Ruling that failure to disclose safety risk when Shai Gilgeous-Alexander, partner bought mansion was fraudulent misrepresentation is not reliable precedent.
With all the publicity surrounding the recent court decision involving an $8.4 million Burlington mansion, there may be a tendency for stakeholders to believe that real estate purchases can be unwound even after closing.
Last May, NBA star Shai Gilgeous-Alexander and his partner Hailey Summers bought a luxury 10,000-square-foot home with six bedrooms, eight bathrooms, a home gym and theatre, and a private dock on Lake Ontario.
Shortly after they moved in, they received a visit from a stranger looking for the previous occupant, Aiden Pleterski. An internet search revealed that Pleterski was the self-described “crypto king” who was involved in hotly contested bankruptcy proceedings.
Further inquiries revealed that Pleterski had allegedly defrauded some “very bad people” of more than $25 million and that someone had threatened to burn down the house.
Whether or not these statements were true, Gilgeous-Alexander and Summers moved out of the house, never to return.
The corporate seller of the property and its principals Ray and Sandeep Gupta knew about the history of the house but did not disclose it when the house was marketed and sold. Their real estate agent, who was not sued, marketed the property as “private and secure.”
The sellers did not disclose that Pleterski was kidnapped in December, 2002, and held by people he had defrauded. The kidnappers demanded a $3 million ransom.
In June, the corporation owned by Gilgeous-Alexander and Summers sued the corporate seller and the Guptas asking for what the law calls rescission of the transaction based on fraudulent misrepresentation.
An application for a summary ruling without a trial was heard by Justice Robert Centa in October, and his decision was released last month.
In his16,000-word reasons, the judge said he was satisfied that there was a safety risk at the property, and that the description of the house as private and secure was knowingly false and amounted to a latent defect which was not disclosed. He added that the seller’s silence as to the “ongoing safety issue” also amounted to a fraudulent and material misrepresentation.
The judge ordered that the agreement be rescinded and that the buyers be restored to the position they were in before the closing of the transaction.
After thoroughly reading the decision, I have serious doubts that the judge’s reasoning is correct. I question how it is fraudulent to describe a house as secure and private if it is on a public street and not surrounded by a high fence and moat.
Courts in Ontario have been very reluctant to order rescission of a purchase transaction. In 1989, Mary Holmes bought a cottage, 95 per cent of which, it later turned out, was built on an unopened municipal road allowance. No rescission.
In 1994, Susan Ellschied bought an island property in Georgian Bay on a tax sale, thinking it had a luxury cottage on it. It turned out that she bought a nearby and worthless piece of rock. The Supreme Court of Canada refused to unwind the deal.
Relying on the Gilgeous-Alexander and Summers decision to unwind a future real estate transaction may be very risky.
1000425140 Ontario Inc. v. 1000176653 Ontario Inc., 2023 ONSC 6688 (CanLII), <https://canlii.ca/t/k1dfb>