Southcott Estates Inc. v. Toronto Catholic District School Board, ONCA

Southcott Estates Inc. v. Toronto Catholic District School Board, 2010 ONCA 310, leave to appeal granted at [2010] S.C.C.A No. 256.

Ontario Court of Appeal
May 3, 2010

The Toronto Catholic District School Board entered into an agreement of purchase and sale with Southcott Estates Inc. for the sale of 4.78 acres of surplus land to Southcott for approximately $3.4 million. Southcott was a single purpose company with no assets except for the deposit it paid. It is a wholly owned subsidiary of Ballantry Homes Inc.

Southcott intended to use the land for residential development. The agreement was conditional upon the TCDSB obtaining a severance from the Committee of Adjustments on or before the closing date. The original closing date was extended as there was insufficient time to obtain the severance. The TCDSB offered to extend the closing date to a fixed number of days after the severance was obtained, but Southcott requested a closing date of January 31, 2005 and the parties agreed to so extend. The severance application on December 16, 2004 was deferred as premature at the municipality’s request because it was not accompanied by a development plan and as such the transaction could not close by January 31, 2005. Southcott sought to extend the closing date but the TCDSB refused the request and declared the transaction to be at an end. Southcott asserted in the action that the TCDSB breached its obligation to use its best efforts to obtain the severance and brought an action for specific performance or in the alternative, for damages.

Southcott succeeded at trial in its claim for damages ($1.935M) arising from TCDSB’s failure to honour its agreement of purchase and sale. The Court of Appeal, while upholding the liability finding, reversed the damage award (granting nominal damages of $1.00) as it found that the Trial Judge erred in finding that the TCDSB had failed to discharge its onus of establishing that Southcott had failed to mitigate its damages. The CA held that while the TCDSB bore the burden of proving deficient mitigation, Southcott’s admission that it had no intention of taking any steps to mitigate its loss was sufficient to shift the evidentiary onus to Southcott to demonstrate that, even if it had attempted to mitigate, it could not have done so.

The CA also held that the Trial Judge erred in holding that the TCDSB did not discharge the onus of proving that Southcott mitigated its loss by subsequent purchases or by failing to take advantage of a reasonable opportunity to mitigate its loss in the circumstances. Further, the CA held that Trial Judge erred with respect to evidence of subsequent land purchases made by Ballantry (the parent company). The Court of Appeal held that the evidence of subsequent land purchases by Ballantry demonstrated that the directing mind of Ballantry (common with Southcott) was aware of the opportunity to purchase land which would have had the effect of mitigating its losses. By not making these purchases itself, the CA held that Southcott had avoided a reasonable opportunity to mitigate its losses. The CA reasoned that while Southcott was at liberty to take advantage of the benefits of its distinct legal personality it was thus not at liberty to argue that land purchases by Ballantry were irrelevant to the issue of mitigation.

Ultimately the CA concluded that Southcott’s existence as a wholly owned subsidiary, incorporated for the limited purpose of acquiring the land in dispute at trial did not relieve it of its obligation to mitigate its damages. The CA held that by avoiding the opportunity to purchase subsequent land parcels, Southcott sought to avoid its legal obligation to mitigate its losses.

Southcott has been granted leave to appeal to the SCC and the hearing is scheduled for March 20, 2012 ([2010] S.C.C.A. No.256.)