October 20, 2021

Relief from Forfeiture: a broad and flexible remedy that is often overlooked

By Daniel Schwartz and Jessica DeFilippis1

Relief from forfeiture is a broad and flexible equitable remedy that is often overlooked and frequently assumed to be confined in application to situations where there has been failure to comply with notice requirements under insurance policies and in lease renewals.

In general terms, the remedy is the power of the court to excuse a party from the application of penalties or forfeitures which would otherwise operate against that party as a result of their failure to perform a covenant or a condition in a contract, or when a mistake has been made.

There are statutory powers affording relief from forfeiture in specific situations – for example under the Insurance Act (s. 129) and the Commercial Tenancies Act (s. 20).  However, the power is not confined to these situations.  Section 98 of the Courts of Justice Act codifies the court’s broad equitable power to grant relief from forfeiture in many other situations.  This section states that “a court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise considered just.”2

What does “or otherwise considered just” mean? How has this wording of this section been interpreted and applied and in what context outside of insurance policies and lease renewals have the courts considered it “just” to grant relief from forfeiture?  This article addresses these interesting questions.

Commonly Applied Test

In exercising its discretion on whether to grant relief from forfeiture, certain factors will be considered. In Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co.,3 the Supreme Court of Canada established three general factors for courts to consider in exercising discretion.  These factors have become a test for what has been consistently described as a purely discretionary remedy:  (1) the conduct of the applicant seeking relief, (2) the gravity of the breach, and (3) the disparity between the value of the property forfeited and the damage caused by the breach.

“Unconventional” Application of Relief from Forfeiture

The factors established in Saskatchewan River Bungalows follow from the application of the remedy in traditional lease and insurance contract situations.  As a broad equity remedy, however, in recent years, the law has expanded, and the remedy has been applied by courts in a variety of commercial contexts, with other factors often coming into play.

In PDM Entertainment Inc v. Three Pines Creations, the Ontario Court of Appeal made clear that courts have “broad discretion to award relief from forfeiture”4 and that the remedy is available in a wide range of unconventional situations and circumstances.

Below is an overview of recent caselaw where relief from forfeiture has been granted outside of the commercial lease and insurance context.

(a)  Mistake or Failure to Exercise a Contractual Right

Relief from forfeiture can be granted in circumstances where there has been no breach of contract but instead, failure to exercise an option, power or right under an agreement, or a mistake in exercising the wrong option, power or right. Where this is the case, relief has typically been granted where the failure or mistake in question is trivial in relation to the loss that would be caused if relief were not granted.

For example, in PDM Entertainment Inc, the Court of Appeal upheld a decision of an application judge granting relief from forfeiture where the defendant had mistakenly triggered the wrong option under an agreement to purchase rights to a writers works for the purpose of producing made-for-television movies, causing them to lose a valuable extension. The Court rejected the argument that relief is only available when there has been a breach of contract and confirmed that it can also be available where there is no breach but a mistake has been made.5

Likewise, in Illidge v. Sona Resources Corporation,6 relief from forfeiture was granted where a mining exploration company may have mistakenly failed to trigger an option under agreement with the owners of certain mineral claims to develop a gold mine and as a result was going to potentially lose out on millions of dollars of return and after having spent millions of dollars to develop the mine.

Recently in  Voortman v. SPCVC Investments Inc.,7 relief from forfeiture was granted where the plaintiff’s lawyer had failed to file a written objection to a claim within the timeframe required under a purchase agreement, with the result being that the plaintiff forfeited one million dollars to satisfy claims paid into escrow. Despite being directed by the plaintiff to file the written objection well in advance, the lawyer missed the deadline as a result of personal health issues which the court accepted as being reasonable and unforeseeable in the circumstances.

(b)  Statutory Forfeitures

Subject to any express or implicit restriction against relief from forfeiture, the remedy can apply to statutory forfeitures. The Court of Appeal determined this in Poplar Point First Nation Development v. Thunder Bay.8  In the decision, the appellant, a not-for-profit corporation, failed to pay municipal taxes on their property and the property was subsequently sold by the municipality. The municipality paid the surplus of the sale into court and pursuant to the Municipal Act, Poplar Point had one year from that date to bring an application for payment out of court, failing which the monies would be deemed forfeited. Poplar Point applied to the court three weeks after the one year deadline.

The application judge dismissed Poplar Point’s application on the basis that the court did not have jurisdiction to grant relief from forfeiture pursuant to the Courts of Justice Act and the Municipal Act in the circumstances. However, the Court of Appeal overturned the application judge’s decision holding that because the Municipal Act did not expressly or by implication exclude the court's power to grant relief from forfeiture in civil proceedings and because the forfeiture was not imposed as a penalty for breach of any requirement of the statute, it was an available remedy to be sought and granted.

(c)  Recovery of Deposits in Agreements to Purchase and Sell Real Property

Relief from forfeiture can also be granted to obtain the return of a deposit otherwise forfeited in a failed real estate sale.  In this situation, courts have often looked at alternative, context-specific factors in whether to grant equitable relief.

In Varajao v. Samaneh Azish, a purchaser that failed to close on a $2.9 million house purchase sought return of a $75,000 deposit arguing that the vendor had later re-sold the property for more money and it was unequitable for the vendor to retain the deposit.9  The court found that the purchaser had breached the agreement of purchase and sale by not closing, the vendor had suffered no damages, but that did not mean that it was unconscionable for the vendor to retain the deposit. In its analysis, the court focused on two factors: whether (1) the forfeited deposit was out of all proportion to the damage suffered and (2) whether it would be unconscionable for the seller to retain the deposit.10

These factors were applied, and relief from forfeiture was granted in Scicluna v. Solstice Two Limited.11  In that case, the purchaser, Scicluna, provided the seller with a deposit of approximately 80% of the total purchase price of a condominium purchase although was later unable to pay the balance because of financial difficulty. These financial issues were explained to the seller and both parties ultimately executed a Resale Authorization Agreement, allowing the seller to resell the property and return the deposit paid after the signing of a Mutual Release and Termination Agreement. Scicluna failed to execute the Release and the seller therefore argued that she forfeited her entitlement to a return of the deposit.

The Court of Appeal upheld the lower courts decision in granting relief from forfeiture.12 Despite failing to execute the Release, the court found it would be unconscionable for the seller to retain both the deposit and resale monies. Additionally, given the fact that the seller was able to resell the unit, the court found that not granting relief in these circumstances would be disproportionate to the losses suffered by the vendor, which the court noted as negligible.

Going Forward

Relief from forfeiture is an equitable and highly discretionary remedy that can protect parties from the consequences of their losses, breaches or mistakes in a variety of circumstances. Even though it has traditionally been applied in the context of commercial leases and insurance contracts, counsel should consider this to be a remedy that could be applied in virtually any context provided that there is strong evidence in support of triggering the court’s equitable discretion.

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