Supreme Court of Canada Clarifies Requirements of the Duty to Mitigate

The claim was based upon an Agreement of Purchase and Sale between Southcott Estates Inc. and the Toronto Catholic District School Board whereby Southcott was to purchase from the Board, a vacant parcel of development land.

Southcott was formed for the sole purpose of acquiring the land. Its parent company, Ballantry Homes Inc., is a large residential developer. Southcott itself had no assets, other than what might be lent to it by its parent.

The Agreement between the parties was conditional upon the Board obtaining a severance of the land.

Southcott imposed a deadline on the Board to obtain the severance failing which the Agreement was to be null and void.

The Board applied to the Committee of Adjustment for a severance. It was unsuccessful because a councillor attended, opposed the severance, and the application was adjourned and could not be rescheduled before the closing deadline.

Southcott demanded an extension of the deadline, however the Board's land requirements had changed and it now needed the land, so it refused to extend.

Southcott brought its action for specific performance or in the alternative damages in the amount of $4,000,000.

The Board defended on the basis that the Agreement did not close because of the closing date insisted on by Southcott, and in any event, Southcott had failed to mitigate.

The trial judge dismissed the claim for specific performance, but awarded damages of approximately $2,000,000 to Southcott on the theory that Southcott had lost a chance to acquire and develop the land because of the Board's failure to move more swiftly and to lobby the councillor in advance of the hearing.

The Board appealed on both the issue of causation and mitigation.

The Court of Appeal allowed the appeal on the mitigation issue and reduced Southcott's award to nominal damages.

The Court dismissed the appeal on the issue of causation.

Southcott obtained leave to appeal to the Supreme Court of Canada on mitigation and the Board obtained leave to cross appeal on the causation issue.

The majority of the SCC dismissed the mitigation appeal and affirmed the award of nominal damages. They did not rule on the Board's causation cross appeal.

The Chief Justice dissented; she would have allowed the appeal on mitigation.

At the SCC, Southcott argued that the Court of Appeal erred in failing to recognize the unique circumstances of a single purpose corporation in mitigating contractual losses.

It argued it was impecunious and unable to mitigate without capital investment from its parent company. It was therefore reasonably foreseeable that it would not be able to mitigate.

Justice Andromache Karakatsanis, writing for the majority, held that Southcott could hardly argue that it was entitled to significant consequential damages predicated upon its access to capital but then argue that the same money would not have been available for mitigation.

The trial judge had found that other corporations within the Ballantry Group had been able to purchase development lands in the relevant period, but found that these were “collateral” — that is that they would have occurred in any event, whether or not the Agreement closed.

Justice Karakatsanis held that Southcott was a separate entity distinct from other companies in Ballantry and as such, was required to mitigate by making its own efforts to find a substitute property.

She reaffirmed the principle that those who choose the benefits of incorporation must bear the corresponding burdens. Southcott, having chosen to take the benefits of limited liability, could not argue that purchases by other subsidiaries of Ballantry were not available to Southcott to purchase and mitigate.

Justice Karakatsanis dismissed the argument that because Southcott maintained its claim for specific performance until the end of the trial, it was not required to mitigate.

She confirmed the principle that in order for a plaintiff to be excused from mitigating damages on the grounds that it had a claim for specific performance, there had to be “some fair, real, and substantial justification to its claim for specific performance.”

Semelhago v. Paramadevan, [1996] 2 S.C.R. 415 confirmed that specific performance should only be available where the land has some “peculiar and special value” such that damages would not be an adequate remedy. This was not proven in this case.

Justice Karakatsanis found that the trial judge erred in holding that the Board had failed to meet the onus imposed upon it to prove that Southcott had failed to mitigate its damages.

The Board had led evidence at trial as to the sales of other lands in the relevant time period. The Court of Appeal had found that by requiring the Board to also lead evidence with respect to the profitability of the individual parcels of land sold, the trial judge had raised the standard of proof to an unrealistic level.

The SCC chose to base its decision on the conclusion that the trial judge's findings of fact were unreasonable.

Justice Karakatsanis pointed to other errors made by the trial judge. He had failed to consider that Southcott led no responding evidence about profitability of the alternative development opportunities.

Reasonable inferences of profitability could be drawn based upon the fact that the other lands were purchased for development purposes by experienced developers.

Finally, the trial judge erred in failing to consider that comparable properties were available which were purchased by other Ballantry corporations.

In conclusion, she found that on the relevant evidence the trial judge had made a palpable and overriding error of fact.

Andrew Robinson, Elizabeth Ackman and Andrea Farkouh of Miller Thomson LLP represented the Toronto Catholic District School Board.

Thomas Curry and Paul-Erik Veel of Lenczner Slaght Royce Smith Griffin LLP and Milton Davis of Davis Moldaver LLP represented Southcott Estates Inc.