Supreme Court of Canada Clarifies Owner’s OHSA Obligations for Construction Projects
June 21, 2024Prompt Payment, Adjudication, and Procedural Fairness: Ledore Investments v. Dixin Construction, 2024 ONSC 598
September 11, 2024Introduction
3 Gill Homes Inc. v. 5009796 Ontario Inc. (Kassar Homes), 2024 ONCA 6
In a unanimous decision released in January of this year, the Ontario Court of Appeal upheld a lower Court’s decision to hold the purchaser liable for breach of a real estate agreement for failing to pay the closing funds by the 3:00 p.m. deadline set out in the contract.
The purchaser was 35 minutes late with the payment. 35 minutes is all it took for the time, money, and effort the purchaser put into the deal to go out the window.
Background Facts
On July 4, 2020, the purchaser, 3 Gill Homes Inc. (“3 Gill”), entered into three separate contracts for residential homes that would be newly constructed by the seller/builder, 5009796 Ontario Inc. cob as Kassar Homes (“Kassar Homes”), as an investment opportunity. Two of the contracts fully closed without issue, but problems arose with the third and final contract (the “Third Contract”).
The Third Contract was originally scheduled to close on August 31, 2021, but due to construction delays, the deadline was missed. Interestingly, the contract included a “time is of the essence” clause, although neither party chose to rely on the provision to terminate the agreement. Instead, the parties agreed to amend the Third Contract and extend the deadline to January 28, 2022, at 3:00 p.m. (the “New Closing”).
The parties again included a “time is of the essence” clause as part of the negotiation for the New Closing. More on this later.
January 2022
In the weeks leading up to the New Closing, Kassar reminded 3 Gill multiple times that the closing funds for the Third Contract needed to be paid by no later than 3:00 p.m. or else the deal would be terminated.
1) The principal of Kassar directly reminded the principal of 3 Gill of the deadline and reinforced that the deal would be terminated if payment was not made;
2) On January 25, 2022, the lawyer for Kassar emailed the lawyer for 3 Gill to remind them of the 3:00 p.m. deadline;
3) On January 27, 2022, 3 Gill requested an extension of the closing to Monday, January 31, 2022. Kassar denied the request, and
4) Later on January 27, 2022, the principal of Kassar again reminded the principal of 3 Gill that the purchase price must be paid by 3:00 p.m. on the following day, or else the deal would be terminated.
January 28, 2022: The New Closing
On the day of the closing, the lawyer for 3 Gill sent an email to the lawyer for Kassar at 2:47 p.m. to advise that the funds had been obtained and the bank was sorting them out. At 3:10 p.m., the lawyer for Kassar responded that they had instructions not to close because the deadline had been missed. 3 Gill still tried to deliver the funds, which were received by Kassar 35 minutes late. Kassar, however, did not accept the funds and treated the Third Contract as terminated.
The Courts’ Ruling
The lower Court made several key findings leading to its decision to rule in favour of the seller, Kassar, all of which the Court of Appeal reaffirmed.
For one, the lower Court held that Kassar was entitled to terminate the Third Contract because of the late payment, relying on caselaw that supported a rigid use of timelines and “time is of the essence” clauses, especially when the transaction is between sophisticated parties who have experience in the business of real estate. Further, the lower Court held that it was open to the parties to include a curing provision that would have given 3 Gill time to remedy default of the payment, but they did not do so.
In addition, while the lower Court acknowledged that it had residual authority to relieve against breach of the “time is of the essence” clause, there has to be some basis for doing so, such as unjust conduct by the party seeking to enforce the clause. Here, however, there was nothing that Kassar did that the lower Court could point to as being unjust, and choosing to enforce a clearly written deadline is not unjust. Courts are loath to intervene in a transaction unless it is warranted, and unfortunately for 3 Gill, there were no circumstances that justified the Court stepping in and changing the terms of the agreement.
Finally, 3 Gill tried to argue that the past conduct of the parties mattered since deadlines were always part of the transaction but not strictly enforced, so why should they be enforced this time around? As stated by the Court of Appeal at paragraph 25 of its decision:
“While the prior conduct of the parties treated deadlines as flexible (and the respondent previously missed a number of deadlines for the completion of the project without the consequence of the APS being terminated), the application judge found that the amending agreement to the APS dated November 15, 2021 changed this state of affairs. It was open to the application judge to treat the amendment as a starting point from which the closing deadline of 3:00 p.m. on January 28, 2022, was to be treated as firm.”
