Dec 1, 2017

ONTARIO COURT OF APPEAL SUMMARIES (NOVEMBER 20 – NOVEMBER, 24 2017)

Fenwick v. Concierge Auctions, ULC, 2017 ONCA 889 (CanLII)

[Doherty, LaForme and Paciocco JJ.A.]

Counsel:

R G Slaght and P Healy, for the appellant

J E Schatz and S Azzopardi, for the respondent

Keywords: Contract Law, Contractual Interpretation, Standard of Review, Standard Form Contracts, Correctness, Mixed Fact and Law, Reasonableness, Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, Real Estate, Auctions, Fees, Real Estate Commissions, Glendinning v. Cavanagh(1908), 40 S.C.R. 414, McBrayne v. Imperial Loan Co. (1913), 28 O.L.R. 653 (C.A.), William Allan Real Estate Co. v. Robichaud (1990), 72 O.R. (2d) 595 (H.C.)

Facts:

In 2016 the Weilands decided to try selling their cottage by auction and contracted with Concierge Auctions, ULC, a luxury real estate auction company, under an Auction Marketing Agreement (the “Seller’s Contract”). The Seller’s Contract contemplated that the ultimate buyer would likely be responsible for paying the auction fee (the “Buyer’s Premium”), but there were exceptions. Most notably, the Weilands would have to pay the Buyer’s Premium if they refused to close after the auction produced an agreement of purchase and sale.

The Fenwicks saw an ad posted by Concierge and decided to bid (the “Bid”). In order to do so the Fenwicks had to sign a Bidder Registration Agreement (the “Bidder’s Contract”). In the Bidder’s Contract they agreed to pay a Buyer’s Premium to Concierge if they proved to be the high bidder, unless the sale was not “consummated” because of a default by the Weilands. The Fenwicks paid a total deposit of $430,000 into escrow to secure the Buyer’s Premium, should they have to pay it. The Bid was the highest bid and Fenwick executed an agreement of purchase and sale (the “First Purchase and Sale Contract”) that the Weilands had pre-signed. When the Weilands learned what the Bid was – $4,300,000 minus a rebate of $350,000 – they were not happy. They claimed that the sale price was too low to enable them to pay off the encumbrances on the cottage, and to grant clear title. When the closing date came, the Weilands refused to close.

After the Weilands defaulted, the Fenwicks registered a caution and paid land transfer tax on the contracted amount.

The Fenwicks immediately demanded the return of their $430,000 deposit from the escrow agent. They also threatened the Weilands with a lawsuit, and began to negotiate with them directly. Before long, the Fenwicks and Weilands arrived at a second agreement of purchase and sale (the “Second Purchase and Sale Contract”). That sale closed the next day. Concierge claimed an immediate right to payment once the Fenwicks acquired the property. The Fenwicks brought an application against both Concierge and the escrow agent, demanding the return of the deposit. Concierge ultimately won before the application judge. On April 25, 2017, drawing upon case law related to the payment of real estate fees, she concluded that the two purchase and sale contracts were effectively one continuous agreement, and that since the sale closed, the Fenwicks had to pay Concierge the Buyer’s Premium according to the terms of the Bidder’s Contract. The Fenwicks’ “continuous intention to close the transaction throughout” provided the necessary link. The Fenwicks appeal the decision.

Issues:

(1) Did the application judge err in interpreting Fenwick’s obligation to pay the Buyer’s Premium under the Bidder’s Contract?

(2) Did the application judge err in treating the two purchase and sale contracts as if they were one agreement?

Holding:

Appeal allowed.

Reasoning:

Prior to exploring the issues, the Court of Appeal sought to determine the appropriate standard of review. The Court found that a standard of correctness applies to the interpretation of the Bidder’s Contract, citing Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37. Since the same contract is used for all of Concierge’s auction bidders, the interpretation of the contract has precedential value. Further, there is no specific factual matrix that will assist in the interpretation of the contract and thus the deferential standard of mixed fact and law that typically applies to contract interpretation is not warranted in this case.

The question of whether there was one purchase and sale contract or two does not involve the interpretation of a standard form contract; it is a question of the legal characterization of the factual nexus between the two instruments, and this is a question of mixed fact and law. Therefore a deferential standard of review is to be applied to that issue, as per Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53.

