A recent ruling from Ontario Superior Court, which confirmed that there was no common law right to import the principle of force majeure into an unconditional agreement of purchase and sale highlighted the importance for prospective purchasers to contemplate the risks of not adding conditions to their offers.
This recent case also emphasized the importance of having the required evidence before attempting to rely on the doctrine of frustration as a way out of an unconditional agreement.
In December, 2021, Donald and Margaret Liddell listed their home in Burlington, Ontario on the market with the intention of using the proceeds to fund the purchase of land in Prince Edward County where they could build a cottage and live out their retirement years. They began taking offers in late 2021 through early 2022, including an offer received in February, 2022 from Maria Mousavi. Ms. Mousavi and another purchaser ultimately engaged in a bidding war over the property, with Ms. Mousavi edging out her competition by waiving all conditions on her offer. The Liddells and Ms. Mousavi entered into a binding unconditional agreement of purchase and sale for the Property (the “APS”) on February 9, 2022 with a purchase price of $1,350,000.00, including terms of a $50,000.00 deposit with Ms. Mousavi paying the balance of the purchase price on closing, with the closing date set for July 22, 2022 (the “Closing Date”). Things moved forward without issue following the execution of the APS for a number of months.
Unexpectedly, at the first of two pre closing visits on July 7, 2022, only a few weeks before the Closing Date, Ms. Mousavi requested a three-month extension. The Liddells declined this request. Ms. Mousavi made several more requests to extend the closing in the following weeks which the Liddells continued to decline. The Closing Date came and went without the purchase being finalized and the Liddells diligently re-listed the property for sale. Unfortunately, there had been a sizeable change in the market in the five and a half months since the APS was signed. The property sat on the market until March 2023 when it was purchased by a new buyer for $1,100,000.00. As a result of the failure of Ms. Mousavi to follow through with her obligations, the Liddells lost $250,000.00 from the sale price of the property and incurred over thirty thousand dollars in carrying costs for the property while seeking out a new purchaser.
The Liddells brought a claim seeking damages against Ms. Mousavi for breaching the APS and brought a motion for summary judgment. Ms. Mousavi in response, alleged that she was unable to close on the property due to a force majeure event as the funds she intended to use to close the sale were held in an Afghanistan bank account and were inaccessible due to international banking restrictions instituted after the rise of the Taliban. In the alternative, Ms. Mousavi also relied on the doctrine of frustration both due to the Taliban banking restrictions and her inability to sell another property to obtain the closing funds. Finally, Ms. Mousavi claimed that the Liddells failed to mitigate their damages by refusing to accept an extension of the closing period so that she could make alternate financial arrangements. The Liddells position remained that the APS was unconditional in nature and contained no force majeure provision, that Ms. Mousavi failed to adequately demonstrate that a condition of frustration existed and that they had no obligation to accept an extension from Ms. Mousavi as they had lost faith in her ability to close.
Justice Coats on behalf of the Court held for the Plaintiffs and awarded the Liddells summary judgment. On the question of force majeure, the Court noted that it was uncontroverted that there was no force majeure clause in the APS and relied on the case of Consolidated Fastfrate Inc. v. 2516295 Ontario Ltd. to state that there is no common law right to a force majeure provision. As a result, Ms. Mousavi could not claim force majeure in order to void her obligations under the APS. With respect to the doctrine of frustration, the Court stated that Ms. Mousavi failed to meet her burden of proof or demonstrate the applicability of the doctrine. Notable facts that prevented Ms. Mousavi from successfully arguing that the APS was frustrated included that she failed to demonstrate a supervening event that altered the contractual landscape, her willingness to enter the APS on an unconditional basis despite not having the funds to close liquid and in Canada at the time, and failing to put forward the appropriate evidence to demonstrate that she attempted to obtain the funds from Afghanistan, that the funds were unobtainable or that she was unable to sell her other property to obtain the closing funds. Finally, the Court held that the Liddells made all reasonable efforts to mitigate their damages, relying on the long-standing principal that a seller is entitled to refuse an extension of time to close.