submitted that the following provisions of clause 23 of the Offer to Purchase are ambiguous: “The personal financialsshall be provided upon acceptance of this Offer for review and approval by the Vendor ...failing which this Offer shall be null andvoid...” [Emphasis added] [26] The trier of fact is required to consider the proper meaning to be attributed to the underlined words in the VCP, both in termsof what and whose information was encompassed by “personal financials,” and the actions that would meet the requirements of “reviewand approval.” These terms are not defined in the agreement.

I am of the view that the meaning of these terms cannot be clearlydiscerned from the agreement itself. The whole of the agreement must be examined in light of the surrounding circumstances includingthe history of the parties’ negotiations to discern their true intentions: see Castledowns, at para. 30. Failure of 153 to provide personal financials to Tissot [27] The appropriate point in time for the Court to determine whether Tissot’s decision not to approve the personal financials wasreasonable or not was when the decision was made: John E.

Dodge Holdings Ltd. v. 805062 Ontario Ltd., (ONCA), [2003] O.J. 350 at para. 30 (Ont. C.A.) (“John E. Dodge Holdings”). [28] Counsel for 153 noted that in a May 6, 2010 email Skovberg informed Boddez, in response to Petterson’s inquiry as to thelegal entity that would be holding the property, that they would be using a “new company,” namely 153.

In his October 22, 2010affidavit, Skovberg stated: “We advised Tissot that we would be incorporating a new company for the purpose of entering into thetransaction and Tissot understood and agreed...” In these circumstances, it would make little sense to expect that the new corporationwould be in possession of any financial statements. 153 submitted that Tissot was not acting reasonably in invoking the VCP, as anyfinancial statements of the recently incorporated 153 would provide no assistance in determining the financial viability of the personalguarantees. [29] In response, counsel for Tissot submitted that it was 153's responsibility to make it clear to Tissot, prior to the execution of theOffer to Purchase, that it had been recently incorporated and consequently was unable to provide personal financials.

The obligation of153 to provide personal financials was clear and unambiguous. There was no provision for Tissot’s participation in satisfying the VCPbeyond reviewing and approving the financial information provided to it.

As none was provided by 153, Tissot argued that it was inbreach of the Offer to Purchase. [30] I note that while Mostashari denied having been informed of the May 6th email from Skovberg identifying 153 as thepurchaser, he had little memory of the details of the negotiations leading to the execution of the Offer to Purchase, having left matters tohis employees and Petterson to deal with on his behalf. The Offer to Purchase prepared by Tissot’s solicitors and forwarded to Skovbergand Hinz on May 27, 2010 identified 153 as the purchaser. [31] I accept Mr.

Skovberg’s evidence that Tissot was aware that 153 was the purchaser and that it was newly-incorporated. [32] Considering all of the surrounding circumstances, I find that Tissot cannot rely on 153's failure to provide personal financialsas a basis for refusing to complete the contract as to do so would not be a reasonable exercise of its powers under the VCP. [33] Firstly, it was Petterson, acting as Tissot’s agent, who made the inquiry of Boddez on May 5, 2010 as to the legal name of thepurchasing entity.

Skovberg’s reply to Petterson, which I find was communicated to Tissot, was clear: “We will be using a newcompany: 1534818 Alberta Ltd.” As knowledge can be imputed to Tissot that 153 was a new corporation, and only 153 was a party tothe Offer to Purchase, the requirement that the “Purchaser and Guarantors shall provide personal financials...” could be interpreted asrequiring 153 to see to the delivery of the personal financials of the guarantors. In any event, 153, being newly-incorporated, would haveadded no meaningful information to the determination of whether the guarantees would be financially viable.

It would have beenunreasonable in all of the circumstances for Tissot to avoid completing the transaction on this basis alone.

The personal financials provided by Hinz and Skovberg [ 34 ] 153 also submitted that Tissot’s rejection of Skovberg and Hinz’s personal financials was not reasonable.

Mostashari acknowledged that he would, in the normal course, have received Petterson’s email of May 7, 2010 in which he stated it would be reasonable to assume that upon completion of the tenant’s improvements, the unit would be worth more than the purchase price and the costs of the improvements, “... say $1.6 million or around $375/SF.” Petterson attached a chart to his email recording the expected payments on the TD financing over 36 months, the proposed term of the VTB.

Petterson added: “With the guarantees I think that the amount of our VTB should be secure ...” Monthly paymens on the TD Bank financing would reduce the principal amount of its financing by $11,000. Mostashari acknowledged he was aware there would be some paydown of principal. By July 2010 Tissot had accepted offers on Icon premises ranging from $300 to $360 per square foot. Mostashari acknowledged that tenant’s improvements would add $100 per square foot in value to the premises. [ 35 ] Mostashari testified that he only reviewed the personal financials of Skovberg and Hinz on one occasion.

