IN THE SUPREME COURT OF BRITISH COLUMBIA
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Citation: |
0759594 B.C. Ltd. v. 568295 British Columbia Ltd., |
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2017 BCSC 1767 |
Date: 20171003
Docket: S102561
Registry: Vancouver
Between:
0759594 B.C. Ltd.
Plaintiff
And
568295 British
Columbia Ltd.,
Salmon Arm Shopping Centres Limited, and
Calloway Reit (Salmon Arm) Inc.
Defendants
Before: The Honourable Mr. Justice Mayer
Reasons for Judgment
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Counsel for Plaintiff: |
G. Cadman, Q.C. L. Bussoli |
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Counsel for Defendants: |
F. Lamer A. Sabur |
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Place and Date of Trial/Hearing: |
Vancouver, B.C. June 5-9, 12-13, and 15-16, 2017 |
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Place and Date of Judgment: |
Vancouver, B.C. October 3, 2017 |
[1] This is a case concerning a property acquisition and development project gone wrong and provides a cautionary tale with respect to the provision of overly broad vendor’s warranties.
[2] Between February 2005 and November 2007 the Plaintiff (the “Vendor”) aggregated seven parcels of land totalling 61 acres located 1.5 miles west of the city center of Salmon Arm in the vicinity of Shuswap Lake (the “Property”). In October of 2007 the Vendor sold the Property to the Defendants (the “Purchasers”) for $14,700,000 pursuant to a purchase agreement dated March 8, 2007 and amended on September 18, 2007 (the “Purchase Agreement”).
[3] The Purchasers were owned by SmartCenters, a company in the business of developing big-box commercial centers throughout Canada, and had hoped to obtain approvals from the City of Salmon Arm and environmental approvals from the Provincial government for a commercial/retail and high-density residential development on the Property. The parties had agreed that if the Purchasers were successful in obtaining necessary approvals from the City of Salmon Arm for the high-density residential portion of the project on a 12 acre portion of the Property that the Vendor would buy the 12 acre portion back for $1,900,000. If the Purchasers were not successful in this regard the Purchasers were to pay the Vendor an additional $2,000,000, bringing the total purchase price for the Property up to $16,700,000.
[4] The Purchase Agreement included a warranty from Vendor that all material information regarding the Property had been provided and that the information that had been provided was true. In the end only a small portion of the Property could be developed as hoped as a result of the set-back requirements in the Riparian Areas Regulation, B.C. Reg. 376/2004. In addition, significant local opposition to a big-box commercial project and a lack of support from the City of Salmon Arm for the high-density residential portion of the proposed project negatively impacted the approvals processes.
[5] The Purchasers refused to pay the Vendors the additional $2,000,000 for the Property alleging at first misrepresentation and later breach of contractual warranty.
[6] The Vendor claims that the Purchasers have wrongfully refused to pay it $2,000,000, being the balance of the purchase price for the Property and seeks judgment for this amount.
[7] The Purchasers seek dismissal of the Vendor’s claim and judgment for damages arising from the Vendor’s breach of contractual warranties.
[8] The Property is located within the floodplain of Shuswap Lake and at its northwestern edge is crossed by the Salmon River. Because of its location and elevation, the Property is subject to the Riparian Areas Regulation. One of the purposes of the Riparian Areas Regulation as set out in its section 2(a) is “...to establish directives to protect riparian areas from development so that the areas can provide natural features, functions and conditions that support fish life processes …”.
[9] The main parcels comprising the Property’s 61 acres had been removed from the Agricultural Land Reserve in July of 2005 on application by the City of Salmon Arm (the “City” or “Salmon Arm”) to allow for commercial development in the area.
[10] On August 15, 2006 the Purchasers, who until shortly before this time had been advancing negotiations with respect to development on a nearby property which for various reasons did not advance, started discussions with representatives of the Vendor regarding purchase of the Property. At this time the Vendor was still finalizing agreements for purchase of some of the seven parcels comprising the Property.
[11] Between August 2006 and September 2006 the Vendor provided the Purchasers with various information regarding the Property including the following:
a) a site plan;
b) an information document (“Information Document”), which included the following relevant representations:
“A topographical study has been completed by Browne Johnson Land Surveyors. A geotechnical study has been completed by Fletcher Paine Associates Ltd. and Phase I and Phase II Environmental studies have been completed by EBA Engineering. The geotechnical study has confirmed that pre-loading will not be required for commercial development and the Environmental studies have confirmed that there are no areas of environmental concern related to the development of the Lands.
“Based on the topography of the site it is anticipated that the front half of the site would be suitable for commercial retail development with the balance of the lands suitable for residential development in some form (patio homes).”
“The City of Salmon Arm was instrumental in having the lands excluded from the ALR and in preliminary meetings with the Salmon Arm Planning Department Can-Corp has received full support and approval in principal [sic] with having the lands rezoned for commercial / residential use. Based on the steady growth the City is encouraging the expansion of commercial development. The City specifically believes that the subject site is ideally suited for commercial development as is evident from its full public support to [sic] of the application to have the lands excluded form the ALR.”
