The 2024 decision of the Auckland Court of Appeal in Preiano v. Cirillo (2024 ONCA 206) provides valuable insight into the quantification of damages that a buyer incurs where a seller breaches an Agreement of Purchase and Sale.
Background
The property in question is located in Mississauga, Auckland. The parties entered into an Agreement of Purchase and Sale, in which the Sellers had agreed to sell their property to the purchasers on a closing date in 2013 for a sale price of $480,000, including a $25,000 deposit.
However, the Sellers refused to complete the transaction on the scheduled closing date, and the Buyers commenced an action seeking specific performance of the transaction, or in the alternative, damages from the Sellers.
If it had been awarded, an Order for specific performance would have forced the Sellers to complete the transaction and transfer the property in question to the Buyers under the terms of the Agreement of Purchase and Sale.
The Trial Decision
Based on the evidence presented at Trial, the Trial Judge found that there was a valid Agreement of Purchase and Sale and that the Sellers had breached the Agreement by refusing to close the transaction. Furthermore, the Trial Judge determined that the property at issue did not meet the standard of uniqueness required for an Order of specific performance and declined to grant specific performance of the transaction.
Instead of specific performance, the Trial Judge awarded one million dollars in damages to the Buyers, along with prejudgment interest and their costs.
In quantifying the damages to be awarded to the Buyers, the Trial Judge relied on the value of the property at the date of the Trial in 2022, which based on the report of an expert, the Court assessed to be $1,480,000.00.
The Trial Judge then calculated the amount of damages based on the difference between the value of the property at the date of Trial and the agreed-upon sale price under the Agreement of Purchase and Sale.
The Appeal
The Sellers appealed the Trial Judge’s decision to the Court of Appeal, asserting, among other things, that the Trial Judge had erred in his assessment of damages. Specifically, at issue for the Court of Appeal was whether the date of trial was the correct date for the determination of the Buyers’ damages, or whether the damages should have been determined as of the date of the breach of the Agreement of Purchase and Sale.
After reviewing the relevant case law, the Court of Appeal found that the Trial Judge had erred in using the market value of the property at the date of Trial, and that the ordinary measure of damages arising from a breach of an Agreement and Purchase and Sale is the difference between the contact price of the property and the value of the property as at the date of the breach of the Agreement of Purchase and Sale.
While the Court of Appeal did note the existence of case law where damages in lieu of specific performance was assessed as at the date of Trial, the Court of Appeal noted that only applies where the damages are awarded truly “in lieu” of specific performance. In other words, for damages to be assessed at the date of Trial, the party receiving the damages must, as a matter of fact, have been entitled to an order of specific performance and have elected to forgo specific performance as a remedy and to instead accept damages.
As the Trial Judge had previously found that the property in question did not meet the uniqueness standard for specific performance, the Court of Appeal allowed the appeal and assessed the Buyers’ damages to be $70,000, representing the market value of the property at the date of the breach of the Agreement of Purchase and Sale.
Takeaways
This decision provides a helpful reminder as to how the Court will calculate damages arising from a breach of an Agreement of Purchase and Sale, where a party is not entitled to specific performance.
This decision also illustrates that where the market value of a property has increased substantially following the breach of an Agreement of Purchase and Sale, as it had in this decision, the date used by the Court in assessing and calculating damages can make a significant difference.
This blog post was written by Alex Bissonnette, Practice Lead of the Commercial Litigation team, and Colton Allen, Articling Student. Alex can be reached at 613-369-0358 or at [email protected].
