Date: 19990528 Docket: C952572 Registry: Vancouver IN THE SUPREME COURT OF BRITISH COLUMBIA BETWEEN: PROSPERO INTERNATIONAL REALTY INC., and PROFILE LEASING CORP., carrying on business as PROFILE LEASING GROUP PLAINTIFFS AND: TBGC LEASING LIMITED and TIBBETT & BRITTEN GROUP CANADA INC. DEFENDANTS REASONS FOR JUDGMENT OF THE HONOURABLE MADAM JUSTICE SINCLAIR PROWSE Counsel for the Plaintiff: L.J. Mackoff Counsel for the Defendant: G. Phillips Place and Date of Hearing: October 15, 1998 Vancouver, B.C. I) Nature of Proceeding and Relief Sought [1] In this hearing, the Plaintiffs sought final judgment pursuant to Rule 18A. Both counsel agreed that it is appropriate to decide this case under this rule. [2] The Plaintiffs are, and were at all material times, real estate brokers. [3] In this action the Plaintiffs contend that the Defendant Tibbett and Britten Group Canada Inc., ("TBGC"), acting in concert with the Defendant TBGC Leasing Limited ("TBGC Leasing"), purchased a property located at 830 Malkin Avenue in Vancouver, B.C., (the "Malkin Property"). [4] Further, the Plaintiffs allege that as they caused, or materially contributed to, the successful purchase of this property, they are entitled to be paid a commission. The Plaintiffs' claims were framed in contract and in quantum meruit/unjust enrichment. [5] For reasons which follow, I concluded that the Plaintiffs are entitled to judgment on a quantum meruit/unjust enrichment basis as they have proven their claim. Having reached this conclusion, I found it unnecessary to deal with the claim of breach of contract. [6] A primary issue in this case was whether the Plaintiffs had any cause of action against TBGC, as it was TBGC Leasing, and not TBGC, that was the named purchaser in the Offer to Purchase. [7] As is set out in this judgment, the evidence established that the Plaintiffs worked with William Johnston, who at all material times was the Senior Vice-President, Financial Planning and Strategy of TBGC, to successfully acquire the Malkin Property. Mr. Johnston selected TBGC Leasing, (a company in which, at all material times, he held the position of Senior Vice-President, North America), as the corporate entity in which this property was to be held. [8] As is further set out, this selection was most probably made because it was in the best commercial interests of TBGC and TBGC Leasing that the acquisition be accomplished in this manner. [9] It follows from this conclusion that, the services provided by the Plaintiffs in the acquisition of the Malkin Property benefited both TBGC and TBGC Leasing. As TBGC and TBGC Leasing both benefited from the provision of the Plaintiff's services, they are jointly and severally liable to the Plaintiffs for the payment of those services. II) Background and Surrounding Circumstances [10] In June 1994, the owner of the Malkin Property went into receivership. The Malkin Property included a 60,000 square foot cold storage facility which was leased to Overwaitea Foods. [11] In July 1994, the owner approached the Plaintiff, Prospero International Realty Company, ("Prospero"), to assist it in locating a lessee or a purchaser for the Malkin Property. The asking price was $5 million and the sale or lease was to be subject to the proviso that the owner be granted a leaseback, enabling it to maintain the Overwaitea lease. [12] In early August 1994, Mr. Johnston notified the Plaintiff, Profile Leasing Corp., ("Profile"), through an Ontario real estate firm, that TBGC was interested in locating properties in western Canada for purchase or lease. (The head offices of both TBGC and TBGC Leasing are located in Ontario). As was evidenced by their correspondence throughout, the Ontario real estate firm and Profile considered the client to be TBGC as represented by Mr. Johnston. [13] In a letter dated August 27, 1994, Profile wrote to TBGC, (to the attention of Mr. Johnston), confirming that the real estate needs of TBGC included the purchase or lease of a 60,000 sq. ft. cold storage property. In this letter Profile requested that TBGC provide further specifications as to this real estate need and to provide it, (Profile), with "exclusive authority" to tend to TBGC's real estate needs in British Columbia. [14] Prior to this, Mr. Johnston had been contacting some of the principals of the British Columbia properties directly, contending that Profile and the Ontario real estate