He was concerned at the time about the low cash compared to credit card debt disclosed in both statements and about the value attributed by Hinz to his Canmore vacation property, which Mostashari felt was inflated. He acknowledged that he did not review the current selling prices for similar properties in Canmore nor did he request appraisals of the vacation homes of Skovberg or Hinz listed on their personal financials.

In fact, he made no inquiries whatsoever of Skovberg and Hinz before electing to invoke the VCP. [ 36 ] Counsel for 153 described the personal financials Skovberg and Hinz supplied to Tissot’s solicitors as “virtually identical” to the net worth statements they had provided to the TD Bank on April 19, 2010. He noted that while VTB mortgage and personal guarantee forms were attached as schedules to the Offer to Purchase, no form was attached that would have clearly indicated the type of detailed financial information Tissot was seeking from 153, Skovberg and Hinz.

He referred to Black’s Law Dictionary’s definition of net worth as “a measure of one’s wealth, calculated as the excess of total assets over total liabilities” and that this was precisely what was disclosed by the documents furnished to Tissot by the principals of 153. Mostashari acknowledged at trial that as a real estate developer, he was accustomed to financial institutions asking questions about his financial statements.

Counsel for 153 submitted that it was implicit in the term “review” in the VCP that the vendor would stipulate what information or additional information was needed and the purchasers would provide the information. [ 37 ] Counsel for 153 added that the TD bank had indicated it would pay out the VTB on maturity, an estimated $450,000 in value would be added in tenant’s improvements, and there was a commitment from a sub-tenant to assist with cost-sharing that was communicated to Petterson by Boddez on June 14 th , 2010 (“... they need to secure a sublease and they have a sub-tenant ready to commit ...”) [ 38 ] Finally, counsel noted that Skovberg and Hinz advised Petterson, after Mostashari’s rejection of their personal financials, of their willingness to meet to clarify their financial information.

Mostashari testified that he did not meet with them because he was very busy and such meetings can get “emotional.” Mostashari did not recall the content of two telephone calls he had with Skovberg in August 2010 after caveats had been registered against the property. [ 39 ] I accept Skovberg’s testimony that Mostashari told him he had never wanted a VTB but that Petterson had persuaded him to accept it, that Mostashari stated he was offended by the filing of the caveats and felt there was “bad blood” between the parties, and that he did not want any further business dealings with 153. [ 40 ] Accordingly, 153 maintained that it was given no reasonable opportunity to provide more financial information and that there was no reasonable justification for Tissot invoking the VCP.

Tissot was obliged in the circumstances to review the personal financials and if found deficient, to request further information or clarification. [ 41 ] Tissot maintained that it acted reasonably in failing to approve the personal financials of Skovberg and Hinz and refusing to proceed with the transaction.

Mostashari testified he would have been more conservative at the time of the transaction in assessing the value of Unit 256 than at the $300 to $360 per square foot rate obtained in the summer of 2010 on other unimproved units, as his engagement with 153 would have been for three years with the possibility of default and the risk of a drop in value in the unit. He was concerned that in the event of foreclosure, the premises would have to be sold in a rush at a lower value.

[ 42 ] Counsel for Tissot submitted that the information provided by Hinz and Skovberg did not come within the requirements of “personal financials” nor were they “virtually identical” to the net worth statements supplied less than two months before to the TD Bank.

Unlike the statements provided to the TD Bank, the one-page unsigned document supplied by Skovberg and Hinz respectively lacked important basic information such as: - birthdates and social insurance numbers; - the addresses of their real estate assets; - how the assets were held (jointly or solely); - information regarding income. [ 43 ] Mostashari testified that it is for the borrower to “put his best foot forward.” He noted at trial that there was no information as the type or age of the vehicles listed in the statements.

One of the statements showed cash of $16,840 and credit card debt of close to 2.5 times that amount. He described credit card debt to be a debt of “last resort” given associated high interest rates. The cash assets of both the principals of 153 were inadequate to meet current liabilities and no information as to income and expenses was provided. He could not compare the Canmore property owned by Hinz (jointly, as he later discovered) to other properties in Canmore as no address was provided for it. No appraisals were attached or offered regarding the real estate listed in each statement.

The personal financials were delivered under the constraints that he was not entitled to review the information other than at his lawyer’s office, and no copies could be taken of the information pursuant to trust conditions imposed by Skovberg and Hinz. [ 44 ] Mostashari pointed out that personal guarantees had been requested to make the deal stronger, as without this information he believed there was not a sufficient margin of equity in Unit 256 to cover the VTB.

