Canada’s Top Court Rules that Specific Performance Not Required For All Land Deals and Duty to Mitigate Applies

Gillian Tuck Kutarna, Guelph

Miller Thomson successfully defended the Toronto Catholic District School Board (TCDSB) before the Supreme Court of Canada in a recent decision involving a dispute over an agreement of purchase and sale.

In 2004 Southcott Estates Ltd. entered into an agreement with TCDSB to purchase 4.78 acres of land for $3.44 million, paying a 10% deposit. Closing was conditional upon TCDSB obtaining a severance from the Committee of Adjustment on or before the closing date of August 31, 2004.  Despite extending the closing to January 31, 2005, the Board did not obtain the necessary severance by this time.  The Board refused Southcott’s request for a further extension, and returned their deposit.

Southcott commenced an action for specific performance of the contract, asking the court to enforce its right to purchase this particular piece of land.  It made no attempt to mitigate its loss by purchasing an alternate property. 

The Supreme Court cited the principle that specific performance is only an appropriate remedy where some “peculiar and special value” of the land would make monetary compensation inadequate.  While the common law historically treated every piece of real estate as unique, the Court commented that this is no longer the case with modern real estate development. 

Counsel for TCDSB led expert evidence at trial that between the date of the breach and the date of trial, 81 parcels of vacant development land and 49 properties subdivided into lots suitable for building sold during that same time period.   Therefore, the court held that the only unique quality to the TCDSB property related to its potential profitability to the Appellant, which was compensable by a monetary award.

At trial, the judge had refused to award specific performance of the original agreement, but found that Southcott was entitled to damages in the amount of $1,935,500.00, representing 60% of the original contract price.  The Court of Appeal acknowledged that TCDSB had breached it contractual obligation.  However, The Court of Appeal found that Southcott had failed to take any steps to mitigate its loss by investing in a substitute property, and because a plaintiff cannot recover losses that could reasonably have been avoided, Southcott’s damages were reduced to a nominal sum.  The SCC agreed, dismissing Southcott’s appeal, with costs payable to TCDSB.

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