When is Specific Performance Appropriate?
Specific performance is a discretionary remedy courts may order in cases where a contract of purchase and sale has been breached. The contract must have been a fair and equitable one. The remedy is reserved for those cases where a monetary award would not adequately and appropriately compensate a harmed party and is meant to put that party in the position that they would have been in were the contract to have been performed. The remedy is restricted to instances where the subject matter of the contract is unique, i.e., works of art, custom made items, goods in short supply, or real estate.
The Court of Appeal of Alberta had specific performance in its contemplation in a breach of contract matter arising from the purchase of raw land by a developer from a church.[1] The case dates back over 10 years ago. In 2011, the Bethel United Church of Edmonton contracted with a developer named West Jasper Properties to sell 55 acres of land to it for a price of $3.5 million. As part of the land purchase agreement, West Jasper would then reconvey 14 acres of this land back to the church and assign its interest in the land to another developer named North Pacific Properties.
The two developers intended to construct a new residential subdivision. The sale was conditional upon the developer obtaining approval from the City of Edmonton Planning Department to subdivide the Bethel retention lands out of the property and to get the land rezoned for development.
However, the process hit a stumbling block after Bethel United had the land appraised and the appraisal showed that the total acreage was only 52.67 acres with a market value of just over $4,740,000. The church failed to disclose this information with the developer-purchaser during negotiations for a purchase price, an act of omission that the trial judge said left her “dumbfounded.” A further stumbling block arose when the Alberta Ministry of Infrastructure informed North Pacific that a portion of the church land might be required for a right of way. Bethel United Church granted power of attorney to North Pacific to negotiate with the Province in relation to the proposed expropriation. The developer tried to convince Alberta Infrastructure that expropriation would be unnecessary if the adjacent and Bethel United Church lands had the same owner once the sale concluded but was not successful in this regard.
The Bethel United Church land was unique in the mind of North Pacific. The developer intended to use the church land and the adjoining land it owned for a residential development. The cost per acre for a development that consisted of the Bethel United Church land and the adjacent property would be less than that for a project without the church’s land.
The land-sale agreement failed to close on or before the agreed upon deadline of August 1, 2011. As of that date, the value of the land was $125,000 per acre or $5,125,0000 for 41 acres, which was far less than the value on November 13, 2014, which was the date that North Pacific abandoned a claim for specific performance. As of this latter date, the value of the land had appreciated to $220,000 per acre or $9,020,000 for the 41 acres.
The issues to be determined at trial were:
· Was the failure of Bethel United to convey 55 acres of land a breach of contract so serious as to constitute a breach of substantial non-performance.
· If the breach did constitute substantial non-performance, what is an appropriate remedy for the wronged party; and
· What is the appropriate date for calculating a damage award?
The trial judge determined that the contractual provisions which obliged Bethel United to convey 55 acres to West Jasper Properties and for West Jasper to reconvey 14 acres back to the church (followed by an assignment of its interest in the land to North Pacific) were fundamental terms such that failure of the conveyance constituted substantial non-performance. Furthermore, given that the developer had abandoned its claim for specific performance, compensation in the form of damages was the only available remedy. This date was equitably determined to be the date at which North Pacific had abandoned the specific performance claim. To otherwise calculate damages at the earlier date of the breach of contract would have required the incorrect assumption that the developer would have sold the land at that earlier date, rather than develop it as was its stated intention. Consequently, North Pacific was entitled to benefit from the increase in land value that had occurred between the breach of contract and when it abandoned its claim for specific performance.
In conclusion, the Court of Appeal having reviewed the trial decision and finding neither any legal errors nor errors in the trial judge’s application of the facts to the law, upheld the decision. It may be a matter of fair speculation as to whether a court faced with an identical evidentiary record but a decline in land value might have chosen the date of the fundamental breach of contract as its benchmark for calculating the quantum of damages, irrespective of any claim for specific performance.
[1] Bethel United Church v North Pacific Properties, 2022 ABCA224