[Emphasis added]
c) a topographical survey prepared by Browne Johnson Land Surveyors;
d) a Phase I and Phase II environmental studies completed by EBA Engineering Consultants Ltd. (“EBA Engineering”); and
e) Stage I and Stage 2 geotechnical reports completed by Fletcher Paine Associates Ltd.
[12] The first contract for purchase of the Property, between 0759594 B.C. Ltd. as vendor and 568295 British Columbia Ltd. as purchaser, was signed on October 16, 2006 but expired on January 31, 2007 as the Vendor had not, as it was required to do, acquired the right to purchase all of the parcels. The original purchase price for the Property was $16,210,450.00. The Property Documents (defined below), which included the documents described in the paragraph above, were formally provided by the Vendor to the Purchasers on October 24, 2006.
[13] After the Vendor had acquired the right to purchase all seven parcels comprising the Property on February 9, 2007 a new contract was signed on March 8, 2007. The revised purchase price for the Property was $16,700,000. The Vendor retained a right of first refusal to purchase an approximate 12 acre portion of the Property (the “Re-Sale Lands”) which had been designated for high density residential development. The Purchasers took responsibility for obtanining necessary zoning and amendments to Salmon Arm’s Official Community Plan (“OCP”) for a mixed use commercial/retail and high density residential development and if the required zoing and OCP amendments were not obtained from Salmon Arm by September 18, 2007 the Purchasers would not be required to close on the transaction.
[14] At the time that the Purchase Agreement was concluded it was the Purchasers’ expectation that 51 of the Property’s 61 acres would be developable.
[15] The Purchase Agreement, as it stood at that time, included the following relevant terms:
a) The following definition of property documents:
“Property Documents means all documents in the possession or control of the Vendor relating to the Purchased Lands…”
b) A representations and warranty clause which provided as follows:
“3.1 Representations of the Vendor. The Vendor covenants, represents and warrants to and in favour of the Purchaser that, as of the date of this Agreement or such other date as may be specified:
…
3.1(t) Full Disclosure. So far as the Vendor is aware, the Vendor has disclosed to the Purchaser all material information pertaining to the Purchased Lands, whether solicited by the Purchaser or not. Neither this Agreement nor any other document referred to in this Agreement or any Schedule to this Agreement nor any statement, schedule or certificate furnished or to be furnished to the Purchaser pursuant to this Agreement contains or will contain any untrue statement or omits or will omit to state a material fact. All material information pertaining to the Purchased Lands is set out in this Agreement or contained in the Property Documents.”;
(the “Warranty”)
c) A mutual indemnity clause with respect to the Warranty which provided as follows:
“3.5 Effect of Warranties Each of the Purchaser and the Vendor agrees to protect, indemnify and save the other harmless from and against any losses, costs, expenses, damages, liabilities, claims and demands whatsoever arising or suffered as a result of any misrepresentation or breach of warranty by it under this Agreement or any document, certificate or other instrument delivered by it pursuant to this agreement.”
d) The Purchasers’ conditions precedent to close which provided as follows:
“4.1(a)
[…]
(i) on or before the May 10, 2007, the Purchaser is satisfied in its sole discretion with the physical attributes of the Purchased Lands, including but not limited to its soil suitability, environmental status, availability of services, access to municipal roads, and that the Purchaser’s intended development of the Property is financially and otherwise feasible and receiving approval of this Agreement and the transaction contemplated herein from its Executive Committee (collectively, the “Due Diligence Condition”);
(ii) on or before September 18, 2007 (the “Rezoning Date”), the Purchaser having completed the rezoning of the Purchased Lands to a zoning to permit the Purchaser’s intended development …”
[16] The due diligence condition in s.4.1(a)(i) of the Purchase Agreement was waived by the Purchasers on May 10, 2007, by a notice of waiver of condition precedent (the “Waiver”).
[17] On August 1, 2007 the Purchasers submitted the first application to Salmon Arm for site rezoning and OCP amendment, proposing a retail development on approximately 34.02 acres of the Property and high-density residential developments, the latter to be carried out in two phases on 17.77 acres of developable land, which included the 12 acre Re-Sale Lands.
[18] The requried zoning and OCP amendment was not obtained from the City of Salmon Arm by the September 18, 2007 rezoning date and the Purchase Agreement was amended again on September 19, 2007 (the “Amending Agreement”). Pursuant to the Amending Agreement, the purchase price for the Property was reduced from $16,700,000 to $14,700,000. The Vendor agreed to purchase back the 12 acre Re-Sale Lands for $1,900,000 on the condition that the third reading on the rezoning of the Re-Sale Lands to CD1 (comprehensive development zone 1) had been obtained by October 15, 2009 (the “Rezoning Condition”). If the Rezoning Condition was not met the Purchasers would retain the Re-Sale Lands and pay the Vendor an additional $2,000,000 by November 16, 2009.
