Commercial Litigation Insights: A Fair Shake: The Court of Appeal’s Treatment of Sophisticated Parties’ Bargains

The Court of Appeal’s decision in 660 Sunningdale GP Inc. v First Source Mortgage Corporation, 2024 ONCA 252 [Sunningdale] reaffirms that in general, sophisticated commercial parties to a contract will be held to their bargain provided there is no unequal bargaining power. In the complex world of business dealings where contracts are the foundation of transactions, parties often enter into contracts assuming that the terms of the contract reflect their intentions accurately. This case serves as a reminder of the importance of clear and precise contractual language.


660 Sunningdale GP Inc. (“Sunningdale“) entered into a loan agreement with First Source Mortgage Corporation, on behalf of its syndicate partner, First Source Financial Management Inc. (collectively, “First Source“), for funds to develop Sunningdale’s project (“Loan Agreement“).

Pursuant to the Loan Agreement, Sunningdale agreed to pay First Source a lender fee in the amount of $426,500 (“Lender Fee“). The Loan Agreement stipulated that the Lender Fee would be partially paid with a $100,000 payment upon acceptance and execution of the Loan Agreement, with the balance of $326,500 due on closing. Upon executing the Loan Agreement, Sunningdale paid the $100,000 but later opted not to proceed with the loan or settle the remaining Lender Fee balance.

Sunningdale commenced an action against First Source for (i) the return of the $100,000 payment and (ii) relief from paying the balance of the Lender Fee held in trust, being $326,500. First Source subsequently counterclaimed against Sunningdale for the balance of the Lender Fee.

The Lower Court Decision

The summary judgment motion judge ruled that First Source was entitled to retain the $100,000 payment, while Sunningdale was entitled to the release of the balance, along with interest. The motion judge reached these conclusions based on the interpretation that the Lender Fee is a “stipulated remedy clause” which may be:[i]

  1. an unenforceable penalty clause if it is “extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach,” or
  2. a forfeiture eligible for relief because it would be unconscionable for the party seeking the forfeiture to retain the right, property or money forfeited.


The motion judge was unable to determine whether First Source was at fault in respect of the termination of the Loan Agreement, which would have allowed Sunningdale to avoid paying the Lender Fee altogether. However, the motion judge found that the $100,000 payment was not a penalty and hence, First Lender was entitled to keep the payment. Further, the motion judge concluded that the balance of the Lender Fee is an unenforceable penalty because the “actions of [First Source] made it difficult for [Sunningdale] to comply and lead [Sunningdale] to look for financing elsewhere,” making it “unconscionable to require [Sunningdale] to pay the balance of the lender’s fee.”

First Source appealed the motion judge’s decision.

The Court of Appeal Decision

On appeal, the Court overturned the motion judge’s decision, finding that First Source was entitled to the balance of the Lender Fee for two primary reasons.

First, according to the Court, if a payment is payable upon a party’s breach of contract, then such payment is a stipulated remedy and therefore, it is an unenforceable penalty. In this case, the Court held the balance of the Lender Fee was not a “stipulated remedy” for a breach of contract. Instead, the Lender Fee was earned upon the execution of the Loan Agreement and as such, the balance was payable whether or not the Lending Agreement was breached.

Second, relief against forfeiture may be available to relieve a party of the consequences of its non-observance or breach of the terms of a contract. Such relief is only triggered upon non-observance or breach of a contract. As noted above, the motion judge did not find that non-observance or breach of a contract had occurred. Further, and in any event, given that the balance of the Lender Fee was payable irrespective of any breach or non-observance of the Loan Agreement, relief from forfeiture was not available to Sunningdale. The Court stated:[ii]

[…] the motion judge did not relieve [Sunningdale] from any specified conduct that it engaged in that triggered its obligation to pay the balance of the Lender Fee. She, in effect, purported to relieve [Sunningdale] not from the consequences of its conduct relating to the contract but rather from a contractual term that she found to be excessive and unconscionable in amount. It is not the role of relief against forfeiture to relieve parties from terms of a contract they agreed to, on the grounds of the improvidence of that term. That is the function of the independent doctrine of unconscionability.

The Court addressed the doctrine of unconscionability, which is meant to protect vulnerable parties when they are in a relationship of unequal power. The Court concluded that Sunningdale was not a vulnerable party:[iii]

There was no suggestion in the motion judge’s decision that she considered whether there was an inequality of bargaining power between the parties to the Loan Agreement. Moreover, it bears notice that [Sunningdale] appears to be a commercial developer capable of handling a largescale development, not a disadvantaged consumer. I am satisfied that the motion judge invalidated the terms of the contract relating to the balance of the Lender Fee, without complying with the limits of the doctrine of unconscionability that she was effectively applying.

Key Takeaways

The Court of Appeal’s decision in Sunningdale offers several takeaways:

  1. In general, contracts negotiated between sophisticated commercial parties will be upheld by courts provided that there is no unequal bargaining power.
  2. If parties want to be able to rely on the terms of a contract, they should ensure that they draft clear contractual terms. By ensuring that contracts are clearly drafted, parties can mitigate the risk of disputes and costly legal battles.
  3. Within the context of lending agreements, this case serves as a reminder that even if a loan falls through, borrowers may still be obligated to fulfill certain financial commitments, including lender fees. Therefore, borrowers should carefully consider the terms of their agreements before entering into lending arrangements, recognizing that lender fees may remain due even if the anticipated financing does not materialize.


The information and comments herein are for the general information of the reader and are not intended as advice or opinion to be relied upon in relation to any particular circumstances. For particular application of the law to specific situations, the reader should seek professional advice.


[i] 660 Sunningdale GP Inc. et al v First Source Mortgage Corporation et al., 2023 ONSC 2129 at para 39.

[ii] Sunningdale at para 53.

[iii] Sunningdale at para 54.

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