He expressed “shock” at the lack of information provided and indicated at trial that the information provided was “so far off the mark” as to be “disrespectful.” He offered, nonetheless, to complete the transaction without the VTB.

He pointed out that had it been his intention to get out of the deal for a better offer, he would not have instructed Petterson to offer the premises at the same price, but without the VTB. [ 45 ] It was Tissot’s position that while there may have been adequate security in the premises, personal guarantees were a term of the purchase, quantified at $250,000 per guarantee, and there was a notable lack of information to support the viability of the guarantees in the event that recourse to them became necessary.

Both Skovberg and Hinz acknowledged in examination on Affidavit they understood the reason for disclosing their personal financial information was to provide the vendor with some assurance that in the event of a shortfall, they had the ability to make good on the personal guarantees and that this was tied up in the vendor’s decision whether to proceed with the VTB. [ 46 ] Counsel for Tissot noted that Skovberg made representations as to the personal net worth of Hinz and himself in his May 13, 2010 email forwarded by Boddez to Petterson on the same day.

While Mostashari indicated this email did not come to his attention, he did not have a clear recollection of the lion’s share of the emails exchanged prior to his execution of the Offer to Purchase. The email clearly came to the knowledge of Petterson. Skovberg made the representations in this email fully expecting that the information would be conveyed to the vendor. It stated (in part): We are not, however, prepared to provide statements of assets and liabilities to the Vendor (i.e. net worth statements).

But if it gives the Vendor some comfort you can truthfully advise the Vendor that Harold and I have a net worth somewhere between $1.5 and $2.0 million each, and we both own properties here as well as substantial vacation homes (mine is on Vancouver Island, Harold’s is in Canmore) as well as significant other investments, all in addition to a substantial investment in this firm.

I would assume that the offer of personal guarantees should put to rest the concerns the Vendor has regarding our finances. [ 47 ] It is clear that this information was not sufficient for Tissot’s purposes as Petterson continued to insist that Skovberg and Hinz provide net worth statements.

Counsel for Tissot pointed out that the financial information eventually provided by Skovberg and Hinz at Tissot’s insistence indicated a net worth including their personal residences, vacation properties and their respective interests in their law practice totaling approximately 20 per cent less than the lower end of the range set out in the May 13 th email (not to mention that the real estate assets were jointly held with spouses) and approximately 45 per cent less than the upper end of the range.

Both net worth statements listed real estate without indicating that these assets were jointly held with their spouses. Hinz included in his net worth statement RRSP’s in the sole name of his spouse (albeit representing only 2.7 per cent of his net worth.)

[48] Counsel for Tissot submitted that on a careful review of the wording of the VCP, the first obligation was for 153 and theguarantors to deliver personal financials.

The statements provided were deficient and accordingly, 153, Skovberg and Hinz failed to usetheir best efforts to fulfill their obligations under the VCP, entitling Tissot to terminate the agreement. [49] As for TD Bank’s funding of the transaction being evidence that the rejection by Tissot of the net worth statements of Hinzand Skovberg was unreasonable, Tissot noted that TD set its financing limit at $800,000 for the purchase of the premises and was well-secured as first charge on the property. [50] Finally, Tissot argued that even if Skovberg and Hinz had provided further information, they had by then given two differentrepresentations as to their net worth, the second substantially less than the first, each had little liquidity and large current debts, and theirmost substantial assets were encumbered residences jointly owned with their spouses.

Accordingly, it would have been reasonable, in anyevent, for Tissot to reject their financial statements. [51] A party to a contract cannot avoid or frustrate a contract by failing to do all that is necessary to secure performance of thecontract. The Court will readily imply a promise on the part of each party to do all that is necessary to secure its performance of acontract: Dynamic Transport Ltd. v.

OK Detailing Ltd. (SCC), 1978 CarswellAlta 62 at paras. 20-22 (S.C.C.). [52] Where discretion is lodged in one of the parties to a contract, it must be exercised in good faith; what is done must be donehonestly: Mesa Operating Ltd. v. Amoco Canada Resources Ltd., 1994 ABCA 94 , [1994] A.J. No. 201 at paras. 16, 19, 22-23(Alta. C.A.) (“Mesa”). [53] The discretion to be exercised in this case has a subjective aspect.

It is more difficult to evaluate reasonableness here than in asituation where the approval process depends on a third party and well-defined steps must be taken by the vendor to obtain the approval.When approval is an internal process, the matter to be decided or approved is not readily susceptible to objective measurement, involvingas it does the judgment of the party for whose benefit the authority was given: Greenberg v. Meffart, (ON CA), 1985 CarswellOnt 727 (Ont. C.A.), leave to S.C.C. refused (1985), (SCC), 30 D.L.R. (4th) 768 at paras. 18-20.

