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Factual background
Naftali Rabinowitz, the appellant and plaintiff, entered into a commercial real estate agreement of purchase and sale with 2528061 Ontario Inc., the respondent and defendant. The subject property was a commercial property viewed by the appellant as a potential investment opportunity rather than a uniquely irreplaceable asset. To facilitate the transaction and secure additional time for due diligence, the parties structured a financing arrangement that intertwined a six-month mortgage with the anticipated completion of the purchase.
Under this arrangement, the appellant advanced $600,000 to the respondent, consisting of the release of a $250,000 purchase deposit and a further $350,000 advanced in cash. The six-month mortgage was granted by the respondent as security for these sums. The parties’ understanding was that if the purchase completed, the $600,000 advanced under the mortgage would be credited against the purchase price, effectively making the mortgage a temporary and largely transactional device embedded in the broader sale.
The transaction ultimately failed to close. The trial judge found that the respondent repudiated the agreement of purchase and sale, but this repudiation did not automatically resolve the choice of remedy. The appellant’s litigation strategy at trial focused heavily on securing specific performance of the purchase agreement and enforcing the mortgage terms, particularly the contractual interest rate, rather than front-loading an alternative claim for damages.
The real estate agreement and mortgage terms
The mortgage agreement contained a detailed interest clause setting out a two-stage interest structure. For the initial six-month period, the mortgage bore interest at 0%. The clause went on to provide that beginning on July 10, 2018 (correcting a typographical reference in the text), the interest rate on the mortgage would be 12.0%, calculated monthly, not in advance, continuing until the mortgage was paid in full. The contractual language did not explicitly link the increase to 12% to any default, arrears, or failure to pay. Rather, the shift from 0% to 12% was timed to occur on a fixed calendar date.
It was common ground that the mortgage was not in default on July 10, 2018. The parties were sophisticated commercial actors who negotiated the transaction with the benefit of legal advice. The six-month interest-free period was designed as part of the overall bargain: the appellant would provide generous short-term financing to facilitate the deal and the respondent would, in effect, receive an interest-free advance while the purchase was expected to proceed. If the acquisition closed, the mortgage would be washed out against the purchase price; if the acquisition did not close, the mortgage would continue as a stand-alone loan bearing 12% interest from the end of the interest-free window.
The trial proceedings and initial judgment
The appellant commenced two proceedings that were heard together. In the first, he sought specific performance of the commercial real estate agreement, asking the court to compel the respondent to complete the transaction. Importantly, he did not plead damages in the alternative, and he confirmed in his closing submissions that he was not claiming damages. In the second proceeding, the appellant sought repayment of the $600,000 mortgage advance, together with interest at the 12% rate stipulated in the mortgage from July 10, 2018 onward.
The trial judge first addressed the claim for specific performance. She accepted that the respondent had repudiated the agreement of purchase and sale but considered whether the appellant had established an entitlement to specific performance as an equitable remedy. Applying well-established principles, she examined whether the property or the agreement was subjectively or objectively unique in a way that would make damages inadequate. She concluded, on the evidence, that the appellant had failed to show uniqueness. The commercial property was treated as an investment vehicle, and there was no compelling evidence that damages could not fairly compensate for any loss resulting from the failed transaction. On that basis, she ruled that specific performance should not be granted and dismissed the appellant’s action for that relief.
The trial judge then turned to the mortgage action. She held that the appellant was entitled to repayment of the $600,000 principal advanced under the mortgage. However, she rejected the appellant’s claim to the 12% interest from July 10, 2018. Interpreting the interest clause, the judge viewed the 12% rate as a form of interest on arrears or default, because it followed an initial 0% period and, in her view, effectively operated once the mortgage went into default. On this reading, the 12% provision was found to contravene s. 8 of the federal Interest Act, which bars charging a higher rate of interest on arrears of principal or interest after default than the rate that applied to the principal before default. As a result, while the appellant obtained judgment for repayment of the $600,000 principal, he was denied the contractual 12% interest.
Post-judgment motion: reconsideration and amendment
After the judgment was released in April 2024, the appellant sought to revisit the outcome in the specific performance action. In October 2024, he brought a motion for reconsideration, returnable in January 2025, asking the trial judge both to reconsider her refusal to grant specific performance and to grant leave to amend his statement of claim to add damages as an alternative remedy. By that point, the litigation posture had already crystallized: the trial was over, the reasons had been released, and the appellant had earlier elected not to plead or argue for damages.
The trial judge dismissed the motion. She considered Rule 26.01 of the Rules of Civil Procedure, which favours liberal amendment where it can occur without non-compensable prejudice, but stressed that post-trial amendments are tightly constrained. Allowing the appellant to add a damages claim at that stage would fundamentally alter the case the respondent had faced at trial and would require a reopening of the proceeding to admit new evidence. The judge noted that the appellant had made a deliberate, strategic choice not to claim damages, reinforcing that point in closing submissions. She held that reversing that choice after judgment would prejudice the respondent and the administration of justice and would verge on an abuse of process. Applying the Sagaz test for reopening a case to call new evidence, the judge further found that the appellant had not shown that any proposed damages evidence could not have been obtained with reasonable diligence before trial or that it would probably change the result. On that basis, she declined to reopen the matter or permit the amendment.
