REAL PROPERTY REPORTS Fourth Series/Quatri`Eme S´Erie Recueil De Jurisprudence En Droit Immobilier

REAL PROPERTY REPORTS Fourth Series/Quatri`eme s´erie Recueil de jurisprudence en droit immobilier

VOLUME 99 (Cited 99 R.P.R. (4th))

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[Indexed as: BCE Place Ltd. v. Municipal Property Assessment Corp., Region No. 9] BCE Place Limited, 1225209 Ontario Limited, National Trust Company, Scotia Realty Limited, First Place Tower Inc., Toronto Dominion Centre, 200 Bay Holding Inc. (Appellants) and Municipal Property Assessment Corporation and City of Toronto (Respondents) and Atikokan, Brank, Ear Falls, Goderich, Lambton, Lincoln, Ottawa, Quinte West, Red Lake, Sarnia, South Bruce Peninsula and Windsor (Intervenors) Ontario Court of Appeal M. Rosenberg, Robert P. Armstrong, R.G. Juriansz JJ.A. Heard: June 7, 2010 Judgment: October 15, 2010* Docket: CA C51420, 2010 ONCA 672 Richard Poole, David G. Fleet for Appellants, BCE Place Limited, 1225209 On- tario Limited, National Trust Company, Scotia Realty Limited, First Place Tower Inc. Jeff G. Cowan for Appellant, Toronto Dominion Centre Phillip L. Sanford, Tara L. Piurko for Appellant, 200 Bay Holding Inc. Susan L. Ungar, Terry Denison, Rodney Gill for Respondent, City of Toronto Carl B. Davis, Donald G. Mitchell for Respondent, Municipal Property Assess- ment Corporation John L. O’Kane for Intervenor Municipalities Municipal law –––– Municipal tax assessment — Valuation — Method of assessment — Market value — Income capitalization –––– Building owners brought application before assessment review board to determine current value assessments for taxation years 2001 and 2002 for six office tower complexes — Application was granted — Mu- nicipal Property Assessment Corp.’s appeal was allowed — Divisional court found board’s interpretation of current value and fee simple was wrong in law — Divisional court found board’s interpretation was predicated on valuing interest of owner when it was value of land that was to be assessed — Divisional court sent matter to be re-heard

*A corrigendum issued by the court on November 9, 2010 has been incorporated herein. 2 REAL PROPERTY REPORTS 99 R.P.R. (4th) by differently constituted panel — Building owners appealed — Appeal dismissed — Di- visional court correctly held that “fee simple, if unencumbered”, in definition of “current value” in s. 1(1) of Assessment Act meant whole value of land, including value of market value leases, was to be assessed — Standard of review was correctness — Matter should be returned to same panel of board, which had already heard evidence and submissions over 62-day period — Office towers should be assessed in accordance with income approach using market rents and allowing for 7 per cent vacancy rate. Municipal law –––– Municipal tax assessment — Valuation — Particular property — Buildings — Miscellaneous –––– Office towers — Building owners brought application before assessment review board to determine current value assessments for taxation years 2001 and 2002 for six office tower complexes — Application was granted — Municipal Property Assessment Corp.’s appeal was allowed — Divisional court found board’s interpretation of current value and fee simple was wrong in law — Divisional court found board’s interpretation was predicated on valuing interest of owner when it was value of land that was to be assessed — Divisional court sent matter to be re- heard by differently constituted panel — Building owners appealed — Appeal dismissed — Divisional court correctly held that “fee simple, if unencumbered”, in definition of “current value” in s. 1(1) of Assessment Act meant whole value of land, including value of market value leases, was to be assessed — Matter should be returned to same panel of board, which had already heard evidence and submissions over 62-day period — Office towers should be assessed in accordance with income approach using market rents and allowing for 7 per cent vacancy rate. Municipal law –––– Municipal tax assessment — Valuation — Powers on review or appeal –––– Building owners brought application before assessment review board to determine current value assessments for taxation years 2001 and 2002 for six office tower complexes — Application was granted — Municipal Property Assessment Corp.’s appeal was allowed — Divisional court found board’s interpretation of current value and fee simple was wrong in law — Divisional court found board’s interpretation was predicated on valuing interest of owner when it was value of land that was to be assessed — Divi- sional court sent matter to be re-heard by differently constituted panel — Building owners appealed — Appeal dismissed — Divisional court correctly held that “fee simple, if unencumbered”, in definition of “current value” in s. 1(1) of Assessment Act meant whole value of land, including value of market value leases, was to be assessed — Stan- dard of review was correctness — Matter should be returned to same panel of board, which had already heard evidence and submissions over 62-day period — Office towers should be assessed in accordance with income approach using market rents and allowing for 7 per cent vacancy rate. Cases considered by M. Rosenberg J.A.: Cardinal Plaza Ltd. v. Ontario Regional Assessment Commissioner, Region No. 19 (1984), 49 O.R. (2d) 161, 15 D.L.R. (4th) 156, 7 O.A.C. 30, 17 O.M.B.R. 69, 1984 CarswellOnt 1216 (Ont. C.A.) — considered Carsons’ Camp Ltd. v. Municipal Property Assessment Corp. (2008), 2008 ONCA 17, 40 M.P.L.R. (4th) 165, 232 O.A.C. 297, 58 O.M.B.R. 292, 2008 CarswellOnt 74, 63 R.P.R. (4th) 163, 88 O.R. (3d) 741 (Ont. C.A.) — considered BCE Place Ltd. v. Municipal Property Assessment Corp. M. Rosenberg J.A. 3

Minto Developments Inc. v. Municipal Property Assessment Corp., Region No. 03 (2003), 2003 CarswellOnt 5865, 2 M.P.L.R. (4th) 89, [2003] O.J. No. 4808 (Ont. Div. Ct.) — considered New Brunswick (Board of Management) v. Dunsmuir (2008), 372 N.R. 1, 69 Admin. L.R. (4th) 1, 69 Imm. L.R. (3d) 1, (sub nom. Dunsmuir v. New Brunswick) [2008] 1 S.C.R. 190, 844 A.P.R. 1, (sub nom. Dunsmuir v. New Brunswick) 2008 C.L.L.C. 220-020, D.T.E. 2008T-223, 329 N.B.R. (2d) 1, (sub nom. Dunsmuir v. New Bruns- wick) 170 L.A.C. (4th) 1, (sub nom. Dunsmuir v. New Brunswick) 291 D.L.R. (4th) 577, 2008 CarswellNB 124, 2008 CarswellNB 125, 2008 SCC 9, 64 C.C.E.L. (3d) 1, (sub nom. Dunsmuir v. New Brunswick) 95 L.C.R. 65, [2008] S.C.J. No. 9, [2008] A.C.S. No. 9 (S.C.C.) — considered Ontario Regional Assessment Commissioner, Region No. 11 v. Nesse Holdings Ltd. (1986), 1986 CarswellOnt 2210, 54 O.R. (2d) 437, 18 O.M.B.R. 404 (Ont. C.A.) — considered 1098748 Ontario Ltd. v. Ontario Property Assessment Corp., Region No. 11 (2001), 143 O.A.C. 121, 2001 CarswellOnt 702, 198 D.L.R. (4th) 139, [2001] O.J. No. 859 (Ont. Div. Ct.) — considered 2027330 Ontario Inc. v. Municipal Property Assessment Corp., Region No. 09 (2008), 2008 CarswellOnt 4657, (sub nom. Toronto (City) v. Wolf) 60 O.M.B.R. 264, (sub nom. Toronto (City) v. Wolf) 241 O.A.C. 41, [2008] O.J. No. 3061 (Ont. Div. Ct.) — considered Statutes considered: Assessment Act, R.S.O. 1980, c. 31 s. 18 — referred to s. 18(2) — referred to Assessment Act, R.S.O. 1990, c. A.31 Generally — referred to s. 1(1) “current value” — considered s. 17 — referred to s. 43.1 [en. 1997, c. 5, s. 28] — referred to Expropriations Act, R.S.O. 1990, c. E.26 Generally — referred to

APPEAL by building owners from judgment reported at BCE Place Ltd. v. Municipal Property Assessment Corp., Region No. 9 (2009), 86 R.P.R. (4th) 15, 63 M.P.L.R. (4th) 1, (sub nom. Municipal Property Assessment Corp. v. BCE Place Ltd.) 98 O.R. (3d) 581, 2009 CarswellOnt 4719, (sub nom. Municipal Property Assessment Corp. v. BCE Place Ltd.) 253 O.A.C. 28, 63 O.M.B.R. 1, [2009] O.J. No. 3338 (Ont. Div. Ct.), which allowed appeal from decision of assessment review board.

M. Rosenberg J.A.:

1 This appeal concerns the proper interpretation of a phrase in the definition of “current value” in the Assessment Act, R.S.O. 1990, c. A. 31 as applied to several large bank towers in downtown Toronto. In an interim decision, the Assess- ment Review Board held that the phrase, “fee simple, if unencumbered”, re- 4 REAL PROPERTY REPORTS 99 R.P.R. (4th)

quired that the bank towers be valued as if they were vacant at the date of assessment. The Divisional Court disagreed with that interpretation, holding that it was wrong in law. I agree with the Divisional Court’s interpretation of the legislation. Accordingly, I would dismiss the appeal by the owners of the bank towers.

The Issue 2 The issue in this case is the proper manner of assessing for municipal tax purposes the bank tower properties. The respondent Municipal Property Assess- ment Corporation (“MPAC”) assessed the combined current value of the bank towers at approximately $5 billion for the taxation years 2001 and 2002, based on a valuation date of June 30, 1999. The owners of the bank towers challenged these assessments before the Board. 3 All of the parties agreed that the proper method of assessing the bank towers was the so-called “income approach,” but they offered radically different views as to the assumptions to be made in applying this approach. The different ap- proaches were driven by different understandings of how to determine the “current value” of the properties as that term is defined in the Assessment Act. 4 Following over 60 days of hearings, the Board issued an interim decision in which it endorsed the owners’ interpretation of “current value” as it applied to the subject properties. The Board instructed the parties to attempt to determine new assessment figures based upon its ruling. MPAC and the City of Toronto appealed the interim decision, with leave, to the Divisional Court. A coalition of 11 municipalities intervened to support the appellants’ position.

The Legislation 5 For the purposes of this appeal, the legislative scheme in the Assessment Act may be described as follows. Subject to some exceptions that are not relevant in this case, all real property in Ontario is liable to assessment and taxation. Land is assessed against the owner based on its current value. “Current value” is defined in s. 1(1) of the Act as follows: “current value” means, in relation to land, the amount of money the fee simple, if unencumbered, would realize if sold at arm’s length by a willing seller to a willing buyer. 6 The term “land” is broadly defined in the same section and includes “all buildings, or any part of any building, and all structures, machinery and fixtures erected or placed upon, in, over, under or affixed to land”.

The Interim Decision of the Board 7 The Board gave extensive reasons for its interpretation of the phrase “fee simple, if unencumbered”. It looked at the legislative history, decisions of this court and the Divisional Court, dictionary definitions of the terms, and defini- BCE Place Ltd. v. Municipal Property Assessment Corp. M. Rosenberg J.A. 5

tions in legal texts on property and real estate appraisal. The Board also compared valuation under the Assessment Act with the approach taken under the Ex- propriations Act, R.S.O. 1990, c. E. 26. In the end, the Board came to the conclusion that the “fee simple, if unencumbered” required that the only interests to be valued were those of the owners and that, for example, all leases in place at the time of the valuation had to be disregarded because they were encumbrances. 8 However, since the bank towers are income-producing properties, the Board further found that the current value had to take into account that the willing buyer was buying a building that would generate an income stream. This in turn required a determination of market rent income, the deduction of various expenses to obtain that income, an allowance to reflect a stabilized vacancy over the economic life of the property, and the application of an overall capitalization rate to produce a value. In effect, the assessment was to be based on the theory of a sale on the valuation date where the owner was giving vacant possession and then allowing for a notional two-year period during which the building would be leased up at market rents. 9 In the result, the Board accepted the capitalization rate used by the owners’ expert of 8.75 per cent. The Board rejected the approach taken by the respondents’ experts who used a capitalization rate of 8 per cent. The difference in capitalization rates resulted in significantly different assessments. As an illustration, MPAC valued the Toronto-Dominion Centre at $1.439 billion, and the owners valued the same property at $1.014 billion, a difference of over $400 million.

Decision of the Divisional Court 10 The Divisional Court held that standard of review of the Board’s decision as to the interpretation of the definition of “current value” is correctness. It found that the Board’s decision was incorrect. The Court further held that if the more deferential standard of reasonableness applied, the Board’s decision was unreasonable. 11 The Court held that the purpose of the phrase “fee simple, if unencumbered” as applied to income-producing properties was to arrive at a value calculated without reference to leases at other than market value. It was not, however, to be based on the wholly artificial notion that the buildings were vacant at the time of assessment. The Court placed considerable emphasis on the intent of the Legis- lature in amending the Act in 1997 in response to this court’s decision in Ontario Regional Assessment Commissioner, Region No. 11 v. Nesse Holdings Ltd. (1986), 54 O.R. (2d) 437 (Ont. C.A.). It was the view of the Court that the 1997 amendments were intended to codify the dissent of Robins J.A. in Nesse Holdings Ltd. The Court also relied upon this court’s recent decision in Carsons’ Camp Ltd. v. Municipal Property Assessment Corp. (2008), 88 O.R. 6 REAL PROPERTY REPORTS 99 R.P.R. (4th)

(3d) 741 (Ont. C.A.), in support of its interpretation. The Court accordingly allowed the appeal by MPAC and the City of Toronto and returned the matter to the Board to a differently-constituted panel.

Issues 12 The appellants raise two issues in this court. First, they submit that the proper standard of review is reasonableness, having regard to the Board’s expertise in adjudicating complex questions of valuation. Second, they submit that the Divisional Court erred in its interpretation of the phrase “fee simple, if unencumbered” in the definition of “current value” in s. 1 of the Act. 13 Regardless of our disposition of these issues, the appellants also submit that the Divisional Court erred in directing that the matter be returned to a differently-constituted panel of the Board given the progress that has been made to date.

Analysis The Standard of Review 14 As is well-known, in New Brunswick (Board of Management) v. Dunsmuir, [2008] 1 S.C.R. 190 (S.C.C.), the Supreme Court revisited and refined the approach to judicial review of administrative action. The Court reduced the standards of review to the two of correctness and reasonableness. Although the Court eliminated the highly deferential standard of patent unreasonableness, that change did not signal the need for a wholesale revisiting of the judicial review framework. Rather, in a post-Dunsmuir case, the court should “ascertain whether the jurisprudence has already determined in a satisfactory manner the degree of deference to be accorded with regard to a particular category of question”: Dunsmuir at para. 62. Only if this first inquiry was unfruitful would it be necessary to proceed to the analysis of the various factors. 15 If it becomes necessary to proceed to the second stage, the court will look at several factors. The existence of a privative clause is a strong indication that the standard of review is reasonableness. The reasonableness standard will also tend to be applied where the question is one of fact, discretion or policy, or “where the legal and factual issues are intertwined with and cannot be readily separated”: Dunsmuir at para. 53. Reasonableness will also usually be the standard “where a tribunal is interpreting its own statute or statutes closely con- nected to its function, with which it will have particular familiarity” or where the tribunal “has developed particular expertise in the application of a general common law or civil law rule in relation to a specific statutory context”: Dunsmuir at para. 54. On the other hand, the correctness standard will apply where the question of law is of central importance to the legal system and outside the tribunal’s specialized area of expertise: Dunsmuir at para. 60. BCE Place Ltd. v. Municipal Property Assessment Corp. M. Rosenberg J.A. 7

16 In Dunsmuir at para. 64, the Court summarized the second stage analysis as follows: The analysis must be contextual. As mentioned above, it is dependent on the application of a number of relevant factors, including: (1) the presence or absence of a privative clause; (2) the purpose of the tribunal as determined by interpretation of enabling legislation; (3) the nature of the question at issue, and; (4) the expertise of the tribunal. In many cases, it will not be necessary to consider all of the factors, as some of them may be determinative in the application of the reasonableness standard in a specific case. 17 In my view, the pre-Dunsmuir jurisprudence has already determined the standard of review in a satisfactory manner. In a series of cases, the Divisional Court has found that the standard of review on questions of law is correctness, even where the Board is interpreting its home statute. See Minto Developments Inc. v. Municipal Property Assessment Corp., Region No. 03 (2003), 2 M.P.L.R. (4th) 89 (Ont. Div. Ct.), and 1098748 Ontario Ltd. v. Ontario Property Assessment Corp., Region No. 11 (2001), 143 O.A.C. 121 (Ont. Div. Ct.). And the Divisional Court reached the same conclusion in the post-Dunsmuir decision in 2027330 Ontario Inc. v. Municipal Property Assessment Corp., Region No. 09 (2008), 241 O.A.C. 41 (Ont. Div. Ct.). The Divisional Court pointed out in those cases the Board’s decisions are not protected by a privative clause and that there is a statutory appeal with leave to the Divisional Court on questions of law (s. 43.1 of the Act). 18 The Board’s own approach to the interpretation issue supports application of a standard of correctness. The Board did not apply any particular specialized expertise, but rather approached the question as would a court. It reviewed and analyzed decisions of this court and the Divisional Court going back to 1907 in an attempt to find the legal meaning of the phrase “fee simple, if unencumbered”. I agree with the Divisional Court in this case that the standard of review is correctness.

Nesse Holdings and the 1997 Amendments 19 At the Board, in the Divisional Court and in argument before this court much attention was paid to this court’s decision in Nesse Holdings and the effect of the subsequent amendments to the Act. In Nesse Holdings, the court was required to consider the meaning of s. 18 of the former Act, which provided that land was to be assessed at its “market value”. Section 18(2) defined market value as “the amount that the land might be expected to realize if sold in the open market by a willing seller to a willing buyer”. In Nesse Holdings, the majority of the court looked solely at a recent sale of the property as the best evidence of market value, even though the property was subject to a lease with rents substantially below market rates. Robins J.A. dissented. He agreed that ordinarily a recent arm’s length sale will be the best evidence of market value, but not always. In particular, “when the evidence establishes, as in this case, that the land is subject 8 REAL PROPERTY REPORTS 99 R.P.R. (4th)

to leasehold interests at rentals significantly below current market rentals, the sale price cannot in and of itself establish the value of the land for the purposes of s. 18(2)”: Nesse Holdings at pp. 441-2. He held that while the sale price is evidence of the market value of the owner’s interest, the tenant’s interest much be included “in calculating the actual value of the land for assessment purposes”: Nesse Holdings at p. 442. As Robins J.A. said at p. 442: Whether the sales or income method of valuation is employed, the object of the exercise is to determine the actual or market value of the land for assessment purposes. It seems to me highly incongruous to require that the tenants’ interest be taken into account by basing the value of land on current market rents in the case of the income approach and at the same time to disregard the identical interest in the case of the sales approach. In my view, the tenants’ interest should be included on either approach where there is a substantial disparity between actual and fair market rents. It is the totality of the interests in the title to land which is to be valued in order to determine the market value at which the land is to be assessed. [Emphasis added.] 20 In reaching this conclusion, Robins J.A. relied upon the earlier decision of this court in Cardinal Plaza Ltd. v. Ontario Regional Assessment Commissioner, Region No. 19 (1984), 49 O.R. (2d) 161 (Ont. C.A.), where Lacourci`ere J.A. held at p. 163 “that an equitable assessment of multi-residential properties based on the income approach must necessarily use economic rents rather than actual rents”. 21 Interestingly, the majority of the court in Nesse Holdings held that if its interpretation of the statute was wrong the Legislature could speedily correct the matter since it “would take very little by way of amendment to extend or clarify the meaning of s. 18(2) if that is the intention”: Nesse Holdings at p. 440. 22 The Legislature did indeed amend the Assessment Act, albeit perhaps not as expeditiously as the majority contemplated. Among other things, the 1997 amendments removed s. 17, which provided for separate assessments against the owner and tenant and provided a definition of current value. A comparison of the definition of “market value” in the old Act and “current value” in the new Act is instructive: s. 18(2) of the old Act: the market value of the land assessed is the amount that the land might be expected to realize if sold in the open market by a willing seller to a willing buyer. s. 1(1) of the new Act: “current value” means, in relation to land, the amount of money the fee simple, if unencumbered, would realize if sold at arm’s length by a willing seller to a willing buyer. BCE Place Ltd. v. Municipal Property Assessment Corp. M. Rosenberg J.A. 9

23 As is apparent, the two definitions are almost identical, but for the inclusion of the phrase “fee simple, if unencumbered” in the new Act. I agree with the Divisional Court that the intent of the 1997 amendments was to clarify that the approach as taken by Robins J.A. in Nesse Holdings and Lacourci`ere J.A. in Cardinal Plaza Ltd. v. Ontario Regional Assessment Commissioner, Region No. 19 was correct. The simple amendment instructs the assessor to ignore encumbrances, such as leases that are not at market rents. Where the income approach is taken, the assessor is, as held by Lacourci`ere J.A., to use market rents rather than actual rents. I do not agree that this minor amendment was intended to accomplish the much more radical task of instructing the assessor to assume that an income-producing property was vacant at the date of assessment.

Carsons’ Camp 24 I also agree with the Divisional Court that this court’s decision in Carsons’ Camp supports the view that what is to be assessed is the whole value of the land, including the value of market value leases. In that case, the court held that trailers, owned by other persons, were nevertheless part of the property owner’s land and their value had to be included in the “current value” of the land for assessment purposes. The Divisional Court correctly applied the reasoning from Carsons’ Camp to the facts of this case at para. 51: The same reasoning applies where ownership of interests in the land is divided by leasehold interests granted by the owner. This is supported by a contextual interpretation of the statutory provision. “Current value” is defined “in relation to land”. It matters not that portions of the land have been leased; undoubtedly the Bank Towers in issue here and the land upon which they are situate are land, as defined in the Assessment Act. The definition connotes a notion of market value in referring to “the amount of money the fee simple . . . would realize if sold at arm’s length by a willing seller to a willing buyer”. For single family dwellings this will generally approach market value on the valuation date. To value these Bank Towers on the basis that they are vacant, when all agree that that is an entirely hypothetical scenario, is to significantly undervalue them compared to other real property and un- dermines the purpose of the Assessment Act, to fairly divide the burden of real property taxation. The definition is in relation to “value”, and, in our view, “fee simple, if unencumbered” describes a valuation standard and does not limit the nature of the asset to be valued, which is the whole of the land. In the context of income-producing property, “fee simple if unencumbered” means value calculated without reference to leases at other than market value, a longstanding principle governing assessment of income-producing property, and corrects the anomaly referred to by Robins J.A. in ... Nesse Holdings Ltd. .... [Emphasis added.] 10 REAL PROPERTY REPORTS 99 R.P.R. (4th)

25 I agree. The office towers are to be assessed in accordance with the income approach using market rents and allowing for only a normal vacancy rate, which I understand from the evidence to be 7 per cent.

Order to Be Made 26 I disagree with only one aspect of the Divisional Court’s decision. I see no reason for returning the case to a differently-constituted panel of the Board. The Board heard evidence and submissions over a 62-day period. Many of the matters determined in the Interim Decision are unaffected by the legal error concerning the meaning of “fee simple, if unencumbered” and directly engaged the Board’s expertise in assessment matters. 27 Accordingly, I would allow the appeal only to the very limited extent that the matter should be returned to the same panel of the Board. The respondents are entitled to their costs which I would fix at $50,000 inclusive of disbursements and G.S.T. to be divided equally between MPAC and the City of Toronto.

Robert P. Armstrong J.A.:

I agree.

R.G. Juriansz J.A.:

I agree. Appeal dismissed. Strata Plan NW971 v. Daniels 11

[Indexed as: Strata Plan NW971 v. Daniels] The Owners, Strata Plan NW 971 (Respondent / Petitioner) and Bella Daniels (Appellant / Respondent) British Columbia Court of Appeal K. Smith, Kirkpatrick, D. Smith JJ.A. Heard: November 5, 2010 Judgment: December 20, 2010 Docket: Vancouver CA037549, 2010 BCCA 584 G. Douvelos, for Appellant V. Franco, for Respondent Real property –––– Condominiums — Condominium corporation — Meetings –––– Strata corporation held special general meeting to pass special resolution authorizing special levy to be used for repairs — Special resolution did not receive requisite 75 per cent majority — Strata corporation invoked Robert’s Rules of Order to adjourn meeting for one week — Section 45 of Strata Property Act required strata corporation to give two weeks’ notice of special general meeting — Special resolution received requisite 75 per cent majority when meeting resumed — Lot owner contended resolution was improperly passed and so refused to pay it — Lot owner also owed strata fees and other charges — Strata corporation brought petition for order authorizing immediate sale of lot owner’s lots — Petition was granted — Lot owner appealed — Appeal dismissed — In absence of any provisions in Act and by-laws of Strata Corporation for conduct of special general meeting, procedure adopted by Strata Corporation under Robert’s Rules to reconsider April 16, 2007 vote was not unfair to minority members of Strata Corporation, protected wishes of true majority, and therefore was more reflective of will of majority of eligible voters. Real property –––– Condominiums — Condominium corporation — Sale of unit for unpaid maintenance fees –––– Strata lot owner failed to pay strata fees and other charges — Strata corporation brought petition for order authorizing immediate sale of lot owner’s lots — Petition was granted — Lot owner appealed — Appeal dismissed — In absence of any provisions in Strata Property Act and by-laws of Strata Corporation for conduct of special general meeting, procedure adopted by Strata Corporation under Rob- ert’s Rules to reconsider April 16, 2007 vote was not unfair to minority members of Strata Corporation, protected wishes of true majority, and therefore was more reflective of will of majority of eligible voters. Cases considered by D. Smith J.A.: Cannon v. Toronto Corn Exchange (1880), 5 O.A.R. 268, [1880] O.J. No. 67 (Ont. C.A.) — considered Christopher v. Noxon (1883), 4 O.R. 672 (Ont. H.C.) — considered Financial Network Guaranty Ltd. v. Terra Nova Energy Inc. (1987), 1987 CarswellBC 1585, [1987] B.C.J. No. 2646 (B.C. S.C.) — considered 12 REAL PROPERTY REPORTS 99 R.P.R. (4th)

Klein v. James (1986), 1986 CarswellBC 458, 36 B.L.R. 42, [1986] B.C.J. No. 997 (B.C. S.C.) — considered McLaren v. Thomson (1917), [1917] 2 Ch. 261, 1917 WL 18307 (Eng. Ch. App.) — referred to Muller, Re (1986), 1986 CarswellBC 484, 62 C.B.R. (N.S.) 194 (B.C. S.C.) — considered Neuschild v. British Equatorial Oil Co. (1925), [1925] Ch. 346 (Eng. Ch. Div.) — referred to R. v. Grimshaw (1847), 116 E.R. 284, 1847 WL 7115 (Eng. Q.B.) — considered Scadding v. Lorant (1851), 3 H.L.C. 418, 10 E.R. 164, 15 Jur. 955 (U.K. H.L.) — considered Spencer v. Kennedy (1926), [1926] Ch. 125 (Eng. Ch.) — referred to Wills v. Murray (1850), 154 E.R. 1458, 4 Exch. 843, 1850 WL 8172 (Eng. Ex. Ch.) — considered Statutes considered: Bankruptcy Act, R.S.C. 1970, c. B-3 Generally — referred to s. 87(1) — referred to Strata Property Act, S.B.C. 1998, c. 43 Generally — referred to s. 45 — considered s. 47 — considered

APPEAL by lot owner from judgment reported at Strata Plan NW971 v. Daniels (2009), 86 R.P.R. (4th) 241, 2009 BCSC 1235, 2009 CarswellBC 2388 (B.C. S.C.), which granted strata corporation’s petition for order authorizing immediate sale of lot owner’s lots.

D. Smith J.A.:

1 The central issue in this appeal relates to the validity of the procedure adopted by the respondent strata corporation (the “Strata Corporation”) at a special general meeting. The purpose of the meeting was to pass a special resolution to increase the Strata Corporation’s budget and to approve the expenditure of $390,000 on remediation work to the residential townhouse complex. At the time of the meeting the appellant, Bella Daniels, owned five strata lots in the complex.

A. Background 1. The Special General Meetings 2 The special general meeting was held on April 16, 2007 (the “April 16th Meeting”). Formal notice under the Strata Property Act, S.B.C. 1998, c. 43 [SPA], was issued for that meeting. The quorum of eligible voters (in person and Strata Plan NW971 v. Daniels D. Smith J.A. 13

by proxy) was present. However, the special resolution failed to obtain the requisite three-quarters majority vote. 3 Only 78 percent of the eligible voters (95 of 122 actual or proxy voters) were present at the April 16th Meeting. The three-quarters threshold vote to pass the special resolution required 72 votes. The actual vote was 69 in favour, 25 opposed; one vote was incorrectly cast and not counted. Therefore, those who voted against the resolution represented only 20 percent of the eligible voters. 4 A retired lawyer and parliamentarian who had been retained by the Strata Corporation as a consultant for the meeting recommended the adoption of the procedure in Robert’s Rules of Order (Robert’s Rules) to reconsider the vote before the vote had been recorded in the minutes. That procedure requires a member of the minority that succeeded in defeating the resolution to make a motion to reconsider the vote. The form of the motion is “to reconsider and enter on the minutes” and must be voted on at another date in order to avoid the same voters simply repeating their vote (the “Reconsideration Motion”). 5 To that end, the secretary who had voted against the special resolution made the Reconsideration Motion. The chair entered the motion “on the minutes” and indicated that Reconsideration Motion would be taken up as business on a subsequent date. The chair then moved to adjourn the meeting for one week, at the same place and time, and that motion was carried. 6 A greater number of eligible voters attended the second meeting on April 23, 2007 (the “April 23rd Meeting”). About 87 percent of the eligible voters (109 of the 124 eligible voters) were in attendance (apparently two or more owners paid their outstanding strata fees and thereby became eligible voters). The minutes recorded the April 23rd Meeting as “a continuation of the [first] meeting”. 7 At the outset, a point of order was raised as to the authority under the SPA to constitute the meeting since the SPA contains no provision for an adjourned meeting. The appellant seconded the motion. The chair ruled against the point of order, and was sustained on a subsequent challenge. After some further discussion, the Reconsideration Motion was successfully passed by a three-quarters threshold vote (the “2007 Special Assessment”). The three-quarter threshold vote required 82 votes in favour of the resolution. The actual vote was 83 in favour, 24 opposed, with two voters not casting their ballot. Those who voted against the resolution represented about 22 percent of the eligible voters. 8 As a result of the vote at the April 23rd Meeting, the 2007 Special Assess- ment was collected and the repairs to the complex undertaken. 9 The appellant was present at both meetings. 10 Section 45 of the SPA requires that those entitled to formal notice of a special general meeting be given written notice 14 days in advance of the meeting. 11 Section 47 of the SPA provides the only exception to the formal notice requirement under s. 45 of the SPA: Where there has been a failure to meet the 14 REAL PROPERTY REPORTS 99 R.P.R. (4th)

requirements for formal notice of a special general meeting, a subsequent vote will not be rendered invalid if the strata corporation has made a reasonable attempt to give the notice in accordance with s. 45. 12 Formal notice under the SPA of the special general meeting was issued for the April 16th Meeting. However, the Strata Corporation acknowledges that it made no attempt to comply with the formal notice requirements of s. 45 of the SPA for the April 23rd Meeting. It is also common ground that there are no applicable provisions in the SPA or the bylaws of the Strata Corporation for a vote to reconsider an unsuccessful vote on a special resolution that has not been recorded in the minutes. 13 The appellant has refused to pay her share of the 2007 Special Assessment. She has also not paid in full a special levy that was authorized to be collected by the Strata Corporation in 2003 (the “2003 Special Levy”).

2. The Litigation History 14 The current dispute between the appellant and the Strata Corporation arose in the context of a petition filed by the Strata Corporation seeking: (i) a declaration that the appellant was in default of her obligation to pay the 2003 Special Levy and the 2007 Special Assessment; (ii) judgment in favour of the Strata Corporation for amounts owing under the certificate of liens filed against each of the appellant’s strata lots for her share of those assessments; and (iii) an order for sale of those strata lots if the judgments were not paid within 30 days of the order (the “Petition”). 15 After the Petition was filed, the appellant commenced an action by Writ and Statement of Claim against the Strata Corporation and the property management company for the townhouse complex, in which she alleged a plethora of misconduct (including bad faith, bias, and malice) regarding the maintenance of the common property and the imposition of the 2007 Special Assessment. The appellant has taken no further steps in this action. 16 At the hearing of the Petition, the relief sought by the Strata Corporation included an immediate order for sale of the appellant’s strata lots. The appellant responded by seeking an order to postpone the sale of the strata lots for a period of six months on the basis that the April 23, 2007 reconsideration vote that passed the 2007 Special Assessment was invalid because the Strata Corporation had failed to comply with the formal notice requirements of the SPA. 17 The chambers judge held that the successful vote on the Reconsideration Motion at the April 23rd Meeting was valid and that the procedure adopted under Robert’s Rules was fair and reasonable. In the result, she granted the respondent’s application for an immediate order for sale of four of the appellant’s strata lots for amounts she found were owed by the appellant in regard to strata fees, the balance of the appellant’s share of the 2003 Special Levy, and the appellant’s share of the 2007 Special Assessment, interest relating to the outstand- Strata Plan NW971 v. Daniels D. Smith J.A. 15

ing amounts, and costs: Strata Plan NW971 v. Daniels, 2009 BCSC 1235 (B.C. S.C.). 18 On appeal, the appellant submits that the chambers judge erred in finding that the successful vote on the Reconsideration Motion was valid. She contends that the lack of formal notice for the April 23rd Meeting affects the jurisdiction of that meeting to pass the special resolution and in particular the 2007 Special Assessment. She characterizes the April 23rd Meeting as a new meeting that was constituted to vote on a new special resolution to reconsider the unsuccessful vote from the April 16th Meeting. Therefore, she submits, the respondent was required to comply with the formal notice requirements of s. 45 of the SPA. Since they did not comply with s. 45, nor did they come within the exception under s. 47 of the SPA (which the respondent admits it does not), the successful vote to reconsider was invalid leaving the 2007 Special Assessment null and void. 19 The respondent submits that the April 23rd Meeting was an adjourned meeting to continue and complete the business of the April 16th Meeting and therefore formal notice of the second meeting was not required under the SPA. The Strata Corporation relies on the fact that no record of the unsuccessful vote from the first meeting was entered into the minutes. The motion to reconsider the unsuccessful vote was moved, recorded in the minutes, and the meeting then adjourned to a new date to vote on that motion. This procedure was adopted from Robert’s Rules as the SPA and the bylaws of the Strata Corporation are silent on the procedure to be followed for adjourned meetings. 20 In the alternative, the respondent submits that the chambers judge correctly found that if the reconsideration vote on the 2007 Special Assessment was null and void because of the lack of formal notice, the prejudice to the Strata Corpo- ration outweighs any prejudice to the appellant if the re-vote is considered invalid (paras. 51 - 55).

B. Discussion 21 The appellant raises the following grounds of appeal: 1. The chambers judge erred in upholding the validity of the 2007 Special Assessment where notice of the April 23rd Meeting was not provided in accordance with s. 45 of the SPA; 2. The chambers judge erred in upholding the use of Robert’s Rules in order to permit a re-vote on the special assessment at the April 23rd Meet- ing; and 3. The chambers judge erred by finding, on balance, that the prejudice to the Strata Corporation outweighed the prejudice to the appellant in determining whether to uphold the 2007 Special Assessment. 16 REAL PROPERTY REPORTS 99 R.P.R. (4th)

1. Did the chambers judge err in finding the April 23rd Meeting was properly constituted in the absence of formal notice having been given under the SPA? 22 The SPA and bylaws of the Strata Corporation are silent on what constitutes an adjourned meeting or the procedure to be followed on a motion to reconsider a vote. Academic commentary and the common law, however, offer some gui- dance in this area. Both indicate that an adjourned meeting is deemed to be a continuation of the original meeting and no further notice is required provided no new business is transacted at the adjourned meeting. The only business that may be conducted at the adjourned meeting is unfinished business from the original meeting, for which notice was properly given at first instance: L.C.B. Gower, Modern Company Law, 4 ed. (London: Stevens & Sons, 1979) at 549.

(i) The English case law 23 English authorities provide that if the business of the adjourned meeting relates to the same agenda and resolution as the initial meeting then notice of the adjourned meeting need not be reissued. If, however, the business of the adjourned meeting is new and distinct from that of the initial meeting then notice of the adjourned meeting is required. In this regard, see R. v. Grimshaw (1847), 11 Jur. 965 at 966-67, (1847), 116 E.R. 284 (Eng. Q.B.) where Lord Denman, C.J. held: It is essential that due notice should be given of the business to be transacted, and at an adjournment of the quarterly meeting, nothing but business actually commenced, or at least understood to be in the routine business of that meeting, ought to be done without notice. Patteson J., concurring with Lord Denman, C.J. held at 967: With regard to the meetings of 9th and 16th of November, they were held legally; but the adjourned meeting on the latter day was not duly held for the purpose of electing a coroner, without notice, on the former day...[I]f we were to hold that such an act might be done without notice...we should soon find that constant attempts would be made to snatch advantages and commit injustice, by the device of adjournments. 24 Similarly, in Scadding v. Lorant (1851), 3 H.L.C. 418 (U.K. H.L.), the House of Lords considered whether an adjourned meeting is to be considered a continuation of the original meeting for the purpose of giving notice in the context of an action arising out of a decision at an adjourned vestry meeting. The headnote at 418 reads: Where notice of the purpose of a vestry meeting has been duly given, and that meeting has begun but not completed a certain business, and the meeting is regularly adjourned, such business may lawfully be completed at the adjourned meeting, though the notice for summoning such adjourned meeting does not state the purpose for which it is summoned. Strata Plan NW971 v. Daniels D. Smith J.A. 17

25 Lord Chief Baron delivered the unanimous decision of the judges at para. 446: ...[W]e are unanimously of opinion that the rate was not rendered invalid by reason of the alleged defect in the notices of the adjourned meeting. We think it was sufficient to give notice on the church door of the purpose for which the first meeting was to assemble, and that that notice extended to all the adjourned meetings, such adjourned meetings being for the purpose of completing the unfinished business of the previous meetings, and being in continuation of the first meeting. 26 In Wills v. Murray (1850), 4 Exch. 843 (Eng. Ex. Ch.), all three judges con- curred that notice was not required for an adjourned meeting. At 862-63, Pollock C.B. offered the view: It appears to me, upon the evidence, that the meeting was not an extraordinary meeting, but that it was clearly an adjourned meeting; which indeed, was admitted. It was convened by the directors themselves. It is, I think, perfectly clear that it is unnecessary to send a distinct notice to every member for an adjourned meeting. That observation disposes of the effect of the notice, which, it must be admitted, did not summon every director. But if every director was summoned to an adjourned meeting, it does not follow as a matter of inference that the meeting must have been an extraordinary one. 27 See also McLaren v. Thomson, [1917] 2 Ch. 261 (Eng. Ch. App.), at 264- 266; Neuschild v. British Equatorial Oil Co., [1925] Ch. 346 (Eng. Ch. Div.), at 348-50; and Spencer v. Kennedy, [1926] Ch. 125 (Eng. Ch.), at 135.

(ii) The Canadian authorities 28 The Canadian decisions appear to adopt a similar reasoning to the English authorities. 29 In Cannon v. Toronto Corn Exchange (1880), 5 O.A.R. 268, [1880] O.J. No. 67 (Ont. C.A.), at 289-290 (Galt J.), the Ontario Court of Appeal found that new business cannot be properly considered at an adjourned meeting. Later, in Christopher v. Noxon (1883), 4 O.R. 672 (Ont. H.C.), at 686-87, Proudfoot J. cited the reasoning in Cannon to hold that any attempt to consider new business at an adjourned meeting will be found invalid. 30 The principles espoused by the English courts were also adopted in this province by Mr. Justice Spencer in Klein v. James (1986), 36 B.L.R. 42, [1986] B.C.J. No. 997 (B.C. S.C.), where in the context of an adjourned society meeting he observed: [9] Instead, they continued with the company’s business and then voted to adjourn and continue the meeting on April 19th, 1984. Notice of the continuation was sent to the other members, but not all of them appear to have received it. That does not invalidate proceedings at the continued meeting for no notice of a continuation need be given. See Wills v. Murray (1850), 4 Exch. 843, and Scadding v. Lorant [1851], III H.L.C. 418, at 446. The pro- 18 REAL PROPERTY REPORTS 99 R.P.R. (4th)

position is accepted in The Principles of Modern Company Law by L.C.B. Gower, third edition (1969), at p. 495. In my opinion the principles are equally applicable to the meeting of a society. 31 Similarly, in Financial Network Guaranty Ltd. v. Terra Nova Energy Inc., [1987] B.C.J. No. 2646, 1987 CarswellBC 1585 (B.C. S.C.) Mr. Justice Tyrwhitt-Drake found at para. 15 that an “adjourned meeting was a continuation of the original meeting, and not a separate one.”

(iii) The circumstances of this case 32 The business of the April 16th Meeting was to vote on a special resolution that included the 2007 Special Assessment. A vote is only final when it has been recorded in the minutes. The unsuccessful vote was never recorded in the minutes of that meeting. Therefore, the business of that meeting was not completed when the motion to adjourn the meeting to April 23rd Meeting was carried for the purpose of voting on the Reconsideration Motion. 33 The minutes of the April 23rd Meeting indicate that the business of that meeting was a continuation of the April 16th Meeting, that being the Reconsid- eration Motion. The business of both meetings was the same special resolution and therefore everyone who received formal notice of the special resolution for the April 16th Meeting had knowledge of the content of the resolution on the vote on the Reconsideration Motion. 34 In my view, the April 23rd Meeting was not a new meeting, as contended by the appellant, but a continuation of the April 16th Meeting. Accordingly, formal notice under the SPA of the adjourned meeting was not required.

2. Did the chambers judge err in finding that the procedure under Robert’s Rules could be adopted for determining the conduct of the special general meeting? 35 The SPA and bylaws of the Strata Corporation are silent on the procedure to be followed at a special general meeting. This gap in the legislation gives rise to the issue in this case of whether there is any authority for a Reconsideration Motion at a special general meeting. 36 The appellant submits the SPA is a complete code, and that in the absence of any statutory provision authorizing a vote to reconsider an unsuccessful vote on a special resolution, the subsequent successful vote to reconsider the failed vote is invalid. In support of her position, the appellant relies on the comments of Mr. Justice Hinds in Muller, Re (1986), 62 C.B.R. (N.S.) 194 (B.C. S.C.), on the issue of whether Robert’s Rules may be used to govern a creditors’ meeting for consideration of a proposal under the Bankruptcy Act, R.S.C. 1970, c. B-3. At page 198, Hinds J. observed: Robert’s Rules of Order is a recognized authority on the conduct of meetings but it is not necessarily determinative of the interpretation of a statute. Strata Plan NW971 v. Daniels D. Smith J.A. 19

37 Muller, however, involved the statutory interpretation of the words “the meeting” within s. 87(1) of the Bankruptcy Act. Hinds J. interpreted those words as meaning a meeting of creditors, which he found included a meeting of creditors resulting from an adjourned meeting. He therefore did not need to turn to Robert’s Rules for assistance as the Bankruptcy Act, properly interpreted, provided him with how “the meeting” should be conducted. In this case, there is no provision in the SPA or bylaws of the Strata Corporation that governs the procedure for a special general meeting. Therefore, the question is whether a procedure such as Robert’s Rules, which, as Hinds J. stated at 198, is “a recognized authority on the conduct of meetings”, could be adopted by the Strata Corpora- tion to address the issue that was created by the successful vote at the April 16th Meeting. 38 In this case, a minority of eligible voters were attempting to block the wishes of a true majority of voters who wanted to proceed with repairs to the complex. The Reconsideration Motion was to permit the true majority to attend the adjourned meeting on April 23, 2007, in order to record their vote on the Recon- sideration Motion. Robert’s Rules indicates at 323 that this motion is valid in these circumstances, and is equally applicable to both affirmative and negative votes. The purpose of a motion “to reconsider and enter on the minutes” is described at 322: ... [T]o prevent a temporary majority from taking advantage of an unrepresentative attendance at a meeting to vote an action that is opposed by a majority of [the] membership. 39 In the absence of any provisions in the SPA or bylaws of the Strata Corpora- tion, the procedure adopted must not be unfair to the minority members. Rob- ert’s Rules allowed for the reconsideration of the unsuccessful vote garnered by the “temporary majority” at the unrepresentative first meeting of the eligible voters. In my view, the procedure adopted by the Strata Corporation from Rob- ert’s Rules to protect the wishes of the true majority was not unfair to the appellant or other minority members as the vote on the Reconsideration Motion was more democratic and more reflective of the will of the majority of eligible voters. 40 Accordingly, I would not accede to the submission that the chambers judge erred in finding that the procedure under Robert’s Rules could be adopted for determining the conduct of the special general meeting.

3. Did the chambers judge err in finding that the prejudice to the respondent outweighed the prejudice to the appellant? 41 The appellant raised this ground of appeal in the event this Court found that the chambers judge erred in dismissing the appellant’s contention that the 2007 Special Assessment passed on April 23, 2007 was null and void. The effect of such a declaration would have left the Strata Corporation with having expended 20 REAL PROPERTY REPORTS 99 R.P.R. (4th)

$390,000 on repairs in the absence of any authority to do so. The chambers judge found that in such circumstances the prejudice to the respondent would have outweighed any prejudice to the appellant, and therefore a declaration that the 2007 Special Assessment was null and void should be granted in those circumstances. 42 I find it unnecessary to address this ground of appeal in view of my finding that the chambers judge was correct in upholding the validity of the April 23, 2007 vote on the special resolution. However, with respect, I would also note that counsel has not referred to any authority that would give a court the “inher- ent jurisdiction” to make orders with respect to the internal management of a private organization in the circumstances of this case.

C. Summary and Conclusion 43 In my view, the April 16th Meeting was adjourned to April 23, 2007, for continuation of the business of the first meeting. That business was to vote on the special resolution for which formal notice under the SPA had already been given for the April 16, 2007 Meeting. A second formal notice for the April 23, 2007 Meeting was not required in these circumstances. 44 In the absence of any provisions in the SPA and bylaws of the Strata Corpo- ration for the conduct of a special general meeting, the procedure adopted by the Strata Corporation under Robert’s Rules to reconsider the April 16, 2007 vote (which had not been entered in the minutes) was not unfair to the minority members of the Strata Corporation, protected the wishes of the true majority, and therefore was more reflective of the will of the majority of the eligible voters. 45 In the result, I would dismiss the appeal.