However,even where there is a subjective aspect to the exercise of a discretion, the requirement of honesty and good faith applies: Mesa, at paras.22-23. [54] All of the circumstances must be examined to determine if Tissot acted reasonably, honestly and in good faith in rejecting thepersonal financials provided by Skovberg and Hinz. There was considerable discussion in emails that circulated between Skovberg,Boddez and Petterson about the viability of the VTB requested by Skovberg.

This led up to an email dated May 17, 2010 from Pettersonto Skovberg in which Petterson advised: After numerous conversations with the developer, they have concluded that they are prepared to accept a VTB in the amount that youspecified but subject to the following amendments ...

One of the amendments listed in his email was as follows: 5) Personal guarantees of $250,000 from each of the two principals that shall remain in place until the entire loan is repaid (3 years) - fundamental term. [Emphasis added] [55] Mostashari was reluctant to proceed with the personal guarantees even though Tissot was able to obtain $300 to $360 persquare foot on unimproved space in its Icon premises in the summer of 2010, tenant’s improvements would have added value to thisfigure, cost-sharing with another law firm would lessen the burden of payments on both the first mortgage and the VTB, and paymentson the TD first mortgage would reduce principal by over $130,000 per year.

I find that he was entitled to structure the deal with personalguarantees and was legitimately concerned about future market fluctuations and about foreclosure prices not reflecting market value. It isnoted in that regard that the TD Bank set its limit on the purchase aspect of its financing package at $800,000.

[ 56 ] Tissot’s insistence on obtaining financial information from the guarantors was clearly not a mere formality. The history of the negotiations illustrates the seriousness with which Tissot treated the request for a VTB. These negotiations saw Skovberg and Hinz initially refusing to provide personal guarantees then, at Tissot’s insistence, agreeing to provide personal guarantees but without disclosing their net worth and finally, again at Tissot’s insistence, agreeing to provide limited personal guarantees and to disclose their net worth.

In the back-and-forth discussions in May 2010 related to the equity available in the property to secure both the first mortgage to the TD Bank and the VTB, Petterson even suggested to Boddez that “given the strong relationship” Boddez had referred to in an earlier email, TD might allow the VTB to take the first position on title. This suggestion would leave the risk of second placement on title to the purchaser’s banker. [ 57 ] I also note that the provision of financials by the guarantors (and 153) was the only vendor’s condition precedent contained in the Offer to Purchase.

Thus, given the importance of financial disclosure to the vendor, I agree with Mostashari’s comment that it was for the guarantors to “put their best foot forward” in fulfilling their disclosure obligations imposed by the VCP. [ 58 ] In this case, however, the document that each of the principals of 153 supplied to Tissot was, objectively viewed, deficient in many respects.

While no form of financial statement was provided by Tissot for completion by Skovberg and Hinz, basic information that could reasonably be expected to be part of a financial statement was lacking: - their statements did not specify whether the listed assets (both real estate and investments) were owned solely or jointly with any other person (including spouse); - Skovberg’s statement listed his second most valuable asset as “other real estate” but provided no identifying information (whether it was bare land, a condominium, etc.) beyond it being located in “Campbell River;” and - there was no indication as to which property or properties the two mortgages totaling $337,000 and the three lines of credit totaling $531,900 were secured against or whether the debt was personal or partnership or restaurant investment-related. [ 59 ] Hinz’s statement listing the Canmore vacation home as his most valuable asset at $1,325,000 provided no coordinates for that home nor for the “Leduc acreage.” Hinz listed “vehicles” worth $74,000 without identifying what they were or the extent to which they may have been encumbered.

Neither statement contained information that would have easily allowed credit reports to have been generated and neither statement was signed. [ 60 ] These deficiencies are particularly troubling as both Skovberg and Hinz had recently applied for financing through the TD bank and in that process, had been required to provide detailed Personal Financial Statements.

Accordingly, I find that they were well aware of the type of information expected to be included in such a statement requiring, under the Offer to Purchase, that they provide their “personal financials.” Skovberg acknowledged he had retained the Personal Financial Statement and Privacy Agreement he provided to the TD Bank in April 2010.

Despite there being no evidence of any constraints imposed by the TD Bank on Skovberg and Hinz simply forwarding the Personal Financial Statements they had completed for the TD financing to Tissot, each chose to provide a brief statement visibly lacking in specificity and detail. [ 61 ] I reject 153's argument that Mostashari’s refusal to meet with Skovberg and Hinz after invoking the VCP was evidence that Tissot was not acting in good faith.

