IN THE SUPREME COURT OF BRITISH COLUMBIA
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Citation: |
EOS Holding Ltd. v. Tip Top Developments Ltd., |
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2018 BCSC 2388 |
Date: 20181213
Docket: S176438
Registry: New Westminster
Between:
EOS Holding Ltd.
Plaintiff
And
Tip Top Developments Ltd.
Defendant
Before: The Honourable Mr. Justice Basran
Oral Reasons for Judgment
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Counsel for the Plaintiff: |
S.S. Sharma |
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Counsel for the Defendant: |
D. Gautam A. Kalra |
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Place and Dates of Trial: |
New Westminster, B.C. December 3–6, 2018 |
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Place and Date of Judgment: |
New Westminster, B.C. December 13, 2018 |
[1] This matter involves the sale of a developed residential lot by the defendant, Tip Top Developments Ltd. (“Tip Top”) to the plaintiff, EOS Holding Ltd. (“EOS”). After EOS purchased the lot, it was advised that a three-storey home could not be built on it. The issue is whether the contract of purchase and sale contained an implied term that the lot would be fully serviced and that it would be ready for a three-storey house to be built on it.
[2] Mr. Manjit Natt, through his company, Natt Brothers Homes Ltd. (“Natt Brothers”), entered into a contract of purchase and sale with Tip Top on March 21, 2010 (the “Contract”) to buy Lot 55 located at 17737 101A Avenue, Surrey, B.C. (“Lot 55”) for $290,000.
[3] Mr. Manjit Saini is the manager and director of Tip Top.
[4] Mr. Natt also owned and operated EOS.
[5] For this transaction, Natt Brothers’ realtor was Parveen Khan and Tip Top’s realtor was Davinder Sidhu.
[6] Mr. Natt, Mr. Saini, Ms. Khan, and Mr. Sidhu, as well as a civil engineering technologist, Roman Dypchey, all testified at the hearing of this matter.
[7] Mr. Natt believes that an implied term of the Contract was that the seller, Tip Top, would provide Lot 55 with services sufficient to support the construction of a three-storey house on it. Mr. Saini counters that he intentionally did not include this term in the Contract. The realtors support the position of their respective clients in the transaction.
[8] The Contract did not have a specific date of completion. The transaction was to complete 15 days after the lot was ready. Both parties knew that Lot 55 was what is known as a “pond lot”, one located at a low point in a subdivision that would not be developed until 80 percent to 90 percent of the houses in the subdivision had been built. It was, therefore, uncertain when precisely Lot 55 would be built, but the parties knew it would be at least two years into the future from the date of the Contract. The Contract contained two subject clauses:
1. Purchaser to approve the building scheme by March 25, 2010; and
2. Purchaser to check into City Hall or planner regarding the acceptable plan by March 25, 2010.
Both conditions are for the sole benefit of the purchasers.
[9] Mr. Natt confirmed that he understood the meaning of the subject clauses as they related to the Contract. Ms. Khan, Mr. Natt’s real estate agent, confirmed that these clauses were to protect Mr. Natt by enabling him to confirm with the City of Surrey (the “City”) that the usual type of home could be built on Lot 55. She wanted Mr. Natt to be able to do his own due diligence with the City to confirm the type of house that could be built on the lot. Both subject clauses were removed on March 24, 2010.
[10] Mr. Natt says that during the period between March 21, 2010 and March 24, 2010, he spoke to someone at the City’s Planning Department and they confirmed that a three-storey house could be built on Lot 55. Mr. Natt did not submit a specific building plan to the City during this three-day period.
[11] Mr. Natt testified that, at the time he entered into the Contract to purchase Lot 55, all of the houses that had been built in the subdivision were three-storey homes and that, once the subdivision was completely built, all the homes were three-story homes.
[12] The original completion date was intended to be June 5, 2012. This date was extended five times with the consent of both parties. The last extension was to October 31, 2012, but the transaction did not complete, presumably by consent, until November 8, 2012.
[13] An addendum to the Contract dated November 7, 2012 replaced Natt Brothers with EOS as the purchaser.
