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Real Property: Single-Purpose Corporations

November 20, 2012

 

Case Notes:  Southcott Estates Inc. v. Toronto Catholic District School Board

 

A single-purpose corporation (“SCo”) that belongs to a group of companies engaged in development of real property (“B Group”) sued the vendor under a contract of purchase and sale of land for breach of contract.

 

At trial, SCo claimed specific performance but was awarded damages instead.  The vendor appealed and  took the position that SCo, despite it being a single-purpose corporation with almost no assets other than the deposit monies, had failed to mitigate its losses.

 

The Court of Appeal allowed the appeal.  SCC agreed with the Court of Appeal and made the following findings:

 

  • Single-purpose corporations should take reasonable steps to mitigate its loss.

  • The unique quality of a parcel of land being solely attributable to the profitability as a development project does not make that parcel of land unique in itself.

  • During the time period in question, B Group had made multiple acquisitions of other parcels within the region.

 

Even though SCo itself is a separate legal entity, unrelated to B Group (in the corporate sense, not in the technical Income Tax Act sense), this goes to show that other comparable opportunities were out there.  Since B Group proceeded to acquire such other parcels (albeit under different single-purpose corporations), it must have had some potential as to profitability, and SCo could have acquired any such parcels to “mitigate” its losses.

 

Link to full article found here.

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