Even prior to the Offer to Purchase being executed by 153, Skovberg’s offers to meet with the vendor before the agreement was signed were in his words “rebuffed” several times by the vendor. Each party had retained agents to handle the transaction. I accept Mr. Mostashari’s testimony that it was not his practice to get involved with the details of transactions; he was busy and left those matters to others to negotiate on his behalf. This approach to conducting his business is not in itself evidence of bad faith.

Skovberg did not request that the VCP be clarified or amended (as he had for other provisions of the agreement) to require consultation between the vendor and purchaser on the personal financials. For example, Skovberg and Hinz could have insisted on including the words “with the guarantors” after “review” in the VCP to clearly establish the vendor’s obligation to consult with the purchaser as part of its review process in light of their awareness of Mostashari’s disinclination to attend meetings with them. [ 62 ] In Marshall v.

Bernard Place Corp. , 2002 CarswellOnt 404 (C.A.) , the purchasers entered into an agreement to acquire residential property. The agreement was conditional upon the purchasers obtaining an inspection report that was satisfactory to the purchasers in their sole and absolute discretion. Upon receiving the report that referred to the costly and disruptive nature of their planned renovations, the purchasers declined to waive the condition and requested the return of their deposit. The trial judge allowed the purchasers’ action for the return of their deposit.

On appeal, Cronk J.A., for the Court, confirmed that “sole discretion” clauses must be

exercised honestly and in good faith, noting at para. 37: The clear language of the inspection condition did not provide for the participation by BPC, as vendor, in the inspection of the property or in the decision whether the inspection report was satisfactory, nor did it confer a right on BPC to remedy any deficiencies identified in the inspection report to avoid reliance by the purchaser on the inspection condition.

Had the parties envisaged such rights for the vendor, or its agent, the language of the condition should have so stated. [ 63 ] In this case, while the words “sole and absolute discretion” were not included in the VCP, it is clear that it was up to the vendor to review and approve the personal financials.

While I do not suggest that in all cases the failure of the vendor to provide opportunities to purchasers to remedy deficiencies in their financial disclosure is reasonable, I find that in this case, Tissot has established that it acted reasonably, in light of the history of the negotiations and Tissot’s reluctance to become 153's lender; Tissot’s insistence that a “fundamental term” be included that provided that $500,000 in personal guarantees be furnished along with personal financials despite the guarantors’ reluctance to provide disclosure; Tissot’s inclusion of financial disclosure as a condition precedent to the agreement; and the evident deficiencies of the personal financials including the low cash relative to credit card information. [ 64 ] As to Tissot’s delay in executing and returning the Offer to Purchase being evidence of its lack of good faith, while there was indeed delay on its

part in returning the executed Offer to Purchase, it accommodated 153 by extending the deadlines for the provision of the deposit and for the removal of the purchaser’s subject to condition relating to financing. [ 65 ] 153 also alleged that Tissot’s proposal of a major restructuring of the transaction involving the purchase by 153 of premises in the Icon II tower was further evidence of its lack of good faith.

I note, however, in a June 23 rd email, when Skovberg set a deadline for the return of executed documents on the Icon I premises, failing which 153 would withdraw its offer, Tissot provided an executed Offer to Purchase on Unit 256 within 48 hours . [ 66 ] Hearsay comments from a TD Bank representative referred to by Skovberg to the effect that a number of the vendor’s deals had fallen through on the Icon project cannot be elevated to evidence of lack of good faith. [ 67 ] As to Mostashari’s responses to Skovberg’s telephone calls in August being evidence of his lack of good faith, by that point caveats had been filed against the premises by Skovberg and by the second call in late August, Skovberg Hinz had commenced civil proceedings against Tissot on behalf of 153. [ 68 ] Finally, Skovberg’s suggestion that Tissot was having financial problems at the time and was looking to get out of the deal in order to obtain a better purchase price as evidence of lack of good faith is also rejected.

If that were the case, Tissot would not have offered to complete the transaction at the same price per square foot but without the VTB. [ 69 ] From the perspective of a reasonable vendor with knowledge of all of the circumstances known to the vendor, Tissot has established that it was not acting unreasonably, or lacking in honesty or good faith in rejecting the personal financials furnished to it by Skovberg and Hinz. Tissot has also established that in all of the circumstances it was not incumbent on it to request further information or clarification from Skovberg and Hinz.