[14] The purchaser’s statement of adjustments indicates that in addition to the purchase price, it also paid a $5,000 compliance deposit for the purchase of Lot 55. This deposit is required to be held by the vendor of a vacant lot in case the purchaser/builder damages sidewalks, curbs, or any other civic property during the course of house construction. If there is damage, the City uses this deposit to pay for the necessary repairs. If no damage is done, the vendor is required to return the deposit to the purchaser once the City confirms that the house has been built and no damage was done.
[15] After purchasing Lot 55, Mr. Natt submitted a development proposal for the construction of a three-storey house on this lot. He received a telephone call from the City indicating that the services on the lot were insufficient to support the development of a three-storey house.
[16] Mr. Natt called Mr. Saini regarding this issue and they had several meetings to discuss the matter. Mr. Saini recalls receiving a call and meeting with Mr. Natt regarding the issue of the services on Lot 55. Their evidence conflicts on whether Mr. Saini committed to rectify the problem and pay for it. Mr. Natt says that Mr. Saini did make this commitment. Mr. Saini says that he intended to assist Mr. Natt, but he did not commit to undertake the necessary work nor pay for it.
[17] Needless to say, Mr. Saini did not take any steps to resolve this issue so Mr. Natt arranged to upgrade the services on Lot 55. He obtained the permit to do the necessary work at a cost of $10,260 which included a $7,500 deposit charged by the City to ensure the work was done properly.
[18] With respect to the payment to the City of $10,260, Mr. Natt agrees that this was for both a compliance deposit and the cost of obtaining a permit to upgrade his services for Lot 55. He recalls that the deposit is based on the estimated cost of the work to be done, but he does not recall what proportion of the total was for the compliance deposit. He agrees that the City refunded the deposit after the work was completed, but he does not recall the amount of this deposit.
[19] After this work was completed, Mr. Natt submitted a plan to the City for the construction of a three-storey house. He received the necessary approval and constructed the house. The City issued a final building approval for the house built on Lot 55 on November 6, 2015.
[20] Mr. Natt sent a copy of this approval to Mr. Saini to establish the basis for the return of the $5,000 compliance deposit. However, for reasons that were entirely unexplained, Tip Top has not returned the $5,000 deposit fee to EOS. This amount should have been returned to EOS more than three years ago.
[21] Mr. Natt and Mr. Saini, through their respective companies, entered into two other contracts of purchase and sale of two lots in the same subdivision. Neither of these contracts specifically refers to the services required being at a standard sufficient for a three-storey house, but, nevertheless, they were fit to that standard. Mr. Natt confirmed that at the time he entered into the Contract, there were several completed houses in the subdivision where Lot 55 was located and they were all three-storey homes.
[22] Ms. Khan has known Mr. Natt for approximately 20 years. She has been his real estate agent on approximately 50 transactions, including the purchase of bare lots as well as the purchase and sale of newly built and older homes.
[23] Ms. Khan emphasized that every house in this subdivision is a three-story home. There are no two-storey homes among the 55 to 60 homes in this subdivision. She further explained that it was well understood by realtors, sellers, and purchasers of lots in this area that there was an implied term in every contract for purchase and sale of a lot in this subdivision that the services will be sufficient to support the construction of a three-storey house.
[24] Ms. Khan referred to the contract of purchase and sale for lot 47 which was sold by Top Notch Developments Ltd. (“Top Notch”), another company operated by Mr. Saini, to Natt Brothers. This contract also had no specific reference to the services being for a three-story home and it contained the same subject conditions as those in the contract for Lot 55. Ms. Khan was clear that the term that requires the lots to be “ready-to-build lot(s)” implied that they are ready for a three-story home to be built on them.
[25] Lot 47 was purchased on March 21, 2010, the same date that Mr. Natt arranged to purchase Lot 55. The contract of purchase and sale for lot 47 contains the same language concerning the subject and terms as the Contract for Lot 55.
