SPECIFIC PERFORMANCE IN ABORTED ONTARIO REAL ESTATE TRANSACTIONS
IN THE AFTERMATH OF
SEMELHAGO v. PARAMADEVAN [1996] 2 S.C.R. 415

Until the Supreme Court of Canada’s ruling in Semelhago v. Paramadevan, the remedy of specific performance was almost inevitably granted when sought to enforce contracts for the purchase and sale of residential properties, due to such land’s perceived inherently unique qualities.

The Semelhago Case involved an aborted residential real estate transaction, where the property being acquired was intended for the personal use of the purchaser, and the ratio of the decision focused on the quantification of the equitable damages ultimately awarded, given the presumption that specific performance was an appropriate remedy available to the innocent purchaser.

The significance of the Semelhago Case is found in the obiter of Mr. Justice Sopinka’s decision, namely the necessity to first examine whether common law damages are inadequate to properly compensate an innocent injured party to the contract, which in turn requires a determination as to whether an acceptable substitute property can be found in the course of such party’s mitigation efforts.

Mr. Justice Sopinka unequivocally confirmed the principle that the uniqueness of land is not an irrebuttable or irrefutable presumption, and that specific performance should “not be granted as a matter of course”, absent evidence that the property is unique, to the extent that its substitute would not be readily available.

The obiter in the Semelhago Case would appear to have the following salutary consequences, namely:

a) It will likely deter parties from pleading specific performance for the sole purpose of employing the strategies to delay or evade one's duty to mitigate, and/or to pressure the defaulting vendor into capitulating on the issues in dispute by tying up his or her property in a rising market for an indeterminable period of time, with the inextricable result that avoidable loss will ultimately be avoided;

b) It may create a burden on the innocent party to prove uniqueness, and to correspondingly bear the costs associated with appraising the monetary substitute for performance, particularly in those instances where specific performance is initially pleaded but not ultimately decreed or granted;

c) Depending on the approach taken by subsequent courts in determining whether or not a particular property is unique, in terms of the subjective or objective criteria ultimately considered or adopted, specific performance may be all too readily available to a purchaser of a residential property who intends to reside therein, especially if the court's focus is fixed primarily or predominantly on the subjective considerations of the purchaser at the time that he or she initially committed to acquire the subject property; and

d) The requirement to prove uniqueness as a prerequisite to entitlement to specific performance may diminish (if not ultimately abolish) the very basis on which vendors of real property were previously entitled to maintain a claim for specific performance against purchasers, inasmuch as the principle of mutuality of remedies relied upon by vendors will likely be exceedingly difficult to maintain in the face of a property which has no distinct features or unique characteristics.

There have been three reported cases in Ontario involving aborted real estate transactions that have expressly considered the reasons for judgment in the Semelhago Case.

In Re Tropiano and Stonevalley Estates Inc., the purchaser entered into a contract with the vendor for both the purchase of a ravine lot, and the construction of a new house thereon in accordance with detailed plans and specifications approved by both parties. After finding the vendor in breach of the agreement with the purchaser, Mr. Justice Sharpe acknowledged that specific performance should not be granted to the innocent purchaser as a matter of course, absent evidence that the property is unique. However, Mr. Justice Sharpe concluded that the test of uniqueness was satisfied, based solely on the fact that the property was a ravine lot intended for residential purposes, and that the purchaser had demonstrated an emotional attachment to the specific location of the property and its natural setting. The relative ease by which he found uniqueness solely as a result of the purchaser’s subjective considerations, serves only to dilute the potentially forceful impact of Semelhago. The Tropiano Case makes the writer question why it is not possible, if not preferable, for the courts to adopt a more objective test for measuring the uniqueness of a particular property.

In 11 Holdings Ltd. v. Chassis Service & Hydraulics Ltd., the purchaser entered into a contract for the purchase of an industrial property, which the purchaser had intended to utilize it in a well-established redevelopment plan involving not only the property in question, but also the properties in the immediate vicinity of it. The importance of the Suntract Case lies in Madame Justice Lax’s careful consideration of the burden of proving the subject property's uniqueness, in an action for specific performance. Madame Justice Lax expressed concern that relieving the non-defaulting party of the burden of proving uniqueness would make specific performance “presumptively available”, that it was implicit in Semelhago's obiter that the uniqueness of a particular property is a matter to be proved, and not merely presumed, and that any such proof should be marshalled by the party seeking the remedy.

In Peate v. Elmsmere Limited Partnership, a disputed motion was brought before Master Beaudoin for an order granting a certificate of pending litigation. Master Beaudoin cited the obiter of Semelhago, and remarked that the test of uniqueness should focus principally on whether or not another property would be available to satisfy the purchaser’s claim. Since there was no apparent issue or debate as to the existence of another property being available, the court concluded, in a rather facile manner, that on that basis alone the purchaser satisfied the test of uniqueness. In my respectful opinion, substantial reliance by the judiciary upon the purchaser's self-interested testimony regarding the desirability of the property in question, or the existence of an adequate substitute, fails to balance the equities between the parties in a fair and objective manner, having due regard to all relevant facts and circumstances involving the issues in dispute.

In light of the fact that in the aftermath of the Semelhago Case, specific performance may no longer be granted as a matter of course, absent evidence that the property in question is unique, it is incumbent upon solicitors, if given the opportunity to draft the agreement of purchase and sale, to specifically address one’s entitlement or disentitlement to the remedy of specific performance. The purchaser’s solicitor should endeavour to preserve his or her client’s recourse to the equitable remedy of specific performance, in the event of the vendor’s default or breach of contract arising on or before closing. In contrast, the vendor’s solicitor should consider inserting an appropriate provision which would expressly disentitle the purchaser from claiming specific performance (and obviate the purchaser’s procurement of a certificate of pending litigation) in the event of a contractual breach committed by his or her vendor client. A pro-active approach achieved by contractual drafting, intended to address the vagaries and uncertainties raised by the lack of an objective and consistent standard in determining one’s entitlement to specific performance, may conceivably assist and buttress one's claim to the remedy, and will most certainly not diminish or detract from it.