The action of the Plaintiff for specific performance of the Offer to Purchase is dismissed. [ 70 ] However, if I have erred in my conclusions in relation to the issue of whether Tissot was reasonable in not approving the personal financials provided to it by Skovberg and Hinz, I will go on to determine the second issue, which is whether the premises are unique, such that 153 would have been entitled to specific performance if Issue 1 had been resolved in its favour.

Issue 2: Is the office condominium that is the subject of this litigation unique such as to entitle 153 to specific performance [ 71 ] Specific performance is an equitable remedy. Our Court of Appeal in 1244034 Alberta Ltd. v. Walton International Group Inc. , 2007 ABCA 372 at para. 5 , quoted with approval the principle cited in Anger and Honsberger, Law of Property , 3d ed. looseleaf (Aurora: Canada Law Book, 2007) at pp. 22-23, that purchasers seeking to specifically enforce contracts for the sale of land in Canada bear the onus of establishing that damages would be an inadequate remedy.

[ 72 ] The Court summarized, at paras. 2-6, the principles applicable to the remedy of specific performance set out in Semelhago , in particular, that it can no longer be presumed that specific performance should always be granted in the case of contracts dealing with the sale of land. Semelhago described the appropriate inquiry as follows at para. 22: Specific performance should, therefore, not be granted as a matter of course absent evidence that the property is unique to the extent that its substitute would not be readily available. Lax J. in John E.

Dodge Holdings , at paras. 54-55, held that Semelhago opened the door to a critical inquiry as to the nature and function of the property in relation to the prospective purchaser: ... Semelhago asks us to examine in each case, the plaintiff and the property. The danger in framing the issue as one of uniqueness (a term that carries with it a pre-Semelhago antediluvian aroma) is that the real point of Semelhago will be lost. It is obviously important to identify the factors or characteristics that make the property “unique” to a particular plaintiff.

The more fundamental question is whether the plaintiff has shown that the land rather than its monetary equivalent better serves justice between the parties. This will depend on whether money is an adequate substitute for the plaintiff’s loss and this in turn will depend on whether the subject matter of the contract is generic or unique. [ 73 ] McMahon J. in Canamed (Stamford) Ltd. v. Masterwood Doors Ltd., 2006 CarswellOnt 1183 (Ont.

S.C.J.) cited these comments with approval at paras.104-105 and observed that in determining whether a property is unique, there is both a subjective and objective element to the test. The plaintiff must not only believe that the property is unique, but must also demonstrate that objectively, a reasonable person familiar with the facts surrounding the purchase and sale agreement would come to the same conclusion. This is a fact-driven inquiry. [ 74 ] Lax J. commented as follows in John E.

Dodge Holdings at para. 59 on the subjective aspect of uniqueness: In terms of the subjective aspect, the court should examine this from the point of view of the plaintiff at the time of contracting... In some cases, there may be a single feature of the property that is significant, but where there are a number of factors, the property should be viewed as a whole. [ 75 ] The appropriate time to evaluate whether a substitute property is readily available is at the time of the breach: John E.

Dodge Holdings , at para. 57. [ 76 ] Skovberg testified that he and Hinz believed the following criteria was crucial to their search for an appropriate office premises to which to relocate: - a reasonable purchase price to reduce their overhead; - a location that would “present well” in downtown Edmonton where their firm had been in practice for over 14 years; - a location within reasonable walking distance to the courthouse and in proximity of an LRT station; - suitable parking for partners and clients; - and the ability to put up signage. [ 77 ] They retained Boddez to locate suitable premises but found there were limited options available that met their criteria.

Skovberg stated that when they were shown the Icon I premises on April 13, 2010 they “immediately realized that it was exactly what they had been looking for.” It was situated in the central downtown core, there was an LRT entrance just down the street with easy access to the courthouse, there appeared to be an ability to put up signage, the surrounding area was “trendy,” it was a new building and

the buildings in the area were in good repair. [ 78 ] Todd Walker, a licensed realtor with 17 years experience in the Edmonton office market, was retained by 153 to provide evidence as to available properties of a comparable nature to Unit 256 in the summer of 2010.

Walker identified one unit in the Icon II tower along with three other available properties of a comparable nature to Unit 256, two of them located in “Railtown Condos,” and the third in “the Parliament.” [ 79 ] Dealing first with the Icon II unit (Unit 267) containing approximately 4,195 square feet, Skovberg deposed that he viewed the space before the offer on Unit 256 in Icon I was accepted by Tissot.

Based on the design plan that had been prepared for Unit 256 that included offices for both the Skovberg Hinz firm and the law firm that would be sharing the space, it was not possible to accommodate their requirements in a space smaller than Unit 256 and maintain the aesthetics, comfort and functionality of the design plan.