Moreover, the Court of Appeal noted that Kassar sent multiple reminders in the days and weeks leading up to the New Closing and refused to extend the New Closing deadline requested by 3 Gill, all of which reflected a “shared understanding that the closing date and time were to be enforced.”
Both the lower Court and the Court of Appeal acknowledged that the result was harsh to 3 Gill, but that does not mean it was unfair or unjust, and as such, 3 Gill was found to have breached the Third Contract.
Takeaways
Past Conduct is not a Predictor of Future Conduct
Parties are not stuck doing things the way they have always done them. You can change the expectations and obligations in the middle of a deal, so long as you are clear and consistent with your intentions as you move forward. As a result, the fact that both parties previously ignored the “time is of the essence” clause in the original Third Contract did not mean that it had no force or effect as part of the amendment for the New Closing. Kassar reinforced the deadline and the consequences for failing to meet the deadline on multiple occasions leading up to the New Closing, so it was clear where they stood on the Third Contract—they made their intentions clear.
Interestingly too, the Court of Appeal highlighted that Kassar, as the builder, had missed several deadlines for completion of the project, but this did not work against them. It was up to 3 Gill to enforce the deadlines for completion of the project, not Kassar, as those deadlines benefited 3 Gill, whereas the New Closing deadline benefited Kassar.
Now, you may be asking yourself, “Why would Kassar need to reinforce the deadline? The deadline was clearly written, and they included a time is of the essence clause in the update to the Third Contract. Shouldn’t that by itself be enough?”
Maybe, but maybe not. As cited by the lower court, previous cases have treated a “time is of the essence” clause as being very rigid, especially where both parties to the transaction are sophisticated in the business of real estate, as was the case here. However, parties may still have to go above and beyond to show that the contractual deadlines are strict, especially where there is an established history between the parties demonstrating that deadlines are not strictly enforced.
Besides, what is the actual harm in sending multiple reminders reinforcing a deadline? There are no legal downsides to sending reminders; you may annoy the other party, but being annoyed is not grounds for refusing to close a deal, so keep pressing. While sending one reminder might be enough, sending three, four, or five reminders is clearly better, and when there are thousands, hundreds of thousands, or even millions of dollars at stake, doing the bare minimum should not be the standard you set for yourself. Aim high, not low.
Applications: Speeding up the Court Process
This case was not decided by way of a trial. Rather, 3 Gill brought an application seeking a declaration that Kassar was the one that breached the agreement by refusing to accept the late funds, among other relief, and that therefore Kassar should have to pay 3 Gill damages for failing to close the Third Contract.
Applications are a legal procedure used to request a court order that resolves a legal issue outside of the typical trial process. They address preliminary legal issues, some of which may even resolve the dispute altogether, like in this case.
Applications are more streamlined than typical court actions and can only be brought in limited situations, either under a statute that allows applications or based on one of the grounds set out under Rule 14.05(3) of the Rules of Civil Procedure. Applications are typically faster and less expensive than traditional civil actions because they require less preparation, fewer witnesses, and no trial. This means that applications can be a more efficient and cost-effective way to resolve legal disputes that do not require a full trial.
While the application did not work out in 3 Gill’s favour, the process is an excellent alternative to traditional litigation for more straight-forward, isolated legal disputes where the material facts likely do not require a full trial to resolve. In this case, the lower Court and Court of Appeal both agreed that an application was an acceptable and appropriate means of resolving the dispute; if it were not, the case would have been required to go through the civil action process.
The parties merely disagreed about the legal interpretation of the Third Contract, and particularly the “time is of the essence” clause, but there was no dispute over the actual material facts that took place. The timeline of events was clear and unambiguous, and the Third Contract was plain in its wording and easy to understand, so there were no remaining facts that needed a full trial to properly address. The lower Court was more than equipped to rule on a legal interpretation of the Third Contract at the application stage.
Learn from Kassar’s example: be clear and consistent with what you want out of a deal.