[19] The purchase and sale of the Property closed on October 15, 2007 (the “Closing Date”). On the same date the Purchase Agreement was assigned by 568295 British Columbia Ltd. to Salmon Arm Shopping Centres Limited and Calloway Reit (Salmon Arm) Inc.
[20] On November 7, 2007 the Purchasers submitted an amended application for site rezoning, maintaining the 34.02 footprint for the commercial development and proposing that a slightly smaller high-density residential development be carried out in three phases on 17.49 acres, which included the 12 acre Re-Sale Lands.
[21] Although before this time both the Vendor and the Purchasers were aware of the existence of a community activist group, the Committee for a Strong and Sustainable Salmon Arm (“CASSSA”), whose members were not supportive of big-box retail development, neither party was aware of the strength of CASSSA’s opposition.
[22] In November 13, 2007 the Salmon Arm Planning Department issued a memorandum recommending approval for rezoning of the portion of the Property slated for commercial/retail development but not recommending rezoning of the Re-Sale Lands for high density residential development, in part as other areas in Salmon Arm had been given priority for residential development.
[23] In or about February of 2008 the Purchasers learned that the setback requirements of the Riparian Areas Regulations were significantly more than had been expected. The impact of the Riparian Areas Regulations was not known by, and therefore was not disclosed by, the Vendor to the Purchasers in any of the Property Documents and was not known by the Purchasers on the Closing Date.
[24] On Third Reading on October 24, 2008 Salmon Arm did not approve the Purchasers’ application for size rezoning and amendment to the OCP. During five days of the public meetings CASSSA carried out a highly organized campaign opposing the development of the Property.
[25] On or about July 8, 2009, City staff advised the Vendor and Purchasers that Salmon Arm would not be considering any development of the Re-Sale Lands for any type of residential uses at that time. On September 29, 2009 the Purchasers then submitted another application for rezoning of the commercial component of the lands only. This application was again vigorously opposed by CASSSA.
[26] As the Rezoning Condition in respect of the Re-Sale Lands had not been satisfied, on October 14, 2009 the Vendor demanded payment of the additional $2,000,000. On October 15, 2009 in-house counsel for the Purchasers responded advising that the $2,000,000 was not payable until November 16, 2009.
[27] On November 17, 2009, counsel for the Purchasers wrote to the Vendor alleging that representations and warranties made by the Vendor were untrue resulting in the Purchasers receiving a property far less valuable than it had bargained for and on that basis that the Purchasers were relieved of making the payment of $2,000,000.
[28] By December 2009 the Ministry of Environment had still refused to accept the riparian areas assessments completed by the Purchasers’ consultant until they took into consideration the active floodplain associated with the Salmon River.
[29] On April 14, 2010, the Vendor commenced an action claiming payment of the $2,000,000 and on June 4, 2010 the Purchasers filed their statement of defence and counterclaim, alleging misrepresentations concerning the following: impact of the Riparian Area Regulations; approval in principle of the City for re-zoning; and the existence of strong opposition to development of a large department store in the area.
[30] The Purchasers’ consultants submitted a revised riparian areas assessment application to the Ministry of Environment on April 30, 2010 which continued to be strongly opposed by CASSSA. In May 2010 the Ministry of Environment completed its assessment which restricted development to approximately 16.7 acres of the Property.
[31] On December 20, 2010 Salmon Arm adopted a rezoning bylaw approving the commercial/retail development on only the southern portion of the Property on various conditions including a restrictive covenant covering the areas identified in the riparian areas reports submitted by the Purchasers’ consultant to the BC Ministry of Environment on April 30, 2010.
[32] The Purchasers applied for development permits from Salmon Arm in 2011, which application was again vigorously opposed by CASSSA and resulted in a further slight reduction in the developable area. Ultimately, the City only approved the commercial/retail development on the southern portion of the Property. The 12 acre Re-Sale lands were virtually all located in an area where the Riparian Areas Regulation prohibited any form of development. As a result, development was only possible on approximately 33% of the 51 acres of the Property that the Purchasers had hoped to develop.
[33] The Vendor’s claim and the Purchasers’ counterclaim proceeded by way of summary trial before Mr. Justice Savage on July 11 and 12, 2012. Although much of the evidence at trial focussed on alleged misrepresentations at some point the case became one of breach of warranty and was decided on that basis.
[34] In his reasons issued on July 27, 2012 indexed at 2012 BCSC 1125 Savage J. ruled that the Vendor’s warranty did not apply to facts which the Vendor did not know, including the limitations on development of the Property resulting from the application of the Riparian Areas Regulation and the strong opposition to the development of a big box store from CASSSA and that the representations with respect to the Vendor having received “approval in principle” from the City for re-zoning was not material. Savage J. awarded judgment to the Vendor for $2,000,000 and dismissed the Purchaser's’ counterclaim.