K. Smith J.A.:

I AGREE:

Kirkpatrick J.A.:

I AGREE: Appeal dismissed. 80 Mornelle Properties Inc. v. Mala Properties Ltd. 21

[Indexed as: 80 Mornelle Properties Inc. v. Mala Properties Ltd.] 80 Mornelle Properties Inc. (Applicant / Appellant) and Malla Properties Ltd. (Respondent / Respondent) Ontario Court of Appeal M.J. Moldaver, J.M. Simmons, E.E. Gillese JJ.A. Heard: October 21, 2010 Judgment: December 14, 2010 Docket: CA C51968, 2010 ONCA 850 Martin G. Banach, for Appellant Robert Shour, for Respondent Municipal law –––– Municipal tax assessment — Reassessment –––– Vendor sold apartment building to purchaser while appeal of tax assessment was pending, in October 2006 — Vendor continued appeal after closing and was successful in obtaining reassessment, including refund of $251,166.43 for 2003 to 2006 — City paid refund to purchaser, in accordance with s. 306(2) of City of Toronto Act, 2006 — Purchaser refused to pay refund to vendor — Vendor brought unsuccessful application to have refund relating to period prior to closing date paid to it — Application judge held interest in tax refund was not chose in action at time of closing — Application judge held that doctrine of unjust enrichment did not require purchaser to pay over refund due to authorization contained in s. 306(2) of Act — Vendor appealed — Appeal allowed — Purchaser was enriched by receipt of refund, but s. 306(2) of Act did not provide it with juristic reason to retain refund — Nothing in s. 306(2) or in legislation indicated intention to interfere with rights of property owners by legislature — Language of s. 306(2) of Act was administrative provision intended to clarify responsibility of city in determining who is entitled to refund — Vendor took necessary steps to have property taxes reassessed and was entitled to refund — Vendor was entitled to costs of application of $25,000 and of appeal of $12,500. Real property –––– Sale of land — Completion of contract — Rights and duties pending completion — Payment of municipal tax –––– Vendor sold apartment building to purchaser while appeal of tax assessment was pending, in October 2006 — Vendor continued appeal after closing and was successful in obtaining reassessment, including refund of $251,166.43 for 2003 to 2006 — City paid refund to purchaser, in accordance with s. 306(2) of City of Toronto Act, 2006 — Purchaser refused to pay refund to vendor — Vendor brought unsuccessful application to have refund relating to period prior to closing date paid to it — Application judge held interest in tax refund was not chose in action at time of closing — Application judge held that doctrine of unjust enrichment did not require purchaser to pay over refund due to authorization contained in s. 306(2) of Act — Vendor appealed — Appeal allowed — Vendor owned right to proceeds of assessment appeal immediately prior to closing, and had not expressly assigned right to purchaser — Right was chose in action, not right that runs with land — Provisions in agreement of purchase and sale related to adjustment for excess realty taxes paid by ven- 22 REAL PROPERTY REPORTS 99 R.P.R. (4th) dor — Right was personal to vendor, and legislation governing real property did not apply. Personal property –––– Choses in action — Assignability — Amount due in future — Miscellaneous –––– Realty tax refund — Vendor sold apartment building to purchaser while appeal of tax assessment was pending, in October 2006 — Vendor continued appeal after closing and was successful in obtaining reassessment, including refund of $251,166.43 for 2003 to 2006 — City paid refund to purchaser, in accordance with s. 306(2) of City of Toronto Act, 2006 — Purchaser refused to pay refund to vendor — Vendor brought unsuccessful application to have refund relating to period prior to closing date paid to it — Application judge held interest in tax refund was not chose in action at time of closing — Application judge held that doctrine of unjust enrichment did not require purchaser to pay over refund due to authorization contained in s. 306(2) of Act — Vendor appealed — Appeal allowed — Vendor owned right to proceeds of assessment appeal immediately prior to closing, and had not expressly assigned right to purchaser — Right was chose in action, not right that runs with land — Right was personal to vendor, and legislation governing real property did not apply — Vendor was entitled to refund, less $22,397.11, which it had agreed purchaser could keep. Cases considered by E.E. Gillese J.A.: Mitsubishi Electronics Canada Inc. v. Ontario Property Assessment Corp. (2000), 2000 CarswellOnt 6077, 40 O.M.B.R. 295, [2000] O.M.B.D. No. 406 (O.M.B.) — followed Morguard Properties Ltd. v. Winnipeg (City) (1983), [1983] 2 S.C.R. 493, 3 D.L.R. (4th) 1, 50 N.R. 264, [1984] 2 W.W.R. 97, 25 Man. R. (2d) 302, 6 Admin. L.R. 206, 24 M.P.L.R. 219, 1983 CarswellMan 187, 1983 CarswellMan 162 (S.C.C.) — referred to Pacific National Investments Ltd. v. Victoria (City) (2004), 34 B.C.L.R. (4th) 1, 327 N.R. 100, [2004] 3 S.C.R. 575, 206 B.C.A.C. 99, 338 W.A.C. 99, 42 C.L.R. (3d) 76, [2005] 3 W.W.R. 1, 3 M.P.L.R. (4th) 1, 2004 SCC 75, 2004 CarswellBC 2673, 2004 CarswellBC 2674, 245 D.L.R. (4th) 211, REJB 2004-80300, [2004] S.C.J. No. 72 (S.C.C.) — followed Profitt v. A.D. Productions Ltd. (Trustee of) (2002), (sub nom. Profitt v. A.D. Productions Ltd. (Bankrupt)) 157 O.A.C. 356, (sub nom. Profitt v. Wasserman, Arsenault Ltd.) 2002 G.T.C. 1162, 2002 CarswellOnt 922, 32 C.B.R. (4th) 94 (Ont. C.A.) — referred to Statutes considered: City of Toronto Act, 1997, S.O. 1997, c. 2 Generally — referred to City of Toronto Act, 2006, S.O. 2006, c. 11, Sched. A Generally — referred to Pt. XI-XIV — referred to Pt. XIII — considered s. 306 — considered s. 306(2) — considered s. 306(2)(a) — considered s. 306(2)(a) [rep. & sub. 2006, c. 32, Sched. B., s. 61] — referred to 80 Mornelle Properties Inc. v. Mala Properties Ltd. E.E. Gillese J.A. 23

Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34 Generally — referred to s. 15 — referred to s. 53(1) — referred to Land Registration Reform Act, R.S.O. 1990, c. L.4 Generally — referred to Municipal Act, 2001, S.O. 2001, c. 25 Generally — referred to Pt. VIII-XI — referred to s. 341 — referred to s. 341(2)(a) — referred to s. 349 — referred to

APPEAL by vendor from judgment dismissing application for order directing payment of property tax refund.

E.E. Gillese J.A.:

1 The owner of an apartment building in Toronto appealed the property’s tax assessment. It then sold the property. 2 The City reassessed the property and issued a property tax refund, largely for the period during which the vendor owned the property. Who is entitled to the refund — the vendor or the purchaser? 3 This appeal answers that question in favour of the vendor.

Overview 4 80 Mornelle Properties Inc. (the Vendor) owned an apartment building in Toronto (the property). It sold the property to PFB Investments Ltd. The sale was completed on October 19, 2006 (the closing). On closing, PFB directed title to Malla Properties Inc. (the Purchaser). 5 Before closing, the Vendor had retained lawyers to appeal the property’s tax assessment. The Vendor continued to pursue the assessment appeal after closing and was ultimately successful. In November 2008, the property was reassessed with the result that a refund of $251,166.43 (the refund) was owed for the period 2003 to 2006. 6 The City paid the refund to the Purchaser. It did so because s. 306(2) of the City of Toronto Act, 2006,1 provides that property tax refunds are to be paid “to the owner of the land as shown on the tax roll on the date the adjustment is made”.

1S.O. 2006, c. 11, Sched. A., as amended by the Municipal Statute Law Amendment Act, 2006, S.O. 2006, c. 32, Sched. B., s. 61. 24 REAL PROPERTY REPORTS 99 R.P.R. (4th)

7 The Vendor asked the Purchaser for the refund. The Purchaser refused. 8 The Vendor then brought an application in which it asked the court to direct the Purchaser to deliver the majority of the refund to it. The Vendor did not seek the entire refund because it accepted that the Purchaser could retain the part that related to the period after closing. 9 By order dated March 18, 2010 (the Order), the application judge dismissed the application. In his view, at the time the property was sold, the most that the Vendor could be said to have in respect of its assessment appeal was a “contin- gent prospect for receiving a tax refund in an amount yet to be determined”. He stated that the Vendor could not have sued on the basis of such an interest and opined that it could not be a chose in action. 10 The application judge rejected the Purchaser’s argument that it was entitled to the refund because of provisions in various pieces of legislation governing real property. He noted that such legislation relates to land and interests therein and that it is not clear that the “creation of a request for a tax refund gives rise to a right against land or the title to the land”. 11 The application judge then considered whether the doctrine of unjust enrichment would require the Purchaser to disgorge the refund. He concluded that the case law favoured the Vendor’s claim. Nonetheless, he held that because s. 306(2) of the City of Toronto Act, 2006 authorized payment of the refund to the Purchaser, the Purchaser had a juristic reason to retain it. 12 By order dated May 25, 2010 (the Costs Order), costs of the application were awarded to the Purchaser in the sum of $25,000, plus disbursements and applicable taxes. 13 The Vendor appeals. 14 In my view, the appeal must be allowed.

The Issues 15 In order to decide this appeal, two issues must be addressed: 1. Did the right to the refund pass to the Purchaser on the sale of the property? 2. Is the Purchaser entitled to retain the refund as a result of s. 306(2) of the City of Toronto Act, 2006?

1. Did the Right to the Refund Pass to the Purchaser on the Sale of the Property? 16 I begin with a point of clarification. While I have referred to the right in question as “the right to the refund”, that is not completely accurate. On October 19, 2006, immediately prior to closing, the Vendor had the right to pursue the assessment appeal that it had launched in respect of the property and to receive any benefit that might flow from that appeal (the right). At the time of closing, 80 Mornelle Properties Inc. v. Mala Properties Ltd. E.E. Gillese J.A. 25

because the reassessment had not yet been performed, there was no right to a refund. The right was to receive the fruits of the process that the Vendor had undertaken. The value of those fruits might be $0. Nonetheless, whatever its value, the Vendor was entitled to (i.e. owned) the right. 17 There are two ways in which the right could have passed to the Purchaser on closing: under the terms of the agreement of purchase and sale (the Agreement) or as a result of the operation of real property legislation. As I will explain, neither resulted in the right being conveyed to the Purchaser. 18 Before embarking on that explanation, it is essential to focus on the legal nature of the right. As previously mentioned, on October 19, 2006 immediately prior to closing, the Vendor had the right to the proceeds of the assessment appeal. What kind of property right is that? Is it a right that attaches to the land or a personal right that belonged to the Vendor? 19 The Ontario Municipal Board wrestled with this question in Mitsubishi Electronics Canada Inc. v. Ontario Property Assessment Corp., [2000] O.M.B.D. No. 406 (O.M.B.). It concluded that the right is a chose in action and not one that runs with the land. The Board’s reasoning, with which I agree, can be summarized as follows. 20 The assessment of land and the taxation of land are distinct processes. The assessment of a piece of land is the valuation given to it for the purposes of determining the quantum of property taxes. The assessment of the land does not relate to its use or enjoyment and does not fall within the provisions of s. 15 of the Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34. The alteration of an assessment on an appeal does not give rise to an asset or liability. Only the separate mechanism of the application of a tax rate by the taxing authority results in a debt or refund. That mechanism is independent of the assessment process itself. By virtue of legislation,2 outstanding taxes on a piece of land are a debt to the municipality for which the municipality has been granted a special enforcement right. The burden of outstanding taxes is assigned to a new owner through the conveyance and transfer of the land, subject to the purchaser’s re- course against the vendor. However, an assessment appeal is a chose in action that is not assigned by operation of law. Instead, it must be expressly assigned if it is to pass from a vendor to a purchaser. 21 In many ways, the right in question is akin to the right of a taxpayer to receive a refund for any overpayment in taxes. If a taxpayer has the right to a refund of overpayment, he or she may enforce that right by an action against the government: see Profitt v. A.D. Productions Ltd. (Trustee of) (2002), 157 O.A.C. 356 (Ont. C.A.) at paras. 18-20. Similarly, if an assessment appeal is successful, the property owner has the right to a refund of the overpayment of

2Municipal Act, 2001, S.O. 2001, c. 25, s. 349. 26 REAL PROPERTY REPORTS 99 R.P.R. (4th)

property taxes and can enforce that right by way of action against the municipality. In both cases, the right that the owner has is a chose in action. 22 Choses in action are intangible personal property rights enforceable by legal action. As an intangible personal property right that belonged to the Vendor, it could only have been assigned to the Purchaser by valid legal or equitable assignment. For legal assignment to occur, the Vendor would have had to expressly assign the right to the Purchaser, in writing.3 No question of an equitable assignment arises on the facts of this case as there was no evidence of an intention to assign the chose in action. 23 I turn now to explain why the right was not conveyed to the Purchaser, either by the Agreement or by operation of the real property statutes.

The Agreement 24 Under the Agreement, the Purchaser agreed to purchase and the Vendor agreed to sell the “Property” (art. 2.01). Article 1.01 of the Agreement contains definitions of the significant terms used in the Agreement. “Property” is defined to mean, “collectively the Chattels, the Building, and the Lands”. “Chattels” is defined as “all goods, chattels, fixtures and other tangible personal property owned by the Vendor and used by it in its operation and maintenance of the Property which includes, without limitation, 265 refrigerators, 265 stoves”. “Building” is defined as “[the] existing building at the Lands and all other structures and fixed improvements located on, in or under the Lands belonging to the Vendor”. “Lands” means “the parcel(s) of land as set out in Schedule “A” attached hereto”. 25 In sum, the Agreement conveyed the property, chattels, building and lands. 26 As explained above, the right was intangible personal property that belonged to the Vendor. Clearly, that right does not fall within the meaning of “property, chattels, buildings and lands”, as those terms are defined in the Agreement. 27 Nor does the right fall within the provisions in the Agreement that govern the adjustment of property taxes on closing. Taken together, arts. 1.01(b), 1.01(f) and 2.01(e) of the Agreement provide that adjustments are to be made to taxes, among other things, on closing. Article 5.02 required the Purchaser to deliver, on closing, an undertaking to re-adjust. In accordance with the State- ment of Adjustments, realty taxes were adjusted to compensate the Vendor for the excess taxes it had paid in respect of the property prior to closing. 28 A valid legal conveyance of a chose in action can be achieved only by express written assignment. The Agreement contains no such assignment. There- fore, the Purchaser cannot rely on it as the basis for retaining the refund.

3Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34, s. 53(1). 80 Mornelle Properties Inc. v. Mala Properties Ltd. E.E. Gillese J.A. 27

The Real Property Legislation 29 The application judge concluded that the provisions in real property statutes such as the Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34 and the Land Registration Reform Act, R.S.O. 1990, c. L.4, apply to land and interests therein and, therefore, did not apply to the Vendor’s right in respect of the assessment appeal. I agree. 30 As I have explained, the right was a personal one that belonged to the Ven- dor. Accordingly, it did not run with the land. Put another way, the right is neither land nor an interest in land and, therefore, the legislation governing real property did not apply to cause it to be conveyed to the Purchaser.

2. Is the Purchaser Entitled to Retain the Refund as a Result of S. 306(2) of the City of Toronto Act, 2006? 31 It is trite law that to succeed in a claim based on unjust enrichment, the Vendor must show: (1) that the Purchaser was enriched; (2) it (the Vendor) suffered a corresponding deprivation; and, (3) the absence of a juristic reason for the enrichment: see Pacific National Investments Ltd. v. Victoria (City), [2004] 3 S.C.R. 575 (S.C.C.), at para. 14. 32 It is self-evident that the Purchaser was enriched by receipt of the refund and that the Vendor suffered a corresponding deprivation. The only question is whether s. 306(2) provides the Purchaser with a juristic reason entitling it to retain the refund. In my view, it does not. 33 Section 306 falls under Part XIII of the City of Toronto Act, 2006, which provides for the collection of traditional municipal taxes. Section 306 deals with adjustments to the tax roll to reflect changes to the assessment roll. Section 306(2), the provision in question in this appeal, deals with refunding overpay- ments of municipal property taxes. 34 Section 306 of the City of Toronto Act, 2006, reads as follows: Adjustments to roll 306 (1) The treasurer shall adjust the tax roll for a year to reflect changes to the assessment roll for that year made under the Assessment Act after the tax roll is prepared. Consequences of adjustments (2) Taxes for the year shall be collected in accordance with the adjusted tax roll as if the adjustments had formed part of the original tax roll and the City, a) shall refund any overpayment to the owner of the land as shown on the tax roll on the date the adjustment is made; or b) shall send another tax bill to raise the amount of any underpayment. [Emphasis added.] 35 A brief explanation of the history of s. 306 is in order. 28 REAL PROPERTY REPORTS 99 R.P.R. (4th)

36 Historically, the City’s authority to impose and collect taxes for municipal and school purposes was governed by Parts VIII to XI of the Municipal Act, 2001, S.O. 2001, c. 25. That authority was continued under Parts XI to XIV of the City of Toronto Act, 2006,4 with some modification. 37 The City of Toronto Act, 2006, repealed the City of Toronto Act, 1997, S.O. 1997, c. 2. Section 306 appeared for the first time in the 2006 Act. However, when the City of Toronto Act, 2006, first came into force, s. 306(2) made no reference to whom the refund was to be paid. It simply read as follows: 306. (2) Taxes for the year shall be collected in accordance with the adjusted tax roll as if the adjustments had formed part of the original tax roll and the City, a) shall refund any overpayment; or ... 38 On January 1, 2007, s. 306(2)(a) was amended by the Municipal Statute Law Amendment Act, 2006, S.O. 2006, c. 32, Sched. B, s. 61, (the Amendment Act) to include language specifying to whom the municipality is to pay the refund. This amendment appears in the current version of s. 306(2)(a), which it will be recalled, reads as follows: 306. (2) Taxes for the year shall be collected in accordance with the adjusted tax roll as if the adjustments had formed part of the original tax roll and the City, a) shall refund any overpayment to the owner of the land as shown on the tax roll on the date the adjustment is made;... [Emphasis added.] 39 The Amendment Act simultaneously added the same language to s. 341(2)(a) of the Municipal Act, 2001, S.O. 2001, c. 25. Section 341 of the Municipal Act, 2001, is almost identical to s. 306 of the City of Toronto Act, 2006. It applies to municipalities other than the City of Toronto. 40 The primary purpose of the Amendment Act was to amend the Municipal Act, 2001, so as to give municipalities many of the powers and duties that had been conferred on the City of Toronto. However, as has been mentioned, it also made changes to the City of Toronto Act, 2006, most notably for the purposes of this appeal, by amending s. 306(2)(a). 41 Neither the Legislative Debates nor the Standing Committee transcripts for the Amendment Act disclose any reason for the change to ss. 306 and 341. The change was approved for both Acts without debate or discussion by the Standing Committee. 42 There is nothing in s. 306(2) or otherwise in the legislation to indicate that the legislature intended to interfere with the rights of property owners. Express

4S.O. 2006, c. 11, Sched. A, prior to Municipal Statute Law Amendment Act, 2006, S.O. 2006, c. 32, Sched. B, s. 61. 80 Mornelle Properties Inc. v. Mala Properties Ltd. E.E. Gillese J.A. 29

wording is necessary before the courts are to interpret legislation as having ad- versely affected a person’s rights: see Morguard Properties Ltd. v. Winnipeg (City), [1983] 2 S.C.R. 493 (S.C.C.), at 511. Thus, it cannot be presumed that in passing the amendment to s. 306, the legislature intended to strip the Vendor of the right. 43 Rather, in light of the stated purpose of Part XIII of the City of Toronto Act, 2006, which is to “streamline processes” related to the tax roll, it appears that the change to s. 306(2)(a) was one of administrative convenience for the City. The previous language — “the City shall refund any overpayment” — left it unclear to whom the City was required to pay the refund. The language of s. 306(2)(a), as it now stands, relieves the City of the responsibility of determining who is entitled to the refund. Its responsibility is limited to paying the refund to the owner of the land as shown on the tax roll on the date the adjustment is made. Thus, any dispute over entitlement is between the claimants and not between one or more claimants and the City. 44 Accordingly, in my view, s. 306(2)(a) does not provide the Purchaser with a juristic reason to retain the refund. It is simply an administrative provision designed to enable the City to pay the refund without having to determine who is properly entitled to it. Section 306 does not affect ownership rights nor does it purport to. While s. 306 made it lawful for the Purchaser to receive the refund, it does not give the Purchaser a juristic reason to withhold the refund from the Vendor.

Conclusion 45 The Vendor effectively overpaid taxes on the property during a period in which it owned the property. It was the Vendor who took the necessary steps to have the property taxes reassessed. The right to receive the proceeds of the assessment appeal was a chose in action, a personal right belonging to the Vendor. That right did not run with the property. As the Vendor never assigned the right to the Purchaser, it is the Vendor who is entitled to the refund. Section 306(2)(a) of the City of Toronto Act, 2006, does not amount to a juristic reason entitling the Purchaser to retain the refund. Accordingly, the Purchaser must disgorge the refund less $22,397.11, the amount that the Vendor agrees it can keep.

Disposition 46 Accordingly, I would allow the appeal, set aside the Order and grant the application. I would award costs of the appeal to the Vendor, fixed on consent at $12,500, plus disbursements and applicable taxes. 47 In light of the Vendor’s success on appeal, it is entitled to costs below. I would set aside the Costs Order and order costs of the application to the Vendor fixed at $25,000, plus disbursements and applicable taxes. 30 REAL PROPERTY REPORTS 99 R.P.R. (4th)

M.J. Moldaver J.A.:

I agree.

J.M. Simmons J.A.:

I agree. Appeal allowed.

[Indexed as: Maguire v. Revelstoke Mountain Resort Ltd. Partnership] Robert Maguire, Catherine Vetere and Michael Schabas (Plaintiffs) And Revelstoke Mountain Resort Limited Partnership, Revelstoke Mountain Resort Ltd. (Defendants) British Columbia Supreme Court Fitzpatrick J. Heard: September 7-9, 2010 Judgment: November 17, 2010 Docket: Vancouver S101486, 2010 BCSC 1618 B.G. Baynham, Q.C., C.B. Elder for Plaintiffs M.A. Clemens, Q.C. for Defendants Construction law –––– Contracts — Breach of terms of contract — Breach by con- tractor — Miscellaneous issues –––– Amendments to statement of disclosure — Plain- tiffs each reserved unit in townhouse development after receiving copy of disclosure statement signed by defendant developer R Inc. — Plaintiffs executed contracts of purchase and sale and paid first deposit within 24 hours of acceptance; second deposit required on or before seven days after receipt of amendment to disclosure statement, which was dated December 2008 and which listed several changes, including four-month construction delay and changes in financing — Plaintiffs were unsatisfied with responses to their inquiries about development and therefore did not pay second deposit — On June 30, 2009, R Inc. informed plaintiffs that they were in default, therefore R Inc. had terminated contracts and retained first deposit — R Inc. abandoned intention to complete development — Plaintiffs brought action for return of deposit — Action allowed — Evi- dence suggested that in March 2009, R Inc. was aware of three-month delay and in April 2009, R Inc. was aware of substantial delay of at least 10 to 16 months past original date of construction — Under circumstances, it was incumbent upon R Inc. to “immediately” file amendment to disclosure statement and provide it to plaintiffs; R Inc. did neither — R Inc.’s failure to file amendment to disclosure statement and provide it to plaintiffs Maguire v. Revelstoke Mountain Resort Ltd. Partnership 31 resulted in breach of Pt. 2 of Real Estate Development Marketing Act; accordingly, contracts were unenforceable against plaintiffs under s. 23 of Act and plaintiffs were entitled to return of their deposits — However, there is nothing in Act that would suggest that there is any requirement to disclose further detail regarding financing. Contracts –––– Performance or breach — Terms — When does representation become term –––– Plaintiffs each reserved unit in townhouse development after receiving copy of disclosure statement signed by defendant developer R Inc. — Plaintiffs executed contracts of purchase and sale and paid first deposit within 24 hours of acceptance; second deposit required on or before seven days after receipt of amendment to disclosure statement, dated December 2008 — Plaintiffs were unsatisfied with responses to their inquiries about development, including construction delays, and therefore did not pay second deposit — On June 30, 2009, R Inc. informed plaintiffs that they were in default; R Inc. terminated contracts and retained first deposit — R Inc. abandoned intention to complete development — Plaintiffs brought action for return of deposit — Action allowed — Section 1 of Real Estate Development Marketing Act requires disclosure of material facts about developments — Both construction start and completion dates are “material fact” required to be set out in disclosure statements and required to be reasonably accurate, in accordance with Act — Court of Appeal has held that anticipated commencement and completion dates are material facts as defined in Act because date on which construction of unit completes could reasonably be expected to affect value, price, or use of that unit — R Inc.’s failure to file amendment to disclosure statement and provide it to plaintiffs was breach of Pt. 2 of Act; accordingly, contracts were unenforceable against plaintiffs under s. 23 of Act and plaintiffs were entitled to return of their deposits. Construction law –––– Contracts — Breach of terms of contract — Breach by con- tractor — Delay — Time specified for completion –––– Plaintiffs each reserved unit in townhouse development after receiving copy of disclosure statement signed by defendant developer R Inc. — Plaintiffs executed contracts of purchase and sale and paid first deposit within 24 hours of acceptance; second deposit required on or before seven days after receipt of amendment to disclosure statement, which was dated December 2008 and which listed several changes, including four-month construction delay — Plaintiffs were unsatisfied with responses to their inquiries about development and therefore did not pay second deposit — On June 30, 2009, R Inc. informed plaintiffs that they were in default; R Inc. terminated contracts and retained first deposit — R Inc. abandoned intention to complete development — Plaintiffs brought action for return of deposit — Action allowed — Evidence suggested that in March 2009, R Inc. was aware of three-month delay and in April 2009, R Inc. was aware of at least 10 to 16 months of delay past original date of construction — Real Estate Development Marketing Act’s purpose of consumer protection is not furthered by excusing developer from notifying purchasers of material change on basis of indefinite language in its disclosure statement — Date on which construction of unit completes could reasonably be expected to affect value, price, or use of that unit — R Inc.’s failure to file amendment to disclosure statement and provide it to plaintiffs was breach of Pt. 2 of Act; contracts were unenforceable against plaintiffs, who were entitled to return of their deposits. Construction law –––– Contracts — Breach of terms of contract — Miscellaneous issues –––– Identity of developer — Plaintiffs each reserved unit in townhouse development after receiving copy of disclosure statement signed by defendant developer R 32 REAL PROPERTY REPORTS 99 R.P.R. (4th)

Inc. — Plaintiffs executed contracts of purchase and sale and paid first deposit within 24 hours of acceptance; second deposit required on or before seven days after receipt of amendment to disclosure statement, which included information about changes of directors of R Inc. — Plaintiffs were unsatisfied with responses to their inquiries, including concerns about change in directors, and therefore did not pay second deposit — On June 30, 2009, R Inc. informed plaintiffs that they were in default, therefore R Inc. had terminated contracts and retained first deposit — R Inc. abandoned intention to complete development — Plaintiffs brought action for return of deposit — Action allowed on other grounds — Change in identity of developers is material fact that triggers requirement to file new disclosure statement, which triggers right of rescission for purchaser, as set out in s. 21 of Real Estate Development Marketing Act — However, Court of Appeal recently held that change in ownership or control of developer, or change of directors and officers, does not constitute change in identity of developer — It was open to legislature to change definition of “material fact” to refer not only to “identity” of developer, but also identity of director — Court in present case was not prepared to read any further requirement into legislation. Construction law –––– Contracts — Breach of terms of contract — Damages — Pen- alties and liquidated damages — Penalty and damages distinguished –––– Clause requiring forfeit of deposit for development project that never began construction did not represent penalty. Cases considered by Fitzpatrick J.: Budinsky v. Breakers East Inc. (1992), (sub nom. Abdool v. Somerset Place Developments of Georgetown Ltd.) 58 O.A.C. 176, (sub nom. Abdool v. Somerset Place Developments of Georgetown Ltd.) 10 O.R. (3d) 120, (sub nom. Abdool v. Somerset Place Developments of Georgetown Ltd.) 27 R.P.R. (2d) 157, (sub nom. Abdool v. Somerset Place Developments of Georgetown Ltd.) 96 D.L.R. (4th) 449, 1992 CarswellOnt 620, (sub nom. Abdool v. Somerset Place Developments of Georgetown Ltd.) [1992] O.J. No. 2115 (Ont. C.A.) — followed Chameleon Talent Inc. v. Sandcastle Holdings Ltd. (2009), 2009 CarswellBC 3285, 2009 BCSC 1670, [2009] B.C.J. No. 2423 (B.C. S.C.) — referred to Chameleon Talent Inc. v. Sandcastle Holdings Ltd. (2010), 2010 CarswellBC 1488, 2010 BCCA 300 (B.C. C.A.) — considered Coal Harbour Properties Partnership v. Liu (2006), 56 B.C.L.R. (4th) 230, 2006 BCCA 385, 2006 CarswellBC 2157, [2006] 11 W.W.R. 65, 380 W.A.C. 78, 273 D.L.R. (4th) 508, 230 B.C.A.C. 78, [2006] B.C.J. No. 1983 (B.C. C.A.) — considered Dwane v. Bastion Coast Homes Ltd. (2009), 2009 CarswellBC 1425, 2009 BCSC 726, 95 B.C.L.R. (4th) 333 (B.C. S.C.) — considered Hinkson Holdings Ltd. v. Silver Sea Developments Ltd. Partnership (2007), 58 R.P.R. (4th) 18, 246 B.C.A.C. 37, 406 W.A.C. 37, 2007 BCCA 408, 2007 CarswellBC 1786, 70 B.C.L.R. (4th) 91, [2007] B.C.J. No. 1729 (B.C. C.A.) — considered Jameson House Properties Ltd., Re (2009), 2009 BCSC 964, 2009 CarswellBC 1867, 57 C.B.R. (5th) 9 (B.C. S.C. [In Chambers]) — considered Jameson House Properties Ltd., Re (2009), 2009 BCCA 339, 2009 CarswellBC 1904, 96 B.C.L.R. (4th) 208, [2009] 11 W.W.R. 425, 461 W.A.C. 285, 273 B.C.A.C. 285, 57 C.B.R. (5th) 21 (B.C. C.A.) — referred to Maguire v. Revelstoke Mountain Resort Ltd. Partnership 33

Lee v. Skalbania (1987), 1987 CarswellBC 618, 47 R.P.R. 162, [1987] B.C.J. No. 2502 (B.C. S.C.) — followed MTK Auto West Ltd. v. Allen (2003), 2003 BCSC 1613, 2003 CarswellBC 2589, [2003] B.C.J. No. 2430 (B.C. S.C. [In Chambers]) — considered Pinto v. Revelstoke Mountain Resort Ltd. Partnership (2010), 2010 BCSC 422, 2010 Car- swellBC 760, [2010] B.C.J. No. 561 (B.C. S.C.) — considered Statutes considered: Business Corporations Act, S.B.C. 2002, c. 57 Generally — referred to Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 Generally — referred to Law and Equity Act, R.S.B.C. 1996, c. 253 s. 24 — considered Partnership Act, R.S.B.C. 1996, c. 348 Generally — referred to Real Estate Development Marketing Act, S.B.C. 2004, c. 41 Generally — referred to Pt. 2 — referred to Pt. 2, Div. 4 — referred to s. 1 “disclosure statement” — considered s. 1 “material fact” — considered s. 1 “material fact” (b) — considered s. 1 “misrepresentation” — considered s. 1 “misrepresentation” (a) — considered s. 1 “misrepresentation” (b) — considered s. 10 — considered s. 12 — considered s. 14 — considered s. 14(2) — considered s. 16 — considered s. 16(1) — considered s. 16(1)(a)(i) — considered s. 16(2)(a) — considered s. 21 — considered s. 23 — considered Words and phrases considered material fact “Misrepresentation” is defined in s. 1 of [the Real Estate Development Marketing Act] as (a) a false or misleading statement of a material fact, or (b) an omission to state a material fact. In relation to this issue, the relevant definition of “material fact” includes “in relation to a development unit or development property . . . a fact, or a proposal to do something, that affects, or could reasonably be expected to affect, the value, price, or use of the development unit or development property.” 34 REAL PROPERTY REPORTS 99 R.P.R. (4th)

immediately [T]he Court of Appeal has noted that the word “immediately” in s. 16(1) of [the Real Estate Development Marketing Act] is to be construed to allow for a reasonable time for compliance in a commercial context: [Jameson House Properties Ltd., Re (2009) 96 B.C.L.R. (4th) 208 (B.C. C.A.)], para. 42.

ACTION brought by purchasers of townhouse units for return of deposits made on development that was never completed.

Fitzpatrick J.: Introduction 1 This action concerns deposits paid by the plaintiffs to the defendants in respect of two contracts of purchase and sale for strata units to be constructed in Revelstoke, British Columbia. This case is somewhat unique because the real estate development in question was never completed and the defendants have abandoned any intention to proceed with it at this time. 2 The plaintiffs seek a return of their deposits based on alleged breaches by the defendants of the Real Estate Development Marketing Act, S.B.C. 2004, c. 41 (“REDMA”). Alternatively, the plaintiffs say that the retention of the deposits by the defendants constitutes a penalty and it is unconscionable that they be allowed to retain the deposits.

Background 3 The plaintiffs are residents of the U.K. and are avid skiers. The defendant Revelstoke Mountain Resort Inc. is the general partner of the defendant Revel- stoke Mountain Resort Limited Partnership (collectively “RMR”). RMR is involved in the redevelopment of the ski mountain facilities located in Revelstoke. The redevelopment included the construction of a lodge and numerous residential properties and included upgrades to the mountain facilities and related amenities. 4 The plaintiffs, Robert Maguire (“Mr. Maguire”) and his partner Catherine Vetere, heard about this new development in late 2007. In January 2008, Mr. Maguire visited the mountain and obtained further information from Sotheby’s, an international realty organization, who was in charge of marketing the new development. 5 In April 2008, Mr. Maguire convinced his friend and co-plaintiff, Michael Schabas (“Mr. Schabas”), to join him on a ski trip to Revelstoke. They were both very impressed with the skiing, the town of Revelstoke and, in particular, the proposed development. They met with Don Simpson (“Mr. Simpson”), whom they understood to be the managing director of the mountain. They also knew of another person involved in the development, Hunter Milborne (“Mr. Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 35

Milborne”), by reputation. Finally, they knew that the Gaglardi family was involved with respect to financing the development. 6 Mr. Maguire and Mr. Schabas each became interested in purchasing a unit in a 24 unit townhouse development known as the “Tangiers” to be located at 2955 Camozzi Road, in Revelstoke. They each reserved a townhouse after receiving a copy of the Disclosure Statement signed by the directors of RMR dated March 17, 2008, which was filed with the Superintendent of Real Estate (the “Superin- tendent”) a few days later. Relevant to the issues in this action, the Disclosure Statement provided as follows: 1. The Developer 1.1 The Developer The Developer is a limited partnership formed on February 15, 2007 pursuant to a Certificate of Limited Partnership filed under the Partnership Act (British Columbia) at the office of the Registrar of Companies, Victoria, British Columbia, under number 444005-07. The general partner of the De- veloper is Revelstoke Mountain Resort Inc. Revelstoke Mountain Resort Inc. was incorporated under the Business Corporations Act (British Columbia) on February 2, 2007 under incorporation number BC0781736. The names and addresses of the limited partners of the Developer are available for inspection during ordinary business hours at the mailing address and address for service set out on the face page of this Disclosure Statement...... 1.4 Directors The directors of Revelstoke Mountain Resort Inc., the general partner of the Developer, are Robert Powadiuk, Donald Simpson, C. Hunter Milborne and Robert Thomas Gaglardi. 1.5 Background of Developer (a) Experience Although the Developer and its general partner were both formed in 2007, the officers and directors of the general partner of the Devel- oper have significant experience in the development industry. Robert Powadiuk, Donald Simpson, C. Hunter Milborne and Robert Thomas Gaglardi have been involved in the industry for approximately 38, 35, 30 and 20 years, respectively, and each has been associated with numerous residential and mixed-use residential development properties...... 5.1 Construction Dates The estimated date of commencement of construction of the Development is June 1, 2008. The estimated date of completion of construction of the Devel- opment is August 31, 2009. These dates are estimates only and may vary 36 REAL PROPERTY REPORTS 99 R.P.R. (4th)

based on construction factors or market conditions, subject to the provisions of the contracts of purchase and sale for the Strata Lots. Robert John Gaglardi (“Bob Gaglardi”) had been one of the original directors of RMR from November 2007 but resigned in January 2008 to be replaced by Rob- ert Thomas Gaglardi (“Tom Gaglardi”). 7 Mr. Maguire and Mr. Schabas returned to the U.K., but continued their discussions and negotiations with RMR. They eventually executed contracts of purchase and sale. Mr. Maguire and Catherine Vetere executed a contract in respect of Townhouse #7 for a total purchase price of $1,275,000 on May 22, 2008. Mr. Schabas executed a contract in respect of Townhouse #11 for a total purchase price of $1,275,000 on June 4, 2008. The relevant provisions of those contracts are contained in Schedule A. They provided as follows: (a) The plaintiffs were required to pay a first deposit within 24 hours of acceptance equal to 10% of the purchase price which was to be held in trust with RMR’s solicitors; (b) The plaintiffs were required to pay a second deposit equal to 10% of the purchase price on or before a date that was seven days after receipt by the purchasers of an “Amendment to Disclosure Statement”, which amount was also to be held in trust with RMR’s solicitors. The Amend- ment to Disclosure Statement was anticipated to be received by the plaintiffs within 12 months after the Disclosure Statement was filed with the Superintendent. The Amendment to Disclosure Statement was related to (a) a “Building Permit Amendment” and (b) a “Financing Commit- ment Amendment” which would set out the particulars of a satisfactory financing commitment. If neither of those amendments were received by the plaintiffs, they were entitled at their option to cancel the contracts and obtain a return of their deposits; (c) The plaintiffs were required to pay the balance of the purchase price upon completion. If the completion date had not occurred by August 31, 2011, the contracts were to be terminated, subject to any agreement to extend, and the deposits repaid; and (d) If, by July 31, 2008, RMR had not satisfied itself as to the level of pre- sales of the strata units in the development, it could terminate the contracts upon written notice to the plaintiffs. The same right of termination applied in the event that RMR had not satisfied itself at its sole discretion as to the amount of the construction costs that it expected to incur to complete the development. Neither of these rights were triggered in this case. In fact, I am advised that RMR had obtained ten pre-sales in respect of the Tangiers development which included those of the plaintiffs. 8 The contracts also contained a provision related to deposits: 1. Deposits ... Interest earned on the First Deposit and the Second De- posit (together, the “Deposits”) (less a reasonable administration fee Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 37

up to $100.00 charged by the Vendor’s lawyers) will be for the benefit of the Purchaser unless the Purchaser defaults on any of the Pur- chaser’s obligations hereunder, in which case the Vendor may, at its election, terminate this Contract and retain the Deposits and interest thereon as liquidated damages, the parties agreeing that such amount constitutes a genuine pre-estimate of damages... [Emphasis added.] 9 In due course, the plaintiffs each paid the first deposit to RMR in the amount of $127,500. 10 Both Mr. Maguire and Mr. Schabas were unclear as to when the second deposit was going to be required. Both expected construction to be commenced fairly quickly and were anxious to experience the new development and spend time in their new homes. Mr. Schabas, in particular, had planned a family vaca- tion for early 2010, which plans were consistent with the Disclosure Statement which indicated an estimated completion date in August 2009. 11 At the time that the contracts were executed, the worldwide credit crisis was well underway. RMR began facing difficulties arising from the economic fallout that began in 2007 and continued into 2008. RMR had obtained outside financing for the development from a third party which was to have been funded in 2008. In addition, RMR had secured $20 million in financing pursuant to a commitment letter dated August 24, 2007 from Northland Properties Corporation (“Northland”), a company controlled by the Gaglardi family. RMR later lost the financing commitment from the third party. As a result of these difficulties, the Gaglardi family, through Northland, increased its financing commitment to $25 million pursuant to a “First Supplemental to Commitment Letter” dated Septem- ber 10, 2008. 12 When Northland increased its financing commitment in late 2008, there was a “changing of the guard” within RMR. Mr. Simpson, Mr. Milborne, and Mr. Powadiuk resigned as directors and officers in September and October 2008. In late December 2008, Tom Gaglardi resigned and new directors and officers were appointed. Effective December 31, 2008, the board consisted of Michael Cas- sady, Michael Esler, Andrea Gaglardi, and Devonna Gaglardi. The latter two are members of the Gaglardi family, and were also appointed as President and Vice President respectively of RMR. 13 Although the recession was not news in the U.K., the difficulties facing RMR and the changes within it were reported in the press and came to the attention of Mr. Maguire and Mr. Schabas. After some inquiries, they both received a response from Mr. Simpson that confirmed that the Gaglardis had taken a larger ownership interest in and assumed control and management of the development. He also indicated that the composition of the ownership group had not changed, he remained an owner and was still “heavily involved” in the development, and 38 REAL PROPERTY REPORTS 99 R.P.R. (4th)

that the change in financing from Northland was a positive step in proceeding with the development. 14 Mr. Maguire made a more detailed email request for information on Novem- ber 7, 2008. He was looking for reassurance that the project was still financially sound, and that the Gaglardis intended to continue with the “original vision for creating a world class ski resort at Revelstoke” that he expected. He received no response to his email. 15 A more specific discussion between the parties took place in November 2008. Mr. Schabas inquired as to when the developer was going to be breaking ground on the Tangiers development and when the next payment would be required. RMR responded that they expected to break ground on the Tangiers development in the spring and they confirmed that the retaining wall was constructed in the fall in preparation for the site’s development. Mr. Schabas was advised that the second deposit would be due within seven days of the filing of the Amendment to Disclosure Statement in accordance with the contract, and that, although this date was still not determined, they anticipated filing it by December 20, 2008. 16 In the meantime, Northland provided RMR with a “Second Supplemental to Commitment Letter” on November 14, 2008, which provided for further financing in the form of a $23 million line of credit to facilitate the construction of the ski area infrastructure and services infrastructure for an all-season resort known as “Revelstoke Mountain Resort”. That document was later amended to specifically provide that the financing also related to the construction of the Tangiers development. 17 By December 4, 2008, Mr. Maguire was still looking for answers to the questions that he had posed. He was clearly concerned about the rumours of financial difficulty related to the development. In reply, Mr. Simpson indicated that the Tangiers development was approximately 50% sold and confirmed that some of the foundation and retaining work had already been done. He also referred to expecting to “have a financing commitment shortly”. Both plaintiffs contend that the November 14, 2008 commitment letter relating to the Tangiers development was nothing more than a “charade” by the Gaglardis to indicate that the financing was in place when, in fact, it was not. 18 An Amendment to Disclosure Statement was prepared on December 19, 2008. It amended the Disclosure Statement as follows: 5. By deleting section 1.4 and replacing it with the following: 1.4 Directors The director of Revelstoke Mountain Resort Inc., the general partner of the Developer, is Robert Thomas Gaglardi. Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 39

6. By deleting section 1.5(a) and replacing it with the following: (a) Experience Although the Developer and its general partner were both formed in 2007, the officers and director of the general partner of the Developer have significant experience in the development industry. Robert Thomas Gaglardi has been involved in the industry for approximately 20 years, and has been associated with numerous residential and mixed-use residential development properties...... 14. By deleting the first sentence of section 5.1 and replacing it with the following: Construction of the Development has commenced. 15. By deleting the phrase “August 31, 2009” in the second sentence of section 5.1 and replacing it with the phrase “December 31, 2009”. [This relates to the estimated date of completion of construction of the development.] 16. By deleting sections 6.1 and 6.2 and replacing them with the following: 6.1 Development Approvals On March 14, 2008, the City issued an approval-in-principle for the issuance of Development Permit Applica- tion No. 2008-07 in respect of the construction of the Development. On December 19, 2008, the City issued Building Permit number 2008-251 in respect of the construction of Development. 6.2 Construction Financing The Developer has now received a formal commitment from Northland Properties Corporation (the “Construc- tion Lender”) to advance the construction financing required for the construction of the Development (the “Construction Financing”). In connection with the Con- struction Financing, titles to the Strata Lots may be subject to mortgages, assignments of rents and/or any other security reasonably required by the Construction Lender with respect to the Construction Financing (collectively, the “Construction Security”). Pursuant to its financing commitment, the Construction Lender has agreed to provide a partial discharge of the Construction Security insofar as it relates to any particular Strata Lot in the Development upon receipt of the net sale proceeds from the sale of such Strata Lot or such portion thereof as is agreed by the Construction Lender and payment by the 40 REAL PROPERTY REPORTS 99 R.P.R. (4th)

Developer of the Construction Lender’s discharge fee. The Developer will pay out and partially discharge the Construction Lender’s Construction Security in respect of any such Strata Lot within a reasonable time after completion of the sale thereof. The Amendment to Disclosure Statement also indicated that Sotheby’s had been replaced as the agent for the development by Epic Real Estate Solutions, Inc. (“Epic”). 19 The Amendment to Disclosure Statement was provided to Mr. Schabas and Mr. Maguire on or about December 23, 2008 and upon receipt, triggered their obligation to make the second deposit. Despite the wording in the contracts, RMR indicated that, as a courtesy, they would expect the second deposit no later than April 30, 2009. 20 Mr. Maguire visited Revelstoke in January 2009. At that time, Mr. Maguire toured the site where the Tangiers development was to be constructed and saw the extensive retaining wall that had been built on the property. He confirmed his understanding that the retaining wall had been completed for the purpose of constructing the Tangiers development. 21 After receipt of the Amendment to Disclosure Statement, Mr. Maguire and Mr. Schabas continued to have concerns regarding the development. Mr. Schabas emailed RMR on February 25, 2009 to ask for updates on recent developments. Of particular concern to both of them was the disclosure in the Amendment to Disclosure Statement that Mr. Simpson has resigned as an officer and director of RMR because they trusted him and had deposited great faith in his “vision” of the development. They also had some concerns regarding the reputation of the Gaglardi family with respect to whether they had the capacity or “vision” to complete the high-end development that the Tangiers was intended to be. 22 In the meantime, RMR prepared a second Amendment to Disclosure State- ment dated March 10, 2009, which identified a number of changes: (a) The agent for the developer was again indicated as being Sotheby’s (section 1.4). (b) The directors were identified as Andrea Gaglardi, Devonna Gaglardi, Michael Cassady and Michael Esler. It stated that they had been involved in the real estate industry in various capacities for approximately 10, 2, 10 and 10 years, respectively, and have varied experience in real estate development, design and/or financing (section 1.5(a)). (c) The estimated completion date was further changed from December 31, 2009 to March 31, 2010 (section 5.1). Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 41

This second Amendment to Disclosure Statement was never filed with the Su- perintendent, and the plaintiffs did not receive it until after these proceedings were commenced in March 2010. 23 Mr. Maguire’s concerns were serious enough in the spring of 2009 that he retained English solicitors to write a letter to RMR on March 25, 2009. They sought clarification on the status and progress of the project and also raised various issues that they wished addressed. In particular, they stated that “[i]t is not clear when the development itself will now be commenced”. Further, they requested documentation supporting the financing commitment from Northland as disclosed in the first Amendment to Disclosure Statement. Mr. Schabas forwarded the same letter to RMR on March 26, 2009. The only response from RMR was a letter sent to Mr. Schabas in April 2009 reminding him that the second deposit was due on April 30, 2009. On April 28, 2009, the plaintiffs received a newsletter from RMR indicating that the Tangiers development was now scheduled to be completed between October 2010 and April 2011. 24 Not receiving what they considered an adequate response to their inquiries, neither Mr. Schabas nor Mr. Maguire paid the second deposit on April 30, 2009. In May 2009, Mr. Maguire confirmed to RMR that he was not particularly interested in completing the purchase and pointed out that the estimated completion date was now a year later than previously stated. The inference from their evidence is that they did not pay because they did not want to tie up their funds earning a low rate of interest in the event that the development was not going to proceed. 25 On June 30, 2009, RMR prepared a letter to Mr. Maguire and Mr. Schabas that indicated that the deadline for the payment of the second deposit had passed and that they were in default of their obligations under the contracts. Accord- ingly, RMR indicated that it had elected to terminate the contracts and retain the first deposits in accordance with the contracts. Mr. Schabas did not receive this letter until November 2009. In the meantime, in October 2009, he indicated that he was still awaiting a response to his March 26, 2009 letter and was ready to make the second deposit provided that RMR confirmed that they would be proceeding with the development in the near future. 26 On October 23, 2009, RMR forwarded a further letter to the plaintiffs again confirming that it had elected to terminate the contracts. That letter also provided a response to the earlier asked questions concerning the status of the development (which was to the point that RMR had until August 2011 to complete the project), that there had been no third party developer taking over the project and, finally, that the financing commitment had been fulfilled under the terms of the contracts. When Mr. Schabas received the RMR letters in November, he inquired as to whether RMR would be prepared to accept the second deposit and was advised that they were no longer willing to accept it. 42 REAL PROPERTY REPORTS 99 R.P.R. (4th)

27 Tom Gaglardi advised that of the ten pre-sales, five purchasers had defaulted and RMR had retained the deposits. He said that RMR had instructed Sotheby’s to seek out the defaulting purchasers to determine whether or not they were still prepared to proceed. Both Mr. Schabas and Mr. Maguire indicated that they were not approached by Sotheby’s in that respect. 28 Despite the termination of the contracts in accordance with the June/October 2009 letters, RMR continued to correspond with Mr. Maguire and Mr. Schabas concerning the development. A third Amendment to Disclosure Statement dated December 1, 2009 was prepared and provided to the plaintiffs just after this action was commenced. By this time, Tom and Bob Gaglardi had rejoined the board of directors in August 2009 to replace Mr. Cassady and Mr. Esler. The third Amendment to the Disclosure Statement indicated that all four Gaglardis now constituted the board. The third Amendment to the Disclosure Statement provided that section 5.1 in the Disclosure Statement was replaced with the following clause: Construction of the Development has not yet commenced. The estimated date of commencement of construction is August 2010. The estimated date of completion of construction of the Development is August 31, 2011. These dates are estimates only and may vary based on construction factors or market conditions, subject to the provisions of the contracts of purchase and sale for the Strata Lots. 29 Just prior to the trial, RMR advised the plaintiffs that it had decided not to proceed with the development by reason of the fact that they did not have enough pre-sales in hand, particularly given that five purchasers had defaulted. Tom Gaglardi indicated that RMR had instructed their agent to return the deposits to non-defaulting pre-sale purchasers. 30 In addition to Mr. Maguire and Mr. Schabas, the principals of RMR, Bob and Tom Gaglardi, gave evidence at trial. Both were called as adverse witnesses by the plaintiffs and subsequently cross-examined by RMR’s counsel.

