In a recent Ontario case, Kipfinch Developments v. Westwood Mall (Mississauga) Limited, the Court awarded damages for a vendor’s failure to grant reasonable access for environmental testing.
The parties entered into an agreement for the purchase and sale of a shopping mall which contained a due diligence provision permitting the purchaser, Kipfinch, to satisfy itself of the property’s environmental condition prior to closing. If the purchaser was not satisfied or did not waive the condition, the agreement would terminate.
The vendor, Westwood, was aware that a former dry-cleaning tenant had caused soil and groundwater contamination of the property and provided the purchaser with an environmental report that identified this. Under pressure from its lender, the purchaser retained its own consultant to perform further testing, which required the sinking of boreholes. The vendor, however, refused to permit access for the testing. Unable to perform the tests, the purchaser was forced to allow the agreement to terminate. After a failed attempt to re-negotiate, the purchaser commenced an action for damages.
The Court held that the purchaser’s proposed tests were not “unreasonable”. Although the agreement stipulated that “invasive” testing was subject to the vendor’s consent, such consent could not be unreasonably withheld. The Court found that while the proposed drilling would be invasive, it would not cause any permanent damage and was reasonable under the circumstances. The court found the vendor liable for breach of contract.
The Court characterized the nature of the damages as a loss of chance. The vendor’s breach had prevented the purchaser from performing the tests, but their performance would not have guaranteed the closing of the transaction: the purchaser still needed to secure financing, and the proposed environmental assessment might not have finished in time or revealed contamination not satisfactory to the purchaser.
On the facts, the Court concluded that these risks, while real, were not significant. The Court decided that “there was a real possibility, although not a certainty or a near certainty, that Kipfinch would have completed the transaction,” which it estimated at between 40% and 60%. Averaging these figures, the Court concluded that the plaintiff had been deprived of an opportunity that had a 50% chance to occur.
The Court accepted the purchaser’s argument that it would be able to produce a better income from the property than was currently being realized by the vendor. Ultimately the Court concluded that the plaintiff would have realized a profit of approximately $660,000. Applying the 50% probability it had determined for the transaction to close, the Court awarded $333,000 in damages to the purchaser.