firm were taking too long. Profile and the Ontario real estate firm reached an agreement that Profile would deal directly with Mr. Johnston. However, Profile required assurance from Mr. Johnston that he would work through it and not contact the principals of the properties directly. [15] The evidence proved that until October 12, 1994, Mr. Johnston did work through Profile, and did not contact the principals directly. On October 12, 1994, an Offer to Purchase was made by the Defendants to the Receiver, without the knowledge of the Plaintiffs. [16] In response to the letter from Profile, Mr. Johnston, on August 29, 1994, faxed Profile setting out additional specifications of the type of property for which he was looking. [17] Profile then contacted Prospero and Prospero provided it with the details of the Malkin Property, including an appraisal that had been done a few months before, which estimated the fair market value of the land and buildings to be $5,600,000.00, and the fair market value of the cooler and freezer equipment to be $200,000.00 - $300,000.00. [18] In addition, Prospero consulted with the owner of the Malkin Property and as a result of that consultation, the owner changed its position and agreed to lease or sell the property as "vacant possession"; that is, the owner agreed to abandon its leaseback requirement. [19] Profile in turn notified Mr. Johnston regarding the change in the terms on which the owner was willing to sell or lease this property. The fact that this property could now be purchased or leased as vacant possession made this property attractive to Mr. Johnston. [20] Both Prospero and Profile were aware that Mr. Johnston had known about the Malkin Property earlier, but that he had not been interested in pursuing it, largely, if not solely, because of the leaseback provision. [21] Mr. Johnston did not dispute that it was this change that caused him to become interested in acquiring this property. Rather, his evidence was silent on this point. However, the fact that he acted immediately upon receiving this information to take steps to make an offer to lease is strong evidence that this change made a material difference to him. [22] In my view, the evidence establishes that this change was brought about by the joint efforts of Profile and Prospero. [23] The first step that Mr. Johnston took to acquire the Malkin Property was to meet with Profile and consolidate its relationship with TBGC and its affiliates. Specifically, on August 29, 1994, upon receiving the information from Prospero, Profile faxed Mr. Johnston advising him that "VACANT POSSESSION APPRAISED MAY 25/94 $5,600,000. MILLION". Later that same day, Profile sent another fax setting out "830 MALKIN AVE. VANC. SUGGESTED PRICE $5,200,000. MILLION FOR VACANT POSSESSION INVESTOR/PURCHASER MAYBE 10 YR LEASE WITH CARRIED INTEREST FOR TENANT". [24] Two days later (on August 31, 1994), upon request, Profile forwarded a copy of the appraisal to Mr. Johnston. [25] Within a few days of that Michael Kalin, the representative of Profile, was invited to Toronto by Mr. Johnston to discuss the potential purchase/lease of Malkin Property as well as other real estate acquisitions. Specifically, as was set out in Mr. Johnston's affidavit, the purpose of the meetings was to discuss "the transactions that interested the various companies with which I was associated and to explore what Mr. Kalin could do to facilitate those transactions". [26] To facilitate these arrangements, on September 2, 1994, Mr. Kalin entered into a confidentiality agreement with TBGC, Mr. Johnston signing on behalf of TBGC as the Senior Vice-President. Under the terms of this agreement, Mr. Kalin agreed not to disclose any confidential or proprietary information pertaining to TBGC and its affiliates which may be disclosed to him during negotiations. As Mr. Kalin explained in his affidavit, this type of agreement is "common in commercial real estate business when a client must disclose sensitive or proprietary information to its broker in order to locate and acquire properties". [27] On September 3, 1994, Mr. Johnston requested that Mr. Kalin draw up a form of an Offer to Lease for review and input. Later that day Profile faxed a draft Offer to Lease to Mr. Johnston leaving the name of the prospective tenant blank. In this lease, there was a provision pertaining to the payment of a commission. That