The Issues 31 The plaintiffs say that RMR has breached REDMA in at least four ways: (a) RMR failed to comply with the early marketing provisions, in that it failed to obtain and provide particulars of a satisfactory financing commitment; (b) RMR failed to file a new disclosure statement when there was a change in the identity of the developer (when the Gaglardis took over), which would have provided the plaintiffs with a right to rescind their contracts before the second deposit was due; (c) RMR failed to keep the plaintiffs apprised, by filing timely amendments to disclosure statements, of the estimated dates for the start and completion of construction of the development; and Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 43

(d) RMR failed to file and serve an amendment to the disclosure statement in early 2009 advising of the changes in the composition of the board of directors. The plaintiffs also initially advanced this argument in relation to the change in the agent from Sotheby’s to Epic, however, this was not addressed in argument and I will only address this issue in relation to the board. The plaintiffs say that if they succeed on any one of these arguments, they are entitled to the return of their deposits, with interest and costs. 32 In the alternative, if there are no breaches of REDMA entitling the plaintiffs to a return of their deposits, they contend that it would be unconscionable for RMR to retain the deposits because of the language of the contracts and the law of equity.

Discussion 1. Did RMR fail to obtain, or alternatively provide particulars of, a satisfactory financing commitment? 33 Pursuant to s. 10 of REDMA, developers can market a development prior to obtaining a building permit or financing if the developer has approval in principle to begin construction from the municipal authority and the permission of the Superintendent. The Superintendant has published Amended Policy Statement 5 (Early Marketing - Development Approval) and Amended Policy Statement 6 (Adequate Arrangements - Utilities and Services) which sets out how and on what terms that permission will be granted. 34 Amended Policy Statement 6 specifically provides that early marketing may occur provided that the estimated date for the issuance of a satisfactory financing commitment is nine months or less from the date that the developer files the disclosure statement and that the developer markets the proposed development for a period of no more than nine months from the date the disclosure statement was filed, unless an amendment to the disclosure statement that sets out particulars of a satisfactory financing commitment is filed during that period. The purchase agreement must also provide for a right of rescission if that amendment is not received and that the amount of the deposit paid by a purchaser who has not yet received an amendment may not exceed 10% of the purchase price. 35 If a developer has obtained a “satisfactory financing commitment”, the developer is deemed to have made adequate arrangements to ensure payment of the cost of utilities and other services associated with the development unit. A satisfactory financing commitment is defined in s. 1(b) of Amended Policy Statement 6 as follows: “satisfactory financing commitment” means 44 REAL PROPERTY REPORTS 99 R.P.R. (4th)

(i) a commitment of funds from a lender that is not conditional on the developer entering into a certain number of purchase agreements with purchasers, (ii) a conditional financing commitment, the conditions of which have been satisfied, (iii) the availability of the developer’s own funds, or (iv) a combination of (i), (ii) or (iii) that is sufficient to finance the construction and completion of the development property including the installation of all utilities and other services associated with the development units ... [Emphasis added.] 36 In this case, the first Amendment to Disclosure Statement dated December 19, 2008 was filed within nine months after the filing of the Disclosure State- ment and refers to the formal commitment from Northland for financing required for construction of the Tangiers development. RMR says that this commitment is contained in the Second Supplemental to Commitment Letter dated November 14, 2008. 37 The position of the plaintiffs is that the Second Supplement to Commitment Letter is not a “satisfactory financing commitment” from a “lender”. They allege that this document is a “charade” and that there is no binding commitment letter. Further, they say that even accepting that there was a financing commitment, the lack of disclosure of particulars of the financing to the plaintiffs is fatal to enforcing the contracts. For the following reasons, I reject these submissions. 38 The uncontradicted evidence at trial was that Northland is a financing vehi- cle for the Gaglardi family businesses. To date, it has advanced approximately $100 million to finance the Revelstoke development. The Second Supplement to Commitment Letter was initially executed without reference to the Tangiers development. Tom Gaglardi testified that the reference to Tangiers was added shortly after when they were advised that this was required. Tom Gaglardi’s evidence was to the effect that the Tangiers development was estimated to cost between $8 - 12 million and that it was well within the $23 million line of credit to be provided by Northland under that commitment. 39 The plaintiffs contend that there is no documentary evidence confirming when this change was made. They suggest that the change was made after the nine month deadline required under REDMA. They point to an email from Mr. Simpson to the plaintiffs on December 4, 2008 which stated that “we [RMR] expect to have a financing commitment shortly”. Nevertheless, I note that Mr. Simpson was no longer an officer or director of RMR by this time. In these circumstances, one can only speculate on the source of his statements. Without more beyond speculation on the part of the plaintiffs, I accept the evidence of the Gaglardis on this point. I am satisfied that a binding letter of commitment in Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 45

what can be described as fairly typical commercial terms for financing by North- land was in place for the Tangiers development on or about November 14, 2008. 40 The plaintiffs also argue that Northland is not a real “lender” in the sense that it is not a “financial institution that is in the business of providing construction financing”. In my view, this argument is untenable. The days of a Canadian lending environment in which only banks with household names participate has long since passed. Over the last few decades, the lending market in Canada has become increasing diversified. Many new and important participants now com- pete for business. In particular, many lenders are private capital firms who may not have the reputation or transparency of large financial institutions, but nevertheless have the resources to finance large projects, such as the one in question. It is clear from the evidence of the Gaglardis that Northland is the type of private capital firm that has clearly emerged to become an important source of financing in the Canadian marketplace. 41 The reference to “lender” in the definition of “satisfactory financing commitment” in s. 1(b)(i) of Amended Policy Statement 6 is not defined. It cannot be doubted that Northland meets the plain meaning of that word. I agree with the submissions of RMR that had the Superintendent meant to require that a lender have specific qualifications or characteristics, the policy statement could have easily so provided. 42 In any event, it is not clear to me that Amended Policy Statement 6 (Ade- quate Arrangements - Utilities and Services) applies to construction financing (as opposed to financing for utilities and other services). Arguably, Amended Policy Statement 6 and, hence, the need to have a “satisfactory financing commitment” relates only to the requirements of s. 12 of REDMA which provides that a developer must not market a development unit unless the developer has made adequate arrangements to ensure payment of the cost of utilities and other services associated with the development unit. It is not necessary to decide this issue given my conclusion that Northland is a “lender” under the definition above, and, therefore, that RMR obtained a “satisfactory financing commitment” in relation to the Tangiers development, including its utilities and other services. 43 Finally, the plaintiffs contend that RMR failed to provide “particulars” of the financing commitment in the first Amendment to Disclosure Statement as required by section 5(b) of Amended Policy Statement 6. In section 6.2 of the Amendment to Disclosure Statement, RMR refers to the formal commitment and also discloses that titles may be subject to mortgages and that partial dis- charges will be provided for completed sales. The plaintiffs say that further particulars should have been disclosed including a description of the lender and a description of the commitment, including any conditions on funding. They say this is particularly so where the lender is a private company and potential purchasers have no means to discern these details without disclosure. 46 REAL PROPERTY REPORTS 99 R.P.R. (4th)

44 There is ample authority in British Columbia that REDMA is consumer protection legislation. Nevertheless, fairness dictates that the developer is also afforded some degree of certainty in terms of knowing that it has binding contracts of purchase and sale in place. In Budinsky v. Breakers East Inc. (1992), 10 O.R. (3d) 120 (Ont. C.A.) [hereinafter Abdool], the Ontario Court of Appeal stated: 39 In answering this question there are a number of factors to be kept in mind. These disclosure provisions must, of course, be given a construction consistent with their consumer protection objectives. However, in judging the adequacy of the disclosure for the purposes of deciding whether an agreement is binding, the rights of both parties to the agreement must be taken into consideration. The purchaser is clearly entitled to the information called for by the Act in order to make an informed decision about his or her condominium purchase. At the same time, however, once the ten-day period has expired, the vendor is entitled to assume that it has a binding agreement of purchase and sale and to rely on the certainty of that agreement in developing the project and conducting its business affairs. 40 To declare that otherwise binding agreements are unenforceable solely because of the disclosure statement is obviously a very serious matter. Depending, of course, on the real estate market, the adverse economic impact of such declarations on developers is manifest. Ac- cordingly, it seems to me apparent that not every defect in a disclosure statement will warrant a declaration that an agreement is not binding. Before a defect can have that effect, it must be of such substance as to render the disclosure statement defective in a material respect. The sufficiency of a disclosure statement, like the need to deliver an amendment thereto, must be judged on the basis of materiality. I agree with Carruthers J. in Benner, supra, at p. 246 O.R., p. 655 D.L.R., that, in deciding whether a disclosure statement com- plies with the requirements of s. 52(6) and (7): . . . the sufficiency or otherwise of [the] disclosure statement must . . . be judged on the basis of the materiality of its content. The absence of something not material should not, in itself . . . permit a purchaser to avoid the completion of an otherwise enforceable agreement of purchase and sale. 41 Agreements should not be rendered unenforceable by technical defi- ciencies or immaterial omissions in a disclosure statement. Con- tracting parties, it must be remembered, owe one another a duty to act reasonably and in good faith and to perform contracts honestly made. LeMesurier v. Andrus (1986), 54 O.R. (2d) 1, 25 D.L.R. (4th) 424 (C.A.), leave to appeal to the Supreme Court of Canada refused (1986), 21 O.A.C. 239n, 74 N.R. 239n. Consumer protection legislation intended, as this Act is, to promote fair dealing between contracting parties, ought not to be applied in a manner which produces the opposite result by allowing a party to resile from an otherwise Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 47

valid agreement on grounds that are unfair, unreasonable or capricious. 45 The difficulty with this argument is that there is nothing in REDMA that would suggest that there is any requirement to disclose further detail regarding the financing or even to provide copies of the financing documents to prospective purchasers. As the plaintiffs point out, the consequences of non-compliance with Part 2 of REDMA (which includes the matter of disclosure statements) is serious. Section 23 provides that a contract is not enforceable against a purchaser by a developer who has breached any provision of Part 2. 46 Again, it would have been open to the Superintendent to require, by way of a policy statement, that such further detail or documents be provided to prospective purchasers. The Amendment to Disclosure Statement confirmed that a formal commitment had been obtained and did provide certain particulars of the financing in section 6.2 that would be particularly relevant to a purchaser, namely, that the mortgage security would be discharged upon closing of the sale. 47 In my view, it is neither fair nor reasonable to interpret REDMA or the Pol- icy Statements as requiring any further detail or production of underlying documents. In these circumstances, RMR was entitled to assert that it had complied with REDMA and the lack of any further details of the financing or failure to provide the financing documents themselves to the purchasers does not give rise to any breach of REDMA. 48 It is also worth noting that any purchaser is able to negotiate a term in their contract which would require a developer to provide further detail or documentation. In this case, the contracts, in accordance with Amended Policy Statement 6, paragraph 5(c), simply provide that RMR is to provide “particulars” of the financing. In my view, that has been provided. If the plaintiffs wanted further information or copies of documentation, then those further particulars should have been detailed and a contractual obligation negotiated with RMR. Having failed to do so, they cannot now suggest that their contracts are unenforceable as a result.

2. Has there has been a change in the identity of the developer? 49 When the Northland financing was amended in the fall of 2008, there was a substantial change in the composition of the board of directors and the identity of the officers of RMR. Some of the original directors, namely Mr. Simpson, Mr. Milborne, and Mr. Powadiuk (who were instrumental in developing the resort) resigned. The involvement of Mr. Simpson was a factor in the Gaglardi’s decision to invest in the development. His experience and vision also was a factor in the decision of the plaintiffs to purchase the units. The Amendment to Disclosure Statement dated December 19, 2008 disclosed the resignation of these directors (including Mr. Simpson) and referenced Tom Gaglardi as the sole director and officer. There was, however, no further amendment to disclo- 48 REAL PROPERTY REPORTS 99 R.P.R. (4th)

sure statement provided to the plaintiffs in relation to the addition of Andrea and Devonna Gaglardi, Michael Cassady and Michael Esler later that month and, later still, Bob Gaglardi, prior to the termination of the contracts. 50 The plaintiffs say that the Gaglardis have no apparent experience in the ski development industry in that their experience in the construction and hotel industry, while extensive, does not qualify them to develop and operate what was marketed as a premiere ski resort. Nevertheless, the Gaglardis had been involved in RMR from the time that the plaintiffs had expressed an interest in the development. Tom Gaglardi was a director at the time of the signing of the contracts and both plaintiffs considered the Gaglardi family as the “deep pockets” of the project. When the restructuring took place in late 2008, it appears that Mr. Simp- son’s role as an owner had been lessened, but not eliminated. The contention is that RMR remained the developer in name only and there was a change in its “identity” by way of these modifications. 51 Division 4 of Part 2 of REDMA deals with disclosure statements. Pursuant to s. 14, developers are required to file a disclosure statement in the form and include the content required by the Superintendent. The form of the disclosure statement is set out in Policy Statement 1 which provides that the names of all directors are to be disclosed. This form was amended effective November 1, 2007 by Policy Statement 15, which provides that the disclosure statement must now include substantial information relating to the developer and its officers and directors. Those further requirements can be summarized as follows: (a) the nature and extent of their experience in the development industry; (b) whether they have been subject to any penalties or sanctions imposed by a court or regulatory authority; (c) particulars of involvement in any insolvency proceedings; and (d) any existing or potential conflicts of interest among the developer, manager, any directors, officers and principal holders of the developer and manager, any directors and officers of the principal holders, and any person providing goods or services to the developer, manager or holders of the development units in connection with the development which could reasonably be expected to affect the purchaser’s purchase decision. 52 The developer’s obligations to provide disclosure to purchasers is a continu- ing one under REDMA and are set out in s. 16: 16(1) If a developer becomes aware that a disclosure statement does not comply with the Act or regulations, or contains a misrepresentation, the developer must immediately (a) file with the superintendent, as applicable under subsection (2) or (3), (i) a new disclosure statement, or Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 49

(ii) an amendment to the disclosure statement that clearly identifies and corrects the failure to comply or the misrepresentation, and (b) within a reasonable time after filing a new disclosure statement or an amendment under paragraph (a), provide a copy of the disclosure statement or amendment to each purchaser (i) who is entitled, at any time, under section 15 [providing disclosure statements to purchasers] to receive the disclosure statement, and (ii) who has not yet received title, or the other interest for which the purchaser has contracted, to the development unit in the development property that is the subject of the disclosure statement. (2) A developer must file a new disclosure statement under subsection (1)(a)(i) if the failure to comply or misrepresentation referred to in that subsection (a) is respecting a matter set out in paragraph (b) or (c) of the definition of “material fact” in section 1, (b) is respecting a matter set out in paragraph (d) of the definition of “material fact” in section 1, and the regulation prescribing the matter specifies that a new disclosure statement must be filed if subsection (1) of this section applies, or (c) is of such a substantial nature that the superintendent gives notice to the developer that a new disclosure statement must be filed. (3) A developer must file an amendment to the disclosure statement under subsection (1)(a)(ii) in any case to which subsection (2) does not apply. 53 Section 21 of REDMA provides that the delivery of a new disclosure statement, as opposed to an amended disclosure statement, triggers a right of rescission for the purchaser. 50 REAL PROPERTY REPORTS 99 R.P.R. (4th)

54 The requirement set out in s. 16(1)(a)(i) to file a new disclosure statement as it relates to s. 16(2)(a) depends on whether the matter comes within certain parts of the definition of “material fact” in s. 1: “material fact” means, in relation to a development unit or development property, any of the following: (a) a fact, or a proposal to do something, that affects, or could reasonably be expected to affect, the value, price, or use of the development unit or development property; (b) the identity of the developer; (c) the appointment, in respect of the developer, of a receiver, liquidator or trustee in bankruptcy, or other similar person acting under the authority of a court; (d) any other prescribed matter; [Emphasis added.] Accordingly, a change in the identity of the developer triggers the requirement to file a new disclosure statement which in turn gives right to rescission rights. 55 Our Court of Appeal has recently decided that a change in ownership or control of a developer, or a change of directors and officers, does not constitute a change in the identity of the developer. In Jameson House Properties Ltd., Re, 2009 BCSC 964, 57 C.B.R. (5th) 9 (B.C. S.C. [In Chambers]), the petitioner Jameson House had commenced proceedings under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended. The eventual restructuring involved another developer taking an ownership position in Jameson House and assuming control of the board of directors. Pre-sale purchasers contended that there had been a change in the identity of the developer which allowed them to rescind their contracts. In dealing with the issue of “identity” within the context of REDMA, former Chief Justice Brenner held: [10] Has the identity of the developer changed? At financial close Bosa will acquire 50 percent of the equity, 100 percent of the voting shares and will appoint two of the three directors in the petitioners. The term “identity” in the statute has not been judicially considered. The Petitioners say that the identity of the developer when the project started was Jameson House and that the identity after it is completed will be Jameson House. While the directors and shareholdings will change, the identity of the developer will remain the same. The law has long recognized the corporation as a body separate from its shareholders (Salomon v. Salomon, [1897] A.C. 22). Strictly speaking, this is so in the case at bar. [11] But all parties agree that REDMA is consumer protection legislation. As is submitted by the purchasers, a change in the identity of the shareholders of the corporate developer could be a material fact since it might affect the value, price or use of a development. That change could be so substantial in nature that the superintendent Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 51

could order a new disclosure statement pursuant to s. 16(2). As noted above no such termination has as yet been made by the superintendent. [12] In this case, Bosa, a highly experienced developer, is joining this project. Its involvement includes Axiom Builders, a Bosa affiliate which is completing the parkade and will issue a fixed price contract for the remaining construction hard costs of no more than $82 million. In addition Bosa and its affiliates will provide various guaran- tees of the senior construction loan of $75 million. They will join with the TD Bank for 50 percent of the senior construction loan. They will provide a subordinated construction loan of approximately $12 million, and they are committed to providing any additional equity or funding required to complete the project. [13] In the context of REDMA as consumer protection legislation, in my view the involvement of Bosa will strengthen the existing developer Jameson House. It will increase the likelihood that the project will be completed as contracted for by Jameson House and the purchasers. 56 The decision was upheld on appeal, which is indexed at 2009 BCCA 339, 96 B.C.L.R. (4th) 208 (B.C. C.A.). On this issue, the court held as follows: [26] I agree with the Chief Justice. There is nothing in REDMA that suggests that the Legislature intended that the “identity of the developer” changes if corporate ownership and control change. [27] The definition of “developer” in REDMA refers to the owner of the “development property”. That will not change as a result of the change in ownership and control on the implementation of the agreement with Bosa. The description of the developer in the original disclosure statement (which complied with the requirements of REDMA: see REDMA, Policy Statement 1, Disclosure Statement Re- quirements for Development Property Consisting of Five or More Strata Lots, Form 1) included no reference to ownership or control (except to name the directors). REDMA does not require disclosure on a change in ownership or control of the developer. [28] Had the Legislature intended that a new disclosure statement was required on the change of ownership and control of the developer, it could have expressly provided that in REDMA. The use of the phrase “identity” of the developer, the definition of “developer”, and the information required to be disclosed concerning the developer all lead to the conclusion that “identity” is not a reference to the shareholders or directors of a corporation, but to the existence of a corporation as a separate legal entity. [29] Thus, the Developer will not be required to file a new disclosure statement as a result of the corporate restructuring, and the appellants will have no right of rescission. 52 REAL PROPERTY REPORTS 99 R.P.R. (4th)

57 The plaintiffs contend that Jameson House is distinguishable in that the disclosure statement considered in that case was filed prior to the effective date of Policy Statement 15. They therefore say that whereas in the past developers were only required to identify its directors, Policy Statement 15 now imposes more onerous requirements regarding the details of their background, and that this is more consistent with the accepted purpose of REDMA. Accordingly, they say that a change in the directors must result in a change in the identity of the developer since REDMA now clearly places importance on the disclosure of further details relating to those directors. 58 This argument again raises the issue of fairness in terms of permitting a developer to ensure that it is abiding by the terms of REDMA so as to preserve pre- sale contracts. 59 In this case, the composition of the board changed from time to time. This would not be an uncommon occurrence in many companies. If one follows the logic of the plaintiffs to its inevitable conclusion, any change in the composition of a board would result in a change in the “identity” of the developer which, by reason of it being a “material fact” requiring a new disclosure statement, would give rise to rescission rights. Even if one could say that only significant changes would give rise to such rights, it is unclear where one would draw the line. Would one resignation from the board not be sufficient whereas two resigna- tions would? And who would judge whether any change was significant enough given the background details of any particular director? In this case, that would mean that RMR would have had to have been aware that Mr. Simpson’s involvement as a director and officer was so significant to the plaintiffs that his resignation changed the “identity” of RMR. 60 In any event, a change of identity is a clear “event” triggering significant rights on the part of purchasers and potentially resulting in rescission of contract rights and does not attract a subjective approach. One is not even able to apply an objective test on this issue, such as in relation to the interpretation of “material fact” relating to value, price or use of a development unit: Jameson House (BCCA) at para. 43. A change of identity has either happened or it has not. 61 In my view, the introduction of Policy Statement 15 does not change the interpretation of subparagraph (b) of the definition of “material fact” in REDMA as discussed by the Court of Appeal in Jameson House. Again, it was open to the Legislature to change the definition of “material fact” to refer not only to the “identity” of the developer, but also the identity of the directors. The recent requirement to disclose the details of the background and conflicts of interest for the developer and its officers and directors does not detract from this conclusion. I am not prepared to read any further requirement into the legislation and introduce a level of uncertainty as to its meaning that does nothing to prescribe the rights of both purchasers and developers under REDMA in a fair manner. Ac- cordingly, this argument is rejected. Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 53

3. Did RMR fail to advise the plaintiffs of the dates that they anticipated starting and completing construction? 62 A disclosure statement is defined in s. 1 of REDMA: “disclosure statement” means a statement that discloses material facts about a development property, prepared in accordance with section 14 (2) [filing disclosure statements], and includes any amendment made to a disclosure statement; 63 This section has been interpreted to mean that the developer is obliged to deliver to a prospective purchaser not only the disclosure statement but also any amendments made to that point in time: Dwane v. Bastion Coast Homes Ltd., 2009 BCSC 726 (B.C. S.C.) at para. 74. 64 Section 14(2) of REDMA sets out several requirements for disclosure statements: A disclosure statement must (a) be in the form and include the content required by the superintendent, (b) without misrepresentation, plainly disclose all material facts, (c) set out the substance of a purchaser’s rights to rescission as provided under section 21 [rights of rescission], and (d) be signed as required by the regulations. 65 As referenced above, the Superintendent issued Policy Statement 1 which was subtitled “Disclosure Statement Requirements for Development Property Consisting of Five or More Strata Lots”. Paragraph 3 of that Policy Statement provides for the form and content of disclosure statements: Form 1 sets out the form and content required under section 14 of the Act for disclosure statements filed in relation to strata lots contained in a stratified building. The information contained in each disclosure statement must be set out in the order contained in Form 1. If a section does not apply to a particular development property, the section must state “not applicable”. Sections and subsections may be added by a developer, as required, to meet the developer’s obligation to disclose plainly all material facts. NOTE: If a change occurs that would have the effect of rendering a statement false or misleading or that brings into being a fact or proposal which should have been disclosed if the fact or proposal had existed at the time of filing, section 16 of the Act requires developers to file an amendment to the disclosure statement. If the change is in respect of the identity of the developer or the appointment of a receiver, liquidator, trustee in bankruptcy or other person, in respect of the original developer, then the new developer, who has the right to acquire or dispose of the development property, must file its own new disclosure statement. 66 There is no prescribed form, either in REDMA, its regulations, or the policy statements, for an amendment to a disclosure statement. In order to be compliant 54 REAL PROPERTY REPORTS 99 R.P.R. (4th)

with REDMA, a disclosure statement need only meet the requirements of s.14 (2) as set out above. 67 “Misrepresentation” is defined in s. 1 of REDMA as (a) a false or misleading statement of a material fact, or (b) an omission to state a material fact. In relation to this issue, the relevant definition of “material fact” includes “in relation to a development unit or development property ... a fact, or a proposal to do something, that affects, or could reasonably be expected to affect, the value, price, or use of the development unit or development property.” 68 The Disclosure Statement dated March 17, 2008 provided for the following with regard to estimated construction start and end dates: 5.1 Construction Dates The estimated date of commencement of construction of the Development is June 1, 2008. The estimated date of completion of construction of the Devel- opment is August 31, 2009. These dates are estimates only and may vary based on construction factors or market conditions, subject to the provisions of the contracts of purchase and sale for the Strata Lots. 69 The “Development” is defined in the Disclosure Statement as meaning “the development known as ‘The Tangiers’, to be constructed by the Developer on the Lands.” The “Development” is not limited to the residential or strata units themselves, as is evidenced by Section 2.1(f) which refers to the proposed layout of the Development which includes the strata lots and the common property surrounding these lots and, specifically, the retaining wall. 70 Tom Gaglardi confirmed his understanding that a change in the construction start date or completion date would, in his view, be a material fact. 71 I will firstly deal with the construction start date issue. The plaintiffs contend that construction of the development did not start by June 2008, and that they were not notified of this in any amendment to disclosure statement. They rely largely on the fact the actual construction of the buildings which were to be the town homes was never started, a fact conceded by all parties. 72 I have, however, concluded that, based on the evidence of RMR, construction of the “Development” did commence by June 1, 2008. The uncontradicted evidence of Tom and Bob Gaglardi was that certain soft costs in the approxi- mate amount of $500,000 were incurred in 2007 for architectural engineering and related work that was all necessary for the completion of the development. The property was cleared during the months of March, April and May of 2008. Mr. Schabas testified that he observed this work being done during his April 2008 visit. The Tangiers development could not be built without the clearing of the land and the interface with Camozzi Road secured with the retaining wall. This is a fact that Mr. Maguire conceded was the case. Approximately $500,000 in costs were incurred to construct the retaining wall. It is clear, however, that no further work was done on the development after construction of the retaining wall in late 2008. Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 55

73 The first Amendment to the Disclosure Statement amended section 5.1 by deleting the first sentence and replacing it with “Construction of the Develop- ment has commenced.” This was an accurate representation. 74 The third Amendment to Disclosure Statement dated December 1, 2009 amends section 5.1 to state that the “Construction of the Development has not yet commenced”. This is inexplicable given the evidence of the Gaglardis that, in fact, it had commenced. The evidence of Bob and Tom Gaglardi was to the effect that the statement was meant to refer to the fact that no work had begun on the actual residential units. This interpretation is difficult to reconcile with their evidence and submissions as to the interpretation of the term “Develop- ment” in the Disclosure Statement as relating to the whole of the development. In any event, in my view this later amendment is of no relevance in relation to the construction start date given that it was filed after the contracts were terminated and does not affect the rights arising between the parties at that time. 75 I now deal with the issue of the estimated completion dates. RMR contends that there is nothing in REDMA or in the policy statements that requires disclosure or updating with respect to the “velocity” of the construction. Here, the Disclosure Statement and the Amendment to the Disclosure Statement set out estimated dates and also provided that these dates were “estimates only and may vary based on construction factors or market conditions, subject to the provisions of the contracts of purchase and sale for the Strata Lots”. I agree with this statement, but both the construction start and completion dates are “material facts” required to be set out in disclosure statements and required to be reasonably accurate, in accordance with REDMA. 76 The plaintiffs rely on our Court of Appeal’s decision in Chameleon Talent Inc. v. Sandcastle Holdings Ltd., 2010 BCCA 300 (B.C. C.A.), aff’g 2009 BCSC 1670 (B.C. S.C.). That case involved a pre-sale purchase of a condominium in July 2007. The purchaser was given a disclosure statement filed in June 2006, and an amendment to the disclosure statement filed in May 2007. In the disclosure statement, the commencement of construction was estimated to be November 2006, and the completion of construction was estimated to be No- vember 2008. There was a five month delay in obtaining the building permit which was issued in April 2007. The amendment to the disclosure statement (filed in May 2007) advised the purchasers that the building permit had been issued, but did not advise of any change to the anticipated commencement or completion dates. Construction commenced soon after the building permit was received. In July 2009, Chameleon commenced an action seeking a declaration that, pursuant to s. 23 of REDMA, the purchase agreement was not enforceable because the developer had misrepresented the construction dates and breached the provisions of REDMA governing disclosure statements. Construction had not been completed by the time of the summary trial in October 2009. The chambers judge found that the failure to file and deliver an amendment to the disclosure 56 REAL PROPERTY REPORTS 99 R.P.R. (4th)

statement regarding the relevant dates, when it knew or ought to have known that they were incorrect, was fatal. 77 The Court of Appeal agreed: [10] It [the developer] contends the estimated construction commencement and completion dates were not proven to be material facts. Speaking objectively, the judge said a reasonable person would conclude the value or the price of the unit would be affected by a construction delay of several months. The developer says Chameleon adduced no evidence that would support that finding, but common sense dictates that not only the value and price of a condominium unit will be affected by its availability for occupancy (whether by an owner or a lessee) but also the use to which it can be put. The commencement and completion of construction is critical to a unit being used at all. Some delays in the construction of condominium projects may be expected, but it seems to me substantial delays of many months, here extending to a year, will generally be material to purchasers and prospective purchasers in respect of the price to be paid for, the value there may be in, and the use of a condominium unit that is being purchased. [11] The developer maintains the knowledge the principals of Chame- leon had concerning the construction commencement and completion dates is determinative of whether such are material facts. It says they knew November 2006 and November 2008 were merely estimates, construction could not commence until after the building certificate was issued in April 2007, and, commencing in July 2008, they were given updates on the building schedule. But, in my view, whatever knowledge they may have had is beside the point. [12] As indicated, a “material fact” is a defined term: a fact, or a proposal to do something, that affects or could reasonably be expected to affect the price, value, or use of a unit. Under the Act, a disclosure statement must plainly disclose all material facts. It must be in the prescribed form which specifically requires disclosure of the actual or estimated construction commencement and completion dates. Quite apart from what the principals of Chameleon may have known, the dates fell within the definition of material facts. They had to be disclosed as they initially were in the statement filed in June 2006. They did not become any less material by virtue of anything any one or more purchasers or prospective purchasers may have known. The requirements imposed on a developer under the Act to file and deliver disclosure statements, and amendments to such, disclosing material facts cannot turn on the knowledge pos- sessed by any given purchaser or prospective purchaser. 78 The Court of Appeal held that anticipated commencement and completion dates are material facts as defined in REDMA because the date on which construction of a unit completes could reasonably be expected to affect the value, Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 57

price, or use of that unit. Further, the use of the word “estimated” does not avoid the obligation to address any changes in these dates. As such, the court held that as soon as a developer becomes aware that the anticipated commencement or completion dates in a disclosure statement are wrong, it is, per REDMA, required to immediately file and, in a reasonable time, provide to a purchaser or prospective purchaser, an amendment to that statement: [16] Again, in my view, the developer’s contention misses the point which is one of statutory non-compliance. The developer stated in June 2006 the construction commencement and completion dates were estimated to be November 2006 and November 2008 respectively. By November 2006, it knew the estimated commencement date was wrong, and by the time the building permit was issued in April 2007, it must, as the judge found, have known the estimated completion date was also wrong. (It adduced no evidence to the contrary.) The dates stated in clause 5.1 were no longer what the Super- intendent’s policy required and the June 2006 statement no longer complied with the Act. The developer was, in the words of the Act, required to immediately file and, in a reasonable time, provide to a purchaser or prospective purchaser, an amendment to the statement clearly identifying and correcting the failure to comply with the Act. 79 In the result, the Court of Appeal held that the developer was precluded from entering into the purchase agreement in July 2007 because, at that time, there was a material misrepresentation in the disclosure statement. Further, the court held that the developer’s non-compliance with REDMA rendered the purchase agreement unenforceable under s. 23 of REDMA. 80 Section 5.1 of the Disclosure Statement expressly provided that the completion date was an “estimat[e] only and may vary based on construction factors or market conditions, subject to the provisions of the contracts of purchase and sale for the Strata Lots” (emphasis added). At para. 25 of the trial court’s reasons in Chameleon, the court considered the argument that a short delay in construction might not necessitate an amendment if the purchaser had been informed at the outset of the degree of uncertainty that had to be accommodated through the use of the word “estimated”. In that case, that argument was rejected since there was no evidence that the purchaser had been so informed. Arguably, that finding can be distinguished here, since the Disclosure Statement contains language expressly discussing how the estimated dates may vary. Nevertheless, I do not think that this fact can derogate from RMR’s failure to file an amendment to the disclosure statement. It is one thing to tell a purchaser that a completion date may vary, but quite another to tell them in a timely manner that those dates in fact have varied significantly. The purpose of REDMA is to protect consumers. That purpose is not furthered by excusing a developer from notifying purchasers of a material change on the basis of indefinite language in its disclosure statement. 58 REAL PROPERTY REPORTS 99 R.P.R. (4th)

81 As set out in Chameleon, anticipated construction and completion dates are material facts which must be disclosed to purchasers. The critical issue is, therefore, the determination of when RMR knew or ought to have known that there was a change in the estimated completion date sufficient to warrant them preparing, filing and delivering an amendment to disclosure statement in accordance with REDMA. 82 The Disclosure Statement provided that RMR estimated that construction would complete in August 2009. The first Amendment to the Disclosure State- ment delivered in December 2008 provided for a delay of four months, with an estimated completion date of December 2009. As RMR points out, there is no evidence to suggest that RMR knew of this change at an earlier time such that delivery of the first Amendment to the Disclosure Statement could be considered unduly delayed. 83 However, the plaintiffs point out that RMR prepared the second Amendment to the Disclosure Statement in March 2009 which noted that construction would not be completed until March 2010. RMR did not file this Amendment to the Disclosure Statement with the Superintendent, nor did they deliver it to the plaintiffs until after this litigation was commenced. The plaintiffs were not made aware of further delay in the estimated completion date by RMR until late April 2009, when they received a newsletter from RMR stating that the Tangiers development was scheduled to be completed between October 2010 and April 2011. 84 These documents clearly evidence some knowledge on the part of RMR that the completion date was going to be substantially delayed beyond December 2009. The second Amendment to the Disclosure Statement indicates that RMR was aware of a delay of at least three months. In addition, the newsletter indicates that RMR was aware of a delay of at least 10 - 16 months. As noted by the Court of Appeal in Chameleon at para. 10, this constitutes “material” delay: ... The commencement and completion of construction is critical to a unit being used at all. Some delays in the construction of condominium projects may be expected, but it seems to me substantial delays of many months, here extending to a year, will generally be material to purchasers and prospective purchasers in respect of the price to be paid for, the value there may be in, and the use of a condominium unit that is being purchased. [Emphasis added.] 85 REDMA provides that notification must occur by way of an amendment, rather than by some other mode of communication. As noted by the Court of Appeal in Chameleon, a developer is not excused from their statutory obligation to file an amendment to the disclosure statement merely because the purchaser is already aware of its contents. 86 The issue of how much time a developer has to file and deliver an amendment to the disclosure statement after a change was not considered in Chame- Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 59

leon. Section 16(1) of REDMA provides that if a developer becomes aware that a disclosure statement does not comply, the amendment is to be filed “immediately” and it is to be provided to the purchaser “within a reasonable time after filing”. In Pinto v. Revelstoke Mountain Resort Ltd. Partnership, 2010 BCSC 422 (B.C. S.C.), the court addressed whether the failure to deliver amendments after the signing of the purchase contract was fatal to enforcing the contract. The court held: [37] The Act does not set a specific time within which a developer who files an amendment must provide it to the purchaser. Section 16(1)(b) merely says it must be provided “within a reasonable time” after filing. Although the importance, or lack of importance, of a particular amendment to a purchaser is not relevant to the existence of the purchaser’s statutory right, it may be relevant to defining a reasonable time for delivery of the document in the circumstances of a particular case. In some cases, a specific amendment might be of so little consequence to a reasonable purchaser that receipt of the amendment at any time prior to completion might be sufficient even if the amendment had been filed many months earlier. 87 Further, the Court of Appeal has noted that the word “immediately” in s. 16(1) of REDMA is to be construed to allow for a reasonable time for compliance in a commercial context: Jameson House, para. 42. 88 The evidence clearly discloses that the plaintiffs considered the construction completion dates as material. Both of them specifically sought information from RMR regarding the status of construction and importantly, whether the development was going ahead. More to the point, these dates are material on an objective basis, as was found in Chameleon. 89 As is evident from the facts here, RMR did not file an amendment to the disclosure statement in response to the change in completion date prior to the termination of the contracts in accordance with the letters in June/October 2009. The difficulty in this case is that there is no direct evidence from RMR as to when it knew that the estimated completion date was “wrong”. At trial, neither of the Gaglardis disclosed the state of their actual knowledge of the expected delay in construction during the spring of 2009. Nevertheless, the documents discussed above confirm that it was clearly known by the spring of 2009 that the December 2009 completion date would not be met. Significantly, the evidence suggests that in March 2009, RMR was aware of a delay of three months and in April 2009, RMR was aware of a substantial delay of at least 10 - 16 months past the December 2009 date of construction. In these circumstances, it was incumbent upon RMR to then “immediately” file an amendment to the disclosure statement and provide it to the plaintiffs. They did neither. In my view, RMR had more than a reasonable period of time to file an amendment to the Disclo- sure Statement and provide it to the plaintiffs prior to the issuance of the June/October 2009 letters that terminated the contracts. 60 REAL PROPERTY REPORTS 99 R.P.R. (4th)

90 RMR’s failure to do so results in a breach of Part 2 of REDMA. Accordingly, the contracts are unenforceable against the plaintiffs under s. 23 of REDMA and the plaintiffs are entitled to the return of their deposits.

4. Did RMR fail to file and serve an amendment to the Disclosure Statement in early 2009 advising on changes to the composition of the board of directors? 91 As set out above, s. 16 of REDMA requires a developer to immediately file either a new disclosure statement or an amendment to the disclosure statement on discovering that an earlier disclosure statement does not comply with REDMA or contains a misrepresentation with respect to a “material fact”. The identity, experience, and background of the directors of the developer are required to be disclosed in these documents by Policy Statement 15. 92 The plaintiffs submit that in early 2009, RMR was required to file an amendment to the Disclosure Statement in light of the substantial changes to the board of directors in late December 2008, namely, the resignation of Tom Gaglardi and the addition of Andrea and Devonna Gaglardi, Michael Cassady and Michael Esler. The plaintiffs point out that RMR prepared and executed the second Amendment to the Disclosure Statement in March 2009 which did disclose these changes, however, it was never filed with the Superintendent. No further amendment to the Disclosure Statement disclosing the changes to the board was prepared until the third Amendment to Disclosure Statement in December 2009 (which reported on yet further changes). 93 The plaintiffs say that RMR, having failed to file and serve an amendment to the Disclosure Statement in relation to the changes on the board, is in breach of Part 2 of REDMA and, as a result, the contracts are unenforceable pursuant to section 23. 94 On this point, the plaintiffs rely on Pinto: [30] In this case, the amendments came into existence after the plaintiffs entered into an agreement for purchase and sale, but there is nothing in the Act to make that a relevant distinction. The requirement to provide a purchaser with amendments continues until title is passed. Just as a purchaser is entitled to know what he or she is purchasing at the outset, he or she is entitled to know of any changes to what he or she is purchasing. [31] Dwane confirmed that, by definition, a failure to deliver amendments is, for the purpose of the rescission right in s. 21(3), no different than a failure deliver the complete disclosure statement. In any case, the failure to deliver an amendment is in itself a breach of the Act, which makes the contract unenforceable by operation of s. 23. [32] Nothing in the Act requires a purchaser who does not receive an amendment to demonstrate that the receipt of the amendment would have led to a different course of action. The right of rescission or the Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 61

right to resist enforcement of the purchase agreement arises automat- ically on the developer’s non-compliance with the Act. That, too, is consistent with the purpose of such consumer protection legislation. 95 The only possible contention on the part of the plaintiffs must be that the identity of the directors constitutes a “material fact” under subparagraph (a) of that definition which could “reasonably be expected to affect the value, price, or use of the development unit”. With respect, I do not agree. 96 The Court of Appeal in Jameson House considered that whether a fact is material or not is to be decided on an objective basis: para. 43. The plaintiffs bargained for a townhouse based on specifications set out in the Disclosure Statement. In my view, there is nothing relevant about the identity of the persons that are in positions of authority within the developer company in terms of com- plying with the terms of the contract. As stated by Chief Justice Brenner in Jameson House, assuming that the contract was completed, “the purchasers will be entitled to receive precisely what it was they contracted for”: see para. 19. 97 I agree with RMR that the comments of the Ontario Court of Appeal in Abdool (at paras. 39 - 41) are apposite on this issue. Consistent with my comments above regarding the change in identity issue, if a change in the directors was of such importance so as to trigger renewed disclosure, REDMA could have easily been amended to so provide. Further, I do not consider that the changes to the board of directors in December 2008 constituted a “material fact” in these circumstances. 98 I therefore reject the submissions that there was a failure on the part of RMR to file and deliver to the plaintiffs an amendment to the Disclosure Statement in early 2009 regarding the changes to the board of directors under REDMA.

