The Court of Appeal for Ontario has dismissed an appeal from a condominium buyer, affirming a lower court’s decision that allowed a court-appointed receiver to cancel his purchase agreement1. The case, Constantine Enterprises Inc. v. Mizrahi (128 Hazelton) Inc., centered on a conflict between a standard “entire agreement clause” in the purchase contract and a separate, “secretive” supplementary agreement the buyer had made with the developer. The appellant, David Berry, who had paid a substantial sum for a unit, found his contract disclaimed after the developer, Mizrahi (128 Hazelton) Inc., went into receivership. The court’s decision reinforces the power of receivers to manage insolvent estates and the significant legal weight given to entire agreement clauses, even when faced with competing side deals.
Click here to read our previous reporting about the case which gave rise to this appeal.
The dispute began when David Berry entered into an agreement to purchase a condominium unit in a building under development. Before the project could be completed, the developer, Mizrahi (128 Hazelton) Inc., along with Mizrahi 128 Hazelton Retail Inc., entered receivership. This is a legal process where an insolvent company’s operations are turned over to an independent third party, known as a receiver. In this instance, KSV Restructuring Inc. was appointed by the court to act as the receiver for the project. The receiver’s primary duty in such a scenario is not to complete the project as planned, but to manage the company’s assets in a way that maximizes the recovery for all of its creditors.
KSV Restructuring Inc. reviewed the developer’s assets and obligations. One of these obligations was the Agreement of Purchase and Sale (APS) with Mr. Berry for Unit 901. The receiver determined that the best course of action to maximize recovery for the entire pool of creditors was to “disclaim” Mr. Berry’s agreement. A disclaimer is a legal tool that allows a receiver or trustee in bankruptcy to terminate a contract that is deemed unfavorable or burdensome to the insolvent estate. Often, this occurs when the market value of an asset, such as a pre-construction condo unit, has risen significantly since the original purchase price was set. By disclaiming the agreement, the receiver is free to sell the unit at its current, higher market value, bringing more money into the estate to be distributed among the creditors.
The receiver, KSV, brought a motion before the Superior Court of Justice seeking judicial approval for its decision to disclaim Mr. Berry’s contract. Mr. Berry opposed this motion. His opposition was not based on the main purchase agreement itself, but on a separate, “supplementary agreement” he had entered into. This supplementary agreement was made with the developer and the developer’s president, who was also one of its two directors. The details of this supplementary agreement were later described by the appeal court as “unusual” and “secretive”.
The receiver’s response to this claim rested on a single, powerful provision in the formal Agreement of Purchase and Sale that Mr. Berry had signed after the supplementary agreement was made. This provision was an “entire agreement clause.” This is a standard clause in many contracts which states that the written contract represents the complete and final understanding between the parties. It specifies that any other promises, representations, or prior agreements, like the supplementary agreement, that are not included in the final written document are not enforceable.
Justice Peter J. Osborne of the Superior Court of Justice heard the motion. He found in favor of the receiver. As reported in the appeal court’s decision, the motion judge found the supplementary agreement to be unenforceable as against the receiver specifically because the subsequent Agreement of Purchase and Sale contained the entire agreement clause. This clause effectively nullified any legal power the “secret” side deal might have had. Consequently, Justice Osborne granted the order allowing KSV to disclaim the contract.
Mr. Berry appealed this decision to the Court of Appeal for Ontario, presenting three principal arguments as to why the motion judge’s order should be overturned.
The first and primary argument, raised during oral submissions, was that the motion judge had failed to properly apply the governing legal test for the enforceability of entire agreement clauses. The appellant’s counsel argued the judge should have used the test set out by the Supreme Court of Canada in a 2010 case, Tercon Contractors Ltd. v. British Columbia. That test provides a framework for judges to determine if an “exclusion clause,” of which an entire agreement clause is a type, should be enforced. This analysis involves looking at the wording of the clause, the circumstances surrounding the contract’s formation, and whether there is an “overriding public policy” reason to not enforce it.
Related to the Tercon test, the appellant argued that even if the clause was valid, the motion judge failed to consider whether public policy considerations should have prevented the court from enforcing the entire agreement clause against Mr. Berry in these specific circumstances.
Finally, in his written materials, or factum, the appellant argued that the motion judge had made an error in his application of the legal test for a disclaimer. Specifically, he argued the judge did not correctly weigh the “equities” of the situation. In legal terms, “equity” refers to principles of fairness. The appellant felt that the unique facts of his case, including the supplementary agreement, made it unfair to simply cancel his contract.
A panel of three judges, Justices Paul Rouleau, Lorne Sossin, and Renee Pomerance, heard the appeal on October 7, 2025. They delivered their decision orally, with written reasons released on October 17, 2025. The court was “not convinced” by any of the appellant’s arguments and dismissed the appeal.
Regarding the Tercon argument, the appeal court found that while the motion judge did not specifically name the Tercon case in his reasons, a “fair reading” of his decision showed that he had, in substance, conducted the required analysis. The court stated that the motion judge was “fully aware of the surrounding circumstances” and was “satisfied that, in effect, nothing detracted from the clear words of the entire agreement clause.” The Court of Appeal noted that a motion judge’s interpretation of a contract is entitled to deference and found “no error” and “no basis to interfere” with his findings.
The court also rejected the public policy argument, stating flatly, “In our view, there is no overriding policy reason not to hold the appellant to the contractual terms of the agreement of purchase and sale that he entered into.” Similarly, they found “no basis in equity” to refuse to enforce the clause.
The Court of Appeal explicitly addressed the difficult financial reality of a receivership, directly quoting the motion judge’s reasoning. Justice Osborne had acknowledged the “unfortunate effect of the result” on Mr. Berry, noting that “Without question, he has paid a substantial sum towards the purchase of Unit 901.”
However, the judge concluded that Mr. Berry’s “position is no different from that of other unsecured creditors who advance money, goods or services to a debtor who subsequently becomes insolvent and is put into receivership.” This highlights a fundamental principle of insolvency law: the ordinary hierarchy of creditors. In a receivership, creditors are paid out in a specific order. Secured creditors, such as a bank that holds a mortgage on the building, are first in line. Unsecured creditors, like suppliers, or, in this case, a buyer who paid a deposit but does not have title to the property, are further down the list and often recover only a fraction of what they are owed, if anything.
The motion judge, supported by the Court of Appeal, found “nothing in the evidence here to justify a departure from that hierarchy.” The appeal court confirmed that the judge correctly considered all the circumstances and concluded that the equities did not support “preferring the appellant’s debt over that of other creditors.”
The appeal court also commented on the appellant’s argument that the motion judge had erred in his accounting of the supplementary agreement. Far from being a factor that should have helped the appellant, the court noted that the “secretive nature of the supplementary agreement was unusual.” The court found that it was “in the motion judge’s discretion to take this fact into account in assessing the overall equities of the case.” Instead of weighing against the disclaimer, the secretive and unusual nature of the side deal appears to have reinforced the court’s view that the formal, written Agreement of Purchase and Sale should be the only document that governed the relationship.
For all of these reasons, the appeal was dismissed. The Court of Appeal affirmed the Superior Court’s order allowing the receiver, KSV Restructuring Inc., to disclaim Mr. Berry’s purchase agreement. As a result of the unsuccessful appeal, Mr. Berry was ordered to pay costs to the receiver fixed in the all-inclusive amount of $19,500.
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