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CCCA_V5No1_Col-McCarthys-FIN.qxd:CCCA_V1No2_Col-Litigat-V1.qxd 2/1/11 11:15 PM Page 42 Legal Update – McCarthy Tétrault LLP Can a single-purpose company ever be entitled to a remedy for breach of contract? he reason for establishing a single-pur- avoided, and thus it was not entitled to a critical. Acting reasonably on the business Tpose company is to shield it and its par- damages award. The Court of Appeal side,was contrary to Southcott’s legal duty ent from liability.This is a well-known and agreed. Southcott’s damages were reduced to mitigate.Southcott was thereby disenti- accepted business reality. But does the to the nominal amount of $1 (to still recog- tled to any damages. nature of such vehicles likewise shield nize the contractual breach by the Board). The Court paid little attention to the them from receiving a legal remedy? This The duty to mitigate is a well-established fact that the Board breached the contract, is a concern raised in the Ontario Court of legal principle;a plaintiff cannot sit back and and took no appeal from that finding. Appeal’s recent decision in Southcott Estates allow damages to accumulate,but has a duty Forgotten too was the“obvious goal of the Inc. v.Toronto Catholic District School Board. to take what reasonable steps may be avail- courts… to use the mitigation principle in The Board entered into an Agreement able to minimize damages. If a plaintiff has a way that does justice to both the plain- 1 of Purchase and Sale (APS) to sell to in fact mitigated,or has missed an opportu- tiff and to the defendant.” There was no Southcott 4.78 acres of land for a residen- nity to mitigate,the damages that otherwise consideration as to what mitigating actions tial development.The sale lands were part flow from the breach are reduced. could reasonably be expected from a sin- of a larger parcel that would continue to be And herein lies the problem in Southcott. gle-purpose company. owned by the Board and used for school Southcott’s parent company was an inde- So where does that leave things? If a sin- purposes. Southcott is a single-purpose pendent legal entity. Any actions taken by gle-purpose company wants to pursue a company, established specifically to partici- the parent could not be deemed to be legal remedy,does it need to undermine its pate in this transaction. It had no assets actions satisfying Southcott’s duty to miti- very purpose and put itself into the posi- other than the deposit paid for the pur- gate.On the other hand, Southcott itself tion of acquiring assets and immediately chase. Southcott is a wholly owned sub- was established for only one purpose, to risking them? Can a breaching party rest sidiary of Ballantry Homes Inc., an entity complete the transaction with the Board. assured that its breach will be of no practi- that is part of a larger group of companies How then could it be expected to mitigate, cal consequence if against a true limited- in the business of real estate development. presumably by purchasing other compara- purpose corporate entity? Would it be fair, The APS required the Board to use best ble investment property, without under- on the other hand,to concede that in addi- efforts to obtain consent from the mining the very purpose for which it was tion to being sheltered from liability, the Committee of Adjustments to sever the established? Why would a single-purpose general principles of mitigation do not sale lands. The trial judge found that the company, now party to a failed real estate apply to single-purpose companies? Board had breached its obligation to act in transaction embroiled in litigation, take on Southcott has been appealed to the good faith in a number of ways, and that a new investment and expressly expose Supreme Court of Canada and leave has but for these breaches it was likely that the those new assets to potential liability? been granted. It will be interesting to see required severance would have been The principal of Southcott candidly how the Supreme Court will grapple granted in time for the transaction’s clos- admitted that Southcott had no intention with uniting the business reality with the ing. Damages of $1,935,500 were awarded of mitigating its damages and took no legal one. for loss of profit. steps to do so.He testified that to buy new The Board appealed the trial decision, lands in Southcott’s name would“make no 1 Shapiro v. 1086891 Ontario Inc. (2006) but took no issue with the finding that it sense” given that Southcott was involved CarswellOnt 217 at para. 148. had breached its contractual duty to use in active litigation. “I can’t imagine my best efforts. It argued instead that the trial lawyer ever letting me do that,” he said on Julie Parla is a senior associate in McCarthy judge erred by failing to find that Southcott cross-examination. Tétrault LLP's Litigation Group in Toronto. had not met its duty to mitigate. Had Southcott’s position was imminently She maintains a general litigation practice with Southcott properly mitigated, the Board reasonable from a business perspective.The a focus in construction law and real property argued, the harm to it would have been Court of Appeal, however, was extremely litigation. (jparla@mccarthy.ca) 42 CCCA Canadian Corporate Counsel Association SPRING 2011