5. Alternatively, is the forfeiture of the deposits a penalty and unenforceable? 99 If I am wrong in my conclusion that there has been a breach under REDMA relating to disclosure of the construction completion date, there has been no breach of REDMA on the part of RMR. In that event, the clause in the contracts which provide for forfeiture of the deposits as liquidated damages in the event of default by the purchaser may constitute a penalty that is unenforceable. 100 The plaintiffs rely on MTK Auto West Ltd. v. Allen, 2003 BCSC 1613 (B.C. S.C. [In Chambers]), where Madam Justice Kirkpatrick (as she then was) considered whether a clause was one for liquidated damages or a penalty: [15] The law in this area is well-settled. Lord Dunedin, in Dunlop Pneu- matic Tyre Co. Ltd. v. New Garage and Motor Co. Ltd., [1915] A.C. 79 (H.L.), which was accepted in Canada in H.F. Clarke Ltd. v. Thermidaire Corp. Ltd., [1976] 1 S.C.R. 319, states at p. 86-88: In view of that fact, and of the number of authorities available, I do not think it advisable to attempt any detailed review of the various cases, but I shall content 62 REAL PROPERTY REPORTS 99 R.P.R. (4th)

myself with stating succinctly the various propositions which I think are deducible from the decisions which rank as authoritative:- 1. Though the parties to a contract who use the words “penalty” or “liquidated damages” may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages. This doctrine may be said to be found passim in nearly every case. 2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage (Clydebank Engineering and Shipbuilding Co. v. Don Jose Ramos Yzquierdo y Castaneda, [1905] A.C. 6). 3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and in- herent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach (Public Works Commissioner v. Hills, [1906] A.C. 368, and Webster v. Bosanquet, [1912] A.C. 394). 4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are: (a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. (Illustration given by Lord Halsbury in Clydebank Case, [1905] A.C. 6). (b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid (Kemble v. Farren, 6 Bing. 141). This though one of the most ancient instances is truly a corollary to the last test. Whether it had Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 63

its historical origin in the doctrine of the common law that when A. prom- ised to pay B. a sum of money on a certain day and did not do so, B. could only recover the sum with, in certain cases, interest, but could never recover further damages for non-timeous payment, or whether it was a survival of the time when equity reformed unconscionable bargains merely because they were unconscionable, - a subject which much exercised Jessel M.R. in Wallis v. Smith, 21 Ch. D. 243 – is probably more interesting than material. (c) There is a presumption (but no more) that it is penalty when “a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage” (Lord Watson in Lord Elphinstone v. Monkland Iron and Coal Co., 11 App. Cas. 332). On the other hand: (d) It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre- estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties. 101 The test to determine whether a contractual clause is for liquidated damages or a penalty was set out in Lee v. Skalbania (1987), 47 R.P.R. 162 (B.C. S.C.). Mr. Justice Gow held as follows at 175: 1. The question “penalty” or “liquidated damages” is to be answered as at the date of the making of the agreement; 2. If the answer is “liquidated damages”, that is the end of the matter, but, if the answer is “penalty”; then, 3. There arises the next question should relief be granted against the penalty? 4. The answer to that question depends upon whether to enforce the penalty would be unconscionable, and that unconscionability has to be determined at the date of the invocation of the clause. 64 REAL PROPERTY REPORTS 99 R.P.R. (4th)

5. Sec. 21(1) [now s. 24] of The Law and Equity Act only applies if and when stage 3 has been reached. 102 Section 24 of the Law and Equity Act, R.S.B.C. 1996, c. 253, provides that the court may relieve against all penalties and forfeitures and, in granting the relief, may impose any terms as to costs, expenses, damages, compensations, and all other matters that the court thinks fit. 103 The test set out in Lee was cited with approval in Coal Harbour Properties Partnership v. Liu, 2006 BCCA 385, 273 D.L.R. (4th) 508 (B.C. C.A.). How- ever, in relation to the first test in Lee, Hall J.A. noted that he would have considered the question of penalty also as of the time set for performance based on equitable principles (paras. 23 - 28). 104 The clause which RMR relies on is set out above in para. 8 of these reasons for judgment. 105 The plaintiffs’ main contention is that the forfeiture of the deposits is a penalty in these circumstances, particularly because the construction of the building was never started and will not be started in the future. 106 In Liu, the court was considering a 20% deposit in the face of a purchaser’s failure to complete a pre-sale of a unit in a development in Coal Harbour. The Court of Appeal upheld the trial court in finding that it was not a penalty clause: [25] While in the instant case the deposit was higher than in many of the cases such as Hughes, it appears from the Blackcomb case that a 20% deposit is not considered beyond the bounds of reasonable in this sort of transaction concerning condominium property. I venture to suggest that this may be because quite typically in these situations the property is being sold before building has commenced. These transactions have, of necessity, a much longer time horizon than an ordinary house sale as was the situation for instance in Hughes. The vagaries and vicissitudes of land value fluctuations and future building costs are unknown at the date when the parties enter into the agreement of purchase and sale. Given these uncertainties, coupled with the relatively long time interval to the prospective completion date, it seems a particularly apt situation for the parties to enter into an agreement fixing an estimate of damages if the transaction fails to complete. As Lord Parmoor observed in Dunlop, supra, when competent contracting parties agree on a sum as liquidated damages, they must be afforded a decent measure of discretion. That approach seems consistent with this observation of Tindal C.J. in Kemble (6 Bing at p. 148): “We see nothing illegal or unreasonable in the parties, by their mutual agreement, settling the amount of damages, uncertain in their nature, at any sum upon which they may agree”. Of course, it is for the Court to ultimately determine the question: genuine pre-estimate of damages or a penalty clause – H.F. Clarke, supra. Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 65

107 The plaintiffs assert that one must consider that the second deposit was due shortly after RMR obtained its building permit and financing commitment and that, therefore, there could not conceivably have been any loss at that time. With respect, this argument misses the point. Even before building construction is commenced, a developer will have invested substantial sums in relation to the proposed development. The Gaglardis indicated in their evidence that RMR had done various work in relation to the Tangiers development and incurred what were termed “soft costs” (such as engineering work and ground water studies). They confirmed that the land had been cleared for construction and the retaining wall had been completed at a cost of approximately $500,000 following the receipt of a building permit in October 2008. Finally, as of March 2009, it appears that RMR had spent approximately $1.1 million on the Tangiers development. Knowing that this “earnest money” is in hand, whether from the outset or received incrementally in staged deposits as in this case, allows a developer to proceed with these types of preliminary costs with some level of confidence. The fact that deposits are held in trust affects only cash flow and not the availability of those funds in the event of a default. Further, per Liu at para. 25, it is possible that a developer could suffer a loss in a falling market or incur higher building costs, and it can reasonably be concluded that this was in the minds of the parties when this pre-estimate of damages was arrived at. 108 I agree that the breach in this case consists of not paying a sum of money and that forfeiture may have resulted from not only this type of breach, but from others less serious. It is worth noting that the plaintiffs are sophisticated business people who knew full well what their obligations were under the contract. They also knew the potential consequences of not paying the second deposit in that termination and retention of the first deposit was possible. They also knew that the deposits were to be held in trust with a respected Canadian law firm pending the completion of the sales. As stated above, their central concern seemed to be that of preserving their own cash flow and not tying up their money for an extended period of time. 109 The plaintiffs have not referred me to any other consideration that would indicate that the 10% deposit here is “extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach”: MTK, para. 15. 110 I have also considered whether the clause is a penalty in relation to the time for performance which was April 2008. This case is unusual because the general situation involves failure to complete at the closing date. Here, the time for performance was the failure to pay the second deposit. Counsel advise that they have been unable to find any relevant case where default occurred and the proposed development was never constructed. 111 In any event, by April 2009 the status of the development was essentially the same as when the contracts had been executed, with the addition of further work 66 REAL PROPERTY REPORTS 99 R.P.R. (4th)

in bringing services to the site and constructing the retaining wall. The same considerations apply as above in the sense that the parties agreed that if there was default even prior to construction of the building, then the first deposit (and possibly the second deposit) would be forfeited as a genuine pre-estimate of damages. Whether or not RMR actually suffered those damages is beside the point in this analysis. 112 RMR relies on Hinkson Holdings Ltd. v. Silver Sea Developments Ltd. Part- nership, 2007 BCCA 408, 70 B.C.L.R. (4th) 91 (B.C. C.A.), which considered facts similar to those in this case. In that case, the developer had terminated the pre-sale contract and forfeited a 15% deposit after failure to make a further deposit. The court overturned the trial judge’s finding that the vendor had waived its right to terminate the agreement. The court then considered the purchaser’s application for relief from forfeiture but resolved the issue on the basis that the retention of the deposit was not a penalty: [33] As most recently discussed by this Court in Liu v. Coal Harbour- Properties Partnership, 2006 BCCA 385, 56 B.C.L.R. (4th) 230, where the forfeiture of a deposit in a real estate transaction constitutes a penalty as opposed to a genuine pre-estimate of liquidated damages, the court may grant relief if it would be unconscionable not to do so. See in particular paragraph 24. Where the amount forfeited is out of all proportion to the damages suffered, it is said to be penal in nature. [34] Liu arose out of a purchaser’s refusal to complete an agreement for the purchase of a strata lot that afforded the vendor the same rights of cancellation and forfeiture as clause 7.7 in this case. The vendor refused to complete because of a dispute over parking stalls and was held to have repudiated the agreement. The deposit it had paid in three instalments was 20% of the purchase price of $1.95 million (here the total deposit was 25% of the purchase price) and the vendor eventually sold the subject lot in a rising market for $2.75 million. The trial judge attached significance to the parties having agreed that the deposit was a pre-estimate of damages and found such to be not unreasonable given the uncertainty of the real estate market. He concluded the deposit was not a penalty. The unsuccessful appeal was premised on the contention that the court ought to grant relief from forfeiture in any event. [35] Here, it is less than clear upon what basis the relief is sought. The purchaser does not contend that the deposit was a penalty. It puts its case on the basis of the August 17 letter that was not actually received. The purchaser maintains it would be unconscionable to permit the vendor to retain the instalments of the deposit paid when, had the letter been received, the third instalment would have been paid promptly, the transaction would ultimately have been completed, and no question of forfeiture would then have arisen. Like the purchasers in Liu, the purchaser says it would be unconscionable Maguire v. Revelstoke Mountain Resort Ltd. Partnership Fitzpatrick J. 67

to permit the vendor to retain what it was paid and to sell the strata lot to someone else particularly in what is a rising market. [36] While it remains for the court to determine whether the forfeiture of a deposit is a penalty: Liu at para. 10 and the authority cited, this Court has recognized the agreement of liquidated damages itself af- fords evidence of a genuine pre-estimate of damages: Hughes v. Lukuvka (1970), 14 D.L.R. (3d) 110 at 113 as quoted in Liu at para. 22. I would have difficulty concluding that the deposit to be paid by the purchaser was a penalty. It was agreed to be a genuine pre-estimate of the vendor’s minimum damages in the event of the purchaser’s default and there is no evidence that a 25% deposit is substantially inconsistent with deposits currently paid in real estate transactions of this kind. I would be hard pressed to determine the deposit was other than the parties agreed. 113 Similar to the findings of the court in Liu and Hinkson Holdings, I am unable to find any factor that would convince me that the plaintiffs should not be held to their bargain in forfeiting the deposits as a genuine pre-estimate of damages. I conclude that the clause does not represent a penalty. 114 In light of my finding on the issue of penalty, it is unnecessary to consider the later step of deciding whether enforcing the contracts would be unconscionable. On this point, the plaintiffs say that RMR’s conduct has been unconscionable and that this court should not enforce the contracts. If necessary, I would have concluded that the forfeiture was not unconscionable in these circumstances. 115 The plaintiffs point to the facts in existence in April 2009, when the plaintiffs were being asked to make the second deposit. At that time, RMR had un- dergone significant changes, the financial viability of the development was in question, and the plaintiffs were seeking answers to certain questions regarding the developer’s plans, the viability of the development, and the security of their investment. I agree that the evidence indicates that RMR was not particularly responsive to those questions beyond some communications from Mr. Simpson and the Amendment to the Disclosure Statement provided to them in December 2008. 116 Nevertheless, I do not consider that RMR’s conduct constituted “sharp or oppressive conduct” as discussed in Liu at para. 28. The plaintiffs also suggest that RMR saw the forfeiture as an opportunity to seize the deposits when they had no intention of completing the Tangiers development. RMR advised the plaintiffs of their decision not to proceed with the development sometime between August 2010 and the date of the hearing of this matter in September 2010. There is, however, no direct or indirect evidence that such a decision was taken in June or October 2009 when the forfeiture was asserted. I am not prepared to infer that this was RMR’s intention in 2009. The irony now is that having made 68 REAL PROPERTY REPORTS 99 R.P.R. (4th)

the decision not to proceed, RMR will be returning the deposits of the five pre- sale purchasers who did not default without the necessity of litigation.

Summary 117 In summary, the plaintiffs are entitled to a declaration that RMR is in breach of REDMA and that the contracts are unenforceable. There will be an order that the plaintiffs are entitled to the return of their deposits, together with actual interest earned on those amounts and less a reasonable administration charge up to $100 as may be charged by RMR’s solicitors in accordance with the contracts, and costs. Action allowed.

[Indexed as: Durham Condominium Corp. No. 63 v. On-Site Solutions Ltd.] DURHAM CONDOMINIUM CORPORATION NO. 63 (Applicant) and ON-CITE SOLUTIONS LTD. (Respondent) Ontario Superior Court of Justice P.D. Lauwers J. Heard: November 17, 2010 Judgment: December 2, 2010 Docket: Durham 65164/10, 2010 ONSC 6342 Paul Chornobay for Applicant Kyle Armagon for Respondent Real property –––– Condominiums — Resale — Estoppel certificate –––– Respondent purchaser entered into agreement of purchase and sale to buy commercial condominium unit on condition of receipt of clean status certificate — Purchaser received certificate and closed transaction with vendor — President of applicant condominium corporation signed status certificate prior to inspecting unit and later discovered doorway had been widened to ten feet without approval of corporation contrary to declaration — Two weeks after closing, purchaser received letter from corporation’s counsel regarding unauthorized alteration of wall — Counsel for purchaser forwarded letter to vendor’s counsel who indicated that alteration was done prior to vendor’s ownership twenty four years prior — Purchaser retained structural engineer to design and supervise reinforcement of wall and forwarded all drawings to corporation — Corporation brought action against purchaser for order compelling purchaser to restore doorway to original 36-inch width — Application dismissed — Problem posed by alteration of wall would have impacted purchaser’s decision to buy unit and timely notice would have permitted purchaser to negotiate over costs of remediation — Corporation failed to comply with its duty under Condo- Durham Condo. Corp. No. 63 v. On-Site Solutions Ltd. 69 minium Act, 1998 by providing incomplete status certificate to purchaser — Purchaser reasonably relied on certificate and so corporation was estopped from pursuing purchaser for restoration of wall. Real property –––– Condominiums — Practice and procedure — Costs –––– Respon- dent purchaser entered into agreement of purchase and sale to buy commercial condominium unit on condition of receipt of clean status certificate — Purchaser received certificate and closed transaction with vendor — President of applicant condominium corporation signed status certificate prior to inspecting unit and later discovered doorway had been widened to ten feet without approval of corporation contrary to declaration — Two weeks after closing, purchaser received letter from corporation’s counsel regarding unauthorized alteration of wall — Counsel for purchaser forwarded letter to vendor’s counsel who indicated that alteration was done prior to vendor’s ownership twenty four years prior — Purchaser retained structural engineer to design and supervise reinforcement of wall and forwarded all drawings to corporation — Corporation brought action against purchaser for order compelling purchaser to restore doorway to original 36-inch width — Application dismissed — Corporation failed to comply with its duty under Con- dominium Act, 1998 by providing incomplete status certificate to purchaser — Restoring wall to original condition was not responsibility of purchaser — Application dismissed with costs awarded to purchaser — Fairest outcome was for all other unit holders to absorb aliquot share of costs of proceeding. Cases considered by P.D. Lauwers J.: East Gate Estates v. Kimmerly (2003), 2003 CarswellOnt 682, [2003] O.J. No. 582 (Ont. S.C.J.) — considered Fisher v. Metropolitan Toronto Condominium Corp. No. 596 (2004), 2004 CarswellOnt 6242, 31 R.P.R. (4th) 273, [2004] O.J. No. 5758 (Ont. Div. Ct.) — followed Metropolitan Toronto Condominium Corp. No. 1385 v. Skyline Executive Properties Inc. (2005), 2005 CarswellOnt 1576, 253 D.L.R. (4th) 656, 31 R.P.R. (4th) 169, 197 O.A.C. 145, [2005] O.J. No. 1604 (Ont. C.A.) — followed Muskoka Condominium Corp. No. 39 v. Kreutzweiser (2010), 2010 ONSC 2463, 2010 CarswellOnt 2504, [2010] O.J. No. 1720 (Ont. S.C.J.) — considered Peel Standard Condominium Corp. No. 721 v. Derveni (March 30, 2007), Doc. Court File No. CV-07-0790-00, [2007] O.J. No. 5585 (Ont. C.J.) — considered Statutes considered: Condominium Act, 1998, S.O. 1998, c. 19 Generally — referred to s. 56(1) — referred to s. 76 — considered s. 76(1) — considered s. 76(6) — considered s. 92(3) — considered s. 117 — considered s. 134 — considered s. 134(1) — considered s. 134(3) — considered 70 REAL PROPERTY REPORTS 99 R.P.R. (4th)

s. 134(5) — considered

APPLICATION by condominium corporation for order requiring respondent purchaser to restore wall to original condition or allowing applicant to do so at purchaser’s expense.

P.D. Lauwers J.:

1 The applicant, Durham Condominium Corporation No. 63 (the “Corpora- tion”), has existed since February 6, 1978 and is responsible for 35 industrial use units and the common elements in Durham Condominium Plan number 63. 2 The respondent, On-Cite Solutions Ltd., has owned unit 10, level 1 on Dur- ham Condominium Plan number 63, known municipally as unit 10, 1730 Mc- Pherson Court, Pickering, Ontario, since October 31, 2008. Inside the unit is a 10-inch thick load-bearing wall made of concrete block that divides the office and the warehouse. The wall supports the roof trusses. Originally the wall had a doorway about 36-inches wide, but at some undetermined point in the past it was widened to 10 feet. 3 The Corporation applies for an order under the Condominium Act, 1998, S.O. 1998, c. 19 (the “Act”), requiring On-Cite Solutions Ltd. to restore the wall to its original condition, or, alternatively, an order permitting the Corporation to do so at the expense of On-Cite Solutions Ltd.

The Facts 4 The respondent entered into an Agreement of Purchase and Sale on October 20, 2008 to buy the unit from A & J Barbour Holdings Ltd., conditional on the receipt of a clean Status Certificate from the Corporation. 5 Richard Duval, the president of the Corporation, attended at the unit “for a routine inspection” on or about October 24, 2008. The common assumption during the argument was that he had inspected the unit before he signed the Status Certificate on October 22, 2008 on behalf of the Corporation, but nothing turns on the discrepancy in the dates since the Corporation had time to correct it. Re- lying on the Status Certificate, the respondent closed the transaction and took possession of the unit on October 31, 2008. 6 Mr. Duval noticed that the doorway in the wall had been widened to 10 feet. He swore an affidavit asserting that this had been done without the approval of the Corporation, in violation of section 10 of Article XV of the declaration: Modification of Units No boundary wall, roof or interior partition wall shall be added to, altered, removed in all or in part, improved or renovated without the prior written consent of the Corporation of [sic] the Board. The Corporation or the Board may impose such conditions as it deems necessary in consideration for granting such consent. Durham Condo. Corp. No. 63 v. On-Site Solutions Ltd. P.D. Lauwers J. 71

7 Mr. Duval swore that he tried to bring the problem to the attention of a representative of the owner of the unit at the time of his inspection. He also attended at the unit on October 30, 2008, the day on which he thought that the respondent was taking possession, and spoke to a person on the site who was not, as it turns out, a representative of the respondent. Mr. Duval gave no names. 8 A little more than two weeks after closing the transaction and taking possession, the respondent received a letter from counsel for the Corporation stating that there had been an unauthorized alteration to the wall. This was the respondent’s first notice of a problem with the wall since the Status Certificate did not refer to it and the problem did not otherwise come to the respondent’s attention. 9 Paul Goostrey, president of the respondent, deposed that real estate counsel for the respondent, Randall Longfield, forwarded this letter of complaint from counsel for the Corporation to David McKay, counsel for the seller of the unit. In his response dated December 4, 2008, Mr. McKay stated: [The principal and officers of the company] can produce evidence that the wall was in its present configuration [when] they bought the unit in 1984. No condition or reference relating to the wall was made in the Estoppel Certifi- cate obtained in the purchase. We have spoken and received instructions from the officers/directors of the vendor in British Columbia who state that they were neither aware of a potential violation of the Declaration nor directed any person to assume responsibility as stated in your letter. We pre- sume you also obtained a Status Certificate which set out no condition or reference to the alteration. 10 In April and May 2010, the respondent retained a structural engineer, Kevin Hu, P. Eng., of Magnate Genivar, who assessed the situation, designed the necessary reinforcement work for the wall, and supervised its execution. The drawings were forwarded to the Corporation’s counsel. Mr. Hu later confirmed: “The overall construction work was complete and found to be in general conformance with the structural drawings. The lintel reinforcing column was installed as per structural drawings and is structurally adequate to support the masonry wall above the door opening” (emphasis in original). 11 Mr. Chornobay initially argued: “D.C.C. 63 does not have confirmation that the wall has been restored to its original condition, or any indication that it is structurally adequate to support the roof trusses.” Permitting a structurally inad- equate wall to exist would constitute a breach of section 117 of the Act; but it seemed inconceivable to me that a professional engineer would stamp a drawing and execute work if the result were unsafe, as it would be if the reinforced lintel were not capable of carrying both the wall and the roof trusses. I directed counsel to contact Mr. Hu during a recess, who confirmed that the reinforced lintel was capable of carrying both the wall and the load associated with the roof trusses. Mr. Chornobay conceded that this disposed of the safety argument under section 117 of the Act. 72 REAL PROPERTY REPORTS 99 R.P.R. (4th)

12 The Corporation complains that the respondent’s work did not return the unit to its original condition by removing the 10-foot doorway and restoring the 36- inch doorway.

Issues 13 The following issues remain to be resolved: 1. Does the Status Certificate operate to estop the Corporation from compelling the respondent to restore the wall of the unit to its original condition? 2. Is the respondent obliged to restore the unit to its original condition? 3. Is the Corporation entitled to its legal costs? 14 I now turn to consider each of these issues in turn.

1. Does the Status Certificate operate to estop the Corporation from pursuing the respondent to restore the wall of the unit to its original condition? 15 Section 76 of the Act governs Status Certificates. It obliges a condominium corporation to give a Status Certificate with respect to a unit in the prescribed form setting out the specific information required in the section and in the Status Certificate itself. Subsection 76 (6) provides: (6) The status certificate binds the corporation, as of the date it is given or deemed to have been given, with respect to the information that it contains or is deemed to contain, as against a purchaser or mortgagee of a unit who relies on the certificate. 16 Mr. Chornobay argues that even though Mr. Duval is the president, he is not the Corporation, which accordingly did not have notice of the problem with the wall in order to inform the completion of the Status Certificate. 17 The president of the Corporation may carry out certain functions as provided in the by-laws, pursuant to section 56(1) of the Act. The D.C.C. 63 by-law provides in Article VII subsection (1)(iv): The president shall be the chairperson of all meetings of the Board and of the Owners or shall designate the chairperson at all such meetings, shall have only one vote at all meetings of the Board, shall coordinate the activities of the remaining members of the Board and officers, shall in the absence of a resolution of the Board specifying another officer, deal directly with the property manager and corporate solicitor in all areas of concern, and shall direct the enforcement of the Act, the declaration, the by-laws and the rules and regulations of the Corporation by all lawful means of the Board’s disposal. 18 Mr. Duval, as president, is responsible for signing Status Certificates. Actual knowledge that he obtains in his capacity as president carrying out executive functions as required by the by-laws, such as a “routine inspection” must be imputed to the Corporation. Since the president has authority to sign a Status Certificate on behalf of the Corporation, he is obliged to take into account per- Durham Condo. Corp. No. 63 v. On-Site Solutions Ltd. P.D. Lauwers J. 73

sonal knowledge he acquires in his capacity as president. I therefore reject the argument that this information technically was not within the knowledge of the Corporation itself. 19 Mr. Duval’s unsuccessful efforts to bring the specific problem with the wall to the respondent’s attention effectively admit that his status as president authorized him to do so following his inspection. It would have been more effective for him to have amended the Status Certificate, to have sent a revised Certifi- cate, or to have sent a supplementary letter to the requester or to the seller of the unit on a timely basis than it was for him to pay a random visit or two to the unit. 20 Is the Corporation estopped by the Status Certificate signed by Mr. Duval? 21 In her book Condominium Law and Administration, 2d ed., looseleaf (To- ronto: Carswell, 1998-Updated), Audrey M. Loeb comments on the purpose of the Status Certificate required by section 76 at p. 9-2: “This document is intended to ensure that prospective purchasers and mortgagees of units are immediately given sufficient information regarding the property to make an informed buying or lending decision.” 22 From a purposive perspective, the problem posed by the alteration of the wall could be expected to have had an impact on the respondent’s decision to purchase the unit. Timely notice of the problem with the wall would have permitted the respondent to negotiate with the seller of the unit over the costs of remediation. 23 Mr. Chornobay argues that the problem with the wall that Mr. Duval discovered on his inspection does not fall within any of the clauses in subsection 76(1) of the Act or in the prescribed Status Certificate. Accordingly, he argues, Mr. Duval was not obliged to disclose the problem in the Status Certificate since there is no place on the prescribed form for him to do so. 24 Paragraph 12 of the Status Certificate requires a condominium corporation to disclose certain information: “The Corporation has no knowledge of a circumstance that may result in an increase in the common expenses for the unit(s).” If the Corporation does have such knowledge “of a circumstance”, then the Status Certificate must be altered by the addition of the word “except...” with a list of the items anticipated. Ms. Loeb, in the annotated Status Certificate in her book at p. 9-7, states: This statement requires the corporation to give particulars of any potential increase that it knows or, in the author’s view, ought to know about, including the potential for expenses that are forthcoming, for example, as a result of engineering studies currently being conducted, even if no increase in common expenses or a special assessment has been approved by the board. 25 Ms. Loeb takes the position that necessary financial information that a buyer would reasonably take into account in the purchase decision ought not to fall between the cracks because of timing fortuities, as in this case, but should be 74 REAL PROPERTY REPORTS 99 R.P.R. (4th)

referred to in the Status Certificate. I agree. See Fisher v. Metropolitan Toronto Condominium Corp. No. 596, [2004] O.J. No. 5758, 31 R.P.R. (4th) 273 (Ont. Div. Ct.) at para. 10. I that find that the language used in paragraph 12, particularly the broad term “a circumstance” coupled with the word “may,” which in context connotes “might,” is intended to push a condominium corporation to disclose more, not less, information that could be financially material to the requester’s purchase decision. The problem with the wall was just such a circumstance, and in failing to disclose it in responding to paragraph 12 of the Status Certificate or by a timely correction, the Corporation failed to comply with its duty under the Act. 26 The path to a determination that such a “potential for expenses” existed in this case is not hard to trace. As Ms. Loeb notes at p. 9-5: “There are numerous sections of the Condominium Act, 1998 which authorize the condominium corporation to add costs, which are deemed to be common expenses, to the unit.” She mentions, among others, section 92(3) of the Act which permits the “[c]osts of repairs to units and common elements where an owner has an obligation to maintain and repair and/or the owner does not do it and the corporation does”, and section 134(5), being “[a]n order as to damages or costs against an owner or occupier of a unit, together with the excess amount that the corporation actually spent in obtaining the court order.” Ms. Loeb notes that these additional expenses are meant to be addressed in the Status Certificate under paragraph 8. 27 Had Mr. Duvall conducted an inspection in the years before the unit was sold to the respondent, then the Corporation would predictably have sent to the owner at the time virtually the same letter requiring restoration of the wall that it sent to the respondent. If the previous owner had not complied, then the information about the associated charges and costs would have been disclosed under paragraph 8 of the Status Certificate, which provides: “There are no amounts that the Condominium Act, 1998 requires to be added to the common expenses payable for the unit(s), [except...].” 28 I find that the Corporation was aware of the problem with the wall and the potential financial issue it raised on a timely basis, that the respondent reasonably relied upon the silence of the Status Certificate on the issue, that the Certifi- cate is binding on the Corporation, and that the Corporation is estopped from pursuing the respondent for the restoration of the wall.

2. Is the respondent obliged to restore the unit to its original condition? 29 Section 10 of the Corporation’s declaration provides: “No boundary wall, roof or interior partition wall shall be added to, altered, removed in all or in part, improved or renovated without the prior written consent of the Corporation of [sic] the Board. The Corporation or the Board may impose such conditions as it deems necessary in consideration for granting such consent.” Section 11 of the declaration goes on to oblige each unit owner to comply with the Act, the decla- Durham Condo. Corp. No. 63 v. On-Site Solutions Ltd. P.D. Lauwers J. 75

ration, the by-laws and so on. Any default allows the corporation to take legal action to compel compliance. 30 The court’s jurisdiction to deal with such applications is found in section 134 of the Act: 134.(1) Subject to subsection (2), an owner, an occupier of a proposed unit, a corporation, a declarant, a lessor of a leasehold condominium corporation or a mortgagee of a unit may make an application to the Superior Court of Justice for an order enforcing compliance with any provision of this Act, the declaration, the by-laws, the rules or an agreement between two or more corporations for the mutual use, provision or maintenance or the cost-sharing of facilities or services of any of the parties to the agreement. ... (3) On an application, the court may, subject to subsection (4), (a) grant the order applied for; (b) require the persons named in the order to pay, (i) the damages incurred by the applicant as a result of the acts of non-compliance, and (ii) the costs incurred by the applicant in obtaining the order; or (c) grant such other relief as is fair and equitable in the circumstances...... 31 As interpreted by the courts, section 134 is a fairly draconian tool in the hands of a corporation. Courts have required even attractive and useful features to be removed at the insistence of the board of a condominium: see, for example, East Gate Estates v. Kimmerly, [2003] O.J. No. 582 (Ont. S.C.J.) at paras. 7-12. As Flynn J. said in Halton Condominium Corporation No. 315 v Sid Gucciardi (April 15, 2004), (S.C.J.): “The Board of Directors of this condominium was elected by the unit owners to administer this condominium in the best interests and for the welfare for the whole corporation. It is not for the court to step into this fray”. In Peel Standard Condominium Corp. No. 721 v. Derveni, [2007] O.J. No. 5585 (Ont. C.J.), Van Rensburg J. said at para. 2: “While there does not appear to be anything unsafe or unattractive about the walkway and while it may be very useful to the unit owners, nevertheless it contravenes the Declaration and the Act and must be removed”. 32 There is, however, discretion in the court, as subsection 134(3) provides. It would be neither fair nor equitable for the court to order the restoration of the wall in this case. The respondent has paid to reinforce the wall even though it was not the one who altered it. No useful purpose, including deterrence, would be served by compelling the respondent to restore the wall now and, assuming without deciding that I have authority to do so, I decline to exercise it. 76 REAL PROPERTY REPORTS 99 R.P.R. (4th)

3. Is the Applicant entitled to its legal costs? 33 At the argument of this motion, it rapidly became plain that the applicant’s real goal in proceeding was to have the respondent pay the applicant’s legal and incidental costs. 34 In respect of costs, section 134 of the Act provides: (5) If a corporation obtains an award of damages or costs in an order made against an owner or occupier of a unit, the damages or costs, together with any additional actual costs to the corporation in obtaining the order, shall be added to the common expenses for the unit and the corporation may specify a time for payment by the owner of the unit. 35 The purport of subsection 134(5) of the Act was explained at length by the Ontario Court of Appeal in Metropolitan Toronto Condominium Corp. No. 1385 v. Skyline Executive Properties Inc. (2005), 253 D.L.R. (4th) 656 (Ont. C.A.) per Doherty J.A.: 40 My review of the terms of s. 134(5) leads me to agree with counsel for MTCC’s submission that the section was intended to shift the financial burden of obtaining compliance orders from the condominium corporation and ultimately, the innocent unit owners, to the unit owners whose conduct necessitated the obtaining of the order. Fur- thermore, the section was enacted to provide a means whereby the condominium corporation could, if necessary, recover those costs from the unit owner through the sale of the unit. The court held at para. 38 that “any additional actual costs” means costs that go beyond the normal award of costs. 36 The concept, as explained by Wood J. in Muskoka Condominium Corp. No. 39 v. Kreutzweiser, 2010 ONSC 2463, [2010] O.J. No. 1720 (Ont. S.C.J.), at para. 16, is that: No part of these costs should be borne by the respondent’s neighbours who are blameless in this matter. The Corporation declaration provides that any owner is bound to indemnify the corporation for any loss occasioned by his or her action. For these reasons it is appropriate that the corporation’s costs be on a full recovery basis. 37 Mr. Chornobay submits that the remedial work would never have been done if the Corporation had not made this application. But that submission assumes that it was the respondent’s responsibility to restore the wall to its original condition. I have found that it was not in the circumstances of this case. The absence of an order under section 134 means that subsection 134(5) has no application and the costs are not to be added specifically to the common expenses for the respondent’s unit. The fairest outcome would be for all the other unit holders to absorb an aliquot share of the costs of this proceeding. 38 For the reasons given, the application is dismissed with costs to the respondent. If the parties cannot agree on costs, then I will accept written submissions on a seven-day turnaround, starting with the respondent. Application dismissed. Dhaliwal v. Olleck 77

[Indexed as: Dhaliwal v. Olleck] Kuldip Singh Dhaliwal (Plaintiff) and Joginer Olleck, also known as Joginder Olleck also known as Joginder Ollek, and Jaswinder Olleck, also known as Jaswinder Kaur Olleck also known as Jaswinder Ollek (Defendants) British Columbia Supreme Court S. Griffin J. Heard: June 21-25, 28-30, 2010; October 15, 2010 Judgment: October 29, 2010 Docket: New Westminster S91749, 2010 BCSC 1524 Janet J. Wingson, Aleksandra S. Rennebohm for Plaintiff David A. McMillan for Defendants Estates and trusts –––– Trusts — Resulting trust — Rebuttal of presumption of resulting trust — Lack of common intention –––– Plaintiff D contributed money towards purchase of property registered in names of defendants, Mr. and Mrs. O, who also contributed money — D claimed interest in property; Os said that money they received was gift from D’s wife, since deceased, who was Mrs. O’s sister — D brought action against Os — D sought declaration that Os held 66.4 per cent beneficial interest in property in trust for him or alternatively, declaration that Os held his interest on express, resulting, or constructive trust for him — Action allowed — Presumptions of resulting trust and indefeasible title are both rebuttable by evidence as to parties’ actual intentions, which was readily discerned from consideration of all evidence — D and Os had common intention that D’s financial contribution towards purchase of property would be treated as investment in property and he was co-investor with Os — While presumption of resulting trust had not been rebutted, statutory presumption found in s. 23(2) of Land Title Act, as relied upon by Os, was displaced — Evidence inferred that both sides intended that their financial contributions would be recognized by shares proportionate to their respective contributions — D had interest in property, which Os held in trust for him; percentage reflected his contribution to property, relative to net contribution made by Os — D’s respective financial contributions amount to 45 per cent and Os’ respective financial contributions amount to 55 per cent of total respective financial contributions to property — D had beneficial interest of 45 per cent share in property, held in trust for him by Os. Cases considered by S. Griffin J.: Clayton v. British American Securities Ltd. (1934), [1934] 3 W.W.R. 257, [1935] 1 D.L.R. 432, 49 B.C.R. 28, 1934 CarswellBC 62, [1934] B.C.J. No. 4 (B.C. C.A.) — referred to Demir v. Peyman (2009), 2009 CarswellBC 807, 2009 BCSC 445, 68 R.F.L. (6th) 319 (B.C. S.C.) — referred to Pecore v. Pecore (2007), 2007 SCC 17, 2007 CarswellOnt 2752, 2007 CarswellOnt 2753, 32 E.T.R. (3d) 1, 37 R.F.L. (6th) 237, 361 N.R. 1, 224 O.A.C. 330, 279 D.L.R. (4th) 513, [2007] 1 S.C.R. 795, [2007] S.C.J. No. 17 (S.C.C.) — referred to 78 REAL PROPERTY REPORTS 99 R.P.R. (4th)

Phung v. Feng (2009), 2009 CarswellBC 734, 2009 BCSC 374 (B.C. S.C.) — considered Rathwell v. Rathwell (1978), 1978 CarswellSask 36, 1978 CarswellSask 129, [1978] 2 S.C.R. 436, [1978] 2 W.W.R. 101, 83 D.L.R. (3d) 289, 19 N.R. 91, 1 E.T.R. 307, 1 R.F.L. (2d) 1, [1978] S.C.J. No. 14 (S.C.C.) — considered Skender v. Skender (2005), 2005 BCSC 418, 2005 CarswellBC 707, [2005] B.C.J. No. 673 (B.C. S.C.) — considered Skender v. Skender (2006), 2006 BCCA 162, 2006 CarswellBC 772, 52 B.C.L.R. (4th) 6, [2006] B.C.J. No. 700 (B.C. C.A.) — referred to Sykes v. Sykes (1995), 13 R.F.L. (4th) 273, 38 C.P.C. (3d) 250, 6 B.C.L.R. (3d) 296, 58 B.C.A.C. 294, 96 W.A.C. 294, 1995 CarswellBC 266, [1995] B.C.J. No. 821 (B.C. C.A.) — referred to Zhu v. Li (2007), 2007 BCSC 1467, 2007 CarswellBC 2367, 43 R.F.L. (6th) 376, [2007] B.C.J. No. 2150 (B.C. S.C.) — considered Statutes considered: Land Title Act, R.S.B.C. 1996, c. 250 s. 23 — referred to s. 23(2) — considered

ACTION brought by property co-owner seeking declaration that defendant co-owners held interest in property in trust for him.

S. Griffin J.: Introduction 1 The plaintiff, Kuldip Dhaliwal, contributed money towards the purchase of property registered in the names of the defendants, Joginder and Jaswinder Ol- lek1. He claims an interest in the property. The defendants, who are husband and wife, say the money they received was a gift from Mr. Dhaliwal’s wife, since deceased, Balwinder Dhaliwal. Balwinder Dhaliwal was the sister of Mrs. Jas- winder Ollek. The Olleks also contributed money towards the purchase of the property. 2 The arrangement between the parties was entered into absent written contract or prior legal advice, as is all too common amongst close friends and relatives. Unfortunately as is also too common, this has led to this litigation and no doubt has ruined the relationships.

Uncontroversial Facts 3 The evidence establishes the following facts, which, for the most part, are uncontroversial.

1The defendants’ last name was misspelled on the title of the property as “Olleck” and therefore spelling alternatives are shown in the style of proceedings. Dhaliwal v. Olleck S. Griffin J. 79

4 Mr. Dhaliwal and his wife, Balwinder, married in June 1977. They were married for approximately 25 years before Balwinder died on June 7, 2003. She was 44 years of age when she died. In 1980, Mr. Dhaliwal bought his present home located on Cambie Road in Richmond. This home was purchased together with a partner, Mr. Cheema. In 1987, Mr. Dhaliwal bought out his partner’s share. 5 In around 1996, the Dhaliwals started the business DBK Enterprise. This business was owned solely in Mrs. Dhaliwal’s name. However, both husband and wife worked in the business, which supplied labour to local farmers. Only Mrs. Dhaliwal had signing authority in the company. This business became the primary source of income for both of them. 6 Over time, the couple also purchased investment property: a house in Delta and a property on 133rd Ave. in Surrey, BC. The Dhaliwal’s used the same realtor for both purchases, Mr. Hammit Sekhon. 7 Mrs. Ollek is the younger sister of Mrs. Dhaliwal. She and her husband live near Kamloops, B.C. They have a nursery and landscaping business. 8 In around 2000, the Olleks became interested in purchasing investment property. Mrs. Ollek discussed it with Mrs. Dhaliwal and Mrs. Dhaliwal began looking for properties for them in the Vancouver area. The Olleks went so far as to put an offer on a property in 2001. However, they did not follow through with that offer because the rent payments did not cover the required mortgage payments. 9 In June 2001, the Olleks’ oldest son, Sandeep, passed away at age 13. Mrs. Ollek was emotionally crushed by her son’s death and had a difficult time cop- ing. Her sister, Mrs. Dhaliwal, tried to help her cope. 10 By contract of purchase and sale dated May 5, 2002, Mr. Dhaliwal put in an offer to purchase the property that is the subject of this lawsuit. The property address is 17267 - 64th Avenue, Surrey, B.C., V3N 1Y6 (the “Property”). The legal description is Lot G, LD 36, Section 18, Township 8, Plan 12603. Mr. Hammit Sekhon was the realtor. 11 An addendum to the contract of purchase and sale of the Property stated: “seller is aware that there will be other family members on title at completion time”. 12 The purchase price for the Property was $318,000. A deposit of $20,000 was required upon removal of subject conditions. The subject conditions were to be met by May 25, 2002. The purchase of the Property was to complete on July 15, 2002. 13 As of the date of the offer to purchase the Property, the Dhaliwals had very little cash in their bank accounts. However, the Olleks had received insurance funds of approximately $60,000 in October 2001, related to their son’s death. 80 REAL PROPERTY REPORTS 99 R.P.R. (4th)

14 On May 25, 2002, Mr. Dhaliwal signed an addendum to the contract of purchase and sale of the Property, removing the subject conditions from the earlier purchase contract. This was faxed to Mr. Ollek and he signed it as well. 15 On May 25, 2002, the same date, Mrs. Dhaliwal wrote a cheque to the realtor for $20,000 as the deposit for the purchase of the Property. At the time, she only had approximately $400 in the bank account on which she wrote the cheque. However, before the cheque cleared, on May 27, 2002, she received a transfer of funds of $20,000 from her sister, Mrs. Ollek. The money was transferred from an account held by Mrs. Ollek and her son, Bevan. The money was transferred to an account held by Mrs. Dhaliwal and her mother, and then transferred to the account on which Mrs. Dhaliwal had written the cheque. One of the issues in this case is who contributed the $20,000 towards the purchase of the Property. 16 In June 2002, Mrs. Dhaliwal became seriously ill and was admitted to hospital for four or five weeks. Eventually her illness was diagnosed as terminal liver cancer. 17 In early June, Mr. Dhaliwal cashed in three investments held in his name by Manulife Financial, totalling $28,056.08, which he deposited into his bank account. As well, in early July, Mr. Dhaliwal cashed in another Manulife investment for $24,955.79 and also deposited it into his bank account. 18 On the same day as the deposit of the Manulife cheque in July, Mr. Dhaliwal deposited $25,000 worth of cheques into his same bank account. Three of these cheques were from the family business, DBK. One of these cheques, in the amount of $3,000, was from the joint account of his wife and mother. All of these cheques were signed by Mrs. Dhaliwal. 19 With all of these deposits in his bank account, as of July 12, 2002 Mr. Dhaliwal had just over $70,000 in his bank account. He then obtained a bank draft in the amount of $65,000 from the funds in his account, payable to Naib Brar. Mr. Brar was the notary who was taking care of the purchase of the Property. 20 In the meantime, the Olleks had arranged for mortgage financing. This mortgage financing was in part based on the fact that there was a tenant in the Pro- perty paying rent of $1,200 per month. 21 On July 10, 2002, the Olleks’ bank made a mortgage loan commitment to them for the amount of $205,000, due on July 15, 2002. The monthly payment on that mortgage was to be $1,233.46. 22 Apparently the Olleks’ bank knew that the Olleks did not have the cash to complete the purchase and would be obtaining funds from another source. I say “apparently” because no witness from the bank was called. However, the Olleks say that the bank gave them a form letter entitled “gift letter” to have completed. Dhaliwal v. Olleck S. Griffin J. 81

23 The gift letter stated as follows: Gift Letter To Whom It May Concern This letter confirms that the undersigned is making a financial gift of $...... to Joginder S. Ollek for use toward the purchase of the property located at 17267 - 64 Avenue, Surrey, B.C., V3W 1Y6. We, the undersigned Recipients and Donors herby certify that: a) these funds are a genuine gift from the Donors, and don’t ever have to be repaid, and b) no part of the financial gift is being provided by any third party having any interest (direct or indirect) in the sale of the subject property, and c) the Donor is an immediate family member. Recipients Name Joginder S. Ollek Signature [signed] Date July 6, 2002 Donors Name Balwinder Dhaliwal Signature [signed] Date July 6, 2002 24 The gift letter was signed by Mr. Ollek on July 6, 2002. 25 Mrs. Ollek took the letter to Mrs. Dhaliwal, where she was in the hospital, and had her sign it also on July 6, 2002. The amount of the purported gift was never filled out and Mr. Dhaliwal was never shown or given a copy of the letter. 26 By the date of the closing of the purchase of the Property, July 15, 2002, the Olleks had calculated that they could reduce the mortgage loan to $190,000, which was done. They provided cheques to Mr. Brar in the amounts of $22,000.00, $500.00 and $28,000.00 respectively, totalling $50,500.00. 27 The purchase of the Property completed on July 15, 2002 with the Property being registered in the names of Mr. and Mrs. Ollek. Funds used to purchase the Property included the $20,000 deposit; the $65,000 cash from Mr. Dhaliwal; the $50,500 cash from the Olleks; and the mortgage proceeds. The total cost to purchase, including adjustments for taxes, was $324,702. 28 A joint account was set up in the name of the Dhaliwals’ son, Mandip Dhaliwal, and Mrs. Ollek. Mandip was enlisted to collect the rent from the tenant each month and deposit it in the account. This account was then used to meet the monthly mortgage payments, which were in the amount of $1,143.21. 82 REAL PROPERTY REPORTS 99 R.P.R. (4th)

29 In September 2002, a realtor, Bob Dhaliwal (no relation to the plaintiff), contacted the Olleks to see if they were interested in selling the Property. Mr. Ollek directed him to speak to Mr. Dhaliwal about it. 30 Sometime in the early fall of 2002, Mrs. Dhaliwal went to the Mayo clinic with her daughter and Mrs. Ollek. Her health did not improve. 31 After negotiations with Mr. Dhaliwal, the potential purchaser represented by the realtor, Bob Dhaliwal, made an offer on the Property on April 9, 2003. A deposit of $5,000 was made payable to the Olleks but given to Mr. Dhaliwal to deliver to them, and he signed a receipt for it. The offer to purchase the Property was made by Oak Park Homes Ltd. (“Oak Park”). 32 Mrs. Dhaliwal died on June 7, 2003. On June 13, 2003, the day of Mrs. Dhaliwal’s funeral, the Olleks provided to Mr. Dhaliwal a cheque payable to Mrs. Dhaliwal for $5,000. There is a dispute about what this cheque represented. 33 For reasons which are the subject of a separate lawsuit by Oak Park against the Olleks and Mr. Dhaliwal, the sale of the Property to Oak Park did not complete. In relation to the failed sale, Oak Park filed a lawsuit against Mr. and Mrs. Ollek, the defendants in this action, on November 3, 2003, in the British Colum- bia Supreme Court, New Westminster Registry, Action No. S83011. In the Oak Park action, the plaintiff seeks specific performance of the contract of sale of the Property. 34 The lawyer retained to defend the Olleks was Mr. Thomas Russell of Pryke Lambert Leathley Russell in Richmond, B.C. He was first retained after a meeting with Mandip Dhaliwal and Kuldip Dhaliwal in September 2003. Mandip Dhaliwal told him that Kuldip Dhaliwal was a silent owner with the Olleks. 35 Mr. Russell obtained instructions from Mr. Ollek to accept service of the writ. 36 Mr. Russell prepared and filed a statement of defence in the Oak Park action on behalf of Mr. and Mrs. Ollek. In the statement of defence, he pleaded on their behalf: 3. The property described in paragraph 4 of the Statement of Claim (the “Property) is registered in the names of the Defendants and beneficially owned as follows: (a) The Defendants as to an undivided one-half interest; (b) Kuldip Dhaliwal (“Kuldip”) as to an undivided one-half interest. 4. The Defendants say that at all materials times Kuldip acted as the agent of the Defendants with respect to the proposed sale of the Pro- perty to the Plaintiff. 37 Mr. Russell did not review the statement of defence with the Olleks prior to filing it, but he did send it to them in January 2004. Dhaliwal v. Olleck S. Griffin J. 83

38 Mr. Russell believed he was representing the Olleks as well as Mr. Dhaliwal in the Oak Park lawsuit. The Olleks say they did not know this. There was no joint retainer letter. The Olleks say they thought that Mr. Russell was representing only them and that Mr. Dhaliwal was simply assisting them as a witness. 39 The Oak Park offer to purchase the Property was in the amount of $480,000. 40 In April 2004, Mr. Dhaliwal transferred $5,000 to the Olleks. There is a dispute about whether this represented repayment of the amount paid by the Olleks in June 2003, or represented a contribution towards the expenses of the Property. 41 In August 2004, the City of Surrey commissioned an appraisal of the Pro- perty as it was expropriating a small piece to allow for the widening of 64thAvenue. The appraisal valued the Property at $700,000 per acre. Given that the Property size was 1.45 acres, this meant the total value of the Property was approximately $1,015,000. By at least this time, the parties were aware that the Property was worth a lot more than had been paid to purchase it. 42 In the fall of 2004, Mr. Dhaliwal sought to have the Olleks sign a transfer of one-half interest in the Property to him. Mr. Russell made this request on his behalf. The Olleks refused. Ultimately, Mr. Russell resigned from representing either Mr. Dhaliwal or the Olleks in March of 2005. 43 This lawsuit was commenced in April 2005.