The appeal on specific performance and amendment
On appeal, the Court of Appeal for Ontario considered three main issues: whether the trial judge erred in refusing to grant specific performance; whether she erred in refusing to permit the post-judgment amendment to add a damages claim; and whether she erred in finding the 12% interest clause offended s. 8 of the Interest Act. As to specific performance, the appellate court reiterated that this remedy is equitable and discretionary, dependent on the particular facts of the case, and that appellate courts must defer to a trial judge’s exercise of such discretion absent clear error. The appellant did not attack the trial judge’s factual findings. The Court of Appeal held that the judge correctly applied the governing principles by placing the burden on the appellant to show uniqueness and the inadequacy of damages and by concluding that damages would be an adequate remedy for the respondent’s repudiation of the commercial real estate agreement. The court also agreed that the existence of potential or actual damages in another, unrelated proceeding concerning the same property did not undermine the adequacy of damages here or compel a grant of specific performance. Consequently, the Court of Appeal saw no error in the refusal of specific performance and dismissed this ground of appeal.
On the amendment issue, the appellate court upheld the trial judge’s ruling. While acknowledging the generally liberal approach to granting leave to amend, the court emphasized that such discretion is intended to facilitate, not frustrate, fairness. It endorsed the view that allowing a new damages claim after judgment, following a clear strategic decision not to plead damages and an express confirmation to the court that no damages were sought, would prejudice the respondent and the integrity of the process. The Court of Appeal agreed that the proposed amendment would necessitate reopening the trial, potentially calling new evidence and recasting the litigation. It accepted that the Sagaz criteria for reopening had not been satisfied because the appellant offered no credible explanation for why any damages evidence could not have been obtained before trial and no basis to conclude that such evidence would probably change the outcome. The appeal on the reconsideration and amendment issues was therefore dismissed.
The appeal on the mortgage interest clause and the Interest Act
The Court of Appeal approached the mortgage interest issue differently. It began by restating modern principles of contractual interpretation: commercial contracts are to be interpreted based on their plain language, read in light of the factual matrix and from the perspective of a reasonable businessperson, and courts should avoid interpretations that produce commercial absurdity. It further noted that s. 8 of the Interest Act must be read harmoniously with s. 2, which generally allows contracting parties to stipulate any agreed rate of interest, subject to specific statutory constraints.
Examining the mortgage interest clause, the appellate court found that the trial judge had mischaracterized its operation. The clause expressly provided for 0% interest until July 10, 2018, and 12% interest thereafter, calculated monthly, until full repayment. There was no mention of default or arrears as a trigger for the change in rate. It was undisputed that the mortgage was not in default on July 10, 2018. The Court of Appeal held that the judge erred by treating the 12% as if it were a form of default or arrears interest prohibited by s. 8. Instead, the proper interpretation was that the parties agreed to an initial interest-free period, aligned with their expectation that the purchase would close, followed by a commercially reasonable 12% rate if the transaction did not complete and the mortgage continued independently.
The appellate court found this construction consistent with the surrounding commercial context. The six-month interest-free feature was meaningful only while the purchase was alive. Once the deal failed, there was no reason to extend interest-free financing indefinitely. The parties, each represented by counsel, had negotiated a 12% rate that would apply from the end of the interest-free period, regardless of default, and this rate fell within the freedom of contract permitted by s. 2 of the Interest Act. By failing to give effect to this clear language and by incorrectly invoking s. 8, the trial judge committed an error in principle. The Court of Appeal therefore allowed the appeal in the mortgage action and ordered that the mortgage be repaid at 12% interest commencing on July 10, 2018, in accordance with the terms of the mortgage.
Disposition, successful party, and monetary consequences
In its disposition, the Court of Appeal dismissed the appellant’s appeal from the dismissal of his specific performance action and the refusal to permit the post-judgment amendment. On those issues, 2528061 Ontario Inc., the respondent, remained successful. The court allowed the appeal in the mortgage action, holding that the appellant, Naftali Rabinowitz, was entitled to have the $600,000 mortgage repaid at the agreed contractual rate of 12% from July 10, 2018 until payment in full.
The costs orders reflected this divided success. The respondent was awarded costs of the appeal relating to specific performance and the reconsideration motion in the agreed all-inclusive amount of $25,000 and trial costs in the agreed all-inclusive amount of $20,000. The appellant was awarded costs of the mortgage appeal on a full indemnity basis, under the mortgage terms, in the all-inclusive amount of $17,000. The parties agreed that these costs should be set off against each other. The Court of Appeal therefore ordered that the appellant pay the respondent a net all-inclusive amount of $28,000 in costs. In overall outcome, the respondent is the net successful party on the litigation as a whole, receiving $28,000 in net costs, while the appellant is successful on the discrete mortgage interest issue and obtains the right to repayment of the $600,000 mortgage with 12% interest from July 10, 2018. Because the judgment does not state the date on which the mortgage was or will be repaid, the exact total amount of interest payable and thus the precise total financial award in favour of the appellant on the mortgage cannot be determined from the decision alone.
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Appellant
Respondent
Court
Court of Appeal for OntarioCase Number
COA-24-CV-0537Practice Area
Real estateAmount
$ 28,000Winner
RespondentTrial Start Date