(1) Yes. The material provision of the Bidder’s contract is as follows:

3. Buyer acknowledges and agrees that the Buyer’s Premium is deemed earned upon conclusion of its Auction and shall be held by [the escrow agent] and disbursed to Concierge by [the escrow agent] upon closing. If the sale of the Property is not consummated for any reason other than default by the Seller, the Buyer’s Premium shall nevertheless be due and payable to Concierge.”

Fenwick argues that this provision implies that if the sale of the property is not “consummated” by reason of the Weilands’ default, the escrow agent is not to disburse the Buyer’s Premium it holds to Concierge. The application judge did not expressly find that the sale had been “consummated” within the meaning of the Bidder’s Contract because she did not, in her decision, engage in a close examination of the provisions. The application judge interpreted the consummation of the sale referred to in the forgoing provision to include sales terms and sales closings not provided for in the purchase and sale agreement that arose from the auction. The Court of Appeal disagreed with that interpretation. When the Bidder’s Contract is read as a whole, giving the words their ordinary and grammatical meaning, the objective intention of the parties provided for in s. 3 was that if the seller refuses to close the sale as required by the First Purchase and Sale Contract, the Buyer’s Premium is not payable from the buyer’s escrow deposit.

The Court of Appeal found that it was clear that the term “sale of the Property” does not refer to any sale of the property, even a sale between the seller and a high bidder. The term “sale of the Property” is used throughout the Bidder’s Contract. It is thus apparent, when read as a whole, that this refers to the specific sale that arises from the auction.

The Court of Appeal also found, based on a “plain reading” of section 3, that it was clear that the term “consummated” refers to the “closing” of the sale. The use of different words – “closing” and “consummated” – to describe the same event, does not change their meaning. The ordinary and grammatical meaning of each word enables them to work as synonyms, and the context in which they are used shows that they were meant to work as synonyms.

Further, the closing contemplated by the term “consummated” is not any closing. When read as a whole, it is clear that the closing or consummation that s. 3 refers to is the closing provided for in the contract of purchase and sale arrived at through the auction.

The Court of Appeal found that the operative clause in s. 3, “[i]f the sale of the Property is not consummated for any reason other than default by the seller, the Buyer’s Premium shall nevertheless be due and payable”, means that if the sale agreed to in the purchase and sale contract does not close on the closing date provided for in the purchase and sale contract for any reason other than the default of the seller, the Buyer’s Premium shall nevertheless be due and payable. The converse, of course, is that if the sale agreed to in the purchase and sale contract does not close on the closing date provided for in the agreement of purchase and sale because of the default of the seller, the Buyer’s Premium is not due and payable under the Bidder’s Contract. The fact that, after the Weilands’ default, the Fenwicks made sustained efforts to acquire the property that is the subject of the Bidder’s Contract, and achieved the acquisition of the property under broadly similar terms, does not change this.

The Court of Appeal allowed the appeal on this ground, finding that it was an extricable error of law for the application judge to ask whether the two purchase and sale contracts were effectively one continuous agreement, instead of interpreting the Bidder’s Contract as a whole to determine what event exempted the buyer from the obligation to pay the Buyer’s Premium.

(2) Undecided. In light of the answer to the first issue, it was unnecessary for the Court of Appeal to reach a conclusion on this issue. The Court did, however, comment in obiter on the tendency in auction cases of reasoning by analogy from cases dealing with the obligation of sellers to pay real estate commissions where the seller has contracted directly with a buyer the agent has introduced. The real estate cases, such as Glendinning v. Cavanagh (1908), 40 S.C.R. 414; McBrayne v. Imperial Loan Co. (1913), 28 O.L.R. 653 (C.A.); and William Allan Real Estate Co. v. Robichaud (1990), 72 O.R. (2d) 595 (H.C.), cited by the application judge, turn on the construction of commission clauses that invite consideration of whether the sale that occurred, in substance, arose from the real estate agent’s efforts. These cases do not apply comfortably to auction contracts where the auction company’s fee is for conducting the auction. Whether a subsequent sale or “closing” that can be linked factually to an earlier auction should attract obligations on any party to pay a fee to an auction company, should turn on the construction of the relevant auction contract, not on general principles addressing the evasion of fees extracted from contracts governing a different enterprise.