The Plaintiff’s Position 44 Mr. Dhaliwal’s position is that he contributed $85,000 towards the purchase of the Property. He says this was made up of the $20,000 deposit and the $65,000 payment. He says that when this is weighed against the defendants’ cash contribution towards the purchase price of the Property, his pro rata share of the Property entitles him to a 66.4% interest in the Property. 45 He claims that it was the agreement or intention of both the plaintiff and the defendants that the defendants should hold the plaintiff’s interest in the Property in trust for him. He says this was the 66.4% interest, or alternatively, it was based on his contribution towards the purchase price, or alternatively, it was their agreement or intention that the defendants should hold an undivided one- half interest in the Property in trust for him. 46 Mr. Dhaliwal seeks a declaration that the defendants hold a 66.4% interest in the Property in trust for him, or such other interest in the Property as determined by the Court, and in the alternative, a declaration that the defendants hold his interest on an express, resulting, or constructive trust for him.

The Defendants’ Position 47 The Olleks say that Mr. Dhaliwal assigned his interest in the purchase of the Property to them. They deny that he made the financial contributions he alleges, 84 REAL PROPERTY REPORTS 99 R.P.R. (4th)

and deny that they had any common intention that Mr. Dhaliwal would acquire a beneficial interest in the Property. 48 The Olleks say that Mr. Dhaliwal and his wife, Balwinder, agreed to gift sufficient funds to the Olleks to enable them to qualify for mortgage financing and to complete the contract of purchase and sale as sole purchasers of the Property.

Issues 49 The following are central factual issues on the evidence: 1. Who contributed the $20,000 deposit paid towards the purchase of the Property? 2. What sum of money, if any, did Kuldip Dhaliwal contribute towards the purchase of the Property? 3. What was Mr. Dhaliwal’s intention with respect to any contribution he made to the purchase of the Property? 4. What were the Olleks’ intentions with respect to any contribution made by Mr. Dhaliwal to the purchase of the Property? 50 From the determination of these key factual issues will flow the remaining issues in this case. The last issue can be described as: 5. Is the plaintiff entitled to any remedy, and if so, what? 51 The last issue may involve considering competing presumptions and burdens of proof, namely the equitable presumption of resulting trust and the statutory presumption pursuant to s. 23 of the Land Title Act, R.S.B.C. 1996, c. 250 [Land Title Act].

1. Who contributed the $20,000 deposit paid towards the purchase of the Property? 52 Mrs. Ollek testified that she made arrangements to transfer the $20,000 payment to Mrs. Dhaliwal to pay for the deposit for the purchase of the Property. She said that she used a TD Bank account and transferred the money to a TD Bank account in the name of Mrs. Dhaliwal and her mother as she thought it would be easier to transfer within the same bank. The documents support this evidence. 53 Mr. Dhaliwal’s evidence was that he believed the $20,000 paid by Mrs. Ol- lek to Mrs. Dhaliwal was probably repayment of a loan that Mrs. Dhaliwal or her mother had previously made to Mrs. Ollek. 54 It was clear on Mr. Dhaliwal’s evidence that he did not contribute any part of the $20,000 deposit. He also had no direct knowledge of any loan and was just speculating that the funds represented repayment of a loan. Dhaliwal v. Olleck S. Griffin J. 85

55 The whole of the evidence, including the timing of the transfer from Mrs. Ollek to Mrs. Dhaliwal and the payment of the deposit, persuades me that the source of the deposit money was the defendant Jaswinder Ollek.

2. What sum of money, if any, did Kuldip Dhaliwal contribute towards the purchase of the Property? 56 The evidence is clear that Mr. Dhaliwal delivered a bank draft for $65,000 to Naib Brar, the notary who was handling the purchase of the Property. This bank draft was comprised of funds from Mr. Dhaliwal’s bank account. 57 The Olleks suggest that some of these funds were Mrs. Dhaliwal’s or her mother’s. However, they too are merely speculating. They cannot dispute the fact that ultimately the funds came from Mr. Dhaliwal’s bank account. 58 The source of funds in Mr. Dhaliwal’s account included Manulife investments held in his name only and totalling $53,011.79. He also deposited cheques from DBK Enterprises payable to him of $5,000 and $12,000. This was more than enough to fund the $65,000 bank draft that he provided to Mr. Brar. I conclude that Mr. Dhaliwal contributed $65,000 towards the purchase of the Property. 59 In October 2003, DBK Enterprises paid $2,000 to Mr. Russell, as his retainer to defend against the claim in the Oak Park action. It is clear that this money was not the Ollek’s money. It had to have been advanced on behalf of Mr. Dhaliwal, who was seen by Mr. Russell as a co-owner in the Property. 60 Mr. Dhaliwal also claims that the $5,000 he paid to the Olleks in April 2004 was meant to be a contribution towards the expenses of the Property. His evidence on this point was inconsistent and vague. I do not accept his claim in relation to this $5,000 payment. I accept Mrs. Ollek’s evidence that the $5,000 she paid to Mr. Dhaliwal in June 2003 was a loan to help pay his wife’s funeral expenses, and the April 2004 payment from Mr. Dhaliwal was simply repayment of that loan.

3. What was Mr. Dhaliwal’s intention with respect to any contribution he made to the purchase of the Property? The Gift Letter 61 Mr. and Mrs. Ollek say that the money contributed by Mr. Dhaliwal was a gift from him and Mrs. Dhaliwal. Mr. Dhaliwal denies this. The Olleks admit they never had any discussions with Mr. Dhaliwal about the money being a gift. However, they rely heavily on the gift letter signed by Mrs. Dhaliwal and conversations between Mrs. Dhaliwal and Mrs. Ollek. They say this evidence establishes that Mrs. Dhaliwal intended to make a gift and therefore the inference should be drawn that Mr. Dhaliwal intended to make a gift as well. 86 REAL PROPERTY REPORTS 99 R.P.R. (4th)

62 I am not satisfied that the inference suggested by the Olleks can be drawn on the evidence, even if it could be established that Mrs. Dhaliwal intended to make a gift (which is far from certain). While Mr. Dhaliwal admitted that he and Mrs. Dhaliwal made all major financial decisions together, he denied knowing about the gift letter, and on the defendants’ own evidence, they never discussed the subject with him.

The Dhaliwals’ Financial Circumstances 63 Furthermore, the circumstances of Mr. and Mrs. Dhaliwals’ financial position at the time makes it extremely unlikely that Mr. Dhaliwal would be giving $65,000 away. At the time, Mrs. Dhaliwal was very sick. She was a key person in the DBK family business. Mr. Dhaliwal did not have a driver’s license although he played a role in the business as well. Mr. Dhaliwal said that their business was not doing well at the time. Even in good times, the Dhaliwals did not make a lot of money from the family business. Mr. Dhaliwal’s earnings from the business in 2002 were $30,000. 64 Moreover, the DBK business often required injections of cash from the Dhaliwals which they usually had to make by borrowing against a line of credit secured against their home. This usually happened when the nurseries or farmers to whom they supplied labour were late in paying and the Dhaliwals had to pay for the labour. 65 In addition, the Dhaliwals were funding the higher education of their two children. 66 As noted above, the Dhaliwals did not have much cash on hand at the time of the purchase of the Property. They did not have cash to pay the $20,000 deposit. Mr. Dhaliwal had to cash in some investments he held at Manulife in order to come up with the total sum of $65,000 which he contributed towards the purchase price. 67 I find it quite improbable that Mr. Dhaliwal would intend to gift such a large sum as $65,000 to the Olleks, given his financial situation at the time. For all of the above reasons, I conclude that Mr. Dhaliwal did not intend his financial contribution towards the purchase of the Property to be a gift.

Was it a loan? 68 Since Mr. Dhaliwal’s contribution towards the Property was not a gift, what else could the advance of $65,000 have been? There are two possibilities on the evidence: either it was a loan, or it was an investment in the Property. 69 Neither Mr. Dhaliwal nor the Olleks assert that his contribution was a loan. However, when describing her conversations with Mrs. Dhaliwal at the hospital, when she obtained Mrs. Dhaliwal’s signature on the gift letter, Mrs. Ollek said that she told Mrs. Dhaliwal that she was really scared if she was not able to return the money soon enough and asked “what if Kuldip wanted it back soon?”. Dhaliwal v. Olleck S. Griffin J. 87

She said that while Mrs. Dhaliwal said “don’t worry about it, I won’t ask you”, Mrs. Ollek always had it in her own mind that she would return the money some day, and that in some way she would give the money back. I will return to this point when I discuss the Olleks’ intention in receiving the money. Nevertheless, this evidence is not sufficient to establish that Mr. Dhaliwal’s intention was to simply loan the money.

Prior conduct 70 I find that Mr. Dhaliwal’s conduct, both prior to and subsequent to the purchase of the Property, demonstrated his intention to make an investment in the Property. 71 Mr. and Mrs. Dhaliwal took the lead in finding and negotiating the terms of purchase of the Property. The Olleks had no role in this. 72 When the Property was first discussed as a potential opportunity, Mr. Dhaliwal wanted to purchase it himself. However, he realized that he would not qualify for a mortgage. He says that he then approached others to invest in the Property with him. 73 One of the people approached by Mr. Dhaliwal was Amarjhit Hayre. Mr. Hayre is a cousin of Mr. Dhaliwal. He was called as a witness by the plaintiff at trial. He testified that he became aware of the Property when Mr. and Mrs. Dhaliwal called him to get in touch with the realtor, Mr. Sekhon, to look at the Property and to see whether it was worth buying it. Mr. Hayre says he has experience as a developer and builder. He testified that he looked at the Property and thought it was a good property that could be developed. 74 Mr. Hayre testified that the Dhaliwals then asked him if he would like to share in buying the Property together. He told them he had enough land at the time but not enough money to participate. The discussions did not progress beyond that and there are no discussions about how the Property would be held and who would be on title if he did become a partner. 75 The Olleks were approached by the Dhaliwals after Mr. Hayre. 76 Mr. Dhaliwal testified that he had specific conversations with the Olleks where they agreed that they would be 50-50 partners in the Property: the Olleks and Mr. Dhaliwal would each put in an equal amount of cash, and the Olleks would obtain a mortgage that would be paid for by the rent. Mr. Dhaliwal’s evidence as to these discussions was vague. He was unable to point to any details as to when and where the discussions occurred and who was present. 77 The Olleks deny having these discussions. The Olleks’ position is that any discussions about the Property took place between Mrs. Ollek and Mrs. Dhaliwal. 78 There were a number of propositions which the defendants’ counsel put to Mr. Dhaliwal in cross-examination, which were meant to suggest that Mr. 88 REAL PROPERTY REPORTS 99 R.P.R. (4th)

Dhaliwal was not credible in his assertions that he thought he was an investor in the Property. It was suggested that Mr. Dhaliwal had no valid reason for not being on title. Mr. Dhaliwal’s stated reason was that he did not qualify for mortgage financing. The defendants point out that there was no evidence that it was a precondition of mortgage financing that the registered owners be the mortgagees. However, I find that this point is not significant. I accept that Mr. Dhaliwal simply assumed that if he was not qualified to obtain a mortgage, he could not be on title. I find it credible that someone in his position would make that assumption. 79 The defendants also suggested that Mr. Dhaliwal did not have any reason for not attending at the notary public’s office when the deal was closed, if he was to be a part beneficial owner in the Property. I also do not find this point significant. Mr. Dhaliwal explained that he was the one who introduced the Olleks to Mr. Brar. He said he told Mr. Brar that he had bought a property and will be giving his share of the money towards it, combined with his brother-in-law’s share, and the title would be in the name of the defendants because he was unable to get a mortgage. Mr. Dhaliwal explained that he delivered the bank draft to Mr. Brar’s office on the way to the hospital to see his wife. 80 In addition, Mr. Dhaliwal admitted in cross-examination that he did not know the mortgage amount obtained by the Olleks. He also did not know they would take care of subsequent expenses. However, Mr. Dhaliwal said that he was relying on the Olleks to let him know what was required on his part. He said the Olleks told him that if he brought $65,000, that would amount to a 50% contribution. 81 The fact that Mr. Dhaliwal did not attend at the notary’s office, know the mortgage amount, or concern himself with paying subsequent expenses in relation to the Property, is not inconsistent with him believing that he was a co- investor in the Property together with the Olleks. In my view, his conduct was consistent with his belief that as his relatives, the Olleks would treat him fairly and would let him know what was required in order to contribute to this investment. 82 Although I am not certain whether Mr. Dhaliwal spoke directly to the Olleks or learned it from his wife, it is clear that the Olleks told either Mr. Dhaliwal or Mrs. Dhaliwal that they required $65,000 to be able to complete the purchase. As noted, Mr. Dhaliwal cashed in other investments in order to come up with the $65,000 contribution. This behaviour is consistent with Mr. Dhaliwal’s belief that he was making a better investment. 83 In summary, Mr. Dhaliwal’s conduct leading up to the purchase of the Pro- perty is consistent with his intention to make a co-investment in the Property: he investigated the Property; searched for a co-investor; negotiated the offer to purchase; and drew on his resources, including cashing in other investments, to come up with $65,000 which he contributed towards the purchase. Dhaliwal v. Olleck S. Griffin J. 89

Subsequent conduct in relation to the Property 84 Mr. Dhaliwal’s conduct subsequent to the purchase of the Property was also consistent with the belief that he was an investor in the Property. 85 The Dhaliwals’ son, Mandip, was the one who collected the rents and managed the bank account in connection with the Property, once the purchase closed. All the bank statements, which recorded the deposit of rent from the tenant and the mortgage payments, were sent to the Dhaliwals’ home address. This is consistent with the notion that the purchase of the Property was a joint family enterprise. The Olleks did not ask to see the bank statements for a couple of years, until the spring of 2004 when Mrs. Ollek was contacted by the bank about there being non-sufficient funds in the account. 86 Mr. Dhaliwal’s subsequent conduct in negotiating the Oak Park offer to purchase the Property, and in dealing with the lawyer, Mr. Russell, in relation to defending the Oak Park action, is consistent with him thinking he was an investor in the Property. He took the lead on these matters, just as he and his wife had taken the lead in initially finding the Property and negotiating its purchase. 87 Mr. Dhaliwal’s instructions to Mr. Russell, including in relation to drafting the Statement of Defence in the Oak Park action, were consistent with Mr. Dhaliwal thinking that he had a 50% interest in the Property. This fact was included in the Statement of Defence drafted by Mr. Russell, as it provided a useful contextual explanation as to why the purchaser, Oak Park, had been directed by the Olleks to deal with Mr. Dhaliwal in connection with the sale of the Pro- perty, and confirmed that Mr. Dhaliwal had the complete authority to conduct those negotiations, which he did. At the time the Statement of Defence was filed, Mr. Dhaliwal and the Olleks were getting along and he had no reason to exaggerate his interest in the Property. While I appreciate that a party’s prior consistent statements cannot be used by that party as oath-helping, these prior assertions put to rest any suggestion that Mr. Dhaliwal’s evidence in this case was a recent fabrication, and show consistency in Mr. Dhaliwal’s conduct.

Conclusion as to Mr. Dhaliwal’s intentions 88 Considering all of the evidence as a whole, including the Dhaliwals’ financial circumstances and Mr. Dhaliwal’s conduct prior and subsequent to the purchase of the Property, I am persuaded on a balance of probabilities that Mr. Dhaliwal’s intention was to contribute $65,000 as an investment in the Property, and not as a gift or loan. 89 It appears that the theory of Mr. Dhaliwal’s claim is that he was to receive a percentage interest in the Property proportionate to his relative financial contribution. 90 REAL PROPERTY REPORTS 99 R.P.R. (4th)

90 The original statement of claim by Mr. Dhaliwal alleged that 11. At all material times it was the intention of the Plaintiff and the Defendants that the Defendants should hold the Plaintiff’s 66.4% interest in the property in trust for the Plaintiff. 91 Mr. Dhaliwal admitted in cross-examination that he never discussed with the defendants the fact that he would have a 66.4% interest. What happened, he said, was that he instructed Mr. Russell to seek a transfer of a 50% interest in the Property from the defendants to him, to reflect what he believed was his beneficial interest. When they refused to do so, he then brought this lawsuit. Only then, he said, did he realize that his contribution, of which he counted the $20,000 deposit, was greater than 50% and that is why he advanced the claim of a 66.4% interest. He reached this conclusion based on his calculations as to their respective cash contributions, and ignoring the mortgage proceeds. 92 The statement of claim was amended at trial to reflect Mr. Dhaliwal’s evidence that both parties originally intended that he would have a one-half interest in the property. 93 As for subsequent expenses in maintaining the Property, Mr. Dhaliwal alleges in his Statement of Claim that he paid the Olleks $6,000 in 2004 for property taxes and maintenance associated with the Property. It is clear from this allegation that his intention was that each would receive credit for any money they spent towards purchasing or maintaining the Property. 94 I am not persuaded on a balance of probabilities that the discussions between Mr. Dhaliwal and the Olleks were ever that specific as to assign a precise interest to each side’s investment in the Property. 95 However, I do conclude that Mr. Dhaliwal’s intention, when he contributed the $65,000, was that he was investing in the Property together with the Olleks and that he would share in any increase in the Property’s value. I also conclude that it was his intention that each would treat the other fairly, recognizing the relative financial contributions at the time of purchase and afterwards, by way of a proportionate split in any increase in value of the Property. I therefore accept Mr. Dhaliwal’s evidence to this extent: that he intended that the fair way they would split the investment would be on the basis of their respective cash contributions. 96 I conclude that Mr. Dhaliwal’s intention in contributing money towards the purchase of the Property, was that it would be a joint investment held in the name of the Olleks, and that he would be entitled to a share of the Property based on his financial contributions to the purchase and maintenance of the Pro- perty, relative to the Olleks’ financial contributions. Dhaliwal v. Olleck S. Griffin J. 91

4. What were the Olleks’ intentions with respect to any contribution made by Mr. Dhaliwal to the purchase of the Property? The Background and Gift Letter 97 Mrs. Ollek came to Canada from India in 1983 and married Mr. Ollek in 1986. 98 Mrs. Ollek was the youngest of three sisters, and also had an older brother. She said that when she moved to Canada she lived with the Dhaliwals, and after she married, maintained a close relationship with Balwinder Dhaliwal. 99 Mrs. Ollek was devastated by the death of her son, Sandeep, in June of 2001. Mrs. Dhaliwal knew the Olleks had received just over $60,000 as an insurance benefit on their son’s death. According to Mrs. Ollek, her sister, Mrs. Dhaliwal, repeatedly suggested to her that she should invest in property as a way of using the money from her son’s death to help them. 100 Ultimately, in the spring of 2002, according to Mrs. Ollek, her sister told her that she had found a good property in Surrey for the Olleks to invest in. Mrs. Ollek said she had complete trust in her sister, and just told her to do what she needed to do, and did not pay attention to the details. According to Mrs. Ollek, she was not in good shape to travel to Vancouver and so she told her sister “you guys just do it for us”. 101 Mrs. Ollek said that she told her sister she was nervous about the purchase price of $318,000, but her sister told her not to worry about it and “I’ll help you if you’re ready”. Mrs. Ollek said she had no discussions with Mr. Dhaliwal about the purchase of the property. 102 Mrs. Ollek said she later received a telephone call from her sister who told her everything was done, but “we now have to give the money”. Her sister told her she did not have any money, and so asked Mrs. Ollek to transfer money to her account. This was the $20,000 deposit, which Mrs. Ollek transferred to Mrs. Dhaliwal’s TD bank account. 103 Mrs. Ollek says she was not involved in any discussions about the mortgage, which she left to her husband. However, she arranged to gather bank drafts from their other resources, in the amounts of $22,000, $500, and $28,000 respectively. She knew there was a shortfall and said that “my sister said she’d help me with whatever money we’d need”. Mrs. Ollek’s evidence on this was vague and she often looked puzzled when asked questions about raising the money to purchase the property. She admits that at the time she was still distraught about the death of her son and not even capable of travelling from Kamloops to Van- couver. I thus find that her memory is not entirely reliable. It often appeared that her testimony as to what she remembered was more of a self-serving reconstruction than an accurate recollection of events. 104 For example, when asked in direct examination about the gift letter, she claimed to have presented it to her sister in hospital and that her sister first said 92 REAL PROPERTY REPORTS 99 R.P.R. (4th)

that she had spoken to Kuldip Dhaliwal about this notion and that both he and she knew that the Olleks would require a gift letter. This seemed an obvious self-serving reconstruction and I do not accept it as true. She retreated from this version of events, however, and the rest of Mrs. Ollek’s evidence made it clear that the gift letter was something initiated by the Ollek’s mortgage company, and not by the Dhaliwals. 105 The gift letter is a key piece of evidence relied on by the Olleks, but I find that at the time it was not expected nor given a great deal of thought by either of them. 106 In cross-examination, Mrs. Ollek said that she had never talked to her sister about where her sister would get the money to help them close the purchase, despite knowing that her sister did not have the money to help pay the deposit. 107 Indeed, as of July 6, 2002, the date of the gift letter, Mrs. Ollek did not know how much money was required to close the purchase. Mrs. Ollek admitted she did not even read the gift letter. She just told her sister to sign it because the mortgage broker asked for it. She did not explain what was written in it. She told her sister nothing beyond the fact that it was a gift letter to give to them to give to the mortgage broker. She did not know whether the money was coming from Mrs. Dhaliwal alone, or Mr. Dhaliwal, or both of them. Mrs. Ollek admitted she never talked to her sister about what her sister was doing to get money from her end. This is despite the fact that they talked frequently. 108 Mr. Ollek was the one dealing with the mortgage broker. He said the mortgage broker was the one who requested that they get a gift letter signed by Mrs. Dhaliwal. According to Mr. Ollek, the mortgage broker filled out all of the information on the form, other than the signatures. With respect to the gift letter, Mr. Ollek said because the mortgage broker filled it out, he did not pay any attention to it, including the fact that the gift amount was left blank. 109 Mr. Ollek confirmed that his understanding of the purpose of the gift letter was so that the mortgage broker would know that they were not borrowing funds from elsewhere as the mortgage broker did not want another liability on the title. He also agreed that he had no discussions with Mrs. Dhaliwal about the gift letter, even though it was directed from her to him. 110 Mr. Ollek’s memory was also not very reliable. For example, he testified that he signed the gift letter in Kamloops B.C. However, he was taken to his examination for discovery of August 10, 2006 when he testified that he signed the gift letter at the Dhaliwals’ house in Richmond. He then changed his evidence to say his recollection was wrong and that he did sign it in Richmond. While this is a small detail, it does illustrate that Mr. Ollek does not have a good memory of events, and did not pay much attention to the arrangements. 111 I conclude that the gift letter is not entitled to any weight in establishing either the Olleks’ intentions or the Dhaliwals’ intentions with respect to the contributions by the Dhaliwals towards the purchase of the Property. Dhaliwal v. Olleck S. Griffin J. 93

112 Further, as will be seen by my review below, the evidence of both Mr. and Mrs. Ollek falls well short of persuading me that either one had an understanding, at the time of the purchase of the Property, that monies contributed by Mr. Dhaliwal were a gift.

Discussions with Mr. Dhaliwal prior to the purchase of the Property 113 Mr. and Mrs. Ollek say that the majority of the discussions regarding the purchase of the Property took place between Mrs. Ollek and Mrs. Dhaliwal. 114 Mr. Ollek claimed to rely on what his wife had told him about the arrangements to purchase the Property. He said that he had no discussions with Mr. Dhaliwal about the purchase of the Property. Mrs. Ollek also said she had no discussions with Mr. Dhaliwal in this regard. 115 Because Mr. Ollek relied so much on his wife’s understanding, and because neither one of them claims to have had any discussions with Mr. Dhaliwal about the purchase of the Property, it is hard to understand why either one would be so confident in their assertions that Mr. Dhaliwal’s contribution was a gift. 116 Mr. Ollek admitted in cross-examination that his understanding from his wife was that the money they needed to complete the purchase of the Property was to be obtained from both Mrs. Dhaliwal and Mr. Dhaliwal. Despite this, he claims to have never spoken to Mr. Dhaliwal about it, even though he was visit- ing them and staying in their house while Mrs. Dhaliwal was in hospital. Fur- ther, when he did realize that Mr. Dhaliwal had given them the $65,000 to complete the purchase of the Property, he says he did not even thank him. I do not believe the thrust of Mr. Ollek’s evidence that he received a gift of $65,000 from Mr. Dhaliwal yet never spoke to him about it or thanked him. 117 Mr. Ollek insistence in his evidence that he never spoke to Mr. Dhaliwal about the purchase of the Property is in contrast to evidence he gave when he was examined for discovery in the Oak Park action. There he was asked this question and gave this answer: Q. Why was Kuldip Dhaliwal involved in the purchase of the Surrey property? A. He was in Vancouver and we live up here so he had, this property came up and he had mentioned it to us so we purchased it. 118 However, at this trial under cross-examination, Mr. Ollek said that the above evidence he had given on discovery was not true. I have concluded that Mr. Ollek has tried to shape his evidence to suit his interests and not necessarily to accord with the true facts. 119 What I do believe is Mr. Ollek’s evidence that at the time of the purchase of the Property, he had a lot of trust in each of the Dhaliwals and that trust was reciprocated. He did not see or care to see the contract for the purchase of the Property when he signed the subject removal clause, he simply trusted the 94 REAL PROPERTY REPORTS 99 R.P.R. (4th)

Dhaliwals. This degree of trust would make sense if Mr. Ollek knew that the Dhaliwals were co-investors in the Property. If they were co-investors, and the deal was good enough for the Dhaliwals, then it made sense for Mr. Ollek to trust that the deal was good enough for the Olleks. 120 I find that it is more likely than not that Mr. or Mrs. Ollek, or both, did speak to Mr. Dhaliwal about the purchase of the Property, prior to its purchase. Al- though I do not believe that the discussions were as detailed as Mr. Dhaliwal asserted in his claim, I find that it is more likely than not that he and Mr. or Mrs. Ollek talked generally about being co-investors in the purchase of the Property before the purchase was completed.

The request for exactly $65,000 121 I find support in the above conclusion by reason of the fact that Mr. Dhaliwal was asked to contribute exactly $65,000 towards the purchase of the Property. 122 The Olleks were vague and at times evasive in their evidence as to why Mr. Dhaliwal contributed exactly $65,000 towards the purchase of the Property. Mr. Dhaliwal had some additional funds in his bank account at the time and so could have contributed a different amount. 123 The proposition was put to each of the Olleks in cross-examination that they did not know they needed $65,000 from Mr. or Mrs. Dhaliwal until they decided that the mortgage would be $190,000. With the purchase price being $318,000, the balance after deducting mortgage of $190,000 would be $128,000. That would mean half of the balance would be around $64,000. Allowing for some expenses, that would fit with Mr. Dhaliwal’s version of events that he thought he was contributing half of the cash needed to purchase the Property. Since he did not know the amount of the mortgage, the $65,000 figure had to have come from the Olleks. 124 Mr. Ollek was adamant that this is not how the $65,000 was calculated, but I did not find his evidence credible in this regard, and it was contradicted by Mrs. Ollek’s evidence. Mrs. Ollek admitted in cross-examination that she did not figure out how much money she would need from her sister to help close the purchase of the Property until after the Olleks had obtained the mortgage and saw how much money they had and how much the rents were going to be. She figured this out because on July 10, 2002 the mortgage commitment was $205,000, and the monthly payments were $1,233, just over the rent of $1,200. Mrs. Ollek told her husband she was not comfortable with this arrangement. By the time they attended at Mr. Brar’s office on July 12, 2002, they arranged to have the mortgage amount reduced to $190,000. 125 It is clear that the Olleks originally obtained a mortgage commitment for $205,000, and only around July 12, 2002 did they decide to reduce it to Dhaliwal v. Olleck S. Griffin J. 95

$190,000. That date, July 12, 2002, is the date Mr. Dhaliwal obtained the bank draft for $65,000. 126 Mrs. Ollek admitted that this meant that sometime between July 10 and July 12, 2002, she figured out how much was required from her sister to help close the purchase and she passed this information on to her sister. This was the figure of $65,000. 127 I conclude that the amount requested of Mr. Dhaliwal was roughly half the amount the Olleks figured they needed to complete the purchase, after taking into account mortgage funds. This is consistent with Mr. Dhaliwal’s evidence that he thought he was putting in half the cash amount required to purchase the Property, and may be why he concluded that he was a 50% owner.

Subsequent Conduct 128 Once the property was purchased, Mr. and Mrs. Ollek were content for the bank account statements dealing with the rent and mortgage payments to go to the Dhaliwals’ residence. Although the bank account was in the joint names of Mandip Dhaliwal and Mrs. Ollek, the Olleks did not check the bank statements or monitor the account’s activity. 129 Consistent with the notion that the purchase of the Property was a joint investment is the fact that when a realtor on behalf of Oak Park called Mr. Ollek to inquire about purchasing the Property, Mr. Ollek referred him to Mr. Dhaliwal. 130 Mr. Ollek admitted in cross-examination that when Bob Dhaliwal called him in September 2002, with respect to Oak Park’s interest in purchasing the Pro- perty, he asked Mr. Ollek if he was interested in selling the Property. Mr. Ol- lek’s response was to tell him to contact Kuldip Dhaliwal. Thereafter, Mr. Dhaliwal did everything with respect to negotiating the terms for the sale of the Property to Oak Park. This was over a period of time from September 2002 through to March 2003. Once the terms were negotiated, the contract to sell the Property to Oak Park was faxed to the Olleks for them to sign, which they did. 131 Mr. Ollek’s explanation of this was that he was not interested in the Oak Park inquiry and had other things on his mind. He said he would normally have asked Mrs. Dhaliwal to take care of it, but since she was not well, the next progression was to ask Mr. Dhaliwal. He admitted that he expected Mr. Dhaliwal to negotiate a sale price and indeed left him to have all the dealings with the realtor and Oak Park. 132 In my view, Mr. Ollek’s behaviour is most consistent with Mr. Ollek having an understanding that Mr. Dhaliwal had an interest in the Property and was equally interested in seeing a profit on its sale. That meant that Mr. Ollek felt he could trust Mr. Dhaliwal to make decisions regarding the Property, knowing that it would be in furtherance of Mr. Dhaliwal’s interest as well as the Olleks’ interest. 96 REAL PROPERTY REPORTS 99 R.P.R. (4th)

133 Sometime in February or March 2004, Mrs. Ollek began to get calls from the bank and learned that the account receiving the rent payments and mortgage payments with respect to the Property had occasionally not had sufficient funds to make payments. Mrs. Ollek became concerned that Mandip Dhaliwal was not depositing all of the rent into the bank account. Around this time Mrs. Ollek decided to close the bank account and deal with the rents and mortgage payments in a new account operated in her name only. 134 It was in approximately April of 2004 that Mr. Dhaliwal made it known that he was in a new romantic relationship. This caused upset in the family. It was around the same time that the Olleks began to take a more active role with respect to the Property. 135 Mr. Ollek claims to have not paid any attention to the statement of defence filed on his behalf in the Oak Park action which was sent to him by Mr. Russell in January 2004. He says he did not learn what was in that statement of defence until the present lawsuit. I do not believe this, given the context of Mr. Ollek’s increasing involvement in the lawsuit in the spring of 2004. Mr. Ollek told Mr. Russell in May 2004 that he wanted to become more involved in giving instructions on the file. Mr. Ollek also met with Mr. Russell later in May 2004, together with Mandip Dhaliwal. Mr. Ollek paid Mr. Russell’s account in July 2004 in the amount of $5,184.62. 136 Mr. Russell gave evidence at trial. He candidly admitted that he had ne- glected to obtain a joint retainer letter setting out clear terms of his engagement by both the Olleks and Mr. Dhaliwal. He also admitted that he had not reviewed the statement of defence with the Olleks and had simply prepared it relying on the information he had obtained from Mandip and Kuldip Dhaliwal. This, of course, means that, in the context of the present lawsuit, what was in the statement of defence in the Oak Park action cannot be treated as an admission made by the Olleks. Nonetheless, their conduct in failing to raise any issue about the statement of defence pleading that Mr. Dhaliwal had an undivided one-half interest in the Property, after they received it from Mr. Russell in January 2004, is probative. 137 Mr. Russell said that in September 2004 he was asked by Mr. Dhaliwal to request that Mr. Ollek sign a transfer of Mr. Dhaliwal’s beneficial interest so that Mr. Dhaliwal would have an interest registered on title. Mr. Russell then had a telephone call with Mr. Ollek on September 14, 2004 and took notes of that telephone call. He testified that he mentioned in that call that Mr. Dhaliwal had asked Mr. Ollek to sign a transfer of one-half interest in the Property back to Mr. Dhaliwal. These notes confirm Mr. Russell’s evidence that Mr. Ollek’s response was that he was not prepared to sign the transfer because he had been paying money for the Dhaliwals’ children to go to school and this was his way of ensuring he would get reimbursed. Mr. Ollek did not offer any other reason for refusing to sign the transfer. Dhaliwal v. Olleck S. Griffin J. 97

138 In his direct examination, Mr. Ollek denied ever discussing with Mr. Russell the request by Mr. Dhaliwal to transfer a one-half interest to him, prior to De- cember 2004 when Mr. Russell wrote to the Olleks, making the request and enclosing a transfer. However, in cross-examination, Mr. Ollek conceded that he did have a telephone conversation with Mr. Russell about this subject in Sep- tember 2004. He conceded that the note that Mr. Russell made in his file dated September 14, 2004 accurately records that telephone discussion. 139 When Mr. Ollek was cross-examined about the conversation in September 2004 with Mr. Russell, he admitted that he recalled saying that he was paying for the Dhaliwal children to go to school and was using the property for security. He testified that he did say that because he was mad. He then said that “I always knew if they came into hardship we’d pay the money back”. He repeated this later in his evidence, that when they received the money from Mr. Dhaliwal they always thought they would repay it back in some way. 140 I consider Mr. Ollek’s response to Mr. Russell, in their telephone conversation of September 14, 2004, to be very telling. I find that his response was inconsistent with the notion that up to that point Mr. Ollek believed that Mr. Dhaliwal’s contribution towards the purchase of the Property was a gift. Rather, his response was consistent with the notion that he owed Mr. Dhaliwal something in respect of Mr. Dhaliwal’s contribution to the Property, but he was reluc- tant to give it to him, and so he invented a liability to “set-off” against what he owed to Mr. Dhaliwal. This invention was the suggestion that Mr. Ollek had paid for the plaintiff’s children to go to school. 141 In cross-examination, Mr. Ollek admitted that the Olleks had not paid for the plaintiff’s children to go to school. Rather, Mrs. Ollek, from time to time, gave the Dhaliwal children cash gifts which they could use how they pleased, but Mr. Ollek understood that these gifts were simply in the small hundreds of dollars. 142 Mr. Russell followed up the September 14 telephone call with a letter to Mr. Ollek dated December 9, 2004. That letter stated that Mr. Dhaliwal had instructed him to request that Mr. Ollek transfer title of an undivided one-half interest in the Property into Mr. Dhaliwal’s name. The letter explained that Mr. Russell’s understanding was that although title to the Property was registered in the Olleks’ names, Mr. Dhaliwal was the beneficial owner of an undivided one- half interest. A draft transfer was enclosed. 143 I digress briefly from the analysis of the facts to comment on new evidence discovered soon after the trial of this case was considered complete in June 2010. Mr. Russell discovered notes of conversations he had with the Olleks that had been filed in another file in his office. These notes had not been produced in this proceeding and were potentially relevant to the issues. Mr. Russell had not recalled a conversation with Mrs. Ollek recorded in newly discovered notes dated December 10, 2004, nor had Mrs. Ollek recalled it, when they gave evidence at trial. Upon discovering the misfiled notes, Mr. Russell promptly noti- 98 REAL PROPERTY REPORTS 99 R.P.R. (4th)

fied the parties’ counsel, and the plaintiff promptly notified the court of the plaintiff’s wish to apply to re-open the trial to call evidence from Mr. Russell in respect of the newly found notes. When I learned of the situation, I had not yet rendered my reasons for judgment in the case. Some time passed before counsel were able to come before me for the hearing of the plaintiff’s application. By that time, they had exchanged affidavits on the newly discovered note. Counsel for the defendants did not oppose the application to re-open. 144 On the plaintiff’s application on October 15, 2010, I allowed the trial to be re-opened so that the plaintiff could call evidence from Mr. Russell in relation to the note of December 10, 2004. Counsel for the defendants conducted cross- examination of Mr. Russell, and called Mrs. Ollek as a witness in response. 145 There were several reasons I exercised my discretion to allow the trial to be re-opened. It was clear that the evidence could not have been discovered by the parties before: it had not formed part of the file that Mr. Russell had produced in this proceeding. Furthermore, both sides of this case were arguing that the note was fresh evidence that strongly supported their version of the facts. If I did not hear evidence in relation to the telephone conversation recorded in the note, there was a possibility of a miscarriage of justice. It was clear that this was not an abuse of process and there was no suggestion that Mr. Russell had manufac- tured the note. The circumstances were such that I concluded this was one of the rare cases where the discretion should be exercised to re-open the trial, in accordance with the authorities summarized in Zhu v. Li, 2007 BCSC 1467 (B.C. S.C.) at para. 20; see also Clayton v. British American Securities Ltd., [1934] 3 W.W.R. 257 (B.C. C.A.) and Sykes v. Sykes (1995), 6 B.C.L.R. (3d) 296 (B.C. C.A.). 146 I have therefore incorporated the new evidence in these reasons for judgment. 147 Mr. Russell testified that his notes record that on December 10, 2004 Mr. Russell made a telephone call to Mrs. Ollek. He has no independent recollection of the call other than as recorded in his contemporaneous notes. His notes indicate: 1 I advised Mr. Dhaliwal wants title to /2 of the property transferred to him. She says it was her sister’s property. She died and Mr. Dhaliwal remarried, 1 therefore the Olleks want to make sure the /2 interest goes to children of deceased sister. 148 Mrs. Ollek denied that the conversation was as recorded in Mr. Russell’s notes. In her direct evidence called in the re-opening of the trial, Mrs. Ollek claimed that although she had not remember the conversation with Mr. Russell when she gave evidence earlier in the trial, these notes now helped her recall that they did have a conversation. She asserted that she talked to Mr. Russell about the money her sister gave her, not about property, that Mr. Dhaliwal had remarried and wasn’t supporting his kids properly, and that her intention was to Dhaliwal v. Olleck S. Griffin J. 99

support her sister’s kids with the money her sister gave her. She emphatically denied that there was any discussion about a half-interest in the Property. 149 When Mrs. Ollek was cross-examined, it became clear to me that in her direct evidence she had fabricated her version of the conversation with Mr. Rus- sell. She was quite evasive, refusing to answer questions about what she could recall, and instead emphatically stated over and over again that she would not have said what was recorded in the note because the Property was not her sister’s property. Her counsel did concede in closing submissions that Mrs. Ollek could not recall the December 10, 2004 conversation and could only say that she would not have said what was recorded in the notes. This concession does not diminish the impact of Mrs. Ollek’s attempt to fabricate the conversation in a self-serving way. 150 Mrs. Ollek admitted under cross-examination that on December 10, 2004 Mr. Russell called her about Mr. Dhaliwal wanting a half-interest in the Property transferred to him; that she did tell him her sister had died; and she did tell him that Mr. Dhaliwal had remarried — to this extent, she agreed that the notes of the phone conversation were accurate. Of course, the suggestion in the notes that she indicated to Mr. Russell that she wanted the Dhaliwal children to benefit from whatever had been given by her sister towards the Property (whether money or a property interest) must also have been said by her, based on Mrs. Ollek’s evidence in chief. 151 I find that the message that Mrs. Ollek was communicating to Mr. Russell on December 10, 2004 was consistent with the message Mr. Ollek had given him in the September 14, 2004 phone call: they were coming up with excuses not to transfer the one-half interest in the Property to Mr. Dhaliwal, and using the Dhaliwal’s children as the basis for their excuses. But these excuses were not consistent with their position presented in this case, namely, that Mr. Dhaliwal’s contribution towards the purchase of the Property was a gift. The inconsistency in the Olleks’ positions leads to the natural inference that the gift story is a more recent fabrication. 152 The December 10, 2004 phone conversation records what may be the motive for the Olleks’ reluctance to transfer one-half interest to Mr. Dhaliwal: they did not like that Mr. Dhaliwal had remarried, and so they had convinced themselves that what they were doing was out of principle because they were doing it for the Dhaliwal’s children, Mrs. Ollek’s blood relatives. 153 Subsequently, Mr. Dhaliwal contacted new counsel who wrote a letter to Mr. Russell requesting the transfer of an undivided one-half interest in the Property and enclosing a transfer. This letter was dated March 10, 2005. Mr. Russell forwarded this letter to the Olleks. 154 In response, Mrs. Ollek called Mr. Russell on March 18, 2005. In their phone call, Mrs. Ollek told Mr. Russell that Mr. Dhaliwal did not have an interest in the Property. Mrs. Ollek told Mr. Russell, by way of explanation, as re- 100 REAL PROPERTY REPORTS 99 R.P.R. (4th)

corded in Mr. Russell’s note, that “Kuldip does not trust anyone and he would not put property in her and Joe’s name if he’d put up half the money to purchase it”. In other words, she did not assert that money had been gifted or that money had been loaned, but that money had not been provided at all. This assertion of course was untrue. 155 Mrs. Ollek’s argument, that Mr. Dhaliwal would not have trusted them enough to give them money, was contrary to the actual facts admitted by both the Olleks, namely that they trusted the Dhaliwals, and that this trust was recip- rocal at the time the Property was purchased. Mr. Dhaliwal did trust them enough to give them a substantial sum of money, while at the same time allowing the Property to be registered in the Ollek’s name alone. 156 Mr. Russell then realized his conflict of interest and resigned. Despite that, Mr. Ollek tried to persuade Mr. Russell to continue to act for them, but he refused. 157 Counsel for the Olleks was very critical of Mr. Russell’s role as legal counsel. But in my view, it is important not to let those criticisms cloud the issues in this case. It is fair to say that Mr. Russell was careless: he did not clarify terms of a joint retainer; he did not clarify terms of Mr. Dhaliwal’s authority to give him instructions; he did not review the statement of defence in the Oak Park action with the Olleks before filing it; and he put himself in a conflict of interest by acting on behalf of one client in seeking something from other clients, by putting forward Mr. Dhaliwal’s request to the Olleks for a transfer of a one-half interest in the Property. All of these mistakes were based on Mr. Russell believing representations made to him by Mr. Dhaliwal and Mandip Dhaliwal regarding Mr. Dhaliwal’s one-half interest in the Property. However, I found Mr. Rus- sell to be an honest and credible witness. He did not attempt to evade uncomfortable questions about his professionalism, nor did he fabricate evidence or exaggerate evidence so as to attempt to justify his actions. 158 I find that Mr. and Mrs. Ollek’s credibility on the issues in this case is damaged by the way in which they responded to Mr. Russell. 159 I find that the Ollek’s dealings with Mr. Russell, including their statements to him in response to Mr. Dhaliwal’s request for a transfer of a one-half interest in the Property, are consistent with Mr. Dhaliwal’s evidence that he was a co- investor in the Property, and are inconsistent with the Ollek’s asserted defence that Mr. Dhaliwal had made them a gift. At no time did they say to Mr. Russell anything to indicate that they believed that Mr. Dhaliwal had given them money towards the purchase of the Property as a gift. The circumstances were such that, had this allegation been true, it would have been irresistible for them to assert it. I find that the reason they did not assert this is because it was not true: at no time did the Olleks think that Mr. Dhaliwal’s contribution towards the purchase of the Property was a gift. Dhaliwal v. Olleck S. Griffin J. 101

160 The Olleks argue that they paid subsequent expenses in relation to the Pro- perty, and Mr. Dhaliwal did not, and this shows that he was not a co-investor in the Property. I am not persuaded by this argument. At no time did the Olleks ask Mr. Dhaliwal to pay any additional expenses related to the Property. Mrs. Ollek agreed that her and her husband did not take an active role with respect to the property until approximately the spring of 2004. In mid-July 2004, the Olleks paid the property taxes on the Property for the first time since its purchase. It is not likely a coincidence that in the spring of 2004, Mrs. Ollek was upset at learning that Mr. Dhaliwal had entered into a new romantic relationship and was planning to remarry.

Conclusion as to the Olleks’ intentions 161 I find that Mr. and Mrs. Ollek knew that when Mr. Dhaliwal gave them $65,000 towards the purchase of the Property, it was not a gift. They have failed to prove this allegation, advanced in their Statement of Defence. 162 While not pleaded by the Olleks, I will nevertheless consider the next obvious question: did they consider Mr. Dhaliwal’s money a loan, or an investment in the ownership of the Property? 163 Mr. Ollek testified in cross-examination that when he received the money from Mr. Dhaliwal, he felt at the time that if he could he would try to pay it back. 164 In cross-examination, Mrs. Ollek was asked about the specifics of what her sister said to her, beyond simply that she would help her. Mrs. Ollek replied that she told her sister that she did not have enough money and her sister said she would help her with the money. They did not go into details about whether it was going to be on the basis of a loan or a gift or a part ownership. Mrs. Ollek simply asked what if she could not pay back the money soon enough, and all Mrs. Dhaliwal said was that she would not ask her. This is inconsistent with the money being a loan payable on demand. 165 In cross-examination, Mrs. Ollek was asked whether her initial impression was that the money from Mrs. Dhaliwal was a loan. Mrs. Ollek replied “you could say that because in the back of her mind she was always going to return the money to her”. She agreed that they did not talk about the specifics of how Mrs. Dhaliwal would help her with the money. 166 Mrs. Ollek agreed that she trusted both her sister and Mr. Dhaliwal at the time. 167 It is hard to align the suggestion that Mr. and Mrs. Ollek’s understanding was that the contribution by Mr. Dhaliwal was a gift or that it might have been a loan, with their knowledge of the Dhaliwals’ financial circumstances and with their subsequent conduct. 102 REAL PROPERTY REPORTS 99 R.P.R. (4th)

168 Mr. Ollek said in his direct evidence that previous financial dealings between the families, apart from the gift letter, included occasions when the Dhaliwals would have financial difficulty due to the fact they had to await payment on their farming contracts. Because of this, from time to time, the Olleks would forward them money and whenever the Dhaliwals got paid on their contracts, they would pay the Olleks back. 169 Mrs. Ollek admitted that the Dhaliwals borrowed money from them from time to time when their business, DBK, was short of cash due to overdue payments from the nurseries. Mrs. Ollek admitted that she knew nothing about Mrs. Dhaliwal’s financial situation when the property was being purchased. 170 But the Olleks knew that Mrs. Dhaliwal was very sick at the time the Pro- perty was purchased, and that Mr. and Mrs. Dhaliwal were so short of immediate cash that they needed the Olleks to pay the $20,000 deposit. 171 Further, in November 2002, the Olleks loaned DBK $30,000. This was treated as a loan to be repaid once DBK got paid on its contracts for supplying labour to farms. The $30,000 was subsequently repaid by DBK. 172 Later, when Mrs. Dhaliwal died, the Olleks wrote a cheque to Mr. Dhaliwal for $5,000 in June 2003. They say this was a loan for funeral expenses, which Mr. Dhaliwal subsequently repaid. 173 Surely if the $65,000 was a gift, the Olleks would have felt some moral obligation to provide a substantial cash gift back to the Dhaliwals when they were in financial need, rather than simply loaning them money. 174 Likewise, if the Olleks thought that Mr. Dhaliwal’s payment of $65,000 was a loan, then why would they not treat the $35,000 worth of loans they provided to Mr. and Mrs. Dhaliwal within a one year period, as partial repayment of Mr. Dhaliwal’s earlier loan? Common sense suggests that the reason the Olleks treated their cash payments to Mr. and Mrs. Dhaliwal, in November 2002 and June 2003, totalling $35,000, as loans was because they had not received any gift or loan from the Dhaliwals. Rather, they treated these cash payments as loans because they understood that the $65,000 they had received from Mr. Dhaliwal in July 2002 was an investment tied up in the Property. 175 The Olleks had no explanation as to why Mr. Dhaliwal caused DBK to pay $2,000 to Mr. Russell as a retainer with respect to defending the Oak Park action. Clearly the Olleks did not object to this payment. I conclude that at the time they considered this just one of the expenses related to the Property that would be sorted out between them and Mr. Dhaliwal at a future date. 176 I find that when the Property was purchased, Mr. and Mrs. Ollek intended that the $65,000 paid by Mr. Dhaliwal would give him an interest in the Pro- perty as a co-investor with them. They did not spell out details of their arrangement, because they were close family members who trusted each other, but they thought Mr. Dhaliwal was contributing close to half of the cash required to com- Dhaliwal v. Olleck S. Griffin J. 103

plete the purchase. Their intention must have been to have their own cash contributions recognized, as well as Mr. Dhaliwal’s, in the expected future growth in value of this investment. I conclude that the Olleks intended that they and Mr. Dhaliwal would treat each other fairly, and this would mean sharing in any increase in value over time on a basis that would be fair given their proportionate financial contributions to the Property.

