Wednesday, November 23, 2011

Stranger than Fiction, Volume V: The Drugged Vendor

A decision was recently released in Ryan in Trust v. Kaukab, a dispute arising from a real estate deal gone south.  Justice Pepall's decision is lengthy, but well-written and easy to follow, particularly given the extremely convoluted fact-pattern.

I'll try to sum up as briefly as I can, at the risk of oversimplifying some of the issues:  Mr. and Mrs. Kaukab owned a dilapidated property in Mississauga, and were trying to sell it for over $600,000.  After listing several different times with different realtors, they finally entered into negotiations with Mr. Ryan, who wanted to buy it on behalf of himself and his business partner, and reached an agreement at $425,000.

At first, Mr. Kaukab was holding himself out as the sole owner of the property.  The last realtor he used (being the wife of another realtor on the matter, the husband being a novice realtor getting back out of the business) did due diligence and discovered that Mrs. Kaukab was also on title.  Mr. Kaukab responded by insisting that he had authority to sign for her, and did so.  He proceeded to sign several different "sign-backs" - i.e. counter-offers reducing the price towards the ultimate price agreed upon, always signing for his wife as well.  His wife's evidence was that she was completely oblivious to all things related to the property, and she did acknowledge on examinations for discovery that she didn't pay attention to the listing because it was "his responsibility".

With a signed agreement of purchase and sale in place, the Kaukab's realtor suggested a lawyer and proceeded to send the deal to him.  Mr. Ryan sent the purchase transaction to his own lawyer.  This is all common.  Mr. Ryan's business partner wanted a different lawyer on the deal.  No problem.  But the Kaukabs suddenly dropped off the radar, not answering the phone or the door, and their realtor found it impossible to contact them.  This would have been the first indication anyone had that there was anything going south with the deal...

...and then the other shoe dropped:  Mr. Kaukab retained a different lawyer to write to the lawyer his realtor had recommended, alleging that he had been "tricked" into signing the agreement of purchase and sale, that he had never intended to sell it for $425,000, and he took the position that the existing agreement of purchase and sale was not valid.  The tricks alleged including the 'rolling' of parts of the document or obscuring the terms of what he was signing.  In the context of some documents (even ones which appear to be uncontroversial), he denied that he had signed and said that it was 'possible' that somebody else had forged his initials.  General evasiveness like that kills credibility.

At trial, he gave evidence that, at the meeting in which the final agreement of purchase and sale was signed, the realtors had insisted that he have a coffee, but he refused and asked for water instead.  The trial judge described his version of events as follows:
Mr. and Mrs. Martin left for 10 to 15 minutes and then came back with two waters, one for Mr. Martin and one for Mr. Kaukab.  Mr. Kaukab then sipped some of the water.  He said he went into a dream-like condition and his limbs went heavy.  He did not tell Mrs. Martin he felt unwell.  His suspicion, which he testified was not confirmed, was that his water was drugged. 
The judge rejected this version of events, finding that the Kaukabs were not credible witnesses.  At one point, the judge used a common turn-of-phrase, describing Mr. Kaukab's evidence as not having "the ring of truth".  The judge went on to say that his evidence had "the ring of preposterousness."

So what happened next?  Well, Ryan brought legal proceedings seeking ownership of the property, and no defence was received, so he obtained default judgment and a vesting order that he owned the property.  He and his partner then paid off outstanding tax arrears and started renovation work on the already-dilapidated and still-deteriorating property.  Everything looked rosy until the Kaukabs brought a motion to set aside the default judgment.  Apparently getting some poor legal advice about the 'worst case scenario', Ryan continued the renovation work - literally hundreds of thousands of dollars worth.  (Subsequent appraisals valued the property at over $2 million.)  Then the Kaukabs won their motion to set aside the default judgment, and - subject to repaying Ryan for the tax arrears - got vacant possession of the property back.

The deal fell through in 2003, the default judgment was set aside in December 2004, and the action was finally decided recently.  The judge found that the contract was binding and the Kaukabs had breached it, but that the plaintiffs hadn't proven much in the way of damages.  The property wasn't so unique as to justify "specific performance" - i.e. transfer of the property - and damages arising from the Kaukabs' breach hadn't been established.  The actual work done to the property prior to receiving notice of the motion to set aside the default judgment was compensable, but that only amounted to $20,000.  The rest of the work, knowing of the motion to set aside the judgment giving them title, was undertaken 'at their own risk', so they couldn't claim for that work.

At the end of the day, it looks like a big windfall to the Kaukabs.  They successfully defended the bulk of the claim, and so get to keep their renovated property (which they had been looking to sell as a dilapidated property), having to pay for only $20,000 of the renovations.  Of course, legal fees on both sides of this case are pretty substantial.  The Kaukabs made their own counterclaims and crossclaims, for which they were unsuccessful, but they were successful in defending the bulk of the claim.  It would be interesting to see how the costs fall at the end of the day.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

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