[26] Ms. Khan also referred to Mr. Natt’s purchase of a property sold by another vendor, AJ Construction. The contract for that transaction contained the same wording that she used on all similar purchases, which requires a vendor to supply a “fully serviced, ready-to-build lot”. This contract did not specify that the lot was to be serviced to support a three-storey home. Ms. Khan reiterated that this was unnecessary because this term was implied in all contracts for the sale of lots in the subdivision.
[27] Ms. Khan indicated that if she found out that a house in this area could only support a two-storey house, or if a real estate agent advised her of this, she would have immediately notified Mr. Natt of this unusual variation from the norm. Ms. Khan confirmed that once the subdivision was fully built, every home in it was a three-story home.
[28] Mr. Dypchey is a civil engineering technologist employed by HY Engineering (“HY”). HY designed all of the services for the sewers, roads, and sidewalks for the subdivision developed by Mr. Saini.
[29] Mr. Dypchey said that the reason that the services on Lot 55 did not support the construction of a three-storey house was that the sewer connections were designed to be built on top of an existing water main. This shallower depth determined the minimal building elevation (“MBE”), which was too shallow for the construction of a three-story home. Accordingly, the City rejected the design plan submitted by Mr. Natt for Lot 55 on the basis that the proposed floor elevation was below the MBE for this lot.
[30] Mr. Dypchey indicated that Mr. Natt contacted HY to try to find a solution to this problem. HY was well situated to address this issue because they had designed the services for the entire subdivision. Mr. Natt retained HY to assist with upgrading the services on Lot 55.
[31] Mr. Dypchey testified that HY initially tried to obtain an exemption to reroute the storm sewer to the rear of the lot. However, at that time, the City did not permit any sewers to be connected at the rear so they rejected the proposal. The second exemption request was to connect the storm sewer further down a road. The City agreed to grant an exemption for the work to be done in this way, but the cost of completing the connection in this manner was significantly higher than the usual cost of connecting a lot to a storm sewer.
[32] The result of the exemption was that the MBE was lowered to a depth that allowed for the construction of a three-storey home.
[33] Mr. Dypchey testified that Mr. Natt was required to pay a security deposit of $7,500 to the City in order to obtain a permit to do the necessary work to reroute the storm sewer. The deposit amount is based on the City’s estimate of the amount they would charge to do the connection themselves. Mr. Dypchey believes that this amount was returned to Mr. Natt after the work was completed.
[34] HY’s initial work on the subdivision was completed on October 14, 2007 and this work passed final inspection by the City on July 24, 2009.
[35] Although the confirmed MBE of Lot 55 could not be ascertained until the services to the lot had been completed, Mr. Dypchey testified that the anticipated MBE would have been shown in the lot-grading plan that was filed with the City in 2007 and would have been available at the City’s offices to anyone, including Mr. Natt.
[36] Mr. Sidhu has been a real estate agent since 1993. He was the listing agent for Lot 55 as well as approximately 10 to 15 other lots in the subdivision offered for sale by Mr. Saini.
[37] Mr. Sidhu said that it was his practice to give all of the relevant documents concerning a property to the purchaser’s real estate agent. He believes that he provided these documents regarding Lot 55 to Ms. Khan. The subdivision contains 59 lots. Mr. Saini owned approximately 44 of these lots and Mr. Sidhu sold 15 or 16 of these lots. Mr. Sidhu confirmed the houses in this subdivision are all three-storey houses.
[38] Mr. Saini is the manager and director of Tip Top. He also manages Top Notch and his wife is the sole director of this company. Together, they also operate a numbered company for which his wife and sister-in-law are the directors. The three companies managed by Mr. and Mrs. Saini own 42.5 of the 59 lots in the subdivision. Two other individuals and another company own the other 16.5 lots.
[39] In Mr. Saini’s experience, it is not possible to determine what type of house can be built on a lot until the lot is fully developed. He said that for this reason, he instructed Mr. Sidhu to provide the lot-grading plan, design guidelines, and other relevant documents to potential buyers so they could satisfy themselves as to what type of house could be built on a lot. Mr. Saini said that he often provided subject removal dates of several weeks to facilitate these investigations and was prepared to extend these dates if necessary.