5. Is the plaintiff entitled to any remedy, and if so, what? 177 Mr. Dhaliwal advances claims for a declaration that the defendants hold a 66.4% interest in the Property in trust for him, or in the alternative, for a determination of his interest in the Property based on an express, resulting or constructive trust. 178 The leading academic authority on the law of trusts in Canada is Donovan Waters, Q.C. In Waters’ Law of Trusts in Canada, 3rd ed. (Toronto: Thomson Carswell, 2005) [Waters] he explains that a trust can come into existence as a matter of the party’s intention to create a trust, or by operation of law, at p. 19: A trust can come into existence in one of two ways. It is either clear from a person’s words or acts that there is an intention to settle property by way of a trust, or the law imposes trust machinery in a given situation to ensure that property passes from one party to another. What we are therefore concerned with is discovering the intention of a person, or the circumstances under which the law will deem a trust to arise in order to secure some result the law considers equitable. 179 An express or implied trust requires finding an intention to create a trust. A constructive trust is imposed by law, and does not require a finding of intention to create a trust. 180 The law on whether or not a finding of intention is required to find a resulting trust, however, is somewhat more ambiguous. In a resulting trust case, the intention to create a trust is presumed from one party’s gratuitous financial contribution to the other, as equity assumes bargains, not gifts (see: Waters at 362- 63). The Supreme Court of Canada explained the concept of a resulting trust, albeit in a matrimonial setting, in Rathwell v. Rathwell, [1978] 2 S.C.R. 436, 83 D.L.R. (3d) 289 (S.C.C.) at paras. 28-34: Resulting trusts are as firmly grounded in the settlor’s intent as are express trusts, but with this difference – that the intent is inferred or is presumed as a matter of law from the circumstances of the case. [...] The presumption of a resulting trust is sometimes explained as the fact of contribution evidencing an agreement; [...] The courts are looking for a common intention manifested by acts or words that property is acquired as a trustee..... [...] If there is a contribution in money or money’s worth, but absence of evidence of an agreement or common intention as to the quantum of the interest, doubts may arise as to the extent of the share of each spouse in the property [...] the respective share might be determined in this manner: “... you ask what rea- 104 REAL PROPERTY REPORTS 99 R.P.R. (4th)

sonable people in the shoes of the spouses would have agreed if they had directed their minds to the question of what claim the contributing spouse ought to have.” [...] Some of these situations may be analyzed as agreement or common intention situations. Such intention is generally presumed from a financial contribution. The doctrine of resulting trust applies. 181 Concerning circumstances involving multiple contributors to the purchase of property, where it can be shown that the claimant did in fact advance the money and acted as purchaser throughout, the commentary in Waters is apt: What is the position if two persons advance the money for the purchase of certain property, which is taken in the name of one of them? If the amount subscribed by each is determinable, it is clear that the transferee holds on a proportionate resulting trust. (p. 370) [...] the other party is entitled to a resulting trust order in his favour proportionate to the amount he contributed. The result will be secured by declaring that the title holder holds on resulting trust for both parties in proportionate shares as tenants in common. (p. 372) 182 In circumstances involving gratuitous transfers, there exists a presumption of resulting trust. The presumption of resulting trust can be rebutted by evidence of a contrary intention, on a balance of probabilities. The onus is on the transferee to rebut the presumption: Waters at 375; Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795 (S.C.C.) at paras. 24, 25, 44. 183 Both sides to this lawsuit rely on legal presumptions. Mr. Dhaliwal says that the equitable presumption of resulting trust applies: he made a transfer of $65,000 plus assigned his interest in the purchase of the Property to the Olleks, therefore the law presumes that the Olleks hold a share of the Property in trust for him. This presumption can be rebutted if the Olleks can prove their allegation in their Statement of Defence that Mr. Dhaliwal intended to make a gift to them. 184 A loan will also rebut a presumption of resulting trust as it implies a repayment is to be made, as well as an intention to confer beneficial interest on the recipient. In the loan context, the relationship is one of debtor and creditor: Wa- ters at 368. 185 The Olleks say the statutory presumption pursuant to s. 23 (2) of the Land Title Act, applies, namely, that as the only registered owners on title, they are exclusive owners of the Property: s. 23 (2) An indefeasible title, as long as it remains in force and uncancel- led, is conclusive evidence at law and in equity, as against the Crown and all other persons, that the person named in the title as registered owner is indefeasibly entitled to an estate in fee simple to the land described in the indefeasible title [...] Dhaliwal v. Olleck S. Griffin J. 105

186 This statutory presumption can be rebutted by the presumption of advance- ment (which does not apply here as it operates only as between parents and dependent minor children or between spouses), or by evidence of a contrary agreement or common intention: Skender v. Skender, 2005 BCSC 418 (B.C. S.C.) [Skender], aff’d 2006 BCCA 162 (B.C. C.A.). In Skender and in Phung v. Feng, 2009 BCSC 374 (B.C. S.C.) at para. 30, it was held that the second of these principles includes the concepts of resulting and constructive trust. In other words, a court may find on the facts that a person holds part or all of his or her registered interest on title in trust for another person, due to a common agreement or intention between them. 187 The Olleks say that Mr. Dhaliwal has failed to prove an agreement or common intention that they hold any part of their registered interest on title in trust for him. 188 If this was a case where the evidence was evenly balanced, I would more thoroughly discuss the two presumptions and who has the burden of proof of challenging each, a subject that was touched on in Demir v. Peyman, 2009 BCSC 445 (B.C. S.C.) at paras. 9-10. But both presumptions – resulting trust and indefeasible title — are rebuttable by evidence as to the parties’ actual intentions. In this case, the parties’ intentions can readily be discerned from a consideration of the totality of the evidence. 189 I have concluded based on the whole of the evidence, on a balance of probabilities, that Mr. Dhaliwal and Mr. and Mrs. Ollek had a common intention that Mr. Dhaliwal’s financial contribution towards the purchase of the Property would be treated as an investment in the Property. Neither side believed or intended that Mr. Dhaliwal’s contribution of $65,000 towards the purchase of the Property was a gift. Neither side believed or intended that Mr. Dhaliwal’s contribution was a mere loan. When Mr. Dhaliwal made this contribution, both he and Mr. and Mrs. Ollek intended that Mr. Dhaliwal would have an interest in the Property as a co-investor with the Olleks. As such, while the presumption of resulting trust has not been rebutted, the statutory presumption found in s. 23 (2) of the Land Title Act, as relied upon by the Olleks, has been displaced. 190 I find that Mr. Dhaliwal and the Olleks did not expressly discuss what Mr. Dhaliwal’s fair share in the Property would be. Nevertheless, I infer on the evidence that both sides intended that they would have their financial contributions recognized by a share in the Property proportionate to their respective contributions. 191 As a result of the findings I have made, I conclude that Mr. Dhaliwal has an interest in the Property, which the defendants hold in trust for him. The interest of Mr. Dhaliwal is that percentage interest that reflects his contribution to the Property, relative to the net contribution made by Mr. and Mrs. Ollek. 192 Mr. Dhaliwal’s contribution towards the purchase of the Property was $65,000. He made no further contributions towards the ongoing expenses of the 106 REAL PROPERTY REPORTS 99 R.P.R. (4th)

Property, except for the provision of $2,000 in October 2003 to Mr. Russell, as a retainer for defending the Oak Park action. This retainer was paid by a cheque from DBK but I find that it was a contribution on behalf of Mr. Dhaliwal. The expenses incurred in defending the Oak Park claim to the Property are expenses that relate to preserving the value of the Property, and can properly be considered contributions to the Property. 193 Mr. and Mrs. Ollek’s contribution to the Property is a little more difficult to calculate. I conclude that neither side made a significant non-financial contribution to the Property. While the Olleks did take on a risk associated with their mortgage debt used to finance the purchase of the Property, it appears that risk was mitigated significantly by the fact that a tenant rented the Property throughout, providing rental income just slightly in excess of the mortgage payments. Furthermore, the evidence appears uncontradicted that the Property is worth considerably more than the mortgage. There was no evidence that the Olleks faced a real risk of having to personally make up a shortfall if they lost rental income and there was a foreclosure on the mortgage. 194 The Olleks made a $70,500 financial contribution to the initial purchase of the Property, made up as follows: a) $20,000 deposit; and b) $50,500 payment to Naib Brar, the Notary who acted on the purchase. 195 Mr. Ollek testified that certain documents he and Mrs. Ollek filed with Can- ada Revenue Agency, namely, annual Statements of Real Estate Rentals, accurately set out what he and Mrs. Ollek earned from the Property by way of rent and paid by way of expenses on the Property. These statements included as expenses: interest on the mortgage, property taxes, insurance, utilities, and legal and accounting fees. These statements set out that the Olleks incurred the following net expenses in each of the following years in relation to the Property: 2004: $291.50 X 2 = $583 2005: $386.00 X 2 = $772 2006: $1,771.50 X 2 = $3,543 2007: $2,808 X 2 = $5,616 2008: $1,128.50 X 2 = $2,257 TOTAL: $12,771 196 The Olleks did not provide evidence as to making any net financial contributions to the Property in 2002 or 2003. The evidence was that property taxes on the Property were ignored by them until 2004. They have therefore failed to prove making additional financial contributions towards the Property in 2002 or 2003. 197 As for 2009 and 2010, the Olleks also did not provide evidence as to making any financial contributions to the Property, net of rental income, after 2008. I Dhaliwal v. Olleck S. Griffin J. 107

conclude therefore that in 2009 and 2010 as of the date of this judgment, the rent received on the Property covered all additional expenses and the Olleks made no additional contributions other than the $12,771. 198 It is unclear whether or not the Olleks have included in their calculations the legal fees they have paid to defend the Oak Park action, but I must assume they have done so given the quantity of those fees claimed in the Statements of Real Estate Rentals. This would be an appropriate expense to take into account.

Conclusion 199 I have therefore concluded that Mr. Dhaliwal contributed $65,000 plus $2,000 for a total of $67,000 towards the Property purchase and subsequent expenses. Mr. and Mrs. Ollek contributed $70,500 plus $12,771 towards the Pro- perty purchase and subsequent expenses for a total of $83,271. I find, therefore, as of the date of this judgment, Mr. Dhaliwal’s respective financial contributions amount to 45% and Mr. and Mrs. Ollek’s respective financial contributions amount to 55% of the total respective financial contributions to the Property. 200 I conclude that Mr. Dhaliwal has a beneficial interest of a 45% share in the Property. Mr. and Mrs. Ollek hold a 45% interest in the Property in trust for Mr. Dhaliwal. 201 The Property is subject to the Oak Park action and so I will not make any immediate orders with respect to disposition of the Property. If the parties are not able to sort out by agreement an appropriate method of dividing the equity in the Property given my conclusions, they may bring applications for relief before me. 202 If the parties cannot come to agreement on costs, they may direct written submissions to me or request a further hearing before me. Action allowed. 108 REAL PROPERTY REPORTS 99 R.P.R. (4th)

[Indexed as: McFlow Capital Corp. v. Simcoe Condominium Corp. No. 27] McFlow Capital Corp. (Applicant) and Simcoe Condominium Corporation No. 27 Kenneth James (Respondents) Ontario Superior Court of Justice Himel J. Heard: November 1, 2010 Judgment: November 16, 2010* Docket: CV-09-00376660, 2010 ONSC 6260 Paul D. Guy for Applicant George F. Vella for Respondent, Simcoe Condominium Ranjan Das for Respondent, Kenneth James James Diamond for Pencor Construction Inc. Real property –––– Condominiums — Condominium corporation — Removal of directors –––– M Corp. loaned $1.39 million, secured by blanket mortgage on 14 units in condominium — Condominium corporation took enforcement proceedings concerning 14 units for failure to pay common expenses and special assessment — M Corp. brought application for oppression remedy and sought injunctive relief — At M Corp.’s request court appointed administrator, having found misconduct and mismanagement in relation to corporation — M Corp. brought motion for order for removal and replacement of administrator, and interim order freezing funds held by corporation or administrator or held on their behalf or on behalf of majority owners or mortgagees of units in condominium — Motion dismissed — Number of tasks undertaken by administrator (providing financial information, studying and reporting on reserve fund and providing evidence of adequate insurance) could be considered late — However, those tasks were now completed or at least underway — Administrator provided explanation for delay in passing accounts because of problems in obtaining audited financial statement for prior years — In consenting to summary judgment with another party, administrator had authority to settle legal matter and there was nothing to suggest that settlement was not in best interests of owners — Although there was much left to be done by administrator, it could not be said that there was substantial mismanagement and that affairs of corporation must still be put in order — It would not have been in interests of owners to have fees and expenses duplicated as result of new administrator being appointed — There was no material change in circumstances since previous decision that would justify interim freezing order concerning funds — Administrator required those funds to carry out affairs of corporation.

*Leave to appeal refused McFlow Capital Corp. v. Simcoe Condominium Corp. No. 27 (2011), 2011 ONCJ 475, 2011 CarswellOnt 317 (Ont. Div. Ct.). McFlow Capital Corp. v. Simcoe Condominium Corp. No. 27 Himel J. 109

Cases considered by Himel J.: Bahadoor v. York Condominium Corp. No. 82 (2006), 53 R.P.R. (4th) 281, 2006 Cars- wellOnt 7608, [2006] O.J. No. 4794 (Ont. S.C.J.) — considered Carleton Condominium Corp. No. 279 v. Rochon (1987), 44 R.P.R. 228, 59 O.R. (2d) 545, 38 D.L.R. (4th) 430, 21 O.A.C. 249, 1987 CarswellOnt 665, [1987] O.J. No. 417 (Ont. C.A.) — referred to Fortunato v. Atrens (2007), 2007 CarswellOnt 9008 (Ont. S.C.J. [Commercial List]) — referred to Fortunato v. Atrens (2008), 2008 ONCA 131, 2008 CarswellOnt 795, [2008] O.J. No. 591 (Ont. C.A.) — referred to Statutes considered: Condominium Act, 1998, S.O. 1998, c. 19 Generally — referred to s. 27 — considered s. 27(1) — referred to s. 131 — considered Courts of Justice Act, R.S.O. 1990, c. C.43 s. 131 — referred to Rules considered: Rules of Civil Procedure, R.R.O. 1990, Reg. 194 R. 57.03 — referred to

MOTION for removal and replacing of administrator of condominium corporation, and interim order freezing funds.

Himel J.:

1 McFlow Capital Corp. (“McFlow”) brings a motion for an order removing Joseph L. Vero (“Vero”) as administrator of Simcoe Condominium Corporation No. 27 (the “Corporation”) and replacing Vero with Schonfeld Inc. (“Schon- feld”). McFlow also seeks directions to provide for short-term funding to enable Schonfeld to discharge its mandate as administrator. McFlow further requests an interim order freezing funds held by the Corporation or by Vero as administrator, funds held in trust by George Vella on behalf of the Corporation or Vero and funds held by Kenneth James (“James”) on behalf of the Corporation or the majority owners or mortgagees of the units in the condominium development. The notice of motion had also requested that the case be transferred to the Commer- cial List but that relief is no longer being sought by the applicant.

Factual Background 2 Simcoe Condominium Corporation No. 27 is a condominium property consisting of 44 residential townhouse units in Orillia, Ontario. In March 2005, Mc- Flow loaned $1.39 million to 1652030 Ontario Limited secured by a blanket 110 REAL PROPERTY REPORTS 99 R.P.R. (4th)

mortgage on 14 units. James is the owner of two units and the authorized representative and lawyer for 27 of the 30 unit owners other than McFlow. 3 For some time, the affairs of the Corporation were not being managed by the Corporation. There was no reserve fund, no bank account, no funds to manage the Corporation and the Corporation was involved in litigation. In April 2009, the Corporation took enforcement proceedings concerning the 14 units for failure to pay common expenses and a special assessment. On April 15, 2009, Mc- Flow brought an application for an oppression remedy and sought injunctive relief. On May 27, 2009, at the request of McFlow, Justice Forestell appointed Vero as administrator having found that “there has been a substantial inability to manage the affairs of the corporation over the past ten years” and that “substantial misconduct or mismanagement or both in relation to the affairs of the Cor- poration has been demonstrated”. The order appointing Vero authorized him to manage the affairs as if he were the board of directors and gave him various powers: the power to determine and collect common expenses, levy and collect special assessments, enter into contracts for the management of the property of the Corporation, control the records of the Corporation, hire such experts it deemed advisable and taken any steps reasonably necessary in the exercise of its powers. He was also ordered to pass accounts “from time to time” to a judge of the Superior Court of Justice and to apply to the court for advice and directions in the discharge of the administrator’s powers and duties. 4 In the materials filed on the motion before Justice Forestell, James disclosed the existence of $2 million which had been received from unit owners for common expenses. Justice Forestell did not grant McFlow’s motion for a freezing order of the $2 million being held by James on behalf of the Corporation. 5 In June 2009, Vero brought a motion against James for an order that the $2 million be paid into court pending determination of its ownership. Wilton-Siegel J. granted the motion and found that James had caused the $2 million to be sent to his client Eveline Holdings Limited in the Turks and Caicos after he was aware of the motion to freeze the assets. According to McFlow, Vero has not taken steps to enforce the order of Justice Wilton-Siegel. 6 The administrator has 23 years of experience managing condominium corporations in Ontario. Since his appointment, the administrator has adopted two budgets, has attempted to obtain audited financial statements, levied special assessments, collected monies for common expenses from 27 of 44 units in De- cember 2009, and has registered liens against properties where common expenses remain unpaid. It has obtained a Reserve Fund Study and placed insurance on the properties. It has also carried out certain repairs of the common elements. Of the monies paid towards common expenses, a large amount has been earmarked to deal with the construction lien registered by the roofing con- tractor Pencor Construction Inc. (“Pencor”) who performed work before the administrator was appointed. Pencor is a judgment creditor in the amount of McFlow Capital Corp. v. Simcoe Condominium Corp. No. 27 Himel J. 111

$276,136.33 against the Corporation. It received notice of the motion as someone who could be affected by the relief sought by McFlow as it wants to access the monies being held in trust by the administrator. 7 The administrator has obtained appraisals on the 14 units mortgaged to Mc- Flow and listed those units for sale because of non-payment of common expenses.

Positions of the Parties 8 While it was McFlow that had initiated the process to have Vero appointed as administrator, it is now McFlow’s position that Vero should be removed and replaced. McFlow alleges that he has failed to put the affairs of the Corporation in order. McFlow argues that it is the only party trying to move things forward. It is submitted that the condominium units are still in a state of disrepair and Vero has been non-responsive to the needs of the Corporation. In particular, Mc- Flow argues that in the 17 month period since Vero was appointed, Vero has never reported to the court, has never passed accounts, has never sought advice or directions from the court, has operated without a budget, has incurred exces- sive professional fees, has not acquired an understanding of the finances and cannot answer questions of a financial nature, has failed to respond to requests made by McFlow, has taken eight months to respond on a study on the Corpora- tion’s reserve funds, has taken 11 months to respond on the matter of insurance, and has had an order of costs awarded against him personally in connection with litigation with Pencor. 9 McFlow asks that the court exercise its discretion and remove Vero for failure to discharge his duties as administrator and appoint Schonfeld to replace him. McFlow has filed a report from Schonfeld setting out what it would do if appointed and has taken steps to have funds available for Schonfeld to access if appointed in the place of Vero. 10 On the question of the interim freezing order, McFlow argues that such an order would be just in accordance with section 131 of the Condominium Act and that there would be no prejudice to the parties. McFlow submits that the funds that have been paid by James into trust to manage the affairs of the Corporation should be preserved until the motion concerning the administrator is considered by the court. McFlow also takes the position that Pencor should not be partici- pating in this motion as it is only affected by the funds being held in trust and should have no role in opposing the request to replace the administrator. 11 James takes the position that McFlow is bringing this motion in response to steps taken by the Corporation exercising its power of sale as against units held by McFlow for failure to pay common expenses and special assessments. James argues that the majority ownership group has had to fund all the administration costs in paying $450,000 and McFlow has paid nothing. Although McFlow described itself as a “mortgagee in possession” in correspondence written to Vero 112 REAL PROPERTY REPORTS 99 R.P.R. (4th)

and, as such, would have the obligations of an owner to pay common expenses, its representative asserts that it has made a mistake. It has not funded any common expenses or paid the special assessment. 12 James argues that the present administrator should be permitted to continue to undertake his duties with some direction by the court. While he initially opposed the appointment of Vero, he argues that Vero should now be allowed to continue with his mandate. Further, James takes the position that monies paid into trust for the benefit of Pencor as lien claimant should not be used by Mc- Flow to retain the services of a replacement administrator. While James does not take issue with Schonfeld’s qualifications, James strongly objects to his appointment. The costs associated with replacing the administrator would be a waste of money and resources. 13 Vero takes the position that he has taken reasonable steps to administer the affairs of the corporation and that McFlow is only bringing these proceedings in order to avoid having its units sold under a power of sale. He argues that he was not obliged by the court to pass accounts on specific dates and that he was having difficulty obtaining audited statements in order to pass accounts. Vero submits that McFlow is attempting to replace him with a receiver who usually deals in bankruptcy and insolvency matters and has little experience in managing condominium corporations. Vero takes the position that James represents 27 out of 44 units and that it is his view that it is not in the interests of that group at this time to have a new administrator appointed. Vero asks that McFlow’s motion to remove Vero as administrator be dismissed and the motion to freeze all funds being held be dismissed. 14 Pencor takes the position that the administrator was authorized to negotiate a settlement with Pencor to resolve the lien action. Pencor was granted partial summary judgment on terms which resulted in payment to the trust account of the solicitors of the administrator. Pencor opposes McFlow’s motion to replace the administrator and freeze the funds as it argues that those funds have been earmarked for Pencor in satisfaction of its judgment.

Analysis and the Law 15 The Condominium Act, 1998 S.O. 1998 Chapter 19 governs the ownership of property held by a condominium corporation. Section 27 of the legislation provides that a board of directors shall manage the affairs of the corporation. Where a board is not fulfilling its mandate, the legislation provides as follows: 131.(1) Upon application by the corporation, a lessor of a leasehold condominium corporation, an owner or a mortgagee of a unit, the Superior Court of Justice may make an order appointing an administrator for a corporation under this Act if at least 120 days have passed since a turn-over meeting has been held under section 43. McFlow Capital Corp. v. Simcoe Condominium Corp. No. 27 Himel J. 113

(2) The court may make the order if the court is of the opinion that it would be just or convenient, having regard to the scheme and intent of this Act and the best interest of the owners. (3) The order shall: (a) specify the powers of administrator; (b) state which powers and duties, if any, of the board shall be transferred to the administrator; and (c) contain the directions and impose the terms that the court considers just. (4) the administrator may apply to the court for the opinion, advice or direction of the court on any question regarding the mismanagement or administration of the corporation. 16 The test for removing an administrator is the same as for appointing an administrator, that is, is it in the best interests of the owners having regard to the scheme and intent of the Act that the administrator be removed?: see Fortunato v. Atrens, 2007 CarswellOnt 9008 (Ont. S.C.J. [Commercial List]) at para. 8; aff’d [2008] O.J. No. 591 (Ont. C.A.).

Decision 17 The issue before me is whether it is just and convenient that the administrator be removed and replaced. While s. 131 does not specify the process for removal of an administrator, certainly the same considerations should apply as to standing and the criteria for removal as for the appointment of an administrator. This court has the authority with reference to the scheme and intent of the Act to determine whether it is just or convenient to replace an administrator appointed by it. 18 There is no question that Schonfeld has the knowledge, skill and experience to act as administrator, consents to the appointment and understands the obligations and responsibilities involved. Schonfeld has prepared a report outlining a plan with an estimate of fees for the steps believed to be necessary. Although the majority of Schonfeld’s expertise is as a receiver, the appropriateness of Schon- feld as administrator of a condominium corporation is not the issue. There is no reason to doubt that Schonfeld would make an excellent administrator. Rather, the issue is whether the circumstances are such that Vero should be removed and replaced and whether an interim freezing order should be issued. 19 In determining whether Vero should be replaced, I am to consider the actions or inactions of the administrator and the circumstances of the case to decide whether it is just and convenient having regard to the scheme and intent of the Condominium Act and the best interests of the owners: see Bahadoor v. York Condominium Corp. No. 82, [2006] O.J. No. 4794, 53 R.P.R. (4th) 281 (Ont. S.C.J.) at paras. 23-24. The scheme of the Act was discussed in Carleton Condominium Corp. No. 279 v. Rochon (1987), 59 O.R. (2d) 545 (Ont. C.A.) 114 REAL PROPERTY REPORTS 99 R.P.R. (4th)

cited In Bahadoor, supra at para. 25: “The Condominium Act was passed to permit individuals to be owners of the freehold estate in residential units in a building as opposed to tenants in an apartment building.” The corporation is to manage the property and assets of the corporation on behalf of the owners and to control, manage and administer the common elements and assets of the corporation. The management of the affairs of the corporation is to be done by a board of directors. Only where it is necessary to do so, the court will intervene and appoint an administrator to act. Similarly, the court will consider the circumstances and determine whether the administrator should be terminated. 20 In considering the circumstances, the court will decide whether the administrator has conducted himself in a reasonable and prudent manner: see Fortunato v. Atrens, supra. 21 I recognize that there are a number of tasks undertaken by Vero which may be considered late: providing financial information, studying and reporting on the reserve fund and providing evidence of adequate insurance. However, those tasks are now completed or at least underway. 22 There are allegations that the failure to report to the court and the failure to pass accounts are indications of conduct falling below the standard. In fact, the order appointing Vero as administrator was done at the instance of McFlow and was drafted by it; the order does not prescribe the timing for reports to the court or the passing of accounts. While it may be reasonable to report to the court and pass accounts annually, that is not required by the appointment and is not man- dated by the statute or jurisprudence. The administrator has provided an explanation for the delay because of the problems in obtaining an audited financial statement for the prior years. In these circumstances, the fact that the administrator has not passed accounts since its appointment in April 2009 would not render it just or convenient to remove Vero. 23 McFlow alleges that Vero acted improperly in consenting to partial summary judgment with Pencor without providing an explanation to McFlow. In my view, the administrator had the authority to settle the matter with Pencor. There is nothing to suggest that the settlement was not in the best interests of the owners. An administrator standing in the shoes of the board of directors which is responsible for managing the affairs of the condominium corporation has the powers to spend common expenses or settle a law suit: see Condominium Act, 1998, s. 27(1). 24 Frankly, I cannot agree that the same circumstances that were before Justice Forestell when she appointed Vero apply today. Although there is much left to be done by the administrator, it cannot be said that there is substantial mismanagement and that the affairs of the corporation must still be put in order. I am of the view that Vero should be permitted to continue with his mandate. It would not be in the interests of the owners to have fees and expenses duplicated as a result of a new administrator being appointed. McFlow Capital Corp. v. Simcoe Condominium Corp. No. 27 Himel J. 115

25 For these reasons, I am of the view that it is not just and convenient to remove and replace the administrator. 26 With respect to the second aspect of the motion concerning the request for an interim freezing order, this issue was before Justice Forestell in June 2009. I do not see any material change in the circumstances that existed since Justice Forestell’s decision that would justify an interim freezing order concerning the funds being held by the Corporation, Vero, Vero’s counsel or by James. The administrator requires these funds in order to carry out the affairs of the Corpo- ration. The motion for an order freezing the funds held by the Corporation or Vero, by Vella on behalf of the Corporation or Vero and by James on behalf of the Corporation or the majority owners or mortgagees of the units is dismissed. 27 Finally, although the parties did not request an order specifying the obligations of the administrator concerning reports to the court or the passing of accounts, in my view, it would be in the best interests of the owners to have the administrator report to the court and pass accounts within two years after its appointment on May 27, 2009 and every two years thereafter. If the parties are of the view that the reports to the court should be more frequent or sooner, they should bring the matter back before the court to address this issue. 28 With respect to the issue of costs, counsel made brief submissions to me concerning their positions on costs. In accordance with s. 131 of the Courts of Justice Act and Rule 57.03, I exercise my discretion and order that the applicant pay costs of $10,000 to the respondent the Corporation and to the respondent James and the sum of $5,000 to the lien claimant Pencor within 30 days of this order. In fixing these costs, I consider the circumstances of the case, the time and complexity involved in the motions, the conduct of the parties, the amount involved, and I deem these amounts to be fair and reasonable in the circumstances of this case. Motion dismissed. 116 REAL PROPERTY REPORTS 99 R.P.R. (4th)

[Indexed as: 588526 British Columbia Ltd. v. Shell Canada Ltd.] 588526 British Columbia Ltd. (Plaintiff) and Shell Canada Limited (Defendant) British Columbia Supreme Court B.J. Brown J. Heard: December 7-10, 14-15, 2009; January 21-22, 25-26, 2010 Judgment: November 4, 2010 Docket: Vancouver S082260, 2010 BCSC 1559 S. Griffin, J. Yates, J. Walker for Plaintiff D. Lahay, J. Fiddick for Defendant Real property –––– Landlord and tenant — Nature and elements of lease — Op- tions — To purchase — Miscellaneous –––– Oil company leased part of its refinery lands to golf centre, with use restriction that extended even if option to purchase was exercised — Lease was assigned to 588 Ltd., which paid up golf centre’s arrears of rent to oil company — Assignment provided for release of use restriction by oil company once option to purchase was exercised, if assignee paid adjusted discounted amount and was not in default under lease — 588 Ltd. exercised option to purchase, and oil company registered restrictive covenant to prevent residential development on property — On closing, 588 Ltd. produced documents, including discharge of use restriction — Oil company claimed that 588 Ltd. was bare trustee for its parent company, and that assignment was not valid — 588 Ltd. brought action to enforce contract to purchase lot, and to determine what charges should remain registered against land — Action allowed — Contract was not ambiguous, and specifically stated documents and instruments to be registered on closing — Lease and option to purchase were separate contracts contained in one agreement — Lease indicated which clauses survived if tenant acquired title — Oil company could not rely on “further documents” clause to change agreement to include protections beyond normal closing documents — 588 Ltd. was not bare trustee for parent company, and was entitled to exercise option to purchase — Parent company and 588 Ltd. refiled tax returns to correct error that had shown them incorrectly as bare trustees — Clause in assignment agreement that provided for release of use restriction was not uncertain or unenforceable — Provision that tenant would save landlord harmless from claims by tenant or successors only referred to successors in its capacity as tenant. Real property –––– Landlord and tenant — Assignment of lease — Miscellaneous covenants binding assignee –––– Oil company leased part of its refinery lands to golf centre, with use restriction that extended even if option to purchase was exercised — Lease was assigned to 588 Ltd., which paid up golf centre’s arrears of rent to oil company — Assignment provided for release of use restriction by oil company once option to purchase was exercised, if assignee paid adjusted discounted amount and was not in default under lease — 588 Ltd. exercised option to purchase, and oil company registered restrictive covenant to prevent residential development on property — On closing, 588 Ltd. produced documents, including discharge of use restriction — 588 Ltd. brought ac- 588526 British Columbia Ltd. v. Shell Canada Ltd. 117 tion to enforce contract to purchase lot, and to determine what charges should remain registered against land — Action allowed — Contract was not ambiguous, and specifically stated documents and instruments to be registered on closing — Lease and option to purchase were separate contracts contained in one agreement — Lease indicated which clauses survived if tenant acquired title — Oil company could not rely on “further documents” clause to change agreement to include protections beyond normal closing documents. Cases considered by B.J. Brown J.: Aquadel Golf Course Ltd. v. Lindell Beach Holiday Resort Ltd. (2009), 88 B.C.L.R. (4th) 348, 75 R.P.R. (4th) 201, 446 W.A.C. 98, 265 B.C.A.C. 98, 2009 CarswellBC 39, 2009 BCCA 5, [2009] 4 W.W.R. 1, 306 D.L.R. (4th) 744 (B.C. C.A.) — referred to Blackaby v. Rabson (1992), 29 R.P.R. (2d) 203, 1992 CarswellBC 681, [1993] B.C.J. No. 7 (B.C. S.C.) — considered Budget Car Rentals Toronto Ltd. v. Petro-Canada Inc. (1989), 6 R.P.R. (2d) 142, 46 B.L.R. 81, 34 O.A.C. 359, 69 O.R. (2d) 289, 60 D.L.R. (4th) 751, 1989 CarswellOnt 137 (Ont. C.A.) — considered Close v. Weigh West Marine Resort Inc. (2009), 2009 BCCA 216, 454 W.A.C. 282, 270 B.C.A.C. 282, 94 B.C.L.R. (4th) 47, 2009 CarswellBC 1294, 60 B.L.R. (4th) 20 (B.C. C.A.) — considered Fraser-Reid v. Droumtsekas (1979), 9 R.P.R. 121, 103 D.L.R. (3d) 385, 29 N.R. 424, 1979 CarswellOnt 652, [1980] 1 S.C.R. 720, 1979 CarswellOnt 696 (S.C.C.) — considered Gibbens v. Co-operators Life Insurance Co. (2009), (sub nom. Co-operators Life Insurance Co. v. Gibbens) [2009] 3 S.C.R. 605, 2009 CarswellBC 3402, 2009 Car- swellBC 3403, 2009 SCC 59, 278 B.C.A.C. 283, 471 W.A.C. 283, 79 C.C.L.I. (4th) 1, [2010] 1 W.W.R. 575, 99 B.C.L.R. (4th) 1, (sub nom. Co-operators Life Insurance Co. v. Gibbens) [2010] I.L.R. I-4928, (sub nom. Co-operators Life Insurance Company v. Gibbens) 2009 C.E.B. & P.G.R. 8370, 313 D.L.R. (4th) 513, 396 N.R. 165 (S.C.C.) — referred to Qureshi v. Gooch (2005), 2005 BCSC 1584, 2005 CarswellBC 2707, 37 R.P.R. (4th) 262, [2005] B.C.J. No. 2469 (B.C. S.C.) — considered Zeitler v. Zeitler Estate (2010), 2010 CarswellBC 1068, 2010 BCCA 216, 286 B.C.A.C. 231, 484 W.A.C. 231, 55 E.T.R. (3d) 33, [2010] 5 W.W.R. 592, 3 B.C.L.R. (5th) 315, [2010] 5 C.T.C. 49, 319 D.L.R. (4th) 106 (B.C. C.A.) — referred to Statutes considered: Land Title Act, R.S.B.C. 1996, c. 250 Generally — referred to s. 186 — considered s. 186(3) — considered s. 186(4) — considered

ACTION by purchaser of property under option to purchase in lease against landlord to enforce contract to purchase property, and to determine instruments to be registered on title under contract. 118 REAL PROPERTY REPORTS 99 R.P.R. (4th)

B.J. Brown J.:

1 The issue before me is the proper interpretation of a lease agreement with option to purchase. The crux of the dispute is the extent to which Shell Canada Limited (“Shell”) can control the use of the property after it is transferred to 588526 British Columbia Ltd. (“the Numbered Company”).

Background Facts 2 In 1994, Shell granted a lease of a portion of its Burnaby refinery lands to Hastings Golf Centre Ltd. (“HGC”). The lease contained an option to purchase, but limited the use of Lot 1 to a golf centre even after the option was exercised. This was effected by covenants in the lease which were referred to as the “Use Restriction” and the “Maintenance Obligation”. These would be required from the tenant on exercise of the option, unless Shell otherwise agreed. By 2000, the original tenant was in arrears of lease payments of approximately $145,000. 3 In January 2000, the Numbered Company and Shell negotiated a modification and assignment of the lease which provided that the Numbered Company could require Shell to remove the use restriction and maintenance obligation if a substantial payment were made. The payment was referred to as the “Adjusted Discounted Amount”. Shell was aware that the Numbered Company contemplated residential development on Lot 1. 4 At the time of the assignment, Shell asked for a guarantee from Wall Finan- cial (“Wall”), the parent of the Numbered Company. Wall refused and Shell proceeded with the assignment without a guarantee. 5 The Numbered Company paid $4.5 million to HGC for the assignment. It also paid Shell the outstanding arrears. 6 Shell owned the land adjacent to Lot 1, and used some of it for its business. From time to time, Shell considered developing part of the adjacent property and engaged in planning and hired consultants to determine an appropriate use for it. Between 2000 and 2007, Shell and the Numbered Company regularly communi- cated about the development of Lot 1 and the land adjacent to it. In October 2006, the Numbered Company and Shell jointly delivered a pre-application planning report to the City of Burnaby. Shell ultimately decided not to proceed with its development for the foreseeable future. 7 On January 31, 2008, the Numbered Company exercised the option. Shell responded on February 18, 2008 by saying that it preferred that Lot 1 not be put to residential use. Shell then registered a restrictive covenant on Lot 1 and repeatedly enquired as to whether the Numbered Company was a bare trustee for Wall. 8 The Numbered Company took the position that Shell had no right to register the restrictive covenant or to Shell’s chosen form of closing documents, and that the inquiry regarding the bare trust was designed to frustrate or delay the sale. 588526 British Columbia Ltd. v. Shell Canada Ltd. B.J. Brown J. 119

9 The Numbered Company brings this action to enforce its contract to purchase Lot 1, and to determine what instruments are to be properly registered against its title upon the purchase and sale by virtue of the contract.

Positions of the Parties The Numbered Company 10 The plaintiff says that this is a simple contract case, and that there are two principal issues to be determined: (a) under the contract of purchase and sale, what charges are to be registered against the land on the exercise of the option to purchase; and (b) whether there is any merit to Shell’s defence of bare trust or agency. 11 The Numbered Company says that the lease is clear and specifically describes the charges that were to be registered against the land on its exercise of the option to purchase and payment of the adjusted discounted amount. The Numbered Company says that the closing documents that it prepared reflect those charges. The Numbered Company also says that Shell’s version of the registered charges and closing documents is not supported by the contract and is designed to prevent residential use of Lot 1, which is a right that Shell expressly gave up in the assignment agreement. The Numbered Company says that there is no legal or factual support for Shell’s defence of bare trust or agency, and that it is simply a tactic to avoid its obligations under the contract.

Shell 12 Shell argues that the numbered company is the bare trustee or agent for Wall and, as a result, that the assignment is not valid and the Numbered Company cannot exercise the option. Shell also says that even if the Numbered Company is not the bare trustee or agent for Wall, it has transferred some of the benefits of the lease to Wall in breach of the lease, and, as a result, cannot exercise the option. 13 Shell argues that certain portions of the lease survive the closing expressly or by necessary implication. In particular, Shell argues that clause 21.5(d)(ii) of the lease permits its solicitors to “reasonably require” further and other documents to give effect to the terms of the lease, and, in particular, to preamble C to the lease which states the following: Landlord currently operates a refinery and distribution centre on the Refinery Lands, and will continue to do so, and it has been a fundamental consideration to the Landlord ... that it ensure that the use made of the ... [lands] be compatible with the continued operation of its refinery and distribution centre on the Refinery Lands. 14 In the alternative, Shell argues that the Numbered Company cannot compel transfer of the lands because clause 9 of the assignment agreement (which 120 REAL PROPERTY REPORTS 99 R.P.R. (4th)

removes the use restriction and maintenance obligation) is uncertain and unenforceable.

Discussion The Original Lease to HGC and Its Restrictive Terms 15 The original lease provided for the following in its recital clause: C. Landlord currently operates a refinery and distribution centre on the refinery lands, and will continue to do so, and it has been a fundamental consideration to the Landlord in entertaining the potential uses of the Golf Centre Lands, that it ensure that the use made of the Golf Centre Lands be compatible with the continued operation of its refinery and distribution centre on the Refinery Lands; D. Landlord and Tenant have agreed, subject to the provisions hereof, that the uses made by Tenant of the Golf Centre Lands will be restricted as herein set forth; E. Landlord requires, and Tenant has agreed, to maintain works and buffers on the Golf Centre Lands, as herein set forth; F. Landlord has agreed to grant an option to Tenant to purchase the Golf Centre Lands, on the terms and conditions herein set forth, re- serving unto Landlord the Use Restriction and the Maintenance Obligation; G. It is understood and acknowledged by Landlord and Tenant that the Option Price was arrived at based on the recognition that the value of the Golf Centre Lands encumbered by the Use Restriction and the Maintenance Obligation is less than its value would be unencumbered thereby, that the Discounted Amount represents the sum that the parties have identified as the difference in value as at the date hereof, and that if such encumbrance was removed and Tenant became the owner of the Golf Centre Lands and wished to realize the unencumbered potential thereof then Landlord should be entitled to be compensated therefor. 16 The Use Restriction clauses provided, in part, for the following: 4.2 Use Restriction Tenant covenants in favour of Landlord that Tenant will not, except as may be otherwise agreed by Landlord in writing, use the Golf Centre Lands for any purpose other than the Permitted Uses or suffer or permit any activity to be conducted on the Golf Centre Lands other than the Permitted Uses. 4.3 No impairment of Refinery Operation Tenant will not do or suffer or permit anything to be done which would impair, inconvenience or inhibit the Refinery Operation on the Refinery Lands. 4.4 Preservation of existing landscaping Tenant will preserve the landscaping on the Golf Centre Lands as stipulated on the plans, draw- 588526 British Columbia Ltd. v. Shell Canada Ltd. B.J. Brown J. 121

ings and specifications identified in Schedule “A” and the stipula- tions set out in Schedule “A”...... 4.6 Limit on development Tenant will not construct or place or suffer to remain on the Golf Centre Lands any building, structures, improvements, kiosks or facilities other than Category 1 Facilities and, if any, Category 2 Facilities and Category 3 Facilities, without the prior written consent of Landlord. 17 Permitted uses were “category 1” and “category 2” uses, which did not require approval by the landlord, and “category 3” uses, which did require approval. Category 1 uses were a three tier golf driving range and existing black top parking. Category 2 uses were retail or wholesale golf stores, travel agen- cies, golf repair shops, golf related gift shop, restaurant, catering, banquet facilities, golf teaching facilities, bowling alley, miniature golf/par 2 facilities/golf practice facilities, parking facilities and no others. Category 3 uses were uses, if any, which the landlord might approve, it being understood that this approval could be arbitrarily withheld and that the landlord would not approve of any other facilities or uses on the basis of its concern about compatibility with the refinery. 18 The maintenance obligation required the tenant to maintain the works and buffers in good order and repair and, if the purchase option were exercised, to continue with the maintenance obligation until released by the landlord. 19 The lease granted the tenant the option to purchase Lot 1, subject to the terms and conditions set out in clause 21. Clause 21.3 provided that the use restriction and maintenance obligation would survive the exercise of the purchase option and the transfer of Lot 1 to the tenant, and that an equitable charge would be granted by the tenant in favour of the landlord as security for performance of the use restriction and maintenance obligation. 20 Clause 21.5 dealt with the terms of the contract of purchase and sale: (c) On the closing date, the landlord will deliver to the tenant, the following documents: (i) a transfer in immediately registrable form prepared by Ten- ant’s solicitors whereby good and marketable title to the Golf Centre Lands subject only to the Permitted Encum- brances is conveyed to the Tenant; (ii) a statement of adjustments to be prepared by Tenant’s solicitors; (iii) the duplicate certificate of title to the Golf Centre Lands ... ; and (iv) such further documents and assurances as tenant’s solicitors may reasonably require in order to assure to Tenant the transfer of the Golf Centre Lands in fee simple free and 122 REAL PROPERTY REPORTS 99 R.P.R. (4th)

clear of all liens, charges and encumbrances except the Per- mitted Encumbrances. (d) On the closing date Tenant will deliver to Landlord the following documents: (i) an instrument to be registered in priority to all encumbrances other than the Permitted Encumbrances, and in a form satisfactory to Landlord: (1) restricting the use of the golf centre lands to the permitted uses; (2) recording that the maintenance obligation will continue in effect; and (3) granting and creating in favour of landlord, the equitable charge as security as contemplated and provided for in clause 22.3 ... ; (ii) such further documents and instruments as Landlord’s solicitors may reasonably require to give effect to the intent and provisions hereof. 21 Clause 22.5 provided for the following: 22.5 Miscellaneous It is understood and acknowledged that Landlord cannot be compelled by Tenant to release the Use Restriction or the Maintenance Obligation, or the Equitable Charge securing Tenant’s liability in respect thereof, and that Tenant cannot be compelled by Landlord to pay the Adjusted Discounted Amount. Landlord and Tenant contemplate that hereafter they may agree that Landlord will release the Use Restriction and the Maintenance Obligation, in exchange for payment by Tenant of the Adjusted Discounted Amount; but neither Landlord nor Tenant will be obligated to so agree, and until released by Landlord, the Maintenance Obligation and the Use Restriction will remain in full force and effect.

