Executive Summary: Key Legal and Evidentiary Issues

• FH Development demanded a $15,000 price increase or offered to terminate the agreement amid COVID-19 disruptions.

• Clause 7.1 of the purchase agreement did not justify the delay since FH Development failed to prove material or labour unavailability.

• Construction was paused on Lot 92 despite continued building on other lots where buyers accepted higher prices.

• The court found that FH Development never properly communicated any abandonment of the price increase demand.

• Frustration of contract was rejected; the court concluded performance was possible and not radically altered.

• Damages totaling $280,510 were awarded to the Brooks; punitive damages were denied.

Background of the dispute

Stephen Brooks and Marianne Su-Ling Brooks entered into an Agreement of Purchase and Sale with FH Development Group Inc. on January 19, 2021, for a home to be built on Lot 92, Tuscany Run, in Phase 4 of the Brunello Estates subdivision in Halifax. The agreed price was $597,490 including HST, with a closing date of October 14, 2021. The agreement became firm on February 9, 2021.

On April 16, 2021, FH Development’s real estate agent emailed the Brooks' agent citing "extraordinary circumstances" from the COVID-19 pandemic and proposed either a $15,000 price increase or contract termination with full deposit return. A follow-up email the same day invoked "Force Majeure" and again offered the same two options. The Brooks refused to pay more and insisted on compliance with the contract. Construction stopped in April 2021, when only the footings had been completed, and resumed only in mid-September 2021.

The Brooks later terminated the contract when the home was not completed by the agreed date and subsequently purchased an older home in Clayton Park at a higher price. They sued for breach of contract, claiming damages for the price difference and additional mortgage interest, also seeking punitive damages for breach of good faith.

FH Development argued frustration of contract due to increased costs and claimed Clause 7.1 allowed delay due to unavailability of materials and labour. The clause stated delays due to causes beyond the seller’s control, including unavailability of materials/labour, were permitted only if the buyer was notified in writing within seven days of the occurrence.

Contract terms and communications

Clause 7.1 from the standard Nova Scotia Real Estate Commission agreement allowed delay only for uncontrollable causes and required prompt written notice. FH Development did not provide the specific details required under the clause.

Despite claiming to have abandoned the price increase demand, FH Development’s communications did not clearly reflect this. The August 24, 2021, email from FH’s agent, Corinne Zinck, was cited, but the court found it did not mention the abandonment. An attachment to that email included a draft amendment still listing the $15,000 increase. A September 3, 2021, letter from the Brooks’ lawyer also referenced the continued price demand. The court did not accept FH Development’s assertion that the demand was dropped.

Findings on availability and frustration

The court found that FH Development continued building similar homes in Phase 4 during the time Lot 92’s construction was paused. Evidence from photos and witness affidavits showed construction proceeded for buyers who agreed to pay more. Affidavits from FH Development executives acknowledged this, and they admitted materials and labour were available but more expensive. No credible evidence was presented to show materials for Lot 92 were unavailable.

The court concluded FH Development stopped construction because the Brooks refused the price increase, not due to unavailability. FH Development failed to respond to requests for details on the claimed shortages and did not produce relevant documents or communications supporting its position.

The court rejected the argument that the contract was frustrated by cost increases or unavailability of materials. It noted that an extra $15,000 did not make the contract "a thing radically different." FH Development admitted that even at the original price, they would have made a profit. The potential for cost increases was foreseeable and a normal risk of fixed-price construction agreements.

Breach and mitigation

Justice Gatchalian found FH Development breached the fixed-price, time-sensitive contract by demanding additional funds and not delivering the home on October 14, 2021, despite the Brooks being ready and able to close. FH Development’s reliance on Clause 7.1 was also rejected, as it failed to prove the required conditions for delay.

The court held that the Brooks did not fail to mitigate their damages. The duty to mitigate arose only after contract termination on October 14, 2021. The Brooks made reasonable efforts in a competitive market and were repeatedly outbid despite offering above asking prices. They ultimately bought a home in February 2022 for $853,000.

Damages awarded

The court awarded the Brooks:

• $255,510 as the difference between the Lot 92 contract price and the price of their new home at 21 Barkton Lane ($853,000 - $597,490).

• $25,000 for increased mortgage interest resulting from a higher rate (3.04% vs. 1.99%).

• Pre-judgment interest (amount to be determined if not agreed).

No punitive damages

The court declined to award punitive damages. While FH Development misrepresented material availability, the conduct was not found to be malicious or high-handed. The request for punitive damages was dismissed.

Credibility findings

Justice Gatchalian found Stephen and Marianne Su-Ling Brooks to be credible and reliable witnesses. Their testimony was consistent, supported by documentary evidence, and not shaken in cross-examination. The court rejected FH Development’s characterization of the Brooks as belligerent or disingenuous.

Conclusion

FH Development was found to have breached the contract by insisting on a price increase and failing to complete construction by the agreed date. The contract was not frustrated. FH Development was ordered to pay the Brooks $280,510 in damages, with additional pre-judgment interest, and no punitive damages.