[40] Mrs. Saini was authorized to sign on behalf of Tip Top and she signed the Contract on behalf of it.
[41] Mr. Saini recalls that Mr. Natt told him that the City had rejected the plan he submitted for the construction of a three-storey house. Mr. Saini gave Mr. Natt the phone number for HY and Mr. Saini also called HY to ask that they assist Mr. Natt. Mr. Saini said that he did this in order to help Mr. Natt, but he recalled telling Mr. Natt that if he wanted to build a three-storey house on Lot 55, he would need to incur the necessary costs required to receive approval from the City. Mr. Saini says that he did not offer to pay these expenses and he did not know how much they would be.
[42] Mr. Saini has not returned the $5,000 compliance deposit to Mr. Natt.
[43] The issue in this case is the interpretation of the phrase “fully serviced, ready-to-build lot” that is contained in the Contract.
[44] EOS’s position is that this phrase refers to the construction of a three-storey house. It relies on Mr. Saini’s evidence that it intended to develop the subdivision to support the construction of three-story homes and that it intended to buy a lot for the construction of this type of home. It is common ground that each of the 59 lots in the subdivision now has a three-story home.
[45] Tip Top asserts that the court should find that the phrase “fully serviced, ready-to-build lot” has been complied with because, at the time the transaction completed in November 2012, the lot had the services required and approved by the City and it was ready for a house to be built on it, albeit not the three-story house that Mr. Natt wanted to build.
[46] The defendant further notes that the Contract does not contain a reference to the type of house to be built and that the Contract was subject to two conditions that were for the benefit of the purchaser which would have enabled Mr. Natt to determine if he could build a three-storey house on Lot 55.
[47] It is possible, and perhaps probable, that both parties independently intended that the lot would support the construction of a three-storey house. However, the question is whether this is what was required in the Contract.
[48] The general principles of contractual interpretation are well established and can be summarized as follows.
[49] Words in a contract should be given their plain and ordinary meaning and must be interpreted in light of the whole of the contract: Group Eight Investments Ltd. v. Taddei, 2005 BCCA 489 at para. 20.
[50] Contractual provisions must be interpreted objectively in view of the meaning that would be given to the words by a properly informed and reasonable bystander in the context of the agreement as a whole: Group Eight, at para. 21; Fleckenstein v. Deutsche Bank Securities Ltd., 2002 BCCA 74 at para. 19.
[51] The surrounding circumstances or factual matrix of a contract leading up to and at the execution of the contract which were known or reasonably ought to have been known to the parties to the contract may be used to assist in the interpretation of the contract, provided that the consideration of the surrounding circumstances does not overwhelm or contradict the words employed: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at paras. 50, 57.
[52] In the event that a provision is ambiguous, for example, where the words viewed objectively bear two or more reasonable interpretations, extrinsic evidence is admissible to resolve the ambiguity. This includes evidence of the parties’ conduct in making their agreement such as the course of their negotiations as well as the conduct of the parties in performing their agreement: Water Street Pictures Ltd. v. Forefront Releasing Inc., 2006 BCCA 459 at para. 25, 27.
[53] The onus is on the plaintiff to persuade the court that it is necessary to imply a term into the contract. It is not sufficient to show that it would be reasonable or logical to imply such a term or that the parties would probably have agreed upon such terms if they had put their minds to it or that, having put their minds to it, chose not to express it. A higher burden of proof must be met: Olympic Industries Inc. v. McNeill, [1994] 3 W.W.R. 268 (B.C.C.A.) at para. 31.
[54] The court has found that the existence of an entire agreement clause precludes any implied terms because it expressly provides that the contract constituted the entire agreement between the parties: Water’s Edge Resort Ltd. v. Canada (Attorney General), 2014 BCSC 873 at para. 72.
[55] If the plaintiff is able to overcome the hurdle of the entire-agreement clause, the next step is to apply the test for implying a term into the Contract.
