Canadian Lawyer InHouse

and pulled the plug on the deal, returning Southcott's deposit. At trial, the judge found the school board breached its best efforts obligation to get the severance in time, but decided the property wasn't unique enough to warrant specific performance. Instead, he made the $2-million damages award to compensate for the loss of a chance to make profits after finding the school board failed to show Southcott's failure to mitigate was unreasonable. But at the court of appeal, the unanimous three-judge panel decided the trial judge had set the bar too high for the school board, and ruled Southcott's refusal to mitigate was in fact unreasonable. The appeal court judges pointed to 81 parcels of undeveloped land You don't have an obligation to find something, but you have an obligation to look, and the obligation is a good-faith one. IRVIN SCHEIN, Minden Gross LLP sold in the Toronto area between the time of the contract breach and the trial, including several comparable lots bought by Southcott's parent company Ballantry, as evidence it could have mitigated its losses. The Supreme Court concurred, and upheld the appeal court's substituted $1-damage award. "Those who choose the benefits of incorporation must bear the corresponding burdens," Supreme Court Justice Andromache Karakatsanis wrote for the majority in the 6-1 decision. "Southcott is entitled to the benefits of limited liability, but it is also saddled with the responsibilities that all legal entities have.  The requirement to take steps to mitigate losses is one such responsibility." Geoff Hall, a partner in the Toronto office of McCarthy Tétrault LLP, says 32 • F eb r u a ry 2013 that approach presents a problem for developers, where single purpose corporations are routinely created by parent companies for individual transactions, in order to insulate each separate project from the legal consequences arising out of another. According to Hall, mitigating damages by bidding for replacement properties in the name of a company with a lawsuit already in progress constitutes a major gamble of its own. "That to me is not a good way of operating," Hall says. "You end up getting a whole bunch of liabilities attached that really apply to a prior transaction." Indeed, Southcott's lawyer wouldn't let Hill even consider the idea, according to his testimony at trial. "Generally we wouldn't buy anything in another company if it's still involved in something," Hill told the INHOUSE court. "I don't need the headaches." Hall says the lone dissenting judge, Chief Justice Beverley McLachlin, produced a decision more reflective of the commercial reality in the development business. McLachlin highlighted the inconsistency of mitigation alongside a claim for specific performance. "It makes no sense for a reasonable plaintiff seeking specific performance to effectively concede defeat and buy a substitute property. The plaintiff could end up with two properties — one it wanted and one it did not," she wrote.  The majority decision, Hall says, effectively leaves developers with two options when faced with an alleged contract breach. "Neither are very appealing. You either give up your legal right to sue, or you end up taking on legal risks that could be avoided by purchasing another piece of land with the same vehicle," Hall says. Despite the additional liabilities that come with mitigation, Irvin Schein, a litigator at Minden Gross LLP, says single-purpose corporations will remain an attractive vehicle for developers. "It helps developers to keep the accounting straight," he says. "And it's also valuable in terms of protection from the perspective of liability. The value of being able to approach projects with individual companies is still extremely high."

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