Ontario Superior Court overturns arbitrator’s award in homebuyers’ contract dispute

When the market declined, the buyers told the builder they would not close their purchases

Ontario Superior Court overturns arbitrator’s award in homebuyers’ contract dispute

The Ontario Superior Court of Justice has set aside an arbitrator's award and ordered a new hearing on damages in the case involving homebuyers following contractual breaches.

Eyelet Investment Corp., a company that builds and sells residential houses, sold homes to the respondents under nearly identical purchase and sale agreements. When the market declined, the buyers told the builder they would not close their purchases.

Eyelet Investment accepted the repudiation of the contracts, resold the homes at a loss, and incurred additional carrying costs. The company then treated the buyers' deposits as forfeited and sought legal action to recover the remaining losses.

The purchase agreements included a clause requiring disputes to be resolved through arbitration, as mandated by the Tarion Warranty Corporation's standard forms. The arbitrator ruled in favour of the buyers, stating that the builder's failure to tick specific boxes in the agreement justified the buyers' decision to walk away from the contracts. He ordered the return of the buyers' deposits.

Eyelet Investment appealed the arbitrator's decision to the Superior Court of Justice. The court found that the buyers had committed anticipatory breaches of their contracts, entitling the builder to terminate the agreements and seek damages. She ruled that the builder's failure to tick the boxes was immaterial and did not affect the buyers' rights. The arbitrator's award was set aside, and the case was sent back for a determination of damages.

The arbitrator released a final award on damages and costs in July 2023. However, he critiqued the court’s decision, questioned the right of appeal, and re-examined the liability issues. The arbitrator determined that both parties should bear their "fair share" of damages due to what he termed a "contributory breach of contract."

The Superior Court found that the arbitrator made several errors, including failing to follow the legal principles outlined by the court. The Superior Court stated that arbitrators must adhere to the law and judicial decisions. The arbitrator's concept of "contributory breach of contract" was incorrect, as the law requires a breaching party to compensate the other party fully for damages.

The court ordered a new hearing on damages and costs before a different arbitrator. The new arbitrator will assess damages based on the difference between the contract prices and resale prices of the houses, any consequential carrying costs, and the application of the deposits. The buyers' mitigation claims will be limited to the builder's efforts to resell the homes.

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