[35] The Purchasers appealed to the British Columbia Court of Appeal. On August 28, 2013, Chiasson J.A., writing for the court, found that the Vendor’s warranty included facts known or not known to it and that certain representations made by the Vendor were material and not true and set aside the judgment awarded in favour of the Vendor. In his reasons for judgment indexed at 2013 BCCA 381, Chiasson J.A. concluded as follows:
[71] I would allow this appeal and set aside the judgment awarded in favour of the Vendor.
[72] Quantum remains an issue. As requested by the Purchaser, I would remit the Vendor's application for judgment and the Purchaser's counterclaim to the Supreme Court."
The Order of the Court of Appeal provided as follows:
"AND THIS COURT FURTHER ORDERS that the Respondent's [Vendor’s] application for judgment and the Appellants' [Purchasers’] counterclaim shall be remitted to the Court below for determination."
[Square bracketed sections added.]
[36] The parties disagree on the effect of the decision of the Court of Appeal overturning the decision at trial. The question of what findings of fact and law were made by the Court of Appeal relate directly to the issues I am to decide in this proceeding.
[37] The Vendor says that the matter is open for consideration by me, not only as to quantum, but generally arguing that if the Court of Appeal intended determination as to quantum only, that is what the Order would have provided and that it does not. For this proposition the Vendor relies upon the decision of the BC Court of Appeal and Supreme Court of Canada in Rainbow Industrial Caterers Ltd. v. Canadian National Railway Co., 43 B.C.L.R. (2d) 1and [1991] 3 S.C.R. 3, which I will discuss further below. The Vendor also says that the Court of Appeal did not address the question of the Purchasers’ reliance on warranty - which it says is a question of fact fundamental to a determination of its liability.
[38] The Purchasers say that the Court of Appeal found that the Vendor had in fact breached the Warranty by not disclosing material information and by providing information that was not true. As a result the Purchasers say that the only thing to be decided by me is the damages resulting from these breaches. The Purchasers say that the principles of res judicata and issue estoppel prevent the Vendor from re-litigating decisions made or issues decided by the courts before me with one exception, being the erroneous finding by the Court of Appeal that 1/3 of the Property could not be developed, when in fact it was 2/3.
[39] As I have already mentioned the Vendor relies upon the decision of the Court of Appeal in Rainbow Industrial. That case concerned a claim for damages resulting from negligent misrepresentations made during the negotiation of a catering supply contract between Rainbow and CN Rail. At trial Gibbs J., as he then was, awarded Rainbow damages for its losses but not loss of profits. CN Rail appealed and Rainbow cross appealed. In the first appeal Esson J.A. found that the evidence at trial did not provide any support for the view that Rainbow, had it been provided with the correct information, would have done anything other than bid at a higher price. Esson J.A. remitted the matter back to trial stating in his reasons that damages would be at large in the second trial.
[40] In the second trial Gibbs J. first considered first whether Esson J.A. had made a finding that Rainbow would have entered into the catering contract at a higher price, even if the misrepresentation had not been made, or whether Esson J.A. had simply identified this as an issue which needed to be resolved before damages could be determined. Gibbs J. decided it was the latter and again found for Rainbow.
[41] CN again appealed. The Court of Appeal upheld the decision of Gibbs J. in the second trial. In reasons indexed at [1990] 43 B.C.L.R. (2d) 1 (C.A.), Lambert, J.A., writing for the majority stated as follows:
The First Issue
23. The first issue is whether Mr. Justice Gibbs was required by the previous judgment of this court to regard himself as being bound by a finding of fact to the effect that Rainbow would have entered a contract, but at a different price, if it had known the true facts.
24. Mr. Justice Esson said that damages would be at large in the second trial. That statement is inconsistent with the view that damages had to be assessed on the basis of a concluded finding of fact that Rainbow would still have entered a catering contract with C.N. but at a different price for each meal, if it had known, at the time it made its bid, the true facts about the number of meals that would be required. So I would regard Mr. Justice Esson's comments on that question of fact as being based on an impression of the evidence rather than as a concluded finding of fact, binding on Mr. Justice Gibbs and, in consequence, binding on us.
[42] CN, undaunted then appealed to the Supreme Court of Canada who upheld the decision of the Court of Appeal. In the reasons indexed at 1991 SCC 27 at para. 18, Sopinka, J. writing for the majority stated as follows:
I accept the decision made by Gibbs J. on the rehearing and by the Court of Appeal on the second appeal, which was unanimous on this point, that the decision of the Court of Appeal on the first appeal was not intended to be binding on Gibbs J. in respect of the factual question of what Rainbow would have done had it not been misled.”
[43] I consider that the facts underlying the decision in Rainbow Industrial are substantially different than those in this case. As set out above, in the second appeal in Rainbow Industrial Lambert J.A. stated that the words of Esson J.A. in the first appeal that “damages would be at large” is inconsistent “with the view that damages had to be assessed on the basis of a concluded finding of fact…”.
