CANADA Trends and Developments Contributed by: Laura Bevan, Craig Ferris KC, Anna Paczkowski and Catherine Whitehead, Lawson Lundell LLP
Developer 660 Sunningdale (“660 Sunningda- le”) agreed in a commitment letter to pay First Source Mortgage Corporation (“First Source”) a lender fee of 2.75% of the loan amount as part of the consideration for a multimillion-dollar loan. The loan agreement deemed the lender fee to be earned upon acceptance and execution of the commitment letter, and provided it was to be paid by way of a CAD100,000 payment upon execution of the loan agreement, with the CAD326,500 balance to follow. 660 Sunningdale paid the initial CAD100,000 but decided not to proceed with the loan and did not pay the remaining CAD326,500. The parties proceeded by way of summary judgment and the motion judge concluded that First Source could keep the CAD100,000 but was not entitled to the balance because it was payable under an unenforceable “penalty clause”. The motion judge also granted 660 Sunningdale relief against forfeiture of the balance under Sec- tion 98 of Ontario’s Courts of Justice Act. The Ontario Court of Appeal overturned this decision, finding firstly that the motion judge had wrongly concluded that the balance of the lender fee was “extravagant and unconscion- able” and constituted an unenforceable penalty. The lender fee was not, in fact, a penalty at all, because it was not payable to remedy a breach by 660 Sunningdale. Rather, it was payable as consideration, whether or not the contract was breached by 660 Sunningdale. The body of law governing the enforcement of penalties had no application. Secondly, the motion judge erred in granting 660 Sunningdale relief from forfeiture of the balance on a similar basis. Relief against forfeiture may sometimes relieve parties of “the consequences
provided for in a contract as the result of their non-compliance with its terms”, but here, the balance of the lender fee was payable regard- less of any breach or non-observance of the terms of the contract. What the motion judge had done was relieve 660 Sunningdale “not from the consequences of its conduct relating to the contract, but rather from a contractual term that she found to be excessive and unconscionable in amount”. The doctrine of unconscionability did not apply because 660 Sunningdale was not vulnerable due to unequal bargaining power. The appeal was therefore allowed and 660 Sunningdale had to pay the balance of the lender fee to First Source. The Ontario Court of Appeal’s decision highlights the important distinction between a penalty clause and a payment clause and the centrality of a breach or non-observance of contractual terms in marking that distinction. The decision exemplifies the Court’s unwillingness to invali- date the terms of a commercial bargain when neither party is a “disadvantaged consumer”, and to favour contractual certainty by limiting the application of penalty and relief from forfei- ture doctrines. No Avoiding Specific Statutory Regime for Appointing Company Representative in Legal Proceedings In the Bhuthal case, the British Columbia Court of Appeal considered whether a person may be appointed to defend or prosecute proceed- ings on a company’s behalf without adhering to the specific statutory regime established for appointing a person to represent a company in legal proceedings.
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