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SALE OF LAND - Agreement of purchase and sale - Right of first refusal - Remedies - Damages

Tuesday, September 05, 2017 @ 9:02 AM  


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Appeal by Multus Investment Corporation (Multus) and Strategic Acquisition Corp. (Strategic) from the judgment in Strategic’s action against Multus and Starke Capital Corp. (Starke), seeking specific performance of a Right of First Refusal (ROFR) agreement with Multus. Multus agreed to sell Dominion Place, a commercial building in Calgary, to Starke for $30 million. Strategic had registered a ROFR caveat on title to Dominion Place, but after receiving notice, declined to exercise it on the terms in the Multus/Starke agreement of purchase and sale. Two days before closing, Multus and Starke changed several terms of the agreement, without providing notice to Strategic of the amended terms. The transaction closed. Starke acquired Dominion Place. Strategic sued Multus and Starke seeking specific performance awarding it title to Dominion Place. The trial judge found that the amendments to the agreement, which waived the payment of a second deposit of $1.4 million and provided for financing in part by way of a vendor take-back mortgage, were material changes that should have been disclosed to Strategic by way of a new ROFR notice. He also referred to a settlement entered into between Multus and Strategic after Multus applied to set aside the ROFR caveat, pursuant to which Strategic provided a discharge of its caveat to be used only if the sale to Starke closed on identical terms to the original Multus/Starke agreement. This discharge was filed with the Land Titles Office on the closing of the transaction. The trial judge found that Multus breached this settlement as well as the ROFR. The judge dismissed Strategic’s claims against Starke, rejecting the argument that Starke willingly participated in the changes to the agreement that resulted in the wrongful discharge of the ROFR, or that it was willfully blind in not further investigating whether the transaction complied with the ROFR. Starke was not held liable for inducing or causing breach of contract. Specific performance was denied to Strategic, the judge finding that Dominion Place was not unique based on the potential for redevelopment, and noting that Strategic had passed up opportunities to purchase it three times. He awarded Strategic damages in lieu of specific performance, assessed as at the date of trial, set at 50 per cent of the $10 million increase in value of Dominion Place from the date of the initial transaction, given that it was uncertain that Strategic would have exercised its ROFR had proper notice of the amended transaction been provided. Strategic asserted that the trial judge erred (1) in concluding that Starke did not take title to Dominion Place subject to Strategic's ROFR caveat; (2) in failing to find Starke liable for inducing breach of contract; and (3) in failing to award specific performance to Strategic. Multus submitted that the trial judge erred in finding a breach of the ROFR and settlement agreement. Multus also challenged the trial judge's assessment of damages.

HELD: Appeal by Strategic dismissed; appeal by Multus allowed in part. Strategic willingly granted the ROFR discharge and Starke relied upon it. The judge was entitled to find that Starke took title to Dominion Place free of the ROFR and that Starke lacked the requisite knowledge for inducing breach of contract. Starke had no obligation to investigate compliance with the terms of the ROFR and was not involved with the Multus/Strategic settlement. The evidence supported the conclusion that Dominion Place lacked any unique redevelopment opportunities or physical attributes. Once Multus's breach of contract was established, it was not necessary to require Strategic to meet an additional burden of proof on the balance of probabilities to show that it would have exercised its right under the ROFR. Based on the evidence presented, the trial judge was entitled to make his best estimate of the likelihood that the opportunity would have been exercised, and discount the damages due to Strategic accordingly. The amount of damages payable by Multus to Strategic, previously assessed as $1.3 million at the date of breach, were discounted by 50 per cent, to $650,000.

Strategic Acquisition Corp. v. Multus Investment Corp., [2017] A.J. No. 800, Alberta Court of Appeal, M.S. Paperny, P.W.L. Martin and J. Strekaf JJ.A., August 3, 2017. Digest No. TLD-Sept42017001