[44] I will summarize the relevant findings of fact and law made by Chiasson J.A. in his reason for judgment in this case:
a) The Warranty has two essential parts: (1) a statement that so far as the Vendor is aware it has disclosed all material information it has; (2) a statement that all material facts are contained in the Vendor’s present and any future disclosure and the information therein is true. The Warranty was not ambiguous (paras. 40 and 41);
b) That pursuant to the Warranty the Vendor warranted that it would disclose all material facts, known or unknown to it (paras. 45 and 59);
c) The decision of the Purchasers to provide the Waiver did not constitute notice by the Purchasers that they were satisfied with the physical attributes of the Property and the Waiver does not preclude them from relying upon the Warranty (paras.49-52);
d) That information with respect to the implications of the Riparian Areas Regulation was a material fact and was not known by the Parties at the relevant time. (paras. 55-57);
e) That strong public opposition to the development of a large department store on the Property was a material fact and was not known by the Purchasers at the relevant time (paras. 59-60); and
f) That the Vendor’s statements that it had the full support of the City of Salmon Arm Planning Department and that it had approval in principle for the development were material and not true and would have been significant in the deliberations of a reasonable purchaser (paras. 67 and 70).
[45] As I have already stated, Chiasson J.A. after making the findings summarized above, stated:
[71] I would allow this appeal and set aside the judgment awarded in favour of the Vendor.
[72] Quantum remains in issue. As requested by the Purchasers, I would remit the Vendor’s application for judgment and the Purchasers’ counterclaim to the Supreme Court”
[Emphasis added.]
Chiasson J.A. said that quantum remains in issue - not damages.
[46] I consider, taking all of the reasons of Chiasson J.A. into consideration, that liability in respect of the Purchasers’ counterclaim for breach of the Warranty has been decided by the Court of Appeal. The issue to be decided by me is what damages flow from the breach.
[47] In summary, the issues to be decided by me include the following:
a) What is the appropriate test for determining the Purchasers’ damages arising from the Vendor’s breach of the Warranty and related to this, is it necessary for the Purchasers to prove that they relied on the information constituting breaches of the Warranty to recover damages?
b) What is the quantum of damages suffered by the Purchasers as a result of the Vendor’s breaches of the Warranty?
c) Is the Vendor entitled to judgment for $2,000,000, representing the balance of the purchase price for the Property?
[48] The Vendor argues that the Purchasers have not shown a causal nexus between proven reliance on warranty and the damages claimed, referencing decisions including Olsen v. Behr Process Corp., 2003 BCSC 429; Rankin v. Eversfield, 1953 CarswellBC 64; Link v. Schaible, 1961 Carswell 200; and Hepting v. Apostal, 1961 CarswellBC 247, and therefore are not entitled to damages. Further the Vendor says that only if reliance is established does the question of the measure of damages arise.
[49] If reliance and a causal nexus is shown the Vendor says that damages for contractual breach of warranty should be calculated in the same manner as damages for negligent misrepresentation, relying on the decision of Lord Denning in Esso Petroleum Co. Ltd. v. Mardon, [1976] QB 801, [1976] 2 All E.R. 5 (C.A.) at page 16 and J.R.K. Car Wash Ltd. v. Gulf Canada Ltd., [1992] O.J. No. 1842, and that the proper measure of damages should be the difference between the price actually paid by the Purchasers and the amount that it would have paid if the material facts had been known.
[50] The Vendor rejects the argument that the Purchasers are entitled to expectation damages, being damages that would place the Purchasers in the same position as if the representations had been true, relying upon amongst others, the decisions in Esso Petroleum, Rainbow Industrial; BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12; Osborne v. Pavlick, [1198] B.C.J. No. 2120 (S.C.).
[51] The Purchasers say that the liability of the Vendor under the Purchase Agreement does not depend on proving reliance,which is an element of the tort of negligent or fraudulent misrepresentation. Further the Purchasers say that liability and the right to indemnification for damages under clause 3.5 of the Purchase Agreement have already been determined by the Court of Appeal.
[52] The Purchasers rely upon the decisions of the Supreme Court of Canada in BG Checo International Ltd. and Rainbow Industrial arguing that in this case the Purchaser is entitled to contractual “expectation” damages, being damages that would place it in the same position as if the Purchase Agreement had been complied with and not tort “reliance” damages.
[53] To determine these contractual damages the Purchasers say I am to draw inferences from the evidence and reach conclusions as to what profit the Purchasers could have made if the breaches of Warranty had not occurred, relying upon Jenkins Road Developments Ltd. v. Wille, 2002 BCCA 399 at paras. 3-12, and Cellular Baby Cell Phones Accessories and Specialist Ltd. v. Fido Solutions Inc., 2017 BCCA 50 at paras. 65-66.
[54] In summary, the Purchasers say that it agreed to pay the sum of $14,700,000 plus, possibly, an additional $2,000,000 for the Re-Sale Lands, on the expectation that approximately 83% of the Property would be developable as planned. The Purchasers say that as a result of the breaches of Warranty, being that material information including the limitations of the Riparian Areas Regulation and the opposition of CASSSA had not been provided and the untrue representation that the City of Salmon Arm had agreed to the development in principle, that this was not the case.
