Confirming Alberta’s approach to specific performance: Kroetsch v Chick, 2023 ABKB 326

Introduction and overview

Specific performance is an equitable remedy that can be ordered by a court to compel a person to perform a contractual obligation. This remedy is only available when monetary damages are inadequate.

In the recent decision of Kroetsch v Chick, 2023 ABKB 326,[1] the Alberta Court of King’s Bench (“ABKB”) reiterated the principles that courts will rely upon when awarding specific performance in cases of contractual disputes.

Background

In 2014, Mr. Kroetsch and Mr. Chick considered the prospect of Mr. Kroetsch purchasing two quarters of farmland that Mr. Chick owned, located adjacent to Mr. Kroetsch’s property in Alberta. The two quarters of farmland are referred to in the judgment as the Northwest Quarter and the Southwest Quarter.

In February of 2014, the parties executed an “Offer to Purchase and Interim Agreement” (the “Agreement”) whereby Mr. Chick sold the Southwest Quarter to Mr. Kroetsch for the price of $450,000. The Agreement stipulated that the offer was subject to certain conditions, including:

Seller agrees to sell [the Northwest Quarter] to Buyer for $422,000 upon completion of yardsite subdivision (10 acres more or less).

The Agreement further indicated that Mr. Kroetsch would rent the Northwest Quarter from Mr. Chick, and this rental agreement continued into 2015.

However, in 2017 Mr. Chick advised Mr. Kroetsch that he would not be subdividing the Northwest Quarter and therefore would not be selling the remaining portion to Mr. Kroetsch. Mr. Kroetsch accordingly commenced an action for summary judgment against Mr. Chick.[2]

The Alberta Court of King’s Bench (ABKB) was tasked with determining the following issues:

1. Had Mr. Chick breached the Agreement by failing to subdivide the Northwest Quarter?
2. If a breach was found, was Mr. Kroetsch entitled to specific performance?
3. If specific performance was unavailable, would Mr. Kroetsch be entitled to compensation for lost profits?

ABKB decision & analysis

Contractual interpretation

In determining how the Agreement between the parties should be interpreted, Justice Mandziuk relied upon the principles of contractual interpretation set out in the Supreme Court of Canada’s (SCC) decision in Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53.[3]

The ABKB found the language in the Agreement to be “clear and unambiguous” such that the completion of the yardsite subdivision was an express condition for the purchase and sale of the Southwest Quarter.[4]

The Court further found that the parties could have included “best efforts” language, language of withdrawal, or a time limit, to have made the condition more discretionary.[5]

Moreover, the parties had gone as far as to put a value on the Northwest Quarter in the Agreement for the sale of the Southwest Quarter. The court concluded that it would have been “illogical and inefficacious” to include this information if the subdivision and sale were indeed discretionary.[6]

The post-contract conduct of the parties lent further credence to the idea that the subdivision of the property was a binding obligation. Specifically, correspondence sent by Mr. Chick’s counsel in 2016 indicated that both parties were in mutual understanding that the subdivision of the Northwest Property was required.[7]

Thus, Mr. Chick was under an obligation to apply to subdivide the property in order to complete the sale of the Northwest Quarter. At a minimum, Mr. Chick was required to make a good faith application for subdivision, and moreover was required to pursue all reasonable steps to effect the subdivision.[8] As Mr. Chick had failed to do so, the Court found that he had breached his contractual obligation.[9]

Specific performance

Mr. Kroetsch sought specific performance to compel Mr. Chick to perform his contractual obligation.[10]

In the SCC decision of Semelhago v Paramadevan, 1996 2 SCR 415, Justice Sopinka indicated that the remedy of specific performance will not be warranted in all agreements for the purchase of real property.[11] Rather, a claimant must be able to prove that the property has a “peculiar and special value.”[12] The Alberta Court of Appeal clarified in 1244034 Alberta Ltd v Walton International Group Inc, 2007 ABCA 372 that Semelhago necessitates a critical inquiry into the nature and function of the property in order to determine if it is truly unique.[13] The Court of Appeal further explained in Bethel United Church of Jesus Christ Apostolic of Edmonton v North Pacific Properties Ltd, 2022 ABCA 224 that for the purpose of awarding specific performance a property will be sufficiently unique if no substitute is readily available.[14] Justice Mandziuk emphasized that “[t]his is a factual question that must be decided on a case-by-case basis.”[15]

Applying this to the case at bar, Mr. Kroetsch had to establish that the Northwest Quarter was unique enough for the Court to order special performance as a remedy. In arguing for specific performance, Mr. Kroetsch asserted the following:[16]

1. The Northwest Quarter was unique as it adjoined the Southwest Quarter;
2. Farming efficiency is increased by virtue of owning two adjoining quarters of land;
3. There was no other quarter of land adjacent to the Southwest Quarter that was for sale; and,
4. Kroetsch had already made improvements to the Northwest Quarter in anticipation of the Agreement’s conditions being fulfilled.

Relying upon these factors, Justice Mandziuk found the Northwest Quarter to have unique characteristics such that an award of damages would not have compensated Mr. Kroetsch appropriately for the harm that flowed from Mr. Chick’s breach of contract, and specific performance was therefore warranted.[17]

Accordingly, Mr. Chick was ordered to take immediate steps to apply for the subdivision of the Northwest Quarter, and subsequently sell this land to Mr. Kroetsch.[18]

Practical takeaways

This decision reinforces that the test from Semelhago, as clarified by the Alberta Court of Appeal in Walton International and Bethel United, continues to be applied for specific performance in Alberta. The remedy of specific performance is determined on a case-by-case basis, and will only be granted when a suitable substitute is not readily available.

Miller Thomson’s Commercial Litigation Group is experienced in complex commercial litigation and is able to assist with cases involving corporate litigants. If you have questions about this decision or any other matter, please contact a member of our Commercial Litigation group.

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[1] Kroetsch v Chick, 2023 ABKB 326 [Kroetsch].

[2] Ibid at para 16.

[3] Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53 [Sattva].

[4] Kroetsch, at paras 32–33.

[5] Ibid at para 33.

[6] Ibid at para 34.

[7] Ibid at para 42.

[8] Ibid at para 40.

[9] Ibid at para 44.

[10] Ibid at para 46.

[11] Ibid at para 48, citing Semelhago v Paramadevan, 1996 2 SCR 415 at para 21 [Semelhago].

[12] Ibid.

[13] Ibid at para 49, citing 1244034 Alberta Ltd v Walton International Group Inc, 2007 ABCA 372 at para 3 [Walton International].

[14] Ibid at para 39, citing Bethel United Church of Jesus Christ Apostolic of Edmonton v North Pacific Properties Ltd, 2022 ABCA 224 at para 131 [Bethel United].

[15] Kroetsch at para 49.

[16] Ibid at para 50.

[17] Ibid at para 52.

[18] Ibid at paras 58–59.