commission was to be paid by the vendor. [28] In his affidavit, Mr. Kalin testified that he left the space for the name of the tenant blank because TBGC "would select a corporation to act as its nominee for the purpose of the Malkin Property transaction". [29] Although this assertion is, on the face of it, inconsistent with the evidence that he gave at his examination for discovery, it is not material. That is, at his examination for discovery, Mr. Kalin testified that he did not remember Mr. Johnston saying that TBGC would select a nominee. Regardless of how it came about, Mr. Kalin did leave space for the name of the prospective tenant blank, and Mr. Johnston did subsequently advise him in a draft Offer to Lease dated September 6, 1994, and subsequently in the finalized Offer to Lease, that the prospective tenant was to be Western Distribution Centres Alberta Inc., and that he, Mr. Johnston, would sign as secretary of that company. [30] Also included on the face of the draft Offer to Lease forwarded on September 6, 1994, was a notation written by Mr. Johnston that: "You should be receiving TBGC Leasing's mandate today (tomorrow) from Don". Don Darroch is the Vice-President of TBGC Leasing. [31] Subsequently, Profile received a letter from Don Darroch in which he wrote that: "This letter will confirm our agreement with ... Profile Leasing Group to act as exclusive agents, on our behalf, to fulfill the following requirements ... +/-60,000 sq. ft. chill storage space, Lower Mainland, Vancouver". The term of this contract was six months, terminable by TBGC Leasing on 30 days notice, "if a lack of commercial viability can be demonstrated". This was the letter to which Mr. Johnston referred. The tenant named in the Offer was still Western Distribution Centres Alberta Inc. [32] The Offer to Lease was not accepted by the Receiver and a Counter-Offer was made. The Counter-Offer was not accepted. By the end of September 1994, it became obvious that an agreement was not going to be reached on the leasing of the Property. [33] Consequently, the Plaintiffs suggested that Mr. Johnston make an Offer to Purchase the Property for $4.6 million net, "in order to tie up the property while they sought out an investor and structured a suitable lease". Moreover, it was also suggested that a commission of 3% be paid. This Offer to Purchase would be for vacant possession as the owner was no longer insisting on a leaseback. Prospero faxed a copy of the form of Offer for Purchase that would be acceptable to the Receiver. [34] As this documentation was being prepared, on October 3, 1994, in relation to another real estate transaction, Mr. Johnston wrote a letter to Royal LePage, in his capacity as Senior Vice President, Financial Planning and Strategy of TBGC, stating that: "In our confidential discussions last week it appears that I may have overlooked telling you that we negotiate our needs in B.C. through Mr. Mike Kalin of Profile Leasing Corp". Although this letter was written in relationship to another transaction on which Profile was assisting TBGC, there was no indication in this letter that this mandate was restricted to the one transaction. [35] On October 5, 1994, the form for an Offer to Purchase was forwarded to Mr. Johnston. On October 6, 1994, a completed Offer to Purchase was faxed back to Profile. In this document, TBGC Leasing was named as the purchaser and the Offer was in the amount of $4.75 million. [36] Profile noted that a commission clause had been omitted from this offer and brought it to the attention of Mr. Johnston, who wrote to the receiver advising that the "following clause had been accidently omitted". That is, as part of the offer, there should be a clause that: "A real estate commission of $150,000 will be paid by the Vendor on closing to Profile Leasing Corp. and Prospero International. For greater certainty, this commission will result in a purchase to the Vendor, after commission, of $4,600,000". Of some significance to the issues raised in this action was the fact that Profile contacted Mr. Johnston with this problem (not Mr. Darroch) and it was Mr. Johnston who personally attended to the matter. [37] The receiver did not accept this offer to purchase. One of the reasons that this offer was not accepted was that, as the evidence discloses, the receiver was not prepared to agree that the bankrupt vendor pay the real estate commission