Assignment Agreement 22 In January 2000, the Numbered Company took assignment of the lease. The assignment agreement provided in clause 9: 9. Release of Use Restriction, Maintenance Obligation and Equitable Charge. If at any time after the Purchase Option is exercised and the assignee (or its successor) has completed the purchase of the Golf Centre Lands: (a) the Assignee is not in default of any of its financial obligations under the Lease or the Purchase Options; and (b) the Assignee has paid the Adjusted Discounted Amount to the Landlord, notwithstanding any provision in the lease (and in particular notwithstanding Clause 22.5 of the lease), upon receipt of such payments, the Landlord will forthwith release the Use Restriction, the Maintenance Obligation and the Equitable Charge. The Landlord will execute all documents in forms registrable in the LTO to evi- 588526 British Columbia Ltd. v. Shell Canada Ltd. B.J. Brown J. 123

dence such release, which will be prepared and registered at the As- signee’s expense. 23 At the time, Shell anticipated that the Numbered Company would exercise the option to purchase and seek rezoning of Lot 1 for residential use. 24 On January 31, 2008, the Numbered Company exercised the option. The purchase was to close on March 31, 2008. The adjusted discounted amount, as of the closing date, was $2,688,170.73.

Closing documents 25 Each of the parties prepared closing documents. 26 Shell’s conditions for closing are set out in three documents: 1. a restrictive covenant filed by Shell on March 20, 2008; 2. a multiple charges instrument; and 3. a form of transfer. 27 On March 20, 2008, Shell, as registered owner of Lot 1, agreed with itself, as the owner of the dominant tenement, to a restrictive covenant over Lot 1. The restrictive covenant contained 11 key obligations: 1. The owner of Lot 1 and all successors and assigns shall not disturb or interfere with Shell’s operation or cause any nuisance, inconvenience, annoyance, irritation, or disturbance thereto. 2. The owner of Lot 1 and its successors and assigns acknowledge that Shell is permitted to use the lands for the refinery operation. 3. The owner of Lot 1 and its successors and assigns will fully cooperate with Shell as to any proposed redevelopment of the lands including for the refinery operation. 4. The owner of Lot 1, for itself and its successors, assigns, sublessees, invitees, customers, employees, and agents, accepts that Shell will continue to operate a refinery and distribution centre on the lands, and waives and releases any inconvenience, annoyance, irritation or disturbance in relation to the operation of a refinery and distribution centre on the lands. 5. The owner of Lot 1 will be responsible to take action to alleviate and minimize the impact of the refinery operation and the use and activities on Lot 1. 6. The owner of Lot 1 will protect and save Shell harmless from and against any complaints, protests, claims or objections made by the owner of Lot 1 or its successors, assigns, sublessees, invitees, customers, employees and agents in regard to Shell’s operation of the refinery and distribution centre. 7. The owner of Lot 1 will keep Shell apprised of any proposed development of Lot 1 and regulatory approvals, and provide copies of all such applications and submissions and communications. 124 REAL PROPERTY REPORTS 99 R.P.R. (4th)

8. The following lease provisions are to survive and apply: 9. Lease provision 16.1, which provides that the purchaser will indemnify Shell from all actions, damages, and claims arising in connection with any breach or non-performance of any covenant, condition, or agreement of the purchaser. 10. Lease provision 17.8, which provides that if the purchaser does not perform any obligation under the instrument, Shell may perform the obligation and require the purchaser to indemnify Shell and pay it all costs of performance. 11. Lease provision 17.9, which provides that any legal costs arising from any breach of covenant will be recoverable by Shell against the purchaser on solicitor and client basis. 28 The multiple charges instrument expands the obligations from 11 to 32 obligations, which fall into various categories. These obligations were summarized by the Numbered Company as follows: a) Purchaser and Successors Accept Shell’s Operation, Release All Future Claims and Indemnify Shell from Any Complaints 1. It is a fundamental consideration to Shell that it ensure that the use made of Lot 1 be compatible with the continued operation of its refinery and distribution centre on the Refinery Lands; 2. Purchaser, for itself and its successors, assigns, sublessees, invitees, customers, employees, and agents, accepts that Shell will continue to operate a refinery and distribution centre on the Refinery Lands, and waives and releases any inconvenience, annoyance, irritation or disturbance in relation to the operation of a refinery and distribution centre on the Refinery Lands. 3. Purchaser will be responsible to take action to alleviate and minimize the impact of the Refinery Operation on Purchaser’s business. 4. Purchaser and its successors and assigns will protect and save harmless Shell from and against complaints, protests, claims or objections made by Purchaser or its successors, assigns, sublessees, invitees, customers, employees and agents in regard to the operation of a refinery and distribution 5. It is a fundamental consideration that Shell shall be free and at liberty and be permitted to continue Refinery Operation. 6. A Restrictive Covenant that all owners, occupiers and users shall not (inter alia) disturb or interfere with the Refinery Operation or cause any nuisance, inconvenience, annoyance, irritation or disturbance thereto. 7. Purchaser and its successors and assigns acknowledge that Shell at all times be permitted to use the Shell lands for the Refinery Operation. 588526 British Columbia Ltd. v. Shell Canada Ltd. B.J. Brown J. 125

b) Purchaser and Successors Fully Cooperate with Shell in Future Development of Shell’s Lands 8. Purchaser and its successors and assigns to fully cooperate with Re- finery Lands Owner as to any proposed redevelopment by Refinery Lands Owner of the Refinery Lands or any part thereof, including any redevelopment of the Refinery Lands or any part thereof for or in connection with the Refinery Operation. 9. Nothing operates to restrict Shell from redeveloping its lands including for the Refinery Operation. c) Covenants Run with the Land 10. The Covenants in Obligations 5-10 in “Refinery Operation Cove- nant” run with the land and bind every part that becomes subdivided. d) Purchaser and Successors Accept Shell’s Operation, Release of All Claims and Indemnifies Shell 11. Purchaser for itself and its successors, assigns, sublessees, invitees, customers, employees, and agents, accepts that Shell will continue to operate a refinery and distribution centre on the Refinery Lands, and waives and releases any inconvenience, annoyance, irritation or disturbance in relation to the operation of a refinery and distribution centre on the Refinery Lands. 12. Purchaser will be responsible to take action to alleviate and minimize the impact of the Refinery Operation on Lot 1 and on the use and activities on Lot 1. 13. Purchaser will protect and save harmless Shell from and against complaints, protests, claims, or objections made by Purchaser or its successors, assigns, sublessees, invitees, customers, employees, and agents in regard to the operation of a refinery and distribution centre on the Refinery Lands. e) Shell’s Right to Lot 1 Owner’s Development Communications and Applications 14. Purchaser will, upon the request from time to time of Shell, keep Shell apprised as to the state of any proposed development of Lot 1, and regulatory approvals, and applications and submissions made therefor, and will provide to Shell copies of all relevant applications and submissions and communications to and from development and environmental regulatory authorities. f) Shell’s Rights and Remedies Survive Exercise of Option, Discharge of Use Restriction and Discharge of Lease 15. The obligations in (inter alia) Section 4 (called the “Industrial Op- eration Compensation Act Agreement” and Section 7 (called the “Refinery Operation Covenant”) of this multiple charges instrument survive notwithstanding discharge of the lease and the transfer of Lot 1 to the Purchaser and remain in full force and effect. 126 REAL PROPERTY REPORTS 99 R.P.R. (4th)

16. The obligation to release user covenant survives. 17. The obligations in (inter alia) Section 4 (called the “Industrial Op- eration Compensation Act Agreement” and Section 7 (called the “Refinery Operation Covenant”) of this multiple charges instrument survive notwithstanding discharge of use Restriction, Maintenance Obligation and Equitable Charge as contemplated under Section 9 of the Assignment and remain in full force and effect. 18. Lease provision 16.1 survives and applies under this instrument, namely that the Purchaser will indemnify Shell from (inter alia) all actions, damages, claims arising of any breach or non-performance of any covenant, condition or agreement of the Purchaser. 19. Lease provision 17.8 survives and applies under this instrument, namely that if Purchaser does not perform any obligations, Shell may perform, including entry onto Lot 1 property. 20. Lease provision 17.8 survives and applies under this instrument, namely that Purchaser will pay to Shell all costs and expenses incurred Shell performing Purchaser’s covenants and Shell will be entitled to indemnity. 21. Lease provision 17.9 survives and applies under this instrument, namely any legal costs arising from any breach of covenant recoverable on solicitor and client basis. g) Environmental: No representation as to State of Land, Takes “As Is”, Shell Not Required to Do any Remedial Work 22. Shell makes no representation as to state of Lot 1, Purchaser takes “as is” and Shell has disclosed environmental history, including impact from Shopping Mall across the street. 23. Purchaser and not Shell responsible for obtaining all development and regulatory approvals including environmental approval. 24. Purchaser shall not construct any buildings without development and regulatory approvals including environmental approval. 25. Shell is not required to do any environmental work or activities, remedial or otherwise, on Lot 1. 26. Purchaser acknowledges it has inspected Lot 1. h) Transfer Covenants (Under Land Title Act and Land Transfer Form Act) Negated 27. The covenants that would normally be included in the transfer of Lot 1 under Land Title Act or Land Transfer Form Act are expressly excluded other than as stated in the Lease or this instrument. i) Purchaser’s Ownership of Lease Warranties (as Fundamental Premise and Condition): Lease and Shares Held Beneficially by 588526 28. Purchaser holds Lease for itself and not Wall. 29. Purchaser did not at any time hold the lease or option for Wall. 588526 British Columbia Ltd. v. Shell Canada Ltd. B.J. Brown J. 127

30. Purchaser did not sublet or assign lease to Wall. 31. The shares of Purchaser always held 100% by Wall. 32. These representations and warranties were fundamental premise and condition of assignment agreement and are a fundamental premise and condition of this agreement. 29 Shell’s transfer form negated s. 186 of the Land Title Act, R.S.B.C. 1996, c. 250 (“LTA”): The covenants and other contents that would otherwise be implied or deemed to be contained in this instrument under or pursuant to Section 186 of the Land Title Act or the Land Transfer Act are hereby negated except only to the extent stipulated in the ground lease and related instruments registered in the New Westminster Land Title Office under numbers ... and in the instrument duly executed by the Transferor and now or hereafter filed against or annexed to land in the New Westminster Land Title Office. 30 The Numbered Company prepared the following closing documents: 1. a form A freehold transfer, which merged the lease and the option so that a separate discharge was not required; 2. a vendor’s statement of adjustments; 3. a surviving charges instrument which included the use restriction, the maintenance obligation, an easement for the refinery, an easement for a gas bar and an equitable charge; and 4. a form C discharge of part of the surviving charges instrument to effect discharge of the use restriction, maintenance obligation and the equitable charge, after the purchaser had completed the purchase and had paid the adjusted discounted amount.

What is the Proper Interpretation of the Lease and Assignment Agreement? 31 In my view, the numbered company has properly interpreted the lease, and its closing documents are those contemplated by the agreements. 32 It is settled law that the parties’ intentions are to be gathered from the words of the contract read as a whole. A restrictive covenant is to be construed strictly and the parties’ intention to create one must be shown in clear and unambiguous language. A commercial document should be construed in accordance with sound commercial principles and good business sense: Aquadel Golf Course Ltd. v. Lindell Beach Holiday Resort Ltd., 2009 BCCA 5, 306 D.L.R. (4th) 744 (B.C. C.A.). 33 The original lease was prepared by Shell. It is a carefully drafted document. It is clear that Shell was at pains to ensure that the leased lands could only be used for a golf driving range and related purposes, unless it agreed otherwise. Further, it was clear that Shell was under no obligation to agree otherwise. Even if the tenant chose to exercise the option to purchase, Shell would continue to 128 REAL PROPERTY REPORTS 99 R.P.R. (4th) control the use of Lot 1. To that end, Shell carefully set out the provisions that would survive the transfer: 1. Maintenance Obligation in 6.1: Tenant will maintain in good order and repair the Works and Buffers throughout the Term and, if the Purchase Option is exercised, thereafter until the Maintenance Obligation is released by Landlord. 2. Use Restriction and Maintenance Obligation in 21.3: It is understood and agreed that the Use Restriction and the Mainte- nance Obligation will survive the exercise of the Purchase Option and the transfer of the Golf Centre Lands to the Tenant pursuant thereto, and that the Equitable Charge will be granted by Tenant in favour of Landlord as security in respect thereof as provided for in Clause 21.5(d)(i) hereof. 3. Restrictive Covenant, Maintenance Obligation and Equitable Charge in 22.2: The restrictive covenant referred to in Clause 21.5(d)(i) above will run with and bind the Golf Centre Lands and will be annexed to and benefit the Restrictive Covenant Dominant Lands ... The Equitable Charge will continue in effect as a charge against the Golf Centre Lands until released by Landlord or, if assigned by Landlord, the holder thereof from time to time. 4. Equitable Charge in 22.3: The Equitable Charge will constitute a charge against the Golf Cen- tre Lands as security for the observance of the Use Restriction and the restrictive covenant referred to in Clause 21.5(d)(i) hereof and the observance and performance of the Maintenance Obligation and for the payment of the sum stipulated in Clause 22.4 hereof ... The Equitable Charge will run with the Golf Centre Lands and each and every part into which the Golf Centre Lands may be divided. 5. Access Easement in Favour of Landlord in 23.2: If the Purchase Option is exercised then this easement will be incorporated as a registered interest as part of the instrument referred to in Clause 21.5(d)(i) hereof. 6. Access Easement in Favour of Tenant 23.3: If the Purchase Option is exercised then this easement will be incorporated as a registered interest as part of the instrument referred to in Clause 21.5(d)(i) hereof. 7. The Gas Bar Easement found in 3(b) and (e) of the 1994 Amend- ment to the lease: upon and after the acquisition by HGC, if ever, of title in fee simple in and to Lot 1 or part of parts thereof, then HGC will abide by and observe and perform the Easement ... 588526 British Columbia Ltd. v. Shell Canada Ltd. B.J. Brown J. 129

as a condition to conveying title to Lot 1 to HGC, upon exercise of the HGC Purchase Option, HGC will deliver to Grantee and Lot 1 Owner an instrument to be registered in priority ... 34 However, if Shell did agree to permit a change of use, the use restriction, maintenance obligation, and equitable charge would all be discharged. In the assignment with the Numbered Company in 2000, Shell agreed to permit a change of use. 35 Shell now relies on clause 21.5(d)(ii) of the lease to support the closing documents that it prepared and the restrictive covenant that it filed in anticipation of closing. Shell’s argument is as follows: The Lease afforded two levels of protection to Shell. First, unless Shell otherwise agreed, all that could exist on the Lands would be a golf centre. Sec- ond, if Shell ever removed the use restriction, there was the underlying requirement that “it has been a fundamental consideration to the Landlord, in entertaining the potential uses of the Golf Centre Lands, that it ensure the use made of the (Lands) be compatible with the continued operation of (the) refinery and distribution centre.” (emphasis added). Effect was to be given to that purpose through, inter alia, section 21.5 of the Lease. 21.5 ... (d) On the closing date Tenant will deliver to Landlord the following documents: (ii) such further documents and instruments as Landlord’s solicitors may reasonably require to give effect to the intent and provisions hereof. So if the Option was exercised, and regardless of whether or not the use restrictions were lifted, Shell could always invoke Clause 21.5. [emphasis added] In other words, after it released the use restriction, maintenance obligation, and the equitable charge, Shell says that it could rely on clause 21.5(d)(ii) to continue to restrict the use of Lot 1. That argument is untenable for several reasons. 36 First, that interpretation is inconsistent with the express wording of the lease. As noted, Shell was careful to set express limitations on use in the agreement. Yet, now, after having agreed to release the use restriction, maintenance obligation, and the equitable charge, Shell relies on clause 21.5(d)(ii) and on the definition of “permitted encumbrances” to file a restrictive covenant to effectively maintain the use restriction. “Permitted encumbrances” is a defined term that includes covenants registered against Lot 1 at the commencement of the lease, registered concurrently with the subdivision of Lot 1, granted by Shell in favour of the Crown, or necessary for the refinery operation. That definition also includes the restrictive covenant, the maintenance obligation and, the equitable charge provided for in clause 21.5(d)(i). If the proper interpretation of the lease were that “encumbrances necessary for the refinery operation” were the use restrictions, etc., Shell need not have included the express restrictions in the lease 130 REAL PROPERTY REPORTS 99 R.P.R. (4th)

because it could have simply relied on the general wording of the definition to place a restrictive covenant on Lot 1. 37 Second, the lease specifies in clause 22.2 that the restrictive covenant that will run with the land after the sale is that described in clause 21.5(d)(i). Again, there would be no need for this clause if the broad general provision were meant to have the same effect. Further, the restrictive covenant contemplated in clause 22.2 does not include 21.5(d)(ii), which is the “further documents” clause on which Shell relies. 38 Third, this interpretation effectively denies the Numbered Company the benefit of its bargain. The lease provided at some length that Shell was not obliged to release the use restriction and that it would require compensation if it did. Shell is willing to take the compensation, but wants to effectively retain the use restriction. 39 Fourth, this interpretation is inconsistent with the assignment and amendment agreement of January 2000, in which the Numbered Company was assigned the lease. In that agreement, Shell acknowledged and confirmed that the purchase option was the entire agreement with respect to the purchase option. Yet, Shell now relies on other provisions of the lease which it says apply to the purchase option. Further, Shell agrees in clause 9 of the assignment and amendment to release the use restriction, maintenance obligation, and equitable charge on payment of the adjusted discounted amount. Again, Shell’s interpretation of clause 21.5(d)(ii) effectively denies the Numbered Company this benefit. 40 Shell argues that various clauses of the lease survive closing, some expressly, some impliedly. I do not accept this argument. The lease carefully and expressly sets out what survives the transfer. There is no need to imply terms that other clauses of the lease survive. In any event, I am satisfied that the test for the implication of terms is not met. For a term to be implied in these circumstances, it must be necessary to give business efficacy to the contract or otherwise be a term which the parties would say, if questioned, that they had obviously assumed: Zeitler v. Zeitler Estate, 2010 BCCA 216, 319 D.L.R. (4th) 106 (B.C. C.A.), at paras. 25-30. In this case, the agreement has business efficacy and does not demand that additional terms be implied other than those expressly provided. Moreover, the evidence is clearly against the assertion that the parties assumed that the implication urged by Shell was part of the agreement. 41 Further, in clause 8.1, the lease provides that it is terminated when the option is exercised: All Improvements will throughout the Term be the property of the Tenant, provided that, except in the case of termination where the Golf Centre Lands are transferred to the Tenant on exercise of the Purchase Option, on termination of this Ground Lease at the election of the Landlord title will vest and revert to Landlord, and provided further that on termination of this Ground 588526 British Columbia Ltd. v. Shell Canada Ltd. B.J. Brown J. 131

Lease Landlord may require that Tenant at Tenant’s sole risk, cost and expense remove same or those portions thereof stipulated by Landlord. [Emphasis added.] 42 I accept the plaintiff’s submission: There is an express scheme of the obligations that give rise to secured charges that survive the exercise of the Option to Purchase. The only way to get a covenant on title after sale is for there to be a charging provision. Eve- rything that goes in section 21.5 (d) (i) has such a charging provision; and it is only section 21.5 (d) (i) that uses the word “registered” instrument. There are six covenants that have charging provisions and are expressed to arise on the happening of the exercise of the Option to Purchase: The Use Obligation; The Maintenance Obligation; The Equitable Charge; The Access Easement (Landlord); The Access Easement (Tenant); and The Gas Bar Easement. The Purchase Agreement provides that the purchaser will sign an instrument to be “registered” which includes these obligations. In respect of any covenant that is not in that list to be included in section 21.5 (d)(i), there is no right to that covenant after the sale. In respect of those other covenants, there is no “charging” provision and no “survival” provision. 43 I agree as well that clause 21.5(d)(ii) is properly interpreted as referring to further documents and instruments as may reasonably be required to give effect to the purchase agreement contained in clause 21.5, but not the entire lease. On closing, the lease has run its course and been superceded by the sale. It is not “reasonable” to add further registered documents under clause 21.5(d)(ii) when it expressly specifies the documents that are to be registered. The lease expressly states that various provisions were to survive. If more were to survive, as Shell argues, one would expect the lease to say so. 44 While I am of the view that the contract is not ambiguous, I would resort to the principle of contra proferentem if it were. That principle provides that ambiguity in an agreement should be construed against the party who drafted it: Gibbens v. Co-operators Life Insurance Co., 2009 SCC 59, [2009] 3 S.C.R. 605 (S.C.C.) at para. 25. Because the agreement was drafted by Shell, I would interpret it in favour of the Numbered Company. 45 Finally, a covenant to run with the land requires clear language. Because the lease expressly states what is to survive, there is no need to resort to implied terms for covenants which run with the land. The Court of Appeal held that it is 132 REAL PROPERTY REPORTS 99 R.P.R. (4th)

incorrect to do so, as noted by Gerow J. in Qureshi v. Gooch, 2005 BCSC 1584 (B.C. S.C.) at para. 21: Clear language showing that the parties intend to create an interest in land in favour of one of them is required in order to create a restrictive covenant. If it is not entirely clear from the agreement that the parties intended to create a burden on the land, the restrictive covenant will be treated merely as a personal covenant between the parties who made it. A term will not be implied unless there is an ambiguity in the contract. If there is any ambiguity about whether a restrictive covenant should apply to certain lands the ambiguity is to be resolved in favour of the free use of land. Nylar Foods Ltd. v. Roman Catholic Episcopal Corp. of Prince Rupert (1988), 48 D.L.R. (4th) 175 at 176 - 177 (B.C.C.A).

Doctrine of Merger and the Separate Contracts 46 The Numbered Company argues that the lease and option to purchase, although contained in one agreement, are separate contracts. When the option to purchase is exercised, the provisions of the lease do not survive and are merged. 47 Courts have concluded that a lease and option to purchase are separate contracts although contained in one agreement. This conclusion was reached by the Ontario Court of Appeal in Budget Car Rentals Toronto Ltd. v. Petro-Canada Inc. (1989), 6 R.P.R. (2d) 142 (Ont. C.A.) and adopted by Cooper J. of the Brit- ish Columbia Supreme Court in Blackaby v. Rabson (1992), 29 R.P.R. (2d) 203 (B.C. S.C.) at para. 73: ... it should be made clear that a lease containing an option to purchase consists of two separate agreements, even though contained in the same document. The renewal or extension of the lease does not in my view renew the option unless the parties have clearly expressed such intention in their acts or in the words of the document. I adopt the decision of the Ontario Court of Appeal in Budget Car Rentals Toronto Ltd. v. Petro-Can. Inc. et al (1989) 6 R.P.R. (2d) 142 where it adopted the language in 27 Halsbury’s Laws of England, 4th ed. (1975) Paragraph 109, P. 87 with respect to an option to purchase: Such an option is collateral to, independent of, and not incident to the relation of landlord and tenant ... 48 I agree that the lease and option to purchase in this case were separate contracts although contained in one agreement. The question is now whether the lease becomes “merged” when the option is exercised. 49 The Court of Appeal recently discussed the doctrine of merger in Close v. Weigh West Marine Resort Inc., 2009 BCCA 216, 94 B.C.L.R. (4th) 47 (B.C. C.A.). In that case, Tysoe J.A. referred at para. 29 to Fraser-Reid v. Droumt- sekas (1979), 103 D.L.R. (3d) 385 (S.C.C.) where the Supreme Court of Canada 588526 British Columbia Ltd. v. Shell Canada Ltd. B.J. Brown J. 133

clarified that whether the doctrine of merger operates depends on the parties’ intentions, not on the strict application of a rule of law: There is no presumption of merger. The proper inquiry should be to determine whether the facts disclose a common intention to merge ... absent proof of such intention, there is no merger. 50 Here, I take the parties intention from their agreements. The lease itself indicates what clauses survive if the tenant acquires title. I am satisfied that the parties intended that the other aspects of the lease would not survive, would merge when the tenant became the owner of the land.

Specific Covenants in Shell’s Transfer Documents 51 Shell has included various clauses in its documents in an effort to achieve greater control or protection than it is expressly entitled to under the terms of the lease, option to purchase, and assignment agreement. These include an “as is” clause, to avoid potential environmental liability, a “keep us informed of your development” clause and a clause negating the effect of s. 186 of the LTA. These types of clauses are not the usual clauses in an agreement of purchase and sale, and they are not expressed to be terms which apply on exercise of the option. Accordingly, there is no basis for Shell to demand them. In other words, Shell determined what it wanted in the agreement of purchase and sale, and said so in the lease, option to purchase, and assignment agreement. If Shell wished to have protections that went beyond the normal closing documents, it could and should have said so. Shell cannot now rely on the “further documents” clause to dictate an agreement different and more far-reaching than that which the parties contemplated in the documents. 52 The restrictive covenant registered by Shell does not come within the documents contemplated by the definition of “permitted encumbrances”. It is not a covenant that Shell was required to give to the Crown, nor is it required for the operation of the refinery. It was merely registered in an effort to protect Shell on the exercise of the option. 53 By negating s. 186 of the LTA, Shell fails to transfer good and marketable title, subject only to permitted encumbrances, as it contracted to do in clause 21.5. Section 186 of the LTA provides, in part, for the following: (3) Despite subsection (2), unless expressly excepted or qualified, a transfer of an estate in fee simple in the approved form made by a personal representative or trustee is deemed to contain only the form of words in section 7 of column 1 of Schedule 2 to the Land Trans- fer Form Act, Part 1, and to have the same effect and be construed as if it contained only the form of words in section 7 of column 2 of Schedule 2 to that Act. (4) Subject to subsections (5) to (8), a transfer of a freehold estate for valuable consideration and in the approved form that is completed and executed in the manner approved by the director, and the execu- 134 REAL PROPERTY REPORTS 99 R.P.R. (4th)

tion of which has been witnessed or proved in accordance with Part 5, operates to transfer the freehold estate of the transferor to the transferee whether or not it contains express words of transfer. If Shell wished to include terms different from those contemplated by the LTA, and to limit its effect, it could easily have done so. Shell did not. Again, it cannot rely on the “further documents” clause to dictate a different form of agreement than that contemplated by the parties.

Bare Trust/Agency 54 Shell argues that the Numbered Company holds the land as bare trustee for Wall and is not entitled to exercise the option to purchase. Shell points to a letter from Wall’s auditors, KPMG, to Canada Revenue Agency in 2005. The letter said, in part, the following: “For this transaction, WFC was represented by a bare trustee 588526 BC Ltd.” Shell says that the Numbered Company did not call Stephanie Gibault, the comptroller for Wall at the time, and that an adverse inference should be drawn to the effect that Ms. Gibault would have testified that the Numbered Company was a bare trustee. 55 I am satisfied that the Numbered Company was not a bare trustee for Wall. 56 First, I accept the evidence of Bruno Wall that, generally speaking, companies within the Wall group that are operating companies are not bare trustees; that to avoid potential liability arising from their operations, these companies are structured as subsidiaries, not bare trustees; and that companies that simply hold land are structured as bare trustees and execute declarations of trust. When the Numbered Company was set up it was not set up as a bare trustee because it was to be an operating company. It did not execute a trust agreement as trustee for Wall. I also accept his evidence that in 2008 he was told by Elisa Kreller, acting comptroller, that some of the companies were not getting the GST refunds that they should be receiving. He instructed her to investigate and learned that five companies, each a wholly owned subsidiary with its own revenues and expenses, had not been receiving these refunds because they had not been filling tax returns. Their revenue and expenses were being claimed by Wall. As a result, Wall and the subsidiaries, including the Numbered Company, have refiled their tax returns to correct the error. I accept the evidence of Mr. Wall that, at the time, he missed the erroneous reference in KPMG’s letter to Canada Reve- nue Agency that referred to the Numbered Company as a bare trustee. 57 Second, I accept the evidence of Ms. Kreller. She is no longer employed by the Wall companies, she has no interest in this litigation, and there is no reason for her to give false evidence. 58 Ms. Kreller’s evidence is consistent with Mr. Wall’s. Ms. Kreller acted as substitute comptroller in mid-October 2007 to early July 2008 while Ms. Gibault was on maternity leave. She testified that when she took over from Ms. Gibault, she found that many things were “messy”, and the prevailing attitude was a “get 588526 British Columbia Ltd. v. Shell Canada Ltd. B.J. Brown J. 135

things done” attitude, rather than a “is this correct” attitude. Operating companies should have been receiving GST rebates, but they were not, because they had not been filing tax returns. They were also treated as bare trustees, even though they were operating companies. Ms. Kreller started to investigate further. She spoke with Mr. Wall regarding the intent with those companies from a business perspective and reviewed the legal documentation. She and Mr. Wall ultimately concluded that the Numbered Company and four other operating companies were incorrectly treated as bare trustees. As a result, Wall and the five companies re-filed their tax returns, corrected the error, and no longer treated those companies as bare trustees. 59 I do not draw an adverse influence from the failure of the Numbered Com- pany to call Ms. Gibault to give evidence. She is no longer employed by Wall. Shell could have called her to give evidence, but it did not. In any event, the adverse inference (to the effect that her evidence would not assist the Numbered Company) does not change my view of the evidence of Mr. Wall and Ms. Krel- ler on this point. 60 Shell argues: At the very least, even if [Wall] was not the true assignee (which it would be under a bare trust), [the Numbered Company] transferred to [Wall] some of the benefits under the Assignment. Such a transfer is prohibited under the non-assignment clause and [the Numbered Company] is in breach of the agreement. Hence, [the Numbered Company] cannot sue for specific performance because it is in breach of the agreement. 61 The benefit which Shell says has been transferred is capital cost allowance from 2000 to 2005: In cross-examination, Mr. Griffin attempted to make the point that by re- filing its tax returns from 2005 onwards, that would be consistent with [the Numbered Company] not being a bare trustee. Even if the Court were to accept that years after the fact, [Wall] could effectively reverse everything that it has done, Mr. Ormiston pointed out that it has not in fact done so. When [the Numbered Company] filed its tax returns for the first time it used the net CCA that was available. That is, [Wall] has already had the benefit of claiming depreciation for several years and since it didn’t re-file for the earli- est years, [the Numbered Company] couldn’t claim that benefit. In short, at least some of the benefits reaped by [Wall] were never disgorged. 62 This argument is misconceived. The benefit that Wall received is, as I have found, based on an error. It incorrectly filed its tax returns. Canada Revenue Agency may or may not require it to re-file more than three years of tax returns. However, the “benefit” received by Wall is not a lease benefit, it is a benefit afforded by the tax legislation. It is the tax legislation that permits capital cost allowance to be deducted, not the lease. The assets for which Wall was claiming capital cost allowance are on the leased land, but this does not make the deduction of capital cost a lease benefit. If Wall erroneously claimed capital cost al- 136 REAL PROPERTY REPORTS 99 R.P.R. (4th)

lowance (as I have found) and Canada Revenue Agency only required Wall to correct three years back, that is not a benefit provided by the lease. Clause 9 of the Assignment Agreement 63 Shell argues that Clause 9 of the assignment agreement is uncertain and unenforceable. Shell argues that if the Numbered Company intended that Clause 23.1 of the lease would cease to apply after the option to purchase was exercised, it needed to say so expressly in the assignment agreement. 64 Clause 9 of the Assignment Agreement provides the following: Release of Use Restriction, Maintenance Obligation and Equitable Charge. If at any time after the Purchase Option is exercised and the Assignee (or its successor) has completed the purchase of the Golf Centre Lands: (a) the Assignee is not in default of any of its financial obligations under the Lease or the Purchase Option; and (b) the Assignee has paid the Adjusted Discounted Amount to the Landlord, notwithstanding any provision in the Lease (and in particular notwithstanding Clause 22.5 of the Lease), upon receipt of such payments, the Landlord will forthwith release the Use Restriction, the Maintenance Obligation and the Equitable Charge. The Landlord will execute all documents in forms registrable in the LTO to evidence such release, which will be prepared and registered at the Assignee’s expense. 65 Clause 23.1 of the lease provides the following: Tenant, for itself and its successors, assigns ... accepts that Landlord and its successors ... will continue to operate a refinery ... and waives and releases any inconvenience ... Tenant will protect and save harmless Landlord from and against ... claims ... made by Tenant or its successors ... 66 Clause 9 is not uncertain, nor does it “introduce uncertainty”. As I have discussed above, the lease very clearly states what survives to run with the land after the option to purchase is exercised. Clause 9 simply states that the use restriction, maintenance obligation and equitable charge will be released. It does not otherwise alter the lease. Clauses 23.2 and 23.3 which provide that they will run with the land will do so. Clause 23.1 does not provide that it runs with the land, and clause 9 makes no change to Clause 23.1. Further, “successors and assigns” must be successors and assigns in its capacity as tenant. Shell’s interpretation that the Tenant holds Shell harmless from claims from any successor, indefinitely, is without precedent and ignores the nature of the underlying agreement, a lease. On Shell’s interpretation the original tenant, HGC, would indemnify Shell from claims made against Shell after Lot 1 is sold, from the Num- bered Company and from any subsequent purchasers. 67 The plaintiff has been successful in this action. Shell did not specifically address the Numbered Company’s draft order. If the parties are not able to settle the form of order, they may appear before me. Action allowed. Fok v. British Columbia 137

[Indexed as: Fok v. British Columbia (Residential Tenancy Act, Dispute Resolution Officer)] Wai Shing Frederick Fok and Edith Hung Tai Yu (Petitioners) And J. Yuen in the capacity as a Dispute Resolution Officer under the Residential Tenancy Act and Xiao Li Yang and Paul Jeffrey Hurst (Respondents) British Columbia Supreme Court R. Punnett J. Heard: July 29, 2010 Judgment: November 16, 2010 Docket: Vancouver S-100986, 2010 BCSC 1613 W.W.Y. Leung for Petitioners S. Xue for Respondent, Xizo Li Yang Real property –––– Landlord and tenant — Residential tenancies — Repairs and fit- ness — Landlord’s obligation — Miscellaneous –––– Parties entered into one-year residential tenancy agreement for house on January 14 (all dates 2009) — Tenants refused landlords’ request to obtain insurance for their unlicensed daycare at house — Landlords provided one month notice to end tenancy for cause on May 27, and ten day notice to end tenancy for unpaid rent on June 7 — On July 10, landlords obtained order of possession, requiring tenants to vacate within 48 hours of service of order — Landlords served tenants on July 11 as they were removing their belongings, but tenants refused to provide keys — Landlords attended July 13 to find locks changed, and tenants’ nanny stated they were having order reviewed, which was ultimately denied on July 16 — Landlords attended July 21, and nanny allegedly told them tenants had vacated — While attending July 22 to change locks, landlords discovered unlocked main floor window, and some of tenants’ possessions inside, which tenants later informed landlords that they would retrieve on July 23 — On July 28, landlords took inventory and photos of remaining items, including opening and photographing sealed cardboard box of kitchen items — Tenant alleged she had attended house on July 21 and put jewellery box into sealed cardboard box — Landlords denied finding jewellery box — Tenants received items September 14 — Dispute resolution officer with Residential Tenancy Branch denied landlords’ claim for locksmith repairs and maintenance costs, and ordered landlords to pay $12,083.39 compensation to tenants for missing jewellery — Landlords brought application for judicial review — Application dismissed — Officer found premises were not abandoned as tenants were not completely moved out, and in changing locks, landlords effectively locked tenants out and prevented them from cleaning premises — Decision denying landlords’ claim for locksmith repairs and maintenance costs was not reviewable error as there was evidence before officer that she was entitled to accept or reject and result was not patently unreasonable. Real property –––– Landlord and tenant — Residential tenancies — Judicial review of decisions –––– Parties entered into one-year residential tenancy agreement for house 138 REAL PROPERTY REPORTS 99 R.P.R. (4th) on January 14 (all dates 2009) — Tenants refused landlords’ request to obtain insurance for their unlicensed daycare at house — Landlords provided one month notice to end tenancy for cause on May 27, and ten day notice to end tenancy for unpaid rent on June 7 — On July 10, landlords obtained order of possession, requiring tenants to vacate within 48 hours of service of order — Landlords served tenants on July 11 as they were removing their belongings, but tenants refused to provide keys — Landlords attended July 13 to find locks changed, and tenants’ nanny stated they were having order reviewed, which was ultimately denied on July 16 — Landlords attended July 21, and nanny allegedly told them tenants had vacated — While attending July 22 to change locks, landlords discovered unlocked main floor window, and some of tenants’ possessions inside, which tenants later informed landlords that they would retrieve on July 23 — On July 28, landlords took inventory and photos of remaining items, including opening and photographing sealed cardboard box of kitchen items — Tenant alleged she had attended house on July 21 and put jewellery box into sealed cardboard box — Landlords denied finding jewellery box — Tenants received items September 14 — Dispute resolution officer with Residen- tial Tenancy Branch ordered landlords to pay $12,083.39 compensation to tenants for missing jewellery — Landlords brought application for judicial review — Application dismissed — Officer did not fail to observe principles of natural justice or procedural fairness, thus denying petitioners fair hearing, when landlords failed to submit written inventory of items left by tenants, and officer failed to offer adjournment to permit them to re-submit evidence — It is not incumbent on officer to raise issue of adjournment. Administrative law –––– Requirements of natural justice — Right to hearing — Pro- cedural rights at hearing — Miscellaneous procedural requirements –––– Adjourn- ment — Parties entered into one-year residential tenancy agreement for house on January 14 (all dates 2009) — Tenants refused landlords’ request to obtain insurance for their unlicensed daycare at house — Landlords provided one month notice to end tenancy for cause on May 27, and ten day notice to end tenancy for unpaid rent on June 7 — On July 10, landlords obtained order of possession, requiring tenants to vacate within 48 hours of service of order — Landlords served tenants on July 11 as they were removing their belongings, but tenants refused to provide keys — Landlords attended July 13 to find locks changed, and tenants’ nanny stated they were having order reviewed, which was ultimately denied on July 16 — Landlords attended July 21, and nanny allegedly told them tenants had vacated — While attending July 22 to change locks, landlords discovered unlocked main floor window, and some of tenants’ possessions inside, which tenants later informed landlords that they would retrieve on July 23 — On July 28, landlords took inventory and photos of remaining items, including opening and photographing sealed cardboard box of kitchen items — Tenant alleged she had attended house on July 21 and put jewellery box into sealed cardboard box — Landlords denied finding jewellery box — Tenants received items September 14 — Dispute resolution officer with Residen- tial Tenancy Branch ordered landlords to pay $12,083.39 compensation to tenants for missing jewellery — Landlords brought application for judicial review — Application dismissed — Officer did not fail to observe principles of natural justice or procedural fairness, thus denying petitioners fair hearing, when landlords failed to submit written inventory of items left by tenants, and officer failed to offer adjournment to permit them to re-submit evidence — It is not incumbent on officer to raise issue of adjournment. Fok v. British Columbia 139

Real property –––– Landlord and tenant — Residential tenancies — Miscellane- ous –––– Abandoned personal property — Parties entered into one-year residential tenancy agreement for house on January 14 (all dates 2009) — Tenants refused landlords’ request to obtain insurance for their unlicensed daycare at house — Landlords provided one month notice to end tenancy for cause on May 27, and ten day notice to end tenancy for unpaid rent on June 7 — On July 10, landlords obtained order of possession, requiring tenants to vacate within 48 hours of service of order — Landlords served tenants on July 11 as they were removing their belongings, but tenants refused to provide keys — Land- lords attended July 13 to find locks changed, and tenants’ nanny stated they were having order reviewed, which was ultimately denied on July 16 — Landlords attended July 21, and nanny allegedly told them tenants had vacated — While attending July 22 to change locks, landlords discovered unlocked main floor window, and some of tenants’ possessions inside, which tenants later informed landlords that they would retrieve on July 23 — On July 28, landlords took inventory and photos of remaining items, including opening and photographing sealed cardboard box of kitchen items — Tenant alleged she had attended house on July 21 and put jewellery box into sealed cardboard box — Land- lords denied finding jewellery box — Tenants received items September 14 — Dispute resolution officer with Residential Tenancy Branch ordered landlords to pay $12,083.39 compensation to tenants for missing jewellery — Landlords brought application for judicial review — Application dismissed — Officer did not make reviewable error in determining that tenant proved loss of jewellery, she simply preferred tenant’s evidence over landlords’ — Officer found that landlords’ conclusion that property had been abandoned was unreasonable, and in fact, tenants were impeded from removing remaining property by landlords’ actions — Officer’s error in interpreting s. 24 of Residential Tenancy Regu- lation, regarding landlords’ obligations for tenants’ abandoned personal property, did not change facts she found in making decision, facts which were not held to be patently unreasonable — Having accepted existence of jewellery and its placement in rental unit, officer’s conclusion that landlords failed to comply with ss. 25 and 30 of Regulation in handling possessions left behind by tenants, was not patently unreasonable — Officer did not make reviewable error in determining that tenants complied with s. 7(2) of Residen- tial Tenancy Act by taking reasonable steps to minimize their loss, despite unlocked windows. Personal property –––– Bailment and warehousing — Involuntary bailment –––– Par- ties entered into one-year residential tenancy agreement for house on January 14 (all dates 2009) — Tenants refused landlords’ request to obtain insurance for their unlicensed daycare at house — Landlords provided one month notice to end tenancy for cause on May 27, and ten day notice to end tenancy for unpaid rent on June 7 — On July 10, landlords obtained order of possession, requiring tenants to vacate within 48 hours of service of order — Landlords served tenants on July 11 as they were removing their belongings, but tenants refused to provide keys — Landlords attended July 13 to find locks changed, and tenants’ nanny stated they were having order reviewed, which was ultimately denied on July 16 — Landlords attended July 21, and nanny allegedly told them tenants had vacated — While attending July 22 to change locks, landlords discovered unlocked main floor window, and some of tenants’ possessions inside, which tenants later informed landlords that they would retrieve on July 23 — On July 28, landlords took inventory and photos of remaining items, including opening and photographing sealed cardboard box of kitchen items — Tenant alleged she had attended house on July 21 and 140 REAL PROPERTY REPORTS 99 R.P.R. (4th) put jewellery box into sealed cardboard box — Landlords denied finding jewellery box — Tenants received items September 14 — Dispute resolution officer with Residen- tial Tenancy Branch ordered landlords to pay $12,083.39 compensation to tenants for missing jewellery — Landlords brought application for judicial review — Application dismissed — Given officer’s finding that tenants had not abandoned premises, landlords did not have authority to hold or move tenants’ possessions, and therefore, landlords were bailees at common law and owed duty of care to tenants — Officer’s findings with respect to value of jewellery were not patently unreasonable nor did she exercise her discretion in arbitrarily determining value of jewellery, from 1997 receipt in Chinese without letterhead in Renminbi Yuan currency. Remedies –––– Damages — Valuation of damages — Measure of damages — Chat- tels — Miscellaneous –––– Parties entered into one-year residential tenancy agreement for house on January 14 (all dates 2009) — Tenants refused landlords’ request to obtain insurance for their unlicensed daycare at house — Landlords provided one month notice to end tenancy for cause on May 27, and ten day notice to end tenancy for unpaid rent on June 7 — On July 10, landlords obtained order of possession, requiring tenants to vacate within 48 hours of service of order — Landlords served tenants on July 11 as they were removing their belongings, but tenants refused to provide keys — Landlords attended July 13 to find locks changed, and tenants’ nanny stated they were having order reviewed, which was ultimately denied on July 16 — Landlords attended July 21, and nanny allegedly told them tenants had vacated — While attending July 22 to change locks, landlords discovered unlocked main floor window, and some of tenants’ possessions inside, which tenants later informed landlords that they would retrieve on July 23 — On July 28, landlords took inventory and photos of remaining items, including opening and photographing sealed cardboard box of kitchen items — Tenant alleged she had attended house on July 21 and put jewellery box into sealed cardboard box — Land- lords denied finding jewellery box — Tenants received items September 14 — Dispute resolution officer with Residential Tenancy Branch ordered landlords to pay $12,083.39 compensation to tenants for missing jewellery — Landlords brought application for judicial review — Application dismissed — Given officer’s finding that tenants had not abandoned premises, landlords did not have authority to hold or move tenants’ possessions, and therefore, landlords were bailees at common law and owed duty of care to tenants — Officer’s findings with respect to value of jewellery were not patently unreasonable nor did she exercise her discretion in arbitrarily determining value of jewellery, from 1997 receipt in Chinese without letterhead in Renminbi Yuan currency. Cases considered by R. Punnett J.: Baker v. Canada (Minister of Citizenship & Immigration) (1999), 1 Imm. L.R. (3d) 1, [1999] 2 S.C.R. 817, 14 Admin. L.R. (3d) 173, 174 D.L.R. (4th) 193, 1999 Car- swellNat 1124, 1999 CarswellNat 1125, 243 N.R. 22, [1999] S.C.J. No. 39 (S.C.C.) — considered Bello v. Ren (2009), 2009 CarswellBC 3146, 2009 BCSC 1598 (B.C. S.C.) — followed C.A.I.M.A.W., Local 14 v. Canadian Kenworth Co. (1989), (sub nom. C.A.I.M.A.W. v. Paccar of Canada Ltd.) 62 D.L.R. (4th) 437, (sub nom. C.A.I.M.A.W. v. Paccar of Canada Ltd.) 40 B.C.L.R. (2d) 1, 40 Admin. L.R. 181, (sub nom. Paccar of Canada Ltd. v. C.A.I.M.A.W., Local 14) 89 C.L.L.C. 14,050, (sub nom. C.A.I.M.A.W. v. Paccar of Canada Ltd.) [1989] 2 S.C.R. 983, 1989 CarswellBC 716, (sub nom. Fok v. British Columbia 141

Paccar of Canada Ltd. v. C.A.I.M.A.W., Local 14) 102 N.R. 1, (sub nom. Paccar of Canada Ltd., Canadian Kenworth Division v. C.A.I.M.A.W., Local 14) 1989 Car- swellBC 174, (sub nom. C.A.I.M.A.W. v. Paccar of Canada Ltd.) [1989] 6 W.W.R. 673, EYB 1989-66992, [1989] S.C.J. No. 107 (S.C.C.) — considered Canada (Attorney General) v. P.S.A.C. (1993), 93 C.L.L.C. 14,022, 150 N.R. 161, 101 D.L.R. (4th) 673, 11 Admin. L.R. (2d) 59, [1993] 1 S.C.R. 941, 1993 CarswellNat 805, 1993 CarswellNat 1379, EYB 1993-67289, [1993] S.C.J. No. 35 (S.C.C.) — considered Falc v. Mainstreet Equity Corp. (2009), 2009 CarswellBC 788, 2009 BCSC 410 (B.C. S.C.) — considered Hernandez v. Barrie (2007), 2007 CarswellBC 2967, 2007 BCSC 1771 (B.C. S.C. [In Chambers]) — considered Karbalaeiali v. British Columbia (Deputy Solicitor General) (2006), 42 Admin. L.R. (4th) 287, 2006 BCSC 13, 2006 CarswellBC 327, [2006] B.C.J. No. 295 (B.C. S.C.) — considered Manz v. British Columbia (Workers’ Compensation Appeal Tribunal) (2009), 82 Admin. L.R. (4th) 185, 2009 CarswellBC 639, 2009 BCCA 92, 91 B.C.L.R. (4th) 219, 450 W.A.C. 99, 267 B.C.A.C. 99, [2009] B.C.J. No. 464 (B.C. C.A.) — considered New Brunswick (Board of Management) v. Dunsmuir (2008), 372 N.R. 1, 69 Admin. L.R. (4th) 1, 69 Imm. L.R. (3d) 1, (sub nom. Dunsmuir v. New Brunswick) [2008] 1 S.C.R. 190, 844 A.P.R. 1, (sub nom. Dunsmuir v. New Brunswick) 2008 C.L.L.C. 220-020, D.T.E. 2008T-223, 329 N.B.R. (2d) 1, (sub nom. Dunsmuir v. New Bruns- wick) 170 L.A.C. (4th) 1, (sub nom. Dunsmuir v. New Brunswick) 291 D.L.R. (4th) 577, 2008 CarswellNB 124, 2008 CarswellNB 125, 2008 SCC 9, 64 C.C.E.L. (3d) 1, (sub nom. Dunsmuir v. New Brunswick) 95 L.C.R. 65, [2008] S.C.J. No. 9, [2008] A.C.S. No. 9 (S.C.C.) — followed Starbreak Enterprises Ltd., Re (2003), 2 Admin. L.R. (4th) 46, 2003 BCSC 1, 2003 Car- swellBC 300 (B.C. S.C.) — considered Tallarico v. British Columbia (Workers’ Compensation Appeal Tribunal) (2009), 82 Ad- min. L.R. (4th) 161, 2009 CarswellBC 99, 2009 BCSC 49 (B.C. S.C.) — considered Waters v. British Columbia (Director of Employment Standards) (2004), 2004 Car- swellBC 2800, 2004 BCSC 1570, 40 C.L.R. (3d) 84 (B.C. S.C.) — referred to Statutes considered: Administrative Tribunals Act, S.B.C. 2004, c. 45 Generally — referred to s. 58 — considered s. 58(2)(b) — considered s. 58(3) — considered Judicial Review Procedure Act, R.S.B.C. 1996, c. 241 s. 1 “record of the proceeding” — considered Residential Tenancy Act, S.B.C. 2002, c. 78 Generally — referred to s. 7 — considered s. 7(2) — considered s. 25 — referred to s. 57(2) — considered s. 78.1 [en. 2004, c. 45, s. 153] — considered 142 REAL PROPERTY REPORTS 99 R.P.R. (4th)

s. 84.1 [en. 2004, c. 45, s. 154] — considered Regulations considered: Residential Tenancy Act, S.B.C. 2002, c. 78 Residential Tenancy Regulation, B.C. Reg. 477/2003 s. 24 — considered s. 24(1) — considered s. 24(1)(a) — considered s. 24(2) — considered s. 25 — considered s. 30 — considered

APPLICATION by landlords for judicial review of decision of Dispute Resolution Of- ficer with Residential Tenancy Branch denying landlords’ claim for locksmith repairs and maintenance costs, and ordering landlords to pay $12,083.39 compensation to tenants for missing jewellery.