[56] In Moulton Contracting Ltd. v. British Columbia, 2015 BCCA 89 at para. 53, the Court of Appeal relied on the Supreme Court of Canada’s decision in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619 at para. 27 regarding the test for implying terms of a contract:
[27] … (1) based on custom or usage; (2) as the legal incidents of a particular class or kind of contract; or (3) based on the presumed intention of the parties where the implied term must be necessary “to give business efficacy to a contract or as otherwise meeting the ‘officious bystander’ test as a term which the parties would say, if questioned, that they had obviously assumed” …
[57] Our Court of Appeal in Moulton Contracting stated:
[54] Justice Iacobucci noted that while it was not clear from Canadian Pacific Hotels Ltd. [v. Bank of Montreal, [1987] 1 S.C.R.] whether the “business efficacy” and “officious bystander” tests were two separate tests, what was “important in both formulations is a focus on the intentions of the actual parties”, and not “the intentions of reasonable parties” [Emphasis by Iacobucci J.]:
…
[55] The key element is that the implied term is more than just reasonable; it is necessary to make the contract as the parties intended. That is, without the term, the contract, as intended by the parties, would not be effective.
[Emphasis added.]
[58] Mr. Saini intended to develop a subdivision for three-story homes and Mr. Natt intended to buy a lot to construct a three-story home. However, the Contract does not refer in any way to a three-story home. Specifically, it does not say that the lot must be capable of supporting the construction of a three-story home.
[59] Mr. Natt may have assumed that this term was obvious because the handful of homes that had been constructed in the subdivision at the time he entered into the Contract were three-story homes, but this is not what he contracted for.
[60] EOS is seeking to impose or imply a new term in the Contract: that the lot was to be a “fully serviced, ready-to-build lot for a three-storey home”. These five additional words, “for a three-storey home”, could have been added to the contract drafted by EOS’s real estate agent, but this was not done.
[61] In order for the court to find that a term should be implied, the court must first determine if there is any ambiguity in the relevant term of the Contract.
[62] In interpreting “fully serviced, ready-to-build lot”, it is clear that Lot 55 was indeed serviced, and it was ready to be built upon, albeit not a three-storey house.
[63] EOS is seeking to have the court imply a term that would add a requirement that the lot be ready to build a three-story home.
[64] This term EOS seeks to imply is not based on customer usage. There are, of course, homes that have only two storeys with either no basements or basements that are limited to crawlspaces.
[65] On the same basis, it cannot be said that the construction of a three-story home is a legal incidence for a particular class or kind of contract.
[66] EOS may be seeking the inclusion of the implied term on the basis of business efficacy. However, to be successful under this category, it must establish on evidence that Mr. Saini would have agreed to such a term in the Contract and that such a term is necessary to make the Contract operational.
[67] Mr. Saini’s evidence was that, based on his prior experience at developing subdivisions, he had no intention of committing to the type of house that could be built on the lots he was selling. He had previously developed several subdivisions and, on one occasion, he found out the lots he developed, which he thought would support the construction of three-story homes, would not be approved for this type of construction by the municipality unless additional pumps were installed.
[68] From this experience, Mr. Saini knew that the only entity that could provide an assurance of the type of home that could be built on a lot was the local municipality.
[69] For this reason, his instructions to his realtor were to provide all the relevant documents to potential purchasers and agree to subject clauses with several weeks for their removal in order to enable the purchasers to check with the corresponding city on what type of house could be built. Mr. Saini also indicated that he allowed extensions of time for these clauses if requested.
[70] Mr. Saini was clear that he did not want to provide any assurance of the type of house that could be built on the lot, presumably because this determination could only be made by the corresponding city.
[71] It may have been Ms. Khan’s standard practice to not insert a term that confirmed her client’s desire to buy a lot that could support the construction of a three-story home, but her specific practice in this regard is not determinative.
[72] The subject clauses were inserted into the Contract solely for the purchaser’s benefit. It was the purchaser’s decision to only ask for four days to remove these subject clauses. Mr. Natt says that he received confirmation from the City during this intervening period that he could build a three-story home, but even if this is accepted, he knew that the lot would not be developed for at least two years and that municipal home construction policies could change.