Skovberg also noted that the windows in the Icon II space were smaller with more columns (although size of windows was not part of their criteria in searching for office space) and he had received information that a daycare would be occupying space on the same floor (although the daycare did not in fact move in.) [ 80 ] While Mostashari’s December 7, 2010 affidavit listed three units in Icon II that were available at the relevant time, Unit 267, Unit 293 (4195 sq. ft.) and Unit 319 (3,667 sq. ft.).

As noted by counsel for 153, Boddez advised Hinz and Skovberg in an email dated July 26, 2010 that Petterson had told him there were “offers on all spaces in the 2 nd tower and that all offers are higher on a per square foot basis than ours.” While pending offers are not purchases, this statement would reasonably have left Skovberg and Hinz with the impression that there was no longer space available in Icon II at a commensurate price. [ 81 ] Counsel for Tissot noted that Boddez, the realtor retained by Skovberg and Hinz, presented no evidence on the issue of uniqueness and whether a substitute property was readily available at the time Tissot invoked the VCP.

Tissot also argued that Walker used criteria, three out of four of which were not listed among the criteria identified by Skovberg (ie. small building, main, second or third floor, undeveloped or built out premises.) [ 82 ] Counsel for Tissot maintained that the Icon II premises were a suitable substitute for Unit 256 despite being 10 per cent smaller, as size was not among the purchaser’s criteria in their initial search for space. Indeed, their original Letter of Intent related to a 2,750 square foot unit.

Counsel pointed out that Icon I and Icon II are very comparable properties. [ 83 ] I find that the criteria of the purchasers evolved from the beginning of their search based on Tissot’s counter-proposal for their purchase of the entire floor in Icon I consisting of 4,506 square feet.

This counter-proposal prompted Skovberg and Hinz to enter into serious discussions with another law firm regarding a cost-share arrangement and to commission a design plan with that arrangement in mind. [ 84 ] In the circumstances, I find that a reasonable purchaser with full knowledge of the circumstances as they had evolved would not have considered the Icon II units as suitable substitutes based on their smaller size. I also find that a reasonable purchaser would have been disinclined to pursue the Icon II alternative when told that there were other offers pending on those premises. Finally, I agree with Mr.

Skovberg’s assessment of the unlikelihood, in any event, that Mostashari would have come back to the table following 153's filing of a caveat against title to Unit 256. In his conversations with Mr. Mostashari in August 2010, the latter made it clear he no longer wanted to do business with them. [ 85 ] As for the two units, each containing 1863 square feet on the main floor of Railtown Condos, they are situated one block west of the downtown core and accordingly, as Walker noted, are not comparatively situated to the courthouse and other amenities.

Counsel for 153 pointed out that their total square footage was considerably less than Unit 256. As Tissot had proposed the purchase of larger premises in Icon I and the purchasers acted on this proposal, as I earlier noted, by taking active steps to secure a cost-share arrangement with another law firm that the latter remains interested in pursuing and preparing design plans for the larger space, I am of the view that it was not a suitable substitute property. In particular, it was a considerably smaller space with less access to both the courthouse and the LRT.

The Parliament, while containing 4,500 square feet, was also not comparatively situated. [ 86 ] In the cross-examination on Affidavit of Mr. Walker, counsel for Tissot referred him to a listing brochure for business condominiums located within the downtown core containing a total of 18,418 square feet in various parcels. Walker noted that the entire building was undeveloped and indicated in a subsequent affidavit that he did not include these condominiums as property of a comparable nature to Unit 256 because the property was tied up in litigation and no offers of purchase could be acted upon. This, in my

view, was a reasonable concern. [87] Walker was also referred to a building located within the downtown core, however, it was sold in November 2010. In light ofthe delays that would have reasonably been encountered in finding a substitute property, there was no evidence that this businesspremises would have in fact have been available in the fall of 2010 for purchase, given the pending sale. Six other office premises shownto Mr.

Walker by counsel for Tissot were located outside the downtown core and were not a suitable substitute for Unit 256 as SkovbergHinz had been practising law in downtown Edmonton for many years and reasonably desired easy access to the courthouse. [88] Finally, counsel for Tissot submitted that Skovberg and Hinz could have shopped elsewhere for a $400,000 second mortgageand completed the deal on Unit 256 without the VTB as offered by Tissot through Petterson’s email of July 22, 2010.

They then couldhave sued Tissot for any difference in the interest rate if they committed to a higher rate than was offered by Tissot. [89] This appears to be more properly characterized as a failure to mitigate argument. As noted by Estey J. for the Court in BaudCorp. v. N.Y. Brook, (SCC), [1979] 1 S.C.R. 633 (sub nom. Asamera Oil Corporation Ltd. v. Sea Oil & General Corp.)at para. 24, quoting from Red Deer College v.

