Background
In June 2015, Block Developments Inc. signed two agreements of purchase and sale with Brewers Retail Inc. (operator of The Beer Store) to acquire two Toronto properties — 1200 Dundas St. W. and 28 River St. — for a total of approximately $10.3 million. Brewers had marketed both as excellent mixed-use development opportunities on a sale-leaseback basis. Block planned to construct a condominium project and grant Brewers retail space in the redeveloped buildings. After months of negotiations and conditional period extensions, Brewers’ Director of Real Estate, Tom Lucas, secretly approached Rosewater Development — a company run by his friend and business associate — and obtained his Board’s approval to sell to Rosewater instead.
On November 5, 2015, Brewers terminated both agreements, purportedly because a mutual leasing condition had not been fulfilled. The trial judge found that Lucas had made misrepresentations to Block to prevent it from waiving that condition, and that those misrepresentations induced Block to forgo a timely waiver. Rosewater then purchased the properties for $350,000 less than Block’s contracted price, closing on the same date the Block transactions were to have closed. Block sued for damages arising from the breach.
After a multi-week trial, Justice Brown of the Ontario Superior Court found Brewers liable for breach of contract (including breach of its duty of good faith and fair dealing) and actionable misrepresentation. She awarded Block $15.5 million in damages, accepting a present-value lost development profits methodology used by both parties’ expert witnesses, and rejecting Brewers’ argument that subsequent property acquisitions by Block’s affiliates constituted mitigation. Brewers appealed on damages and mitigation only, not contesting liability.
The Court’s Holding
Writing for a unanimous panel, Zarnett J.A. dismissed the appeal. On the central damages question, the court distinguished the present case from its earlier decision in The Rosseau Group Inc. v. 2528061 Ontario Inc., 2023 ONCA 814, which Brewers argued required the court to award only the difference between the contract price and the Rosewater sale price — yielding zero damages. The court held that Rosseau Group does not mandate that an actual resale price always equals market value, particularly where the resale was arranged by the vendor’s own agent to benefit a personal associate under circumstances the trial judge characterized as involving “numerous significant misrepresentations.” More fundamentally, the court found that the damages methodology accepted below was not the same as that condemned in Rosseau Group: the experts in this case used the breach date as the assessment date, discounted projected development cash flows to their present value as of November 5, 2015 using a 10% discount rate, and expressly asked what a reasonable party would pay on that date for a future income stream given its risks and the time value of money. That approach substantively aligned with the normal measure of damages even if the parties labelled it a “lost development profits” method.
On mitigation, the court upheld the trial judge’s conclusion that Block and its affiliated companies should be treated as a single group — as both sides had argued at trial — and that the group’s aggressive growth strategy meant it would have acquired all of the post-breach development sites in addition to the Brewers properties. Because none of the subsequent purchases were replacements for the lost opportunities, none constituted mitigating transactions. The court also rejected Brewers’ argument that the Supreme Court’s decision in Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, required a different analysis, since Southcott’s fungibility reasoning did not apply where the evidence established the additional acquisitions were independent of the breach.
Key Takeaways
- A vendor’s actual resale price is not automatically conclusive of market value for damages purposes; where the resale was tainted by the vendor’s agent acting to benefit a personal associate, courts may decline to treat it as the measure of what was lost.
- A present-value discounted cash flow analysis, calculated as of the breach date and applying a discount rate that reflects development risk and the time value of money, can satisfy the normal measure of damages for a failed real estate purchase — even when the parties call it a “lost development profits” approach — provided substance prevails over nomenclature.
- When both parties at trial argue mitigation by reference to a corporate group as a whole, an appellate court will hold them to that framing; a purchaser with an aggressive multi-site acquisition strategy will not be found to have failed to mitigate where post-breach purchases would have occurred regardless of the breach.
- Deference to a trial judge’s damages assessment is substantial; appellate intervention requires an error in principle, misapprehension of evidence, or a wholly erroneous award — disagreement with how experts were weighed is insufficient.
Why It Matters
This decision provides important guidance on the boundary between the “normal measure” of real estate damages and departures from it. It confirms that Rosseau Group‘s insistence on market value at the breach date does not collapse into a rule that any actual resale dictates the answer, and that a properly discounted present-value analysis anchored to the breach date occupies a middle ground that courts may accept without departing from first principles. Developers, vendors, and their advisors now have clearer benchmarks for how economic loss experts should structure opinions in failed-purchase disputes.
The decision also reinforces that bad-faith conduct by a vendor’s agent — here, orchestrating a termination to redirect a sale to a personal associate — will not insulate the vendor from substantial damages simply because a resale occurred at a modest price. The $15.5 million award, affirmed in full, represents a significant recovery for a purchaser who never held title, and signals that Ontario courts will scrutinize self-dealing resales rather than accept them at face value when assessing what innocent purchasers truly lost.