as the receiver had not retained a real estate agent. [38] Consequently, on October 7, 1994, the offer to purchase was revised. In particular, this offer was in the amount of $4.6 million and provided that "The purchaser acknowledges that it shall be solely responsible for the payment of any commission owing to Profile Leasing Group and/or Prospero International in connection with the transaction contemplated by the Offer." [39] Neither Profile nor Prospero were advised as to whether this offer had been accepted or rejected. In his affidavit, Mr. Kalin attested that within a few days of the making of this offer he endeavoured to contact Mr. Johnston but that Mr. Johnston did not respond to his inquiries. (Mr. Johnston did not deny this). [40] Subsequently, Profile and Prospero discovered that on October 12, 1994, an offer to purchase the Malkin Property in the amount of $5 million was made to and accepted by the receiver. This offer also included the provision that the purchaser would be responsible for any commission owed to Profile or to Prospero. [41] In his affidavit Mr. Johnston testified that "I decided that TBGC Leasing Ltd. was now willing to pay $5 million as a result of our having negotiated more favourable terms with our potential client for the premises. That offer was then made and was accepted." Mr. Johnston did not disclose the details of these more favourable terms. Other than the amount offered, the terms of this final offer were the same as the earlier offers to purchase. [42] On November 24, 1994, the Court approved the sale of this property for a selling price of $5. million. [43] Although the Plaintiffs have demanded that the Defendants pay their commission, to date the commission has not been paid. III) Discussion and Decision [44] The term "quantum meruit" is used in this case in its restitutory, rather than contractual, context. The restitutory claim of quantum meruit appears to have been subsumed under the law of unjust enrichment, a separate branch of law, distinct from contract. See: Bancorp Mortgage Ltd. v. Sicon Group Inc. (1990), 2 B.L.R. (2d) 161 (S.C.), and National Trust Co. v. Atlas Cabinets & Furniture Ltd. (1990), 38 C.L.R. 106 (B.C.C.A.). There is no dispute that a claim of unjust enrichment applies to commercial as well as personal relationships. See: National Trust Co. v. Atlas Cabinets & Furniture Ltd. and Bancorp Mortgage Ltd. v. Sicon Group Inc. (supra). [45] To succeed with this claim, the Plaintiffs are required to prove that the Defendants had been enriched as a result of the services provided that they (the Plaintiffs) provided to them; that they (the Plaintiffs) suffered a corresponding deprivation; and that there is no juristic reason entitling the Defendants to that enrichment. In this regard see: Pettkus v. Becker (1980), 117 D.L.R. (3d) 257 (S.C.C.). [46] As far as the enrichment is concerned, the evidence proved that the Plaintiffs caused, or materially contributed to, the Defendants' successful purchase of the Malkin property. As was set out in the case of Bancorp Mortgage Ltd. v. Sicon Group Inc. (supra), the Plaintiffs are not required to show that they were the sole cause of, but rather just that they materially contributed to, the purchase of the Malkin Property. [47] As the evidence disclosed, prior to the involvement of the Plaintiffs, Mr. Johnston had decided not to pursue the acquisition of the Malkin Property because of the leaseback conditions that the owner had imposed. The evidence is undisputed that this condition was removed because of the efforts of the Plaintiffs. It was after this material change that Mr. Johnston decided to acquire the Malkin Property. [48] Mr. Johnston attested that the purchase of this Malkin Property was made because of more favourable conditions that he was able to negotiate with the potential client for the premises. The particulars of these terms are not disclosed in the materials. However, even if Mr. Johnston was able to negotiate better terms (and I am not at all satisfied that he was able to do this) the Plaintiffs materially contributed to this successful purchase as it was their efforts that made the Malkin Property attractive to Mr. Johnston to begin with. [49] An issue in this hearing was whether the Plaintiffs had any cause of action against TBGC, as it was TBGC Leasing (and not TBGC) that purchased the Malkin Property. Counsel for the