14 | December 24, 2010
THE LAWYERS WEEKLY
Real Property
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Why an ounce of risk prevention may mean big cost losses
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‘‘
R: A CANADIAN PARIAH
District School Board on June
14, 2004. Southcott was a subsidiary of Ballantry Homes Inc.,
created for the purpose of purchasing the land. The agreement included a condition that
the board comply with Ontario’s
Planning Act for severance of
the land from the parent parcel.
After a number of delays, the
closing was extended to no later
than Jan. 31, 2005. The board
did not begin the severance pro-
TAMIL MIGRANTS
S TRIGG
TRIGGER
GG
GER C
CON
CONTROVER
O
JARED
SCHWARTZ
cess until after Southcott’s due establish that there were com- losses. The controlling mind of
diligence period expired. The parable properties available or Southcott decided not to put any
severance hearing was sched- that had they been purchased assets in Southcott’s name to
uled for Dec. 16, 2004, but Southcott’s loss could have been avoid exposing those assets to
Southcott had not yet filed its avoided. Justice Spiegel held the risks associated with Southdevelopment application. The that Southcott was entitled to cott’s litigation against the
Board. Southcott and Ballantry
board was advised that the sev- $1,935,500 plus costs.
were certainly
erance
hearing
entitled to claim
should be delayed
the legal benefit
until Southcott’s
of limited liabildevelopment
ity by virtue of
application was
Taking advantage of the creditor protection
Southcott’s disreviewed.
offered by a newly incorporated company
tinct legal perThe
board
sonality. Howapplied for severmay be advantageous for new business
ever, Southcott
ance despite the
opportunities, but may cause significant
and Ballantry
recommendation,
prejudice to any ongoing claims.
also have to live
and at the hearing,
with the consethe local counselquences of the
lor requested that
fac t
that
the application be
deferred until more progress
The board appealed, arguing because Southcott has a distinct
was made on the development that while it may have breached legal personality, it is able to
application. Southcott was then its contractual duty, the breach assert a claim for damages and,
advised to submit its develop- was not the cause of the failure as a party asserting that claim, it
ment application as soon as to obtain severance by the clos- thus bears the ordinary duty of
possible. The board had not ing date and claiming Justice mitigating its loss.”
Southcott was still successful
obtained approval for severance Spiegel erred in failing to find
by the end of December 2005 that Southcott had failed to in the action, but damages were
and on Jan. 17, 2005, refused to mitigate. At trial, Southcott’s reduced to $1 and the net result
extend the closing date any fur- representative admitted it never was a cost award of $400,000 in
ther, giving notice that it was had any intention to mitigate, favour of the board.
On Nov. 18, leave to appeal to
terminating its agreement with as Southcott was created only to
Southcott.
buy the land. The Court of the Supreme Court of Canada
Southcott filed an action Appeal found this admission was granted. While we wait for
alleging that the board breached sufficient to satisfy the board’s the matter to be heard, clients
its duty to use best efforts, acting onus to prove the failure to engaged in litigation need to
make a strategic decision as to
in good faith, to obtain sever- mitigate, stating:
ance. In a detailed decision,
“The plaintiff in this case was whether the creditor protection
Justice H. Spiegel held that the Southcott, a distinct legal entity, benefits of separate entities outboard had, in fact, breached its and the issue is whether it took weigh the potential prejudice
duty. Justice Spiegel also found reasonable steps to mitigate its that may be suffered from a failthat the board had not dis- damages.
Southcott cannot ure to mitigate.
Taking advantage of the
charged its onus of proving that escape or avoid its duty to mitiSouthcott mitigated its losses gate damages by arguing that it creditor protection offered by a
with subsequent purchases.
was a part of Ballantry and that newly incorporated company
The mitigation analysis is Ballantry would have purchased may be advantageous for new
interesting as Southcott, being the other lands even if this trans- business opportunities, but may
incorporated solely for the pur- action had not failed. Thus, the cause significant prejudice to
chase of the land, clearly made duty to mitigate rests upon any ongoing claims. 
no attempt to purchase replace- Southcott. Southcott decided not
Jared Schwartz is an assoment investment properties, to take any steps to mitigate
although such attempts were damages. Ballantry’s actions ciate lawyer at Patterson Law in
made by its parent company and demonstrate that other good Halifax. He is a commercial
other related entities. Justice quality investment properties lawyer with a practice focused
Spiegel, however, held that the were available and that South- on business structuring, acquisievidence presented did not cott could have mitigated its tions and secured lending.
TION BUREAU RESOLVES MLS FIGHT
Environmental liabilities, tender and leasing disputes and
many other risks exist in the
world of property development.
We regularly counsel our clients
on the benefits of having separate
companies to manage these risks.
However, this type of creditor
protection strategy may need to
be revisited when advising clients
on mitigating losses from a failed
transaction — as illustrated by
the following decision.
In Southcott Estates Inc. v.
Toronto Catholic District School
Board, [2010] O.J. No. 1772,
Southcott Estates Inc. entered
into an agreement of purchase
and sale to purchase surplus
land from the Toronto Catholic
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