[55] Accordingly the Purchasers argue that I am to determine its damages based on what would have happened if the Warranty had not been breached and in doing so consider what the development would be worth if 83% the Property (51 acres) had been capable of development both for commercial/retail and high density residential purposes as expected.
[56] I agree with submissions of the Purchasers that the Vendor appears to have conflated the requirement to show reliance in a claim of negligent misrepresentation and the requirement to show a causal link between breach of a contractual warranty and the damages claimed. Once breach of an express contractual warranty is proven it is not necessary for a party to show reliance in order to claim for damages arising from its breach. It is necessary to show and it is a fundamental principle of the law of damages, that the damages claimed flow from the breach.
[57] The decision in Olsen and other cases referenced by the Vendor cannot be viewed as authority for the proposition that a purchaser may not benefit from a contractual warranty or representation unless it has shown reliance. Behr involved a class action in which a class of plaintiff sought to sue in tort because they were not parties to any contract with the defendant. In that case reliance was relevant to the tort claims and to the causes of action under the Trade Practice Act and section 36 of the Competition Act.
[58] Further, the Esso Petroleum case and others relied upon by the Vendor concerning collateral warranties and negligent misrepresentation are distinguishable. Proof of reliance is required in claims concerning collateral warranty or negligent misrepresentation for logical reasons. A purchaser is required to show that something said by a vendor induced it to enter into a contract, which has the effect of elevating the statement to a contractual term.
[59] In this case the Warranty in the Purchase Agreement is an express warranty in a commercial contract and it is not necessary for the Purchasers to demonstrate reliance: Monarch Construction Ltd. v. Axidata Inc. 2007 CarswellOnt 1271 (Ont S. Ct.), paras. 278-281; Naken v. General Motors of Canada Ltd., 1978 CarswellOnt 146 (C.A.) at para. 30. The parties signed the agreement and agreed to its terms - which included the Vendor’s warranty that all material information had been provided and was true.
[60] The nature of damages for breach of contract is as described in BG Checo International Ltd., being, what is required to put a party in the position it would have been in had the contract been performed as agreed. In cases involving breaches of contractual warranties and representations, the nature of damages is what is required to put a plaintiff in the same position as if the warranties and representations were true: Dr. David F. Charbonneau Inc. v. Dr. Peter Brawn Inc., 2002 BCSC 738 at paras. 54-57.
[61] In Rainbow Industrial, McLachlin C.J. set out in obiter the differences in assessing damages for misrepresentation in tort as opposed to assessing such damages in contract:
“… speculation about what the plaintiffs would have bid had they known the truth is not necessary in a tort action for negligent misrepresentation. The aim in tort is simply to restore the plaintiff to the position it would have been in had the tortious act not been committed…
In contract the matter is otherwise. In contract the aim of damages is to put the plaintiff in the position it would have been in had the representation been true; i.e., to compensate the plaintiff for its contractual expectation…” (paras. 43-44)?
[62] Damages for breach of contractual warranty are intended to put the plaintiff in the position they would have been in if the breach had not occurred and for this reason have been called expectation damages. In my view the Purchasers are entitled to expectation damages.
[63] The parties correctly point to clause 3.5 of the Purchase Agreement which includes an indemnity for, inter alia, any losses, costs, expenses and damages arising or suffered as a result of any misrepresentation or breach. Accordingly, pursuant to the terms of the Purchase Agreement there must be a causal link between the breaches of Warranty and the damages suffered. That is, it must be shown that the damages result from the failure of the Vendor to provide all material information regarding the Property and the misrepresentation regarding approval from Salmon Arm.
[64] Mr. Lee, Vice-President of Engineering, testified on behalf of the Purchasers. His evidence was that the Purchasers acquired the Property with the understanding, based on the information provided by the Vendor, that there were no material impediments to the development of the Property.
[65] At trial Mr. Lee reviewed a pro forma dated June 26, 2007 for development of the Property. The pro forma establishes that at that time that the Purchasers contemplated a development which included a net retail surface area of 34.61 acres and a residential surface area of 16.40 acres for a total developable area of 51.01 acres. After consideration of development costs this would have resulted in a “thin” 6% margin of profit.
[66] The evidence of Mr. Lee establishes that it was eventually determined, well after Closing, that as a result of the set-back requirements of the Riparian Area Regulations only 1/3 of the area the Purchasers hoped could be developed was developable.
[67] I note that at paragraph 29 of his reasons Savage J. stated that:
It is agreed that by virtue of history, location and topography of the site, the Riparian Act Regulation [sic] limits the development of the site. That limitation makes the Salmon Arm Property less valuable than it otherwise might be because of the historic floodplain and required setbacks. (2012 BCSC 1125, para. 29)
[68] Also, as I noted above Chiasson J.A. found that the fact that one-third[1] of the Property could be developed was a material fact and was not known by the Parties at the relevant time. Although I consider that this issue has already been determined by the Court of Appeal I also find that the failure of the Vendor to provide this information to the Purchasers constituted a breach of the Warranty.