Defendants argued that the corporate veil on the Defendants could not be lifted simply because the claim was for unjust enrichment. [50] In my view, it was not necessary to lift the corporate veil of the Defendants to resolve this issue, or any of the issues, raised in this action. [51] Specifically, when Mr. Johnston approached the Plaintiffs initially, he approached them as the representative of TBGC, as is demonstrated in the correspondence from the Ontario real estate firm and Profile. [52] With the exception of the rare occasion on which Mr. Johnston directed otherwise, the Plaintiffs directed all of their correspondence to Mr. Johnston at TBGC, and he, in turn, (with one exception on which I will comment later), responded as the representative of TBGC, as indicated by the notations, letterhead, or fax markings on his correspondence. [53] One of the few, if not the only, occasion on which Mr. Johnston corresponded in a capacity other than as the representative of TBGC was the letter that he wrote to the Receiver on October 6, 1994, regarding the payment of a commission to the Plaintiffs. Although that letter was written as coming from the offices of TBGC Leasing, which is in keeping with the fact that that is the company that he had selected to be the purchaser, the logo on that letter is TB Group - presumably meaning TBGC. [54] Furthermore, Mr. Johnson had Mr. Kalin sign a confidentiality agreement pertaining to TBGC as soon as he became seriously interested in the acquisition of the Malkin Property; Mr. Johnson's letter dated October 3, 1994, in his capacity as the Senior Vice-President of TBGC, stated that: "we negotiate our needs in British Columbia through Mr. Michael Kalin of Profile Leasing Group"; when it was noted that the commission had been omitted from the Offer to Purchase on October 6, 1994, the Plaintiffs contacted Mr. Johnston, not Mr. Darroch who was the Vice President of TBGC Leasing, and the named purchaser, and it was Mr. Johnston who dealt with the matter; and it was Mr. Johnston, as the representative of TBGC, who made the selection of the various companies to be named in the Offer to Lease and in the Offer to Purchase. [55] During this hearing, counsel for the Defendants argued that the letter of October 3, 1994, the letter in which Mr. Johnston states that TBGC negotiates his real estate needs in B.C. through Profile, was being wrongly construed and that the letter pertained to transactions other than the acquisition of the Malkin Property. Counsel contended that this mistake is evident because of the letter sent by Don Darroch, the Vice President of TBGC Leasing on September 6, 1994, to Profile, setting out that they were their exclusive agents to fulfill the following requirements: +/-60,000 sq. ft. storage space, Lower Mainland, Vancouver. [56] These letters, in my view, are not mutually exclusive, but rather demonstrate the nature of the relationship between the Plaintiffs and the Defendants - namely, that Mr. Johnston selected other companies, in which he was an officer, best suited for the particular transaction but that the ongoing and primary relationship remained between the Plaintiffs and TBGC. Again, Mr. Johnston must have considered that these selections worked to commercial advantage of these companies, including TBGC, as there is no other reason to do it. [57] As is indicated in the fax dated September 5, 1994, Mr. Johnston, writing as the representative of TBGC, gave the Plaintiffs further instructions on the Offer to Lease. In addition, he advised that: "YOU SHOULD BE RECEIVING TBGC LEASING MANDATE TODAY (TOMORROW) FROM DON". At this stage in the acquisition process, Mr. Johnston, as representative of TBGC, was still endeavouring to lease the Malkin Property, having selected Western Distributions Centres Alberta Inc. as the tenant to be named in the Lease. Other than this agency letter, TBGC Leasing did not become part of the acquisition process until the beginning of October 1994, when Mr. Johnston, as the representative of TBGC, decided to purchase the Malkin Property rather than lease it. At that point, TBGC Leasing was selected by Mr. Johnston as the corporate vehicle in which this property would be held. [58] As was set out earlier, as a representative of both TBGC and TBGC Leasing, Mr. Johnston would only have orchestrated this purchase arrangement because that arrangement was in the best