In 2021, the self-proclaimed “Crypto King,” along with an associate, paid a $500,000 deposit to purchase a commercial real estate property to store their exotic car collection.
The “Crypto King,” Aiden Pleterski, had received more than $40 million from investors who thought they were investing in cryptocurrency. Instead, he used the investors’ funds to live a lavish lifestyle. The investors had never authorized Mr. Pleterski to use their funds to buy real estate for himself or his associate.
The real estate transaction was set to close on September 28, 2022, but before the closing date, some of Mr. Pleterski’s creditors applied to have him declared bankrupt. Grant Thornton was appointed as the Trustee in Bankruptcy for both Mr. Pleterski and his corporation.
A few weeks before closing, Grant Thornton advised the vendor that it would not be proceeding with the closing. As a result, the vendor re-listed the property and eventually sold it to another purchaser for $300,000 more than what Mr. Pleterski and his associate had agreed to pay for it.
Grant Thornton then brought a motion for relief from forfeiture to have the $500,000 released to it, for the benefit of the creditors, mainly the investors.
The judge ordered the release of the entire $500,000 to Grant Thornton. He applied the two-part test for relief from forfeiture, which requires considering whether the forfeited deposit is out of proportion to the damages suffered by the vendor and whether it would be unconscionable for the vendor to retain the deposit. In weighing the factors, the motion judge noted that if the deposit is returned, the vendor will still realize a net profit of $135,000. Meanwhile, the investors will only recover minimal amounts on their investments.
The vendor appealed. The vendor argued that it was wrong for the motion judge to take the interests of the creditors into account when assessing the equities of the situation because they were not parties to the agreement of purchase and sale. The vendor also argued that it was wrong for the motion judge to describe this as a “dispute… between innocent parties.” It contended that Grant Thornton deliberately breached the contract and that it should not have benefited from its own breach.
On September 27, 2024, the Court of Appeal for Ontario released its reasons for upholding the motion judge’s decision. It found that the judge was entitled to consider the full commercial context of the transaction. The court noted that the true purpose of deposits is to motivate parties to carry out their bargain. In this case, at least 99.8% of the deposit came from investors who never wanted Mr. Pleterski to use their funds to purchase property in the first place. In regards to the vendor’s second argument, the court noted that there is no absolute pre-condition that a party seeking relief from forfeiture demonstrate that it is not to blame for the breach and that while the conduct of the breaching party is highly relevant, it is not the only factor to be considered.
The Court of Appeal’s decision in this case is a reminder of the highly discretionary and fact-specific nature of the remedy of relief from forfeiture.
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