Redstone Enterprises Ltd. v. Simple Technology Inc. et al.
[Indexed as: Redstone Enterprises Ltd. v. Simple Technology Inc.]
2017 ONCA 282
Court of Appeal for Ontario, Sharpe, Lauwers and Hourigan JJ.A.
April 4, 2017
Contracts — Deposits — Forfeiture — Buyer and seller entering into
agreement for purchase and sale of warehouse for $10,225,000 — Agreement originally providing for deposit of $300,000 — Buyer paying additional deposit of $450,000 to obtain six-month extension of time for
closing — Buyer failing to close transaction — Application judge finding
that amount of forfeiture was unconscionable in absence of any
evidence of damages suffered by seller — Application judge reducing
amount forfeited to $350,000 — Seller’s appeal allowed and amount of
forfeiture increased to $750,000 — Size of deposit not grossly disproportionate — No inequality of bargaining power existing — Application
judge erring in finding unconscionability.
The applicant seller and the respondent buyer entered into an agreement for
the purchase and sale of a warehouse for $10,225,000. The respondent intended
to establish a licensed marijuana grow-op business in the warehouse. The
agreement provided for a deposit of $300,000. The applicant paid an additional
deposit of $450,000 to obtain a six-month extension of the time for closing.
Ultimately, the respondent failed to obtain a Health Canada licence or the necessary financing and failed to close the transaction. The applicant applied for a declaration that it was entitled to be paid the deposit of $750,000, which was being
held in trust. The application judge found that the amount of the forfeiture was
unconscionable in the absence of any evidence concerning damages suffered by
the applicant. He granted partial relief from forfeiture and reduced the amount
forfeited to $350,000. The applicant appealed.
Held, the appeal should be allowed.
The fact that the applicant suffered no damages did not in itself render the forfeiture of the entire deposit unconscionable. A finding of unconscionability must
be an exceptional one, strongly compelled on the facts of the case. While in some
cases a disproportionately large deposit, without more, could be found to be
unconscionable, the deposit in this case was not grossly disproportionate. The
application judge erred in law by failing to consider other indicia of unconscionability. This was a straightforward commercial real estate transaction undertaken
in the expectation of profit by both sides. There was no inequality of bargaining
power between them. There was no fiduciary relationship, and both parties were
sophisticated. There was nothing to suggest that the applicant unconscionably
abused its bargaining power in asking for an additional deposit of $450,000 to
grant the requested extension. The amount of the forfeiture should be increased
to the contractual amount of $750,000.
Peachtree II Associates - Dallas, L.P. v. 857486 Ontario Ltd. (2005), 76 O.R. (3d)
362,  O.J. No. 2749, 256 D.L.R. (4th) 490, 200 O.A.C. 159, 10 B.L.R. (4th)
45, 140 A.C.W.S. (3d) 650 (C.A.) [Leave to appeal to S.C.C. refused 
S.C.C.A. No. 420]; Tang v. Zhang,  B.C.J. No. 180, 2013 BCCA 52,
332 B.C.A.C. 304, 41 B.C.L.R. (5th) 69, 29 R.P.R. (5th) 192, 359 D.L.R. (4th) 104,
223 A.C. W.S. (3d) 894, consd