commercial interests of both TBGC and TBGC Leasing. It follows from this conclusion, that the services provided by the Plaintiffs in the successful acquisition of the Malkin Property benefited both TBGC and TBGC Leasing. [59] In these reasons, both TBGC and TBGC Leasing were enriched by the services provided by the Plaintiffs. [60] The Plaintiffs did suffer a corresponding deprivation as they were not compensated for the services that they provided to the Defendants. [61] In determining whether there is a juristic reason entitling the Defendants to this benefit, it is the injustice of the enrichment or benefit in the context of the relationship of the parties that is of primary importance. See: National Trust Co. v. Atlas Cabinets & Furniture Ltd. (supra). The Court must consider the legitimate expectation of the parties at the time that the services were provided and accepted. See: Peter v. Beblow (1993), 77 B.C.L.R. (3d) 257 (S.C.C.). [62] In particular, it must be evident that the retention of the benefit would be unjust in the circumstances of the case or that keeping of the enrichment or benefit without recompense would be "against conscience". See: Bancorp Mortgage Ltd. v. Sicon Group Inc. (supra), wherein it is stated that in a business relationship "honest dealing ... should set the standard of fairness". Also, see: National Trust Co. v. Atlas Cabinets & Furniture Ltd. (supra). [63] In this case, Mr. Johnston, as the person with whom the Plaintiffs had dealt throughout as the representative of TBGC and TBGC Leasing, assured the Plaintiffs that they would be paid for their services. To this end, he personally contacted the Receiver, in writing, to have a provision inserted into the first Offer to Purchase, providing for the payment of a commission to the Plaintiffs. When those efforts were unsuccessful, he arranged for a clause to be inserted into the Purchase Agreement wherein the purchaser would assume the responsibility for the payment of the commission. This assumption by TBGC Leasing does not relieve TBGC of any obligation to the Plaintiffs. The service was provided to both companies. If TBGC Leasing chooses to assume full responsibility that is between the two Defendants, this does not alter their several and joint obligation to the Plaintiffs. [64] The significance of the inclusion of the commission clause is that it is evidence that the Defendants recognized that the Plaintiffs were entitled to a commission. [65] There is no evidence that the services were to be provided gratuitously, or that these services were imposed on the Defendants. To the contrary, it was Mr. Johnston, as a representative of both of the Defendants, who sought these services from the Plaintiffs. [66] During the hearing, counsel for the Defendants argued that the payment of the commission was dependent on the Defendants purchasing the property for $4.6 million. The evidence does not support this conclusion. [67] Rather, the Defendants' own documents support the conclusion that the payment of the commission was an ongoing obligation, regardless of the amount of the final purchase. That is, the Offer to Purchase which was accepted by the Receiver, was in the amount of $5 million and included the provision that the purchaser would be responsible for the payment of the commission. This agreement was prepared by the Defendants. If there was no obligation to pay the Plaintiffs a commission if the Malkin Property was purchased for more than $4.6 million, there was no reason to include this clause in that final offer. [68] Although the vendor in a real estate transaction usually pays the real estate commission, this situation can be changed upon the agreement of the parties. See: Luxor (Eastbourne) Ltd v. Cooper, [1941] A.C. 108; H.W. Liebig v. Leading Investments Ltd., [1986] 1 S.C.R. 70; and Block Bros. Realty Ltd. v. Mason and Mason, [1974] 6 W.W.R. 36 (B.C.C.C.). In this case, as is reflected in the Offers to Purchase, the purchaser assumed the responsibility of paying the commission. [69] Further, even if nothing had ever been said by the parties regarding the payment of a commission, as soon as the Defendants took the benefit of the services, which the Defendants did upon the successful purchase of the Malkin Property, they (the Defendants) have a legal obligation to pay for those services. See: Aikens v. Allan (1904), Man. R. 549 (C.A.). If the Plaintiffs were