Published on October 17, 2012, this case deals with the duty of a plaintiff to take actions to mitigate losses when seeking specific performance. The reasons for judgment were written by Madame Justice Karakatsanis, a recent appointee who so far has written only one other decision (in the criminal context). Her background is in administrative law, so it is interesting to see her venture into the realm of equitable remedies.
The facts of the case are simple. The Plaintiff Southcott is a single purpose corporation, incorporated specifically for the purpose of purchasing a parcel of land from the Defendant School Board. A purchase agreement was made by the parties, under which Southcott paid a 10 percent deposit. The agreement was conditional on the School Board obtaining a severance of the land on or before the closing date. The closing date was extended once, but the School Board declined to accept a further extension when its request for severance was denied by the Committee of Adjustments.
Southcott commenced an action for specific performance. It never attempted to mitigate its losses, on the grounds that it had been created solely for the purpose of purchasing the land in question. At trial, the Superior Court of Justice declined to order specific performance on the basis that the property was not unique and that damages were adequate. The Court of Appeal found that Southcott had failed to mitigate its damages, and reduced the damage award accordingly to a nominal amount.
Karakatsanis J. found that the concepts of specific performance and mitigation were not compatible, and so addressed the question of when a plaintiff seeking specific performance can avoid the requirement for mitigation. She found as follows:
A plaintiff deprived of an investment property does not have a “fair, real, and substantial justification” or a “substantial and legitimate” interest in specific performance unless he can show that money is not a complete remedy because the land has “a peculiar and special value” to him.
As to whether Southcott’s status as a single purpose company, created specifically for the purchase of the property in question, Justice Karakatsanis wrote the following:
In addition, not requiring single-purpose corporations to mitigate would expose defendants contracting with such corporations to higher damage awards than those reasonably claimed by other plaintiffs, based solely upon their limited assets.
In rejecting Southcott’s arguments, Justice Karakatsanis found that there was a requirement for single-purpose corporations to mitigate their losses when seeking specific performance where there is not a compelling reason why damages would not be appropriate.
The Chief Justice filed a lone dissent, which points out the inconsistency of requiring mitigation where a claim for specific performance is validly pursued. She notes that, while the common law presumption of uniqueness of real property is no longer recognized, the land in question was sufficiently unique that a substitute property of equivalent value was not readily available.
In my opinion, the decision of McLachlin C.J. better reflects the nuanced nature of equitable remedies. She recognizes the difficulties faced by a plaintiff who seeks to advance a specific performance claim, noting that if such a claimant mitigates by purchasing another property and then succeeds in their claim, they will have two properties instead of one, and one of which they didn’t really want in the first place. The requirement to mitigate in the case of a claim for specific performance should be tempered to recognize that, even where the claim for such an equitable remedy is fairly advanced, the party making the claim cannot be sure it will succeed due to the discretionary nature of equitable remedies. The incompatibility of the concepts of mitigation and specific performance was rightly pointed out by Justice Karakatsanis. However, her decision fails to balance the competing issues, which may result in a chilling effect against those who are entitled to specific performance, but are afraid of the consequences of not mitigating if the courts decide not to grant their request.