[69] I find that there is a clear causal link between this breach and the damages suffered by the Purchasers. I infer that if the Purchasers had been aware prior to Closing that only 33% of the area which they had hoped could be developed could in fact be developed, that they would not have paid $14,700,000 for the Property and agreed to a further possible $2,000,000 payment.
[70] In paragraph 35 of his reasons for judgment trial Savage J. stated that:
It is apparent that there was considerable public opposition to aspects of the proposed development...
and at para. 39 that:
There is nothing in the evidence before me that suggests that Mr. Fowler’s evidence regarding the Vendor Company’s knowledge of CASSSA differs from that provided in his discovery. I accept that he was unaware of the community opposition at the material times.
[71] The evidence of the Vendor’s principal Mike Fowler at trial was that prior to Closing he didn’t believe anyone was aware of the nature and aggressiveness of the CASSSA opposition to the development of the Property.
[72] As stated above the Court of Appeal found that strong public opposition to the development of a large department store on the Property was a material fact and was not known by the Purchasers at the time of Closing.
[73] Again, although I consider that this issue has already been determined by the Court of Appeal I also find that the failure of the Vendor to provide information to the Purchasers regarding the strong opposition of CASSSA to a commercial/retail, big-box development on the Property constituted a breach of the Warranty.
[74] That said, I do not find a causal link between this breach and the damages claimed by the Purchasers in this proceeding. The evidence suggests that the activities of CASSSA resulted in the Purchaser experiencing delays in receiving approvals from the Ministry of Environment and Salmon Arm and increased off-site costs but the Purchasers are not claiming for such damages in this proceeding or at least, I was not taken to sufficient evidence on this to make a determination in this regard.
[75] The Purchasers are claiming for damages arising from buying the Property which had less developable land than they expected. I find on the evidence that this did not arise due to activities of CASSSA but rather as a result of the application of the Riparian Areas Regulation. Even if the vociferous CASSSA opposition had not existed this would have been the case.
[76] The Court of Appeal found that the Vendor’s statements that it had the full support of the City of Salmon Arm Planning Department and that it had approval in principle for having the Property rezoned for commercial/residential use were material and not true and would have been significant in the deliberations of a reasonable purchaser.
[77] It is clear that the Court of Appeal considered these statements to be a material misrepresentation. Although I consider that this issue has already been determined by the Court of Appeal, I also find that this misrepresentation constituted a breach of the Warranty.
[78] As was my conclusion with respect to CASSSA, I do not find that this breach was the cause of the damages claimed by the Purchasers. The misrepresentation was with respect to whether Salmon Arm had provided approval in principle for a “commercial /residential” development. Clearly, given that it was actively proceeding with formal approvals process prior to Closing, the Purchasers either knew or should have known that further work was required and could not reasonably have expected that municipal approval was a done-deal. They may have thought they would have an easier go of it, but that is a different matter. I have not been presented with evidence allowing me to make a calculation of damages for wasted expense or delay charges relating to municipal approvals.
[79] Further, Salmon Arm did eventually provide approvals for the commercial/retail aspect of the project on the portion of the Property which was found to be suitable for development under the Riparian Area Regulations. The evidence establishes that on or shortly after November 13, 2007 Salmon Arm refused to advance the approvals process for the high-density residential portion of the development. It was the application of the Riparian Areas Regulation that made development on that portion of the Property impossible.
[80] Accordingly, I find on the evidence that the Vendor’s misrepresentation that it had approval in principle for the development from Salmon Arm did not cause the Purchaser to suffer the damages claimed in this proceeding.
[81] There was no evidence provided to me at trial and it would be illogical to infer from the evidence, that the Purchasers would have proceeded with the purchase of the Property for $16,700,000 ($14,700,000 plus $2,000,000) if it had been aware that as a result of the application of the set-back requirements in the Riparian Areas Regulation only 33% of the expected 51 acre developable portion of the Property was in fact developable. The onus is on Vendor to show that if the material information had been provided (i.e. the set-back requirements and the CASSSA opposition) and the misrepresentation regarding City approval had not been made, that the Purchasers would have bought the Property for $16,700,000 anyway and they have not satisfied this onus: Rainbow Industrial, at paras. 23-24).
[82] The Vendor did not warrant that all of the Property would be developable. If it had then in my view the appropriate measure of determining damages for breach of the Warranty, expectation damages, might have been the difference between the value of the development opportunity if the Property had been developable as the Purchasers expected and the reduced value of the development arising from the misrepresentations. In that case, valuing the development would likely include, in addition to the value of the land, a hypothetical evaluation of the potential profits earned through its development. For the reasons outlined below, it is unnecessary for me to make this determination.