[73] In order to protect his interest in constructing a three-story home on a pond lot to be developed years into the future, he should have either instructed Ms. Khan to make it a term of the contract that the lot support the construction of a three-story home or Ms. Khan should have inserted this term knowing that these were the intentions of her client.
[74] I further note that the lot-grading plan for the subdivision was available to the public, but there is no evidence that Mr. Natt checked this plan, which would have revealed the expected MBE for Lot 55, before removing the subject clause on the Contract.
[75] Mr. Dypchey testified the City’s house construction policies changed frequently. He indicated that it is possible that when the services were installed in 2007 and approved by the City in 2009, Lot 55 may have been approved for the construction of a three-storey house at that time. However, this lot was not developed until several years later.
[76] In this particular case, there were two further facts that would have made it difficult to predict if the City would approve the construction of a three-storey house:
1. Lot 55 was a pond lot. These lots are typically at a low point in the topography of a subdivision so the MBE of this lot would have been particularly uncertain; and
2. the Contract was entered into in March 2010 and both parties knew that Lot 55 would not be developed until 80 percent to 90 percent of the subdivision construction was completed. In this case, the Contract completed in November 2012, more than two-and-a-half years later. Over this long period of time, it would have been difficult for anyone to predict what changes would be made to the City’s house building policies.
[77] As an experienced developer, Mr. Saini was aware that municipal policies change from time to time and he knew that the ultimate decision on whether a three-storey house could be built on any particular lot was not one that he controlled. It was up to the City. Accordingly, it is clear that Mr. Saini would not have agreed to a term in the Contract to provide a lot on which a three-storey house could be built.
[78] Furthermore, the inclusion of the implied term is not necessary to make the Contract operational because the lot was serviced and it was ready to be built on.
[79] Unfortunately for Mr. Natt, the City would not approve the construction of a three-storey house because the lot did not have a sufficient MBE. He could only comply with the City’s MBE requirements for a three-storey house by paying a significant sum to reroute the sewers. This expense cannot be visited upon Mr. Saini because he provided what the parties contracted for.
[80] EOS is entitled to the return of its $5,000 deposit. I note that this amount should have been returned at least three years ago. It was probably retained by Mr. Saini as a bargaining chip in this litigation. It was clearly wrong of him to have kept these funds and he is ordered to return this amount with interest calculated from the date he received the request to return it to the date it is paid. Otherwise, this matter is dismissed.
[81] THE COURT: Are there any submissions with respect to costs?
[SUBMISSIONS RE COSTS]
[82] THE COURT: In my view, the $5,000 deposit should have been repaid to Mr. Natt quite some time ago. Here is my decision on costs.
[83] For the aforementioned reasons, EOS has not made out its case on a balance of probabilities and it is, therefore, dismissed. On this basis, ordinarily, the defendant, Tip Top would be entitled to its costs.
[84] This matter was originally scheduled for a five-day trial. It concluded in four days and involved the viva voce evidence of five witnesses, including Mr. Natt and Mr. Saini. There were no significant evidentiary disputes. The one area of disagreement is whether Mr. Saini agreed to pay for the costs of the additional servicing work. Mr. Natt testified that Mr. Saini indeed agreed to pay this cost when it was first brought to his attention while Mr. Saini says he made no such commitment, but nothing significant turns on this because it is common ground that Mr. Natt paid these costs, not Mr. Saini.
[85] The only live issue involved the interpretation of a clause of a contract. The evidence could have been provided by affidavit. The credibility of the witnesses was not a significant factor. This matter should have been set down for a summary trial.
[86] If it had been, it would have concluded in no more than two days, possibly less. I also note that the amount in issue was approximately $75,000. It was entirely disproportionate for this matter to proceed to a full trial for four days with two counsel on each side. It could have been resolved far more efficiently if either one of the parties had set it down for a summary trial.
[87] Tip Top has been successful and it is entitled to costs. For the reasons that I have outlined, I am awarding costs to Tip Top at Scale B at an amount to be calculated for only one counsel for a two-day trial.
“Basran J.”