Michaels, (SCC), [1975] 5 W.W.R. 575 (in the context of a discussion ofmitigation in claims for damages for breach of contract) at p. 579-80: If it is the defendant’s position that the plaintiff could reasonably have avoided some part of the loss claimed, it is for the defendant tocarry the burden of that issue, subject to the defendant being content to allow the matter to be disposed of on the trial Judge’s assessmentof the plaintiff’s evidence on avoidable consequences. [90] Estey J. went on to note at para. 27 that a plaintiff need not take all possible steps to reduce its loss.

The particularcircumstances must be examined. [91] It is clear from the evidence that Skovberg and Hinz treated Petterson’s email of July 22nd as a repudiation by Tissot of theiragreement. They executed the TD financing documents on July 26, 2010 to establish they were ready, willing and able to close the transaction and Skovberg advised Boddez by email on July 27th (with the request that the email be forwarded to the vendor’s agent) thata caveat had been filed against the condominium unit and they were prepared to litigate the matter if the transaction did not proceed.

Thiswas confirmed by a faxed letter dated July 28, 2010 from Skovberg to Tissot’s solicitors. Mostashari refused requests by Skovberg formeetings and made it clear in two telephone conversations with Mr. Skovberg, one in early August and another later that month (bothinitiated by Skovberg) that he was offended by the filing of the caveat and that he did not want to have anything further to do with thepurchaser, Skovberg or Hinz. Accordingly, this option quickly ceased to be a viable mitigation option. [92] Finally, 153 did not delay its institution of proceedings and was diligent in prosecuting its claim.

As noted in Baud Corp., atpara. 69: So a plaintiff who has agreed to purchase a particular piece of real estate or a block of shares which represent control of a company orwho has entered into performance of his own obligations, and where to discontinue performance might aggravate his losses, might wellhave sustained the position that the issuance of a writ for specific performance would hold in abeyance the obligation to avoid or reducelosses by acquisition of replacement property. Yet, even in these cases, the action for performance must be instituted and carried on withdue diligence.

This is but another application of the ordinary rule of mitigation which insists that the injured party act reasonably in all ofthe circumstances.

Where those circumstances reveal a substantial and legitimate interest in seeking performance as opposed to damages,then a plaintiff will be able to justify his inaction and on failing in his plea for specific performance might then recover losses which inother circumstances might be classified as avoidable and thus unrecoverable... [93] In the circumstances, having found the premises to be unique and a suitable substitute not readily available in the summer of2010, the purchaser would have had a legitimate interest in seeking specific performance of the agreement it entered into.

It thenproceeded without delay to litigate its claim. [94] Having considered all of the evidence, I am of the view that had I found Tissot had breached the Offer to Purchase, specific

performance would have been an appropriate remedy on both subjective and objective grounds. [ 95 ] On a subjective basis, Unit 256 is unique to the purchaser as it fulfills a number of criteria with respect to location and availability of amenities. It also fulfills the purchaser’s requirements as to space that evolved with the negotiations between the parties. I am also satisfied on an objective basis that the property is unique in the sense of the lack of ready availability of a suitable substitute property at the relevant time.

The purchaser would have, on the evidence, established a fair, real and substantial justification for its claim for specific performance had it succeeded in proving its claim. Adopting the language of Lax J. in John E. Dodge Holdings , at para. 60, Unit 256 has qualities that make it “especially suitable for the proposed use” that could not be reasonably replicated elsewhere and distinctive features that make an award of damages inadequate.” VII. Conclusion [ 96 ] For the reasons given, the Plaintiff 153's action is dismissed.

There will be an order directing the Registrar of Land Titles to forthwith discharge the caveats and Certificates of Lis Pendens registered against the titles to the lands and premises legally described in paras. 2(

a) through (

e) of the Statement of Claim. [ 97 ] Costs may be spoken to within 30 days should agreement not be reached as to same. I wish to thank counsel for their helpful briefs and arguments. Heard on the 22 nd day of December, 2010, and the 10 th and 11 th days of January, 2011. Dated at the City of Edmonton, Alberta this 10 th day of February, 2011. M.T. Moreau J.C.Q.B.A Appearances: Richard Cotter, Q.C. Jonathan E. Hillson and S.Bowes for the Plaintiff (Defendant by Counterclaim) 1534818 Alberta Ltd. and the Defendants by Counterclaim Harold Hinz and Skovberg Hinz Grant Dunlop and F. Ouellette

for the Defendant (Plaintiff by Counterclaim) Tissot Management Ltd.