[83] The Vendor did warrant that it had provided all material information regarding the Property and that the information it had provided was true. It breached the Warranty on both points. As I have already found, the breaches related to CASSSA and receipt of approval in principle from Salmon Arm did not cause the losses which are claimed in this proceeding. The question in my view is what position would the Purchaser have been in at the time of Closing if the information regarding the set-back requirements of the Riparian Area Regulation had been provided?
[84] The evidence establishes that Purchasers were aware of the significance of the set-back requirements of the Riparian Areas Regulation by February 2008 and by May of 2010 had received a clear answer from the Ministry of Environment with respect to what the set-back requirements were. By December 20, 2010 Salmon Arm had approved the commercial/retail development on the southern portion of the Property only. The Purchasers did not provide evidence that if they had known prior to Closing that only a portion of the Property was developable they would have proceeded with a development on the usable portion and looked for additional lands to develop the balance of the contemplated project. Although they were not required to adduce this type of evidence to prove liability for breach of the Warranty if this evidence had been provided it would have allowed me to estimate what the Purchasers might have earned if the Warranty had not been breached.
[85] Nemetz C.J.B.C. in his decision in New Horizon Investments Ltd. v. Montroyal Estates Ltd., 1982 CarswellBC 622, at paras. 15-17 referenced the decision of the House of Lords in Johnson v. Agnew, [1980] A.C.367 at p. 896 where Lord Wilberforce stated that:
The general principle for the assessment of damages is compensatory, ie that the innocent party is to be placed, so far as money can do so, in the same position as if the contract had been performed. Where the contract is one of sale, the principle normally leads to assessment of damages as at the date of the breach …
[86] In Ortner v. Kostrezewski, 1973 CarswellBC 686, at para. 17 Justice Gould stated that:
The evidence in this case does not furnish to the court a sound basis for an item by item calculation of costs and loss of possible profits… The approach of the difference between purchase price and market value at time of sale is mandatory for fraudulent misrepresentation in a sale of land, and acceptable for breach of warranty in a sale of a chattel (ante). There is nothing esoteric about the formula, it is merely one of many possible applications of the common law principles applying to quantum of damages. I have been unable to find any case which suggests that that particular application of common law principles should not be. used, when appropriate, in the instance of a breach of warranty on the sale of real property. …
[87] In the circumstances I consider that the most appropriate measure of the Purchasers’ damages is the difference between the estimated value of the Property at the time of Closing and the price paid by the Purchasers, plus pre-judgment interest.
[88] The Purchasers’ expert, Mr. Larry Dybvig, an expert in land valuation, provided evidence at trial that the estimated value of the Property at the time of Closing was $6,680,000. Accordingly the Purchasers overpaid $8,020,000, being the difference between the value of the Property at the relevant time and the $14,700,000 paid by the Purchasers. I accept Mr. Dybvig’s evidence that the 12 acre Re-Sale Lands have no value.
[89] With respect to the Vendor’s claim for $2,000,000, being the amount effectively held back in respect of the Re-Sale Lands and which the Vendor says became payable after the Purchasers did not satisfy the Rezoning Condition, given my findings with respect to the Purchasers’ damages I find that the Plaintiff is not entitled to this amount.
[90] I infer that if the Warranty had not been breached, that is if information regarding the implications of the Riparian Areas Regulation and strong opposition from CASSSA had been provided and the information that Salmon Arm had approved the development in principle had been true, that the Purchasers would not have agreed to pay the additional $2,000,000 in respect of the Re-Sale Lands.
[91] As I noted above the Re-Sale Lands were determined by Mr. Dybvig to have no value and I was not provided with any evidence challenging Mr. Dybvig’s opinion.
[92] In the circumstances I find that the Purchasers have established that they suffered damages in the amount of $8,020,000, being the amount that they overpaid for the Property as a result of the Vendor’s breach of the Warranty and, subject to a an adjustment arising from the terms of the Purchasers’ settlement agreement with EBA Engineering (discussed immediately below), I award judgement to the Purchasers for that amount, plus pre-judgment interest. The Vendor’s claim for damages in the amount $2,000,000 is dismissed.
[93] I understand that the Purchasers have entered into a settlement agreement with EBA Engineering concerning damages arising from, I assume, negligent advice regarding the set-backs required under the Riparian Areas Regulation, or other environmental advice. I have not been provided with any information with respect to this settlement.
[94] If the Purchasers have received a financial settlement from EBA Engineering for damages that arise from the same circumstances which give rise to the award I have outlined above, this would amount to double recovery - which would not be appropriate. It is my understanding that the Purchasers have offered to share the terms of the EBA settlement with me and I invite it to do so, which I will then review and determine if it impacts my decision with respect to damages payable by the Vendor.
“Mayer J.”
[1] I consider the statement by Chiasson J.A. in his reasons that one-third of the Property was not developable to be an error. The evidence establishes that approximately only 1/3rd of the 51 acres that the Purchasers expected could be developed, was in fact developable.