Walker Law Professional Corporation, a downtown Toronto civil litigation and commercial litigation law firm, started the litigation proceedings against the “Crypto King”. Tanya Walker, an experienced civil litigator, represented a company that initiated the case by obtaining a worldwide Mareva injunction against Aiden Pleterski and his company, which froze his assets. See the Endorsement of Sutherland J., dated July 7, 2022. On July 18, 2024, Tanya Walker spoke about Pleterski’s bankruptcy on CBC Toronto News.
Walker Law and Tanya Walker do not represent any parties in the case discussed in this blog post.
The Facts
In 2021, Aiden Pleterski, the self-proclaimed “Crypto King”, and his associate made a $500,000 deposit to purchase a property in Ajax, Ontario, for $5.5 million. Apparently, the purpose of this purchase was to house Pleterski’s and his associate’s collection of exotic cars. This deposit was almost exclusively made up of funds that Pleterski’s investors had given to him with the belief that he would invest the money in cryptocurrency; they did not authorize him to buy real estate.
Before the transaction closed, some of Pleterski’s creditors had him and his company, AP Private Equity Ltd., declared bankrupt. Doane Grant Thornton LLP (“Grant Thornton” or the “Trustee-in-Bankruptcy”) was declared the Trustee-in-Bankruptcy for both Pleterski and his corporation. The Appellant in this case, who is the would-be vendor, treated the Trustee-in-Bankruptcy’s and Pleterski’s notice that they would not be completing the transaction as anticipatory breach, and they sold the property to another purchaser for $300,000 more than the price that Pleterski would have paid.
Anticipatory breach means that the breaching party (in this case, Pleterski and Grant Thornton), either by its words or its conduct, has indicated to the non-breaching party that they do not intend to perform, or to be bound by, a term of the contract that, if breached, would amount to a repudiation of the entire agreement. Here, the anticipated breach was Pleterski’s failure to close on the real estate transaction.
The issue in the present case was whether Grant Thornton, as Pleterski’s Trustee-in-Bankruptcy, could get relief from forfeiture of the $500,000 deposit to the Appellant. Grant Thornton moved for relief from forfeiture. The motion judge granted this relief after considering the equities of the circumstances, and he ordered that the $500,000 deposit that was being held in trust by a realtor be returned to the Grant Thornton for the benefit of Pleterski’s creditors.
The vendor appealed this order.
On September 27, 2024, the Ontario Court of Appeal (the “Court of Appeal”) gave its reasons for upholding the motion judge’s decision.
The Appeal
The Appellant had two main arguments on appeal.
First, they argued that the motion judge was wrong to consider the interests of the creditors when analyzing the equities of the situation, because the creditors were not party to the Agreement of Purchase and Sale (the “APS”).
The motion judge had cited the two-part test for relief from forfeiture of a deposit, which asks:
- whether the forfeited deposit was out of all proportion to the damages suffered; and
- whether it would be unconscionable for the seller to keep the deposit.
After analyzing the facts according to this test, the motion judge determined that it would be unconscionable for the seller to keep the deposit.
The Court of Appeal agreed with the motion judge.
The Court said that the motion judge was allowed to consider the fact that at least 99.8% of the money for the deposit came from investor funds, and that Pleterski had misappropriated this money. Additionally, the motion judge was allowed to find that, if Grant Thornton and Pleterski were granted relief from forfeiture, the money would not go to Pleterski or his associate. Rather, the money would go to the creditors whose funds were misappropriated.
In addition, if the Appellant were allowed to keep the deposit, they would receive a windfall, because they had already made a profit by reselling the property to a new buyer.
Second, the Appellant argued that the motion judge incorrectly described the case as a dispute between two innocent parties, because he should have looked at Grant Thornton—rather than the investors—who was not an ‘innocent’ party; instead, they caused the breach of contract by declining to complete the transaction.
On the contrary, the Court said there is no absolute rule that parties who have caused a breach of contract cannot get relief from forfeiture of a deposit; that is, the prospective buyer’s conduct is relevant, but not decisive. Additionally, the Court said that such relief is an equitable remedy based on the judge’s discretion; without a “legal or palpable and overriding error”, the Court should not replace the motion judge’s discretion with its own. On the facts before him, the motion judge had determined that the equities favoured returning the deposit to Grant Thornton, for the benefit of Pleterski’s creditors, and the Court of Appeal found no legal or palpable and overriding error.
Takeaway
Although deposits on real estate transactions are meant to encourage parties to uphold the agreements they have made, there are circumstances where it would be unfair or unjust to force a party to forfeit their deposit. In such situations, the Court can grant the party relief from forfeiture.
In this case, as described above, Grant Thornton was not a party to the original APS, and the money that was used to make the deposit came almost entirely from misappropriated funds that the “Crypto King” obtained from his investors. The Court determined that it would be unconscionable to allow the Appellant to keep this money; Grant Thornton and Pleterski were granted relief from forfeiture of the deposit, and the money was ordered to be returned to Grant Thornton for the benefit of Pleterski’s creditors.