Executive Summary: Key Legal and Evidentiary Issues

• The central issue was whether the trial judge erred in his approach to professional negligence and the standard of care owed by a real estate agent.
• Allegations against the agent went beyond active misleading, including his failure to advise the appellants of potential liability and his admitted lying to the vendors and their agent.
• Evidentiary gaps arose because the agent kept no contemporaneous notes and could not recall what he discussed with the appellants.
• Reliance by the trial judge principally on the appellants' signatures and initials to find that the agreement had been explained to them was held to be an error.
• Whether the appellants operated under a misapprehension about the consequences of not paying the deposit was never resolved by a finding at trial.
• Causation was raised by the respondents, who argued the appellants' legal counsel had warned them of the consequences of breaching the agreement.

Facts of the case

This appeal arose from a failed residential real estate purchase. The appellants, Joseph and Kathleen Krimker, worked with the respondent real estate agent, Joshua Chisvin of PSR Brokerage, to purchase an expensive property in the Bridle Path area of Toronto. They entered into an unconditional agreement of purchase and sale that required delivery of a $350,000 deposit. The appellants decided not to proceed with the purchase and never delivered the deposit, mistakenly believing they could walk away and sign a mutual release. They asserted that Mr. Chisvin had told them they could do this and that the mutual release clause was an "escape hatch." On his own evidence, Mr. Chisvin did not correct the appellants' misunderstanding or advise them that failing to deliver the deposit would put them in breach of the agreement and expose them to damages. He also admitted that he lied to the vendors, Heidi and Guy Painchaud, and their agent that the purchase was going ahead. When the vendors learned the truth, they sued the appellants for breach of the agreement. The appellants settled that claim and brought a third-party claim in negligence against the respondents, asserting that Mr. Chisvin stood in a relationship of trust with them. The trial judge dismissed the claim and ordered the appellants to pay the respondents costs of $185,451.16, though the agent's untruthfulness with the vendors and his failure to keep records undermined any entitlement to costs at the requested substantial indemnity level.

Contractual clauses and duties at issue

Two contractual features were central. First, the agreement of purchase and sale was unconditional and required a $350,000 deposit. Second, a mutual release clause, which Mr. Chisvin's office had inserted into the agreement, was understood by the appellants as an "escape hatch"; Mr. Chisvin himself admitted the clause was "meaningless" in the context of an unconditional offer and that he did not recall specifically discussing it with the appellants. The applicable standard of care was not seriously contested: as the appellants' expert testified and Mr. Chisvin agreed in cross-examination, he was required to advise the appellants of any important terms in the agreement, the consequences of signing it, and their potential risks and liabilities. The trial judge also accepted that Mr. Chisvin owed fiduciary duties to the appellants.

The court's reasoning and analysis

The Court of Appeal held that the trial judge's fundamental error was failing to adequately grapple with the negligence question, which was not limited to whether Mr. Chisvin had actively misled the appellants. The appellants' evidence and submissions squarely raised other conduct capable of amounting to negligence and breach of fiduciary duty: his failure to advise them of potential liability for breaching the agreement at all stages of the negotiation, including after the agreement was finalized, and his actively lying to and misleading the vendors and their agent about the status of the purchase while apparently failing to keep the appellants apprised of those communications. While it was open to the trial judge to find that Mr. Chisvin did not actively mislead the appellants, his analysis could not stop there; he had to determine whether the other conduct fell below the standard of care expected of a real estate agent in the circumstances. The court further noted that it was impossible to discern whether the trial judge found that the appellants were operating under a misapprehension about the consequences of not paying the deposit, despite oral and documentary evidence that, if accepted, would support that misunderstanding and Mr. Chisvin's failure to correct it. Given that evidence, it was an error to rely principally on the appellants' signatures and initials to conclude that Mr. Chisvin had gone through and explained the agreement. Because the trial judge failed to resolve these conflicting issues, his judgment could not stand. The court declined the appellants' invitation to itself find a breach of the standard of care, as that would require numerous findings of fact and credibility inappropriate on the record before it.

Ruling and overall outcome

The appeal was allowed, the judgment and the costs order were set aside, and a new trial before a different judge was ordered. The appellants, Joseph and Kathleen Krimker, were the successful parties on appeal, and in accordance with the parties' agreement they were awarded their costs of the appeal from the respondents in the amount of $20,000, with the costs of the trial below left to the discretion of the trial judge at the new trial. No damages were determined, as liability remains to be decided at the new trial.