R. Punnett J.:

1 This is a judicial review of a decision of a dispute resolution officer under the Residential Tenancy Act. 2 On December 14, 2009, J. Yuen, a dispute resolution officer with the Resi- dential Tenancy Branch, ordered the petitioner landlords, Wai Shing Frederick Fok and Edith Hung Tai Yu, to pay compensation of $12,083.39 to their former tenants, the respondents Xiao Lie Yang and Paul Jeffrey Hurst, for the tenant Xiao Lie Yang’s missing jewellery. The decision was upheld on review under the Residential Tenancy Act. The landlords now seek a judicial review of Yuen’s order. The tenant Xiao Li Yang opposes the landlords’ application. The respondent dispute resolution officer J. Yuen takes no position in the proceeding.

Background 3 The landlords and the tenants entered into a residential tenancy agreement on January 14, 2009, respecting a house in Surrey, B.C. The agreement was for a fixed term of one year ending January 31, 2010. The rent was $2,100 per month payable on the first of each month. A security deposit of $1,050 was paid. 4 In March 2009, the landlords discovered that the tenants were running an unlicensed daycare at the home. Upon being advised of that the landlords’ insurer required that the single family insurance be amended with a resulting increase in premiums. The insurer also required that the tenants obtain a compre- hensive general liability insurance policy for at least $2,000,000 with the landlords as additional insureds. The tenants refused to obtain liability insurance. 5 The landlords sought assistance from the Residential Tenancy Office and as a result provided a one month notice to end tenancy for cause to the tenants on Fok v. British Columbia R. Punnett J. 143

May 27, 2009. On May 29, 2009, the tenants provided a cheque for $1,050 dated June 1, 2009, and a cheque for $1,050 dated June 14, 2009. 6 The landlords requested full payment of the June rent by June 1, 2009. The payment was not received and the landlords provided to the tenants a 10 day notice to end tenancy for unpaid rent or utilities on June 7, 2009. The tenant Hurst then stopped payment on the June 1, 2009 cheque. 7 On May 29, 2009, the tenants applied for a dispute resolution hearing to set aside the 1 month notice to end tenancy for cause and on June 24, 2009, the landlords applied for dispute resolution with respect to unpaid rent, loss of rental income, bank charges and an order for possession. 8 On July 10, 2009, the two applications were heard and an order of possession and a monetary award of $2,154.50 were made in favour of the landlords. The tenants were ordered to provide vacant possession within 48 hours of service of the order on them. 9 On July 11, 2009, the landlords were advised by a neighbour that the tenants were moving out. The landlords attended at the house and personally served the order. While at the house the landlords observed two moving company employees loading the tenants’ belongings into a truck. The tenants refused to provide the keys to the landlords. 10 The above facts are not disputed. The parties however differ with respect to what occurred after July 11, 2009. 11 On July 13, 2009, after the expiry of the 48 hour move out notice the landlords attended at the house. No one answered their knock and they allege that they discovered that the front and side door locks had been changed without their permission. The tenants deny changing the locks. Through the back window the landlords saw the tenants’ nanny inside. She advised that the tenants were filing for a review of the order. 12 On July 16, 2009, the tenants request for leave for review was denied and the original order of July 10, 2009, remained in force. The landlords received that decision on July 20, 2009. On that day the landlord Yu alleges she spoke to the tenant Yang and requested payment of the amount due and that the house keys and garage door opener be provided to the landlords or a bailiff would be called. This is not denied by the tenants. 13 On July 21, 2009, upon attending at the house, the landlords state they spoke to the nanny who informed them that she had been told by the tenants not to return to the house anymore and that the tenants had removed all of their possessions from the house. The tenants deny that all of their possessions had been removed. The nanny was available to testify at the hearing but neither party called upon her. 14 It is of note that the landlords chose not to seek confirmation from the tenants that they had vacated. 144 REAL PROPERTY REPORTS 99 R.P.R. (4th)

15 The landlords returned on July 22, 2009. They allege the house appeared to be vacant and unoccupied. No furniture was visible through the windows although there were some food items, dishes, baby toys and equipment visible. They called a locksmith who they claim discovered that a window on the main floor and two windows upstairs were open. Entry was gained without drilling the locks. All locks were then changed. Once inside some possessions of the tenants were discovered. The landlords did not touch them and left the house. As a result of the change of locks the tenants no longer had access to the house. The tenants deny that the windows were left unlocked. They deny changing the locks. 16 Later on July 22, 2009, the tenants advised the landlords, by phone and email, that there were valuables in the house. They stated they would attend on July 23, 2009, to retrieve their possessions. On July 23, 2009, the tenants applied for a further dispute resolution, this time seeking an order for possession of the house. 17 On July 24, 2009 the landlords sought directions from the Residential Ten- ancy Office. They did not return to the house between July 23, 2009, and July 27, 2009. On July 28, 2009, they attended and took an inventory and pictures of what remained in the house. This was done in the presence of their real estate agent. Among the possessions was a sealed cardboard box which, for unex- plained reasons, they opened. They state it contained kitchen items which they photographed. Tenant Yang stated that she returned to the house on the evening of July 21, 2009, and put a jewellery box containing several items of jewellery into the sealed cardboard box. The landlords deny finding the jewellery box. 18 The landlords state that all they found in the house that belonged to the tenants were a baby bed, a playpen, toys, kitchenware, food items, empty jars, a monitor, a 10 inch TV set and other items of insignificant value. They estimated the value at $194.00. The tenants dispute this value. Despite repeated requests from the tenants the landlords refused to permit them to retrieve their possessions. They did not receive them until September 14, 2009.

Issues 19 The landlords raise the following issues: a) What is the standard of review? b) Did Ms. Yuen make a reviewable error in dismissing the landlords’ claim against the tenants for the cost of hiring a locksmith and for the cost of repairing and cleaning the house? c) Did Ms. Yuen act without jurisdiction in allowing the tenants’ claim for the jewellery? d) Did Ms. Yuen fail to observe principals of natural justice or procedural fairness such that the landlords were denied a fair hearing? Fok v. British Columbia R. Punnett J. 145

e) Did Ms. Yuen make a reviewable error in determining that the tenants met all elements of the test for damage and loss under the Residential Tenancy Act? 20 The tenants submit the thrust of the landlords’ arguments are that the findings of fact by Ms. Yuen are reviewable. They state that as long as such findings are not patently unreasonable they are not reviewable.

Law What is the Standard of Review? 21 The Residential Tenancy Act, S.B.C. 2002, c. 78 incorporates the Adminis- trative Tribunals Act, S.B.C. 2004, c. 45. Section 78.1 of the Residential Ten- ancy Act provides that s. 58 of the Administrative Tribunals Act, S.B.C. 2004, c. 45, applies to the director, or in this case, the dispute resolution officer, as if the director was a tribunal. 22 Section 58 of the Administrative Tribunals Act provides: Standard of review if tribunal’s enabling Act has privative clause 58 (1) If the tribunal’s enabling Act contains a privative clause, relative to the courts the tribunal must be considered to be an expert tribunal in relation to all matters over which it has exclusive jurisdiction. (2) In a judicial review proceeding relating to expert tribunals under subsection (1) (a) a finding of fact or law or an exercise of discretion by the tribunal in respect of a matter over which it has exclusive jurisdiction under a privative clause must not be interfered with unless it is patently unreasonable, (b) questions about the application of common law rules of natural justice and procedural fairness must be decided having regard to whether, in all of the circumstances, the tribunal acted fairly, and (c) for all matters other than those identified in paragraphs (a) and (b), the standard of review to be applied to the tribunal’s decision is correctness. (3) For the purposes of subsection (2) (a), a discretionary decision is patently unreasonable if the discretion (a) is exercised arbitrarily or in bad faith, (b) is exercised for an improper purpose, (c) is based entirely or predominantly on irrelevant factors, or (d) fails to take statutory requirements into account. 146 REAL PROPERTY REPORTS 99 R.P.R. (4th)

23 Section 84.1 of the Residential Tenancy Act contains a privative clause. Thus, s. 58 of the Administrative Tribunals Act applies in determining the standard of review: Exclusive Jurisdiction of the Director 84.1(1) The director has exclusive jurisdiction to inquire into, hear and determine all those matters and questions of fact, law and discretion arising or required to be determined in a dispute resolution proceeding or in a review under Division 2 of this Part and to make any order permitted to be made. (2) A decision or order of the director on a matter in respect of which the director has exclusive jurisdiction is final and conclusive and is not open to question or review in any court. 24 If the issue is one of fact or law (relating to issues that the privative clause gives exclusive jurisdiction over) then the standard of review is patent unreasonableness as defined at common law. However, if the matter is one of discretion then the determination of “patently unreasonable” must be as defined by s. 58(3). If the matters relate to issues of natural justice and procedural fairness then the test is whether the tribunal acted fairly in all the circumstances. Finally, all remaining matters including jurisdiction are reviewed on the standard of “correctness”. 25 In Manz v. British Columbia (Workers’ Compensation Appeal Tribunal), 2009 BCCA 92, 91 B.C.L.R. (4th) 219 (B.C. C.A.), the Court of Appeal confirmed, as a result of the Supreme Court of Canada decision in New Brunswick (Board of Management) v. Dunsmuir, 2008 SCC 9, [2008] 1 S.C.R. 190 (S.C.C.) that although judicial review at common law no longer invokes the standard of patently unreasonable, the standard of patently unreasonable still applies under the Administrative Tribunals Act. 26 The application of s. 58 therefore requires the court to firstly determine whether a decision is one that involves findings of fact or law or is an exercise in discretion as that determination establishes whether the standard is “patently unreasonable”, “fairness” or “correctness”. 27 In Canada (Attorney General) v. P.S.A.C., [1993] 1 S.C.R. 941 (S.C.C.) at paras. 44-46, [1993] S.C.J. No. 35 (S.C.C.) the Supreme Court of Canada said: What Constitutes a “Patently Unreasonable” Decision?” 44 It is said that it is difficult to know what “patently unreasonable” means. What is patently unreasonable to one judge may be emi- nently reasonable to another. Yet any test can only be defined by words, the building blocks of all reasons. Obviously, the patently unreasonable test sets a high standard of review. In the Shorter Ox- ford English Dictionary “patently”, an adverb, is defined as “openly, evidently, clearly”. “Unreasonable” is defined as “[n]ot having the faculty of reason; irrational ... . Not acting in accordance with reason or good sense”. Thus, based on the dictionary definition of the words Fok v. British Columbia R. Punnett J. 147

“patently unreasonable”, it is apparent that if the decision the Board reached, acting within its jurisdiction, is not clearly irrational, that is to say evidently not in accordance with reason, then it cannot be said that there was a loss of jurisdiction. This is clearly a very strict test. 45 In CAIMAW v. Paccar of Canada Ltd., [1989] 2 S.C.R. 983, La Forest J. (Dickson C.J. concurring) laid out the strict test of review, at p. 1003: Where, as here, an administrative tribunal is protected by a privative clause, this Court has indicated that it will only review the decision of the Board if that Board has either made an error in interpreting the provisions con- ferring jurisdiction on it, or has exceeded its jurisdiction by making a patently unreasonable error of law in the performance of its function. 46 It is not enough that the decision of the Board is wrong in the eyes of the court; it must, in order to be patently unreasonable, be found by the court to be clearly irrational. 28 A useful analysis of the distinction between an unreasonable decision and a patently unreasonable decision was made by Satanov J. in Falc v. Mainstreet Equity Corp., 2009 BCSC 410, 176 A.C.W.S. (3d) 845 (B.C. S.C.), at para. 9: [9] In Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748, 144 D.L.R. (4th) 1, Iacobucci J. described (at paras. 56-57) an unreasonable decision as one that was not supported by any reasons that could stand up to a probing examination. He explained that the difference between patent unreasonableness and reasonableness is the “immediacy” or “obviousness” of the defect in the tribunal’s decision. The defect will appear on the face of a patently unreasonable decision, but where the decision is merely unreasonable, it will take a searching review to find the defect. This analysis remains the law with respect to the standard of patent unreasonableness in s. 58 of the Administrative Tribunals Act, despite the Supreme Court of Canada’s fusion of the two standards in Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, (Bagri v. Workers’ Compensation Appeal Tribunal, 2009 BCSC 300, and Tallarico v. Workers’ Compensation Appeal Tribunal, 2009 BCSC 49). 29 In Tallarico v. British Columbia (Workers’ Compensation Appeal Tribunal), 2009 BCSC 49, 174 A.C.W.S. (3d) 298 (B.C. S.C.), at paras 52 and 55, Goepel J. stated that: [52] The petitioner must show that upon review of the evidence, there is no rational basis for the conclusion reached by the WCAT. In applying the standard of patent unreasonableness, I am not entitled to weigh and assess the evidence: Basura v. British Columbia (Workers Compensation Board), 2005 BCSC 407, at para. 34. 148 REAL PROPERTY REPORTS 99 R.P.R. (4th)

[55] The issue for the court on this application is whether there is some evidence in the record on which such findings could be made. Suffi- ciency or insufficiency of that evidence is not a matter for this court to consider: Speckling v. British Columbia (Workers’ Compensation Board), 2005 BCCA 80 at para. 33, 46 B.C.L.R. (4th) 77. 30 In C.A.I.M.A.W., Local 14 v. Canadian Kenworth Co., [1989] 2 S.C.R. 983 (S.C.C.), La Forest J. said at para. 19: ... The tribunal has the right to make errors, even serious ones, provided it does not act in a manner “so patently unreasonable that its construction cannot be rationally supported by the relevant legislation and demands interven- tion by the court upon review” (p. 237). The test for review is a “severe test”; see Blanchard v. Control Data Canada Ltd., [1984] 2 S.C.R. 476, at p. 493. This restricted scope of review requires the courts to adopt a posture of deference to the decisions of the tribunal. ... Mere disagreement with the result arrived at by the tribunal does not make that result “patently unreasonable”. The courts must be careful to focus their inquiry on the existence of a rational basis for the decision of the tribunal, and not on their agreement with it. The emphasis should be not so much on what result the tribunal has arrived at, but on how the tribunal arrived at that result. Privative clauses ... are permissible exercises of legislative authority and, to the extent that they restrict the scope of curial review within their constitutional jurisdiction, the Court should respect that limitation and defer to the Board.

What Evidence Can be Relied Upon? 31 The issue of what evidence this Court can rely on must be addressed before considering what is the nature of the matters in dispute. The application for judicial review is based on the record before the tribunal. The tribunal’s record of proceedings is reviewed to determine whether the tribunal acted within its jurisdiction. 32 The Judicial Review Procedure Act, R.S.B.C. 1996, c. 241, s. 1 defines “record of the proceeding” as follows: “record of the proceeding” includes the following: (a) a document by which the proceeding is commenced; (b) a notice of a hearing in the proceeding; (c) an intermediate order made by the tribunal; (d) a document produced in evidence at a hearing before the tribunal, subject to any limitation expressly imposed by any other enactment on the extent to which or the purpose for which a document may be used in evidence in a proceeding; (e) a transcript, if any, of the oral evidence given at a hearing; (f) the decision of the tribunal and any reasons given by it; Fok v. British Columbia R. Punnett J. 149

33 The hearing before the rental dispute officer was not recorded or transcribed. The record in this case consists of the reasons of Ms. Yuen and those documents entered at the hearing. 34 However, in addition to the reasons, the affidavits of Edith Hung Tai Yu for the petitioners and Xiao Li Yang the respondent were filed. The affidavits contain information respecting the hearing however there is a dispute over what evidence was before Ms. Yuen. There is also material in the affidavits which is contrary to the findings of Ms. Yuen. Given the definition of “record of the proceeding” can this court consider material that was either not placed before the officer or it is disputed whether or not it was? 35 In Karbalaeiali v. British Columbia (Deputy Solicitor General), 2006 BCSC 13, 146 A.C.W.S. (3d) 452 (B.C. S.C.) at paras. 51-54 Morrison J. stated: [51] With respect to the need for evidence from Mr. Eng, the respondents argue that a court sitting in judicial review of an administrative decision should not consider any evidence except that found in the administrative record (McCall Bros. Funeral Directors Ltd. v. British Columbia (Ministry of Labour), 2000 BCSC 1507 at para. 5). Accordingly, the court ought not to order a trial of the proceedings to obtain additional evidence that was not before the administrative decision-maker. [52] This general rule arises from the limited role of the court in a judicial review. As Romilly J. explained in Waters v. British Columbia (Director of Employment Standards) (2004), 40 C.L.R. (3d) 84, 2004 BCSC 1570 at para. 25: It is not a question of whether the Court would reach the same conclusion on the evidence, but rather whether there is any evidence to support the conclusion of the decision maker. In assessing this evidence it is also important to note that judicial review is concerned with assessing the evidence that was before the tribunal and not additional evidence that is tendered after the fact. [53] However, the rule against admitting fresh evidence in a judicial review is not absolute. In Evans Forest Products Ltd. v. British Columbia (Chief Forester), [1995] B.C.J. No. 729 (QL), at para. 4, [1995] B.C.W.L.D. No. 965 (S.C.), Esson C.J.S.C. (as he then was) stated: An applicant on judicial review is not necessarily confined to putting before the court that material which formed the record before the tribunal. Extrinsic evidence may be admissible to show lack of jurisdiction or denial of natural justice. Culhane v. Attorney General of British Columbia (1980), 18 B.C.L.R. 239 (per Craig J.A. at p. 248); Perepolkin v. Superintendent of Child 150 REAL PROPERTY REPORTS 99 R.P.R. (4th)

Welfare (1957), 26 C.R. 97, 21 W.W.R. 625, 11 D.L.R. (2d) 245 (B.C.C.A.). [54] Only extrinsic evidence relevant to these two issues may be admitted (Friends of Cypress Provincial Park Society v. British Columbia (Minister of Environment, Lands and Parks) (2000), 33 C.E.L.R. (N.S.) 276, 2000 BCSC 466 at paras. 4-6). 36 As the material filed by the landlords includes facts that could have been, but were not provided to Ms. Yuen, such facts are not admissible on this review. Those facts that are disputed as having been before Ms. Yuen are also not admissible. The affidavit material filed is only admissible in so far as the issues of jurisdiction and natural justice are addressed. 37 With these principles in mind the issues raised by the landlords can be addressed.

Did Ms. Yuen Make a Reviewable Error in Dismissing the Landlords’ Claim Against the Tenants for the Costs of the Locksmith and of Repairing and Cleaning the Home? 38 Ms. Yuen denied the landlords’ claim on the basis that they did not prove that the loss was attributable to the actions of the tenants in violation of the tenancy agreement or the Residential Tenancy Act. She was also not satisfied with the evidence of the actual amount required to compensate for the losses claimed. She found that the invoices submitted by the landlords for wall repairs, garbage disposal and cleaning failed to “contain a detailed breakdown to indicate what was done, how many hours of labour and the hourly rate, nor material costs”. 39 Additionally, Ms. Yuen notes that despite having an order for possession the landlords failed to obtain a writ of possession. Section 57(2) of the Residential Tenancy Act states: The landlord must not take actual possession of a rental unit that is occupied by an overholding tenant unless the landlord has a writ of possession issued under the Supreme Court Civil Rules. 40 Ms. Yuen held that, as a result of the landlords’ failure to obtain a writ of possession, they had no legal right to change the locks. Ms. Yuen found that the landlords denied the tenants further access to the premises despite their request for access made on the same day as the locks were changed. 41 Ms. Yuen further determined the premises were not abandoned as the tenants were not yet completely moved out. She held that when the landlords changed the locks they effectively locked the tenants out and prevented them from cleaning the premises. 42 Ms. Yuen made no mention in her decision of the tenants changing the locks, something the tenants deny. Rather, she found that the landlords did not Fok v. British Columbia R. Punnett J. 151

have a copy of the keys for the unit. She states that the landlords’ evidence was that the tenants had vacated but failed to return the keys. 43 The landlords submit that these conclusions are patently unreasonable findings of fact or law. They allege the tenants were not permitted to change the locks without permission from the landlords. They rely on Residential Tenancy Act: A Guide for Landlords & Tenants in British Columbia which states: 10.7.2 Tenants Changing Locks A tenant must not change locks on their rental unit without the landlord’s written permission...... When a tenant changes the locks without proper approval, the landlord can give written notice that the tenant has contravened the law and must correct the situation within a specific but reasonable period. The tenant must change the locks back and pay for the work done or give the landlord keys to the new locks. ... 44 They also state the landlords were entitled to consider that the tenants had abandoned the premises by July 22, 2009, because their observations indicated that all possessions had been removed and they were told by the mover and the nanny that all of the possessions had been removed. 45 They further submit the tenants could have cleaned the premises between July 11, 2009, when the moving company removed their possessions and July 22, 2009. 46 The landlords submit that Ms. Yuen made an unreasonable finding of fact and law when she rejected their submissions that the tenants abandoned the premises and that they changed the locks contrary to the Residential Tenancy Act. The landlords further submit that Ms. Yuen made an unreasonable finding of fact and law when she found that that they, the landlords, erroneously assumed that the tenants had abandoned the premises. 47 Ms. Yuen’s finding that the premises were not abandoned was based on Ms. Yuen’s assessment of the evidence and testimony of the parties. 48 As was noted by Smith, J. in Hernandez v. Barrie, 2007 BCSC 1771 (B.C. S.C. [In Chambers]): [13] In this case, the arbitrator heard evidence from one tenant and was given letters to the landlord from other tenants complaining about noise and disturbance. The petitioner challenges the credibility and reliability of some of that evidence. This is a question of fact within the arbitrator’s exclusive jurisdiction. Whatever definition one uses for the “patently unreasonable” test, it clearly does not permit the Court to substitute its own view of the evidence that was before the arbitrator. As long as there was some evidence on which the arbitrator could base her final decision, it cannot be said the result is patently unreasonable, and the Court cannot interfere. 152 REAL PROPERTY REPORTS 99 R.P.R. (4th)

49 There was evidence before Ms. Yuen that she was entitled to accept or reject and she did so. It cannot be said the result is patently unreasonable. As a result, Ms. Yuen’s decision respecting the locksmith repairs and maintenance costs is not a reviewable error.

Did Ms. Yuen Act Without Jurisdiction in Allowing the Tenants’ Claim for the Jewellery Against the Landlords? 50 The landlords submit the respondents’ claim for the lost jewellery was dealt with in the dispute resolution heard on September 11, 2009 and as a result Ms. Yuen had no jurisdiction to allow the claim for the jewellery. They state the issue is res judicata. They submit that the standard of review is that of correctness. The tenants submit that the existence of the jewellery was not an issue at the September 11, 2009, hearing. They further argue that no true question of jurisdiction arises. As a result they do not accept that the standard of review is correctness. 51 The landlords claim that during the September 11, 2009, hearing the tenants testified with respect to the jewellery and were questioned by the hearing officer as to whether their claim was for an order for possession of the unit or possession of the jewellery and that the tenants claimed their application was for the release of the jewellery. This however, is denied by the tenants and is inconsistent with the order of September 11, 2009. The September 11, 2009, order held that the issue of possession of the unit was res judicata as it was decided at the July 10, 2009, hearing. The officer then noted that there was an issue regarding possessions but that the parties had agreed to the tenants retrieving their possessions on September 14, 2009. As a result the officer did not address nor make any findings with respect to the issue of the possessions. 52 In addition the decision of September 11, 2009, notes that there was no application by the respondents in September for the return of property nor was there a monetary claim. The application clearly referred to taking possession of the unit. The fact that in the details of the dispute they referred to their possessions including the jewellery does not change the nature of the application. The application was for possession of the unit only. 53 Ms. Yuen reviewed the September 11, 2009, decision and decided that it did not deal with the matter of the jewellery and therefore the issue was not res judicata. Ms. Yuen accepted that an agreement was reached during that proceeding that the tenants’ possessions would be released to them. There was no finding as to what those possessions were. She also accepted the evidence of the tenants that they did not discover the jewellery was missing until they retrieved their remaining possessions on September 14, 2009. 54 The findings of Ms. Yuen were findings of fact or a mixed finding of fact and law. This is not an issue going to jurisdiction as there was no error in finding that the September 11, 2009, hearing did not decide the issue of the jewelry. Fok v. British Columbia R. Punnett J. 153

There was, quite simply no finding made respecting the existence of the jewelry, what items were involved, their value nor any claim for compensation. The issue of res judicata did not arise as the issue of the jewelry was not before the Sep- tember 11, 2009, dispute resolution officer. In my view the decision of Ms. Yuen was correct.

Did Ms. Yuen Fail to Observe Principles of Natural Justice or Procedural Fairness, Thus Denying the Petitioners a Fair Hearing? 55 Section 58(2)(b) of the Administrative Tribunals Act sets the standard of review for determining questions of procedural fairness and whether, in all the circumstances, the tribunal acted fairly. 56 The purpose of participatory rights protected by the duty of procedural fairness is to ensure that administrative decisions are made in a fair and open process with an opportunity for those affected to put forward their views and evidence fully and have them considered by the decision-maker. The fundamental procedural right at issue in these proceedings is the individual’s opportunity to be heard and to make responsive submissions to the administrative decision- maker. (Baker v. Canada (Minister of Citizenship & Immigration), [1999] 2 S.C.R. 817 (S.C.C.) at para. 22, (1999), 174 D.L.R. (4th) 193 (S.C.C.)). 57 In Baker, L’Heureux-Dub´e J. writing for the majority set out a non-exhaus- tive list of criteria for determining the level of procedural fairness owed in respect of a particular administrative decision (paras. 22-28). a) The nature of the decision being made and the process followed in making it; b) Whether there is an internal appeal procedure within the statutory scheme; and c) The importance of the decision to the individual affected by it. 58 The hearing in this matter is adjudicative, there was an internal appeal and the decision was important to the tenants and the landlords. A high degree of procedural fairness was required. 59 The landlords argue that Ms. Yuen should have offered them an adjournment in order to provide her with evidence submitted in prior proceedings. This arose when Ms Yuen noted that in accordance with s. 25 of the Residential Tenancy Act, the landlords did not submit the written inventory of items left by the tenants at the rental unit. The landlords asserted at the hearing that they did not provide the written inventory as evidence at the December hearing because they previously submitted the written inventory for the dispute resolution that was heard on September 11, 2009. The landlords claim they were not aware they needed to resubmit the written inventory at the December hearing. The landlords further contend that during the prior proceedings they submitted many pages of evidence to the Residential Tenancy Office. They allegedly asked Ms. Yuen whether they needed to resubmit all the evidence again. The landlords argue that 154 REAL PROPERTY REPORTS 99 R.P.R. (4th)

once they were informed that resubmission was required, Ms. Yuen should have offered to adjourn the hearing in order to permit them to resubmit the evidence. 60 Ms. Yuen stated that the landlords testified that the inventory list was submitted into evidence for the previous hearing and that the tenants denied receiving it. She does not mention any request by the landlords for an adjournment, nor do they. It is not alleged that Ms. Yuen improperly denied an adjournment. There was simply no such request. The landlords’ complaint appears to be that Ms. Yuen did not offer to adjourn the matter on her own. They allege the failure of Ms. Yuen to adjourn the hearing and ask that they resubmit their material was a failure to observe principles of natural justice and procedural fairness. 61 The notice sent by the Residential Tenancy Branch to the landlords prior to the hearing clearly provided that each party must provide to the other and the branch a copy of all of their evidence. It also directed them to the rules of procedure that would apply. 62 The notice and the rules are clear that the parties must attend the hearing with their evidence and witnesses and specifically set out deadlines by which time the parties must provide a copy of their evidence for the hearing. The dispute resolution rules of procedure in particular make clear that the parties are obligated to produce at the hearing all evidence and witnesses. They include instructions on how to apply for adjournments. 63 The landlords do not say that they failed to receive the notice or the information that the dispute resolution rules of procedure would apply. On previous hearings between them and the tenants they had tendered evidence. They were therefore aware of the procedure and the evidentiary requirements. 64 In my view it is not incumbent on the dispute resolution officer to raise the issue of an adjournment. Ms. Yuen was entitled to proceed on the basis that the parties had been notified of the rules and what was required for the hearing. As a result they had the opportunity to “put forward their views and evidence fully and have them considered by the decision-maker “(Baker). Accordingly, Ms. Yuen did not act unfairly.

Did Ms. Yuen Make a Reviewable Error in Determining that the Tenant Yang Proved the Loss of the Jewellery? 65 The Residential Tenancy Regulation (B.C. Reg. 249/2008) provides: 24 (1) A landlord may consider that a tenant has abandoned personal property if (a) the tenant leaves the personal property on residential property that he or she has vacated after the tenancy agreement has ended, or Fok v. British Columbia R. Punnett J. 155

(b) subject to subsection (2), the tenant leaves the personal property on residential property (i) that, for a continuous period of one month, the tenant has not ordinarily occupied and for which he or she has not paid rent, or (ii) from which the tenant has removed substantially all of his or her personal property. (2) The landlord is entitled to consider the circumstances described in paragraph (1) (b) as abandonment only if (a) the landlord receives an express oral or written notice of the tenant’s intention not to return to the residential property, or (b) the circumstances surrounding the giving up of the rental unit are such that the tenant could not reasonably be expected to return to the residential property. (3) If personal property is abandoned as described in subsections (1) and (2), the landlord may remove the personal property from the residential property, and on removal must deal with it in accordance with this Part. (4) Subsection (3) does not apply if a landlord and tenant have made an express agreement to the contrary respecting the storage of personal property. Landlord’s obligations 25(1) The landlord must (a) store the tenant’s personal property in a safe place and manner for a period of not less than 60 days following the date of removal, (b) keep a written inventory of the property, (c) keep particulars of the disposition of the property for 2 years following the date of disposition, and (d) advise a tenant or a tenant’s representative who requests the information either that the property is stored or that it has been disposed of. (2) Despite paragraph (1) (a), the landlord may dispose of the property in a commercially reasonable manner if the landlord reasonably be- lieves that (a) the property has a total market value of less than $500, (b) the cost of removing, storing and selling the property would be more than the proceeds of its sale, or 156 REAL PROPERTY REPORTS 99 R.P.R. (4th)

(c) the storage of the property would be unsanitary or unsafe. (3) A court may, on application, determine the value of the property for the purposes of subsection (2). 66 Ms. Yuen accepted tenant Yang’s evidence that she owned the jewellery and that it was in the rental unit along with other possessions. In doing so, she preferred the evidence of the tenant Yang over that of the landlords. The landlords challenge Ms. Yuen’s findings saying it was not reasonable for the tenant to return to the rental unit and leave the jewellery there particularly given she had moved almost all of her possessions and left the unit unsecured by leaving the windows open. They also challenge the validity of the receipts for the jewellery stating they lack addresses and store information. They submit that Ms. Yuen’s application of the law relating to proof of loss of personal property was patently unreasonable in her determination that the tenants met the burden of proof with respect to the loss of the jewellery. Alternatively, they submit that she exercised her discretion arbitrarily. 67 In my opinion there was evidence upon which Ms. Yuen could make the findings that she did. She heard the parties, assessed their credibility and reached her conclusions. It is not the role of this Court on a judicial review to determine if it would reach a different conclusion on the evidence. The role of the court is to determine if there was any evidence to support the conclusion of the decision makers. See: Waters v. British Columbia (Director of Employment Standards), 2004 BCSC 1570, 40 C.L.R. (3d) 84 (B.C. S.C.) at para 25. It may very well be that this Court would have come to a different conclusion. That however is not the test.

Did Ms. Yuen Make a Reviewable Error in Determining that Tenant Yang’s Loss Happened Solely because of the Respondents’ Violation of the Residential Tenancy Legislation? 68 Ms. Yuen addressed this issue as follows: Section 24(1) of the Residential Tenancy Regulation, (the Regulation), states that a landlord may only consider that a tenant has abandoned personal property if (a) the tenant leaves the personal property on residential property that he or she has vacated after the tenancy agreement has ended, or leaves personal property in the rental unit that the tenant has not occupied for a continuous period of one month and for which he or she has not paid rent, or from which the tenant has removed substantially all of his or her personal property. However, section 24(2) states that a landlord is not entitled to consider the above circumstances in section 24(1) [as abandonment] unless the landlord has received an express oral or written notice of the tenant’s intention not to return to the residential property, or there is some indication that the tenant could not reasonably be expected to return to the residential property. Fok v. British Columbia R. Punnett J. 157

In this instance I find that, while the landlord concluded that the property was abandoned, this was not a reasonable presumption. The tenant did not provide an express written or oral notice that they would not be returning. In fact the tenant was impeded from removing the last of their property by the landlord’s actions. 69 The landlords submit that Ms. Yuen made a patently unreasonable interpretation of the law. Sections 24(1) and 24(2) of the Regulation read: 24 (1) A landlord may consider that a tenant has abandoned personal property if (a) the tenant leaves the personal property on residential property that he or she has vacated after the tenancy agreement has ended, or (b) subject to subsection (2), the tenant leaves the personal property on residential property (i) that, for a continuous period of one month, the tenant has not ordinarily occupied and for which he or she has not paid rent, or (ii) from which the tenant has removed substantially all of his or her personal property. (2) The landlord is entitled to consider the circumstances described in paragraph (1) (b) as abandonment only if (a) the landlord receives an express oral or written notice of the tenant’s intention not to return to the residential property, or (b) the circumstances surrounding the giving up of the rental unit are such that the tenant could not reasonably be expected to return to the residential property. 70 The landlords submit that Ms. Yuen fell into error when she stated that “section 24(2) states that a landlord is not entitled to consider the above circumstances in section 24(1) [as abandoned] unless ...”. They state this was a patently unreasonable interpretation as the conditions set out in s. 24(2) are not precondi- tions to the landlord’s entitlement to consider the circumstances in s. 24(1)(a) as abandonment. This is relevant they say because the order of July 10, 2009, granted the landlords an order for possession and as a result the tenants were conclusively deemed to have accepted the end of their tenancy on June 17, 2009. The order and the circumstances observed by the landlords mean, they say, that the tenants had vacated the rental unit after the end of the tenancy agreement as described in s. 24(1)(a). 158 REAL PROPERTY REPORTS 99 R.P.R. (4th)

71 While the landlords are correct in their reading of s. 24(1) that the tenancy had ended that does not assist them in the face of the factual finding of Ms. Yuen that the unit had not been vacated. Ms. Yuen specifically stated: I find that the tenant had advised the landlord that they would be finishing up the move on July 22, 2009 and after the change of locks had sent an email to the landlord objecting to being locked out and confirming that they were not finished moving their possessions. I find that the landlord knew or should have known that the tenant’s possessions were not abandoned and would be retrieved by the tenant. 72 As a result, Ms. Yuen’s error in referring to s. 24(2) as applicable to s. 24(1)(a) does not change the facts she found in making her decision, facts which have not been held to be patently unreasonable.

Was Ms. Yuen’s Finding that the Landlords Failed to Comply with Sections 25 and 30 of the Regulation in Handling the Possessions Left Behind by the Tenants Patently Unreasonable? 73 Sections 25 and 30 of the Regulation reads: Landlord’s obligations 25(1) The landlord must (a) store the tenant’s personal property in a safe place and manner for a period of not less than 60 days following the date of removal, (b) keep a written inventory of the property, (c) keep particulars of the disposition of the property for 2 years following the date of disposition, and (d) advise a tenant or a tenant’s representative who requests the information either that the property is stored or that it has been disposed of. (2) Despite paragraph (1) (a), the landlord may dispose of the property in a commercially reasonable manner if the landlord reasonably be- lieves that (a) the property has a total market value of less than $500, (b) the cost of removing, storing and selling the property would be more than the proceeds of its sale, or (c) the storage of the property would be unsanitary or unsafe. (3) A court may, on application, determine the value of the property for the purposes of subsection (2). Fok v. British Columbia R. Punnett J. 159

Landlord’s duty of care 30 When dealing with a tenant’s personal property under this Part, a landlord must exercise reasonable care and caution required by the nature of the property and the circumstances to ensure that the property does not deteriorate and is not damaged, lost or stolen as a result of an inappropriate method of removal or an unsuitable place of storage. 74 The landlords submit that they did comply with sections 25 and 30 of the Regulations by preparing an inventory list and photographing the items in the presence of a witness and then storing them in the rental unit. They returned the possessions to the tenants on September 14, 2009. 75 Ms. Yuen found that the property was not abandoned. As a result s. 25 does not apply. However, she did determine that if the property was genuinely abandoned the landlords were required to comply with s. 25 of the Regulations. She held that the landlords failed to meet the requirements of the section by not sub- mitting the inventory at the hearing. That failure was due to their misunderstand- ing of the procedure. In addition, Ms. Yuen found that the landlords retained the possessions and refused to release them to the tenant in a timely manner. Once the possessions were returned, the jewellery was missing. 76 Ms. Yuen heard the parties and satisfied herself that the tenant Yang left the jewellery in the rental unit, that the landlords improperly entered the unit and that they retained possession of the tenant’s jewellery. Since she accepted the existence of the jewellery and its placement in the rental unit, her conclusion that the landlords failed to comply with ss. 25 and 30 is not patently unreasonable.

Did Ms Yuen Make a Reviewable Error in Determining that there was Verification of the Amount Required to Compensate the Tenants for the Loss of Jewellery that they Claimed? 77 Given her finding that the tenant had not abandoned the premises the landlords did not have authority to hold or move the tenant’s possessions. As a result the landlords were bailees at common law and owed a duty of care to Ms. Yang. (Bello v. Ren, 2009 BCSC 1598 (B.C. S.C.), at para. 15). 78 Ms. Yuen stated that the test of proof of damage and loss claims recoverable pursuant to s. 7 of the Residential Tenancy Act required that the following com- ponents be satisfied: a) Proof that the damage or loss exists; b) Proof that this damage or loss happened solely because of the actions or neglect of the [petitioner] in violation of the Act or agreement; c) Verification of the actual amount required to compensate for the claimed loss or to rectify the damage; 160 REAL PROPERTY REPORTS 99 R.P.R. (4th)

d) Proof that the claimant followed section 7(2) of the Act by taking steps to mitigate or minimize the loss or damage. 79 She accepted that the jewellery consisted of a diamond ring, a gold necklace and a diamond necklace which were a gift from the respondent’s parent. She accepted the receipts tendered attesting to the value. 80 The receipts appear to be in Chinese, which has been translated to English, and date from 1997. They are in the form of a simple receipt and lack any store letterhead or other identification. The landlords criticize the proof of value on the basis that the receipts are in Renminbi Yuan and the tenant failed to document the exchange rate. Ms. Yuen determined the values in Canadian funds, presumably on the evidence of the tenant. The landlords do not state that the values are wrong, simply that the evidence was lacking. 81 Ms. Yuen accepted the receipts as valid on the basis of the receipts and the evidence of the tenant Yang. Ms. Yang faced a difficult task establishing the value of the missing items of jewellery given they were missing. In Bello, Fen- lon J. dealt with a situation where a landlord had unlawfully seized and disposed of the tenant’s property. In reviewing the applicable standard for proof of damages she stated that: [16] The principle of “restitutio in integrum” governs damages for breach of a baliee’s duty of care at common law. In Ashton v. Strata Corp. VR524, [1999] B.C.J. No. 2429 (Prov. Ct.), a case of breach of bailment for reward, Dhillon Prov. Ct. J. wrote: [49] The underlying principle in awarding damages is restitutio in integrum - to place the injured Party in the position he was in before the damage occurred, as best as can be done. In determining the proper measure of damages, the award must be reasonable both to the plaintiff and to the Defendant. [50] The assessment of damages is a question of fact and based on the evidence, with the onus on the Claimant to prove the value of his loss on a balance of probabilities. [17] All circumstances should be taken into account in arriving at a value for the lost goods, as set out in Hislop Estates v. Western Oil Services Ltd., [1978] 2 W.W.R. 632 (B.C.S.C.): [24] The principles which I refer to are to be found in a leading decision of the Supreme Court of Canada in Can. Nat. Fire Ins. Co. v. Colonsay Hotel Co., [1923] S.C.R. 688, [1923] 2 W.W.R. 1170, [1923] 3 D.L.R. 1001. This case establishes that the measure of the value of a loss to property is not necessarily its “replacement value” or its “market value”, but rather its “ac- Fok v. British Columbia R. Punnett J. 161

tual value”: see Anglin J. at p. 694. This point may be stated in another way as the “pecuniary loss” suffered by the plaintiff as a result of the destruction of a building: see Matergio v. Can. Accident & Fire Assur. Co., 58 N.S.R. 415, [1926] 1 D.L.R. 1002 (C.A.), applying the Colonsay Hotel decision, supra. In Ziola v. Co- op. Fire and Casualty Co., [1976] 6 W.W.R. 159, [1977] I.L.R. 2838 (Sask.), Disbery J. said that neither replacement cost less depreciation nor market value is a conclusive test for finding “actual cash value” and, while such evidence was admissible, the values so arrived at were to be considered along with all other evidence tending to show “actual cash value”. [25] Other decisions indicate that the court is not confined to replacement cost or market value but rather is at liberty to use the most appropriate indications of value having regard to all the circumstances which show the value to the plaintiff of the property which is lost or damaged. I refer to Stevens v. Abbotsford Lbr. Co., 33 B.C.R. 299, [1924] 1 W.W.R. 660, [1924] 1 D.L.R. 1163 (C.A.); Dredger “Liesbosch” v. S.S. “Edison”, [1933] A.C. 449 at 459 (sub nom. The “Edison”) (H.L.), per Lord Wright, and Leger v. Royal Ins. Co.; Leger v. Home Ins. Co., 1 N.B.R. (2d) 1, [1968] I.L.R. 1-207, 70 D.L.R. (2d) 344 (C.A.) [Underlining added]. [18] In summary, at common law damages are awarded to put the injured bailor in the position he was in before the goods were lost or damaged. In the absence of contract, the most the bailor can recover is replacement cost or repair cost. However, account must be taken of all the circumstances, especially when accurate information is not available. Sometimes market value must be used, and sometimes in- trinsic value. “Betterment” must be accounted for when replacing old items with new ones. [19] The Dispute Resolution Office had Mr. Bello’s oral evidence about his lost property, as well as a written list with estimated values. While the nature of the missing property and the value of the items must be proved by the tenant, the evidence must be weighed taking into account the difficulty a tenant faces in proving what is missing and what it is worth — a task made all the more difficult in this case because Mr. Bello’s property was unlawfully seized and disposed of by the Landlord. 162 REAL PROPERTY REPORTS 99 R.P.R. (4th)

82 I am not satisfied that the findings of Ms. Yuen with respect to the value of the jewellery are patently unreasonable nor that she exercised her discretion arbitrarily in determining the value of the jewellery.

Did Ms. Yuen Make a Reviewable Error in Determining that the Tenants Complied with Section 7(2) of the Residential Tenancy Act by Taking Reasonable Steps to Minimize Their Loss? 83 Section 7(2) of the Act states: (2) A landlord or tenant who claims compensation for damage or loss that results from the other’s non-compliance with this Act, the regulations or their tenancy agreement must do whatever is reasonable to minimize the damage or loss. 84 The landlords state that locking the windows would have been a reasonable step for the tenant to take and that Ms. Yuen made a patently unreasonable finding of fact and law on this issue in finding that the tenant took reasonable steps to minimize her loss, or in the alternative, she exercised her discretion arbitrarily in making such a finding. 85 This submission fails as the evidence accepted by Ms. Yuen was that the tenant had placed the jewellery in the cardboard box and sealed it and when the landlords attended a few days later it remained sealed until they opened it. Given those findings there is no indication that even if the windows were open this would have lead to the loss. There is no causal connection between what the landlords say would be a reasonable step to take and the facts as found by Ms. Yuen. 86 Generally, the application of the landlords is asking this Court to consider the wisdom of Ms. Yuen’s decision. That is not the role of the court on a judicial review. As was stated by Gray, J. in Starbreak Enterprises Ltd., Re, 2003 BCSC 1, 118 A.C.W.S. (3d) 902 (B.C. S.C.): 28 On an application for judicial review, this court acts in a supervi- sory role to ensure that the decision-making body, in this case the Committee, does not act unlawfully in the sense of acting outside of or in abuse of its jurisdiction to act. In other words, this court cannot reconsider the decision made and elect to substitute its judgment for that of the Committee. Rather, it has the power to review the way the decision was made and whether it met the applicable standard of review. 87 While this Court may have made different findings than Ms. Yuen and come to a different conclusion that is not its role. As a result the petition of the landlords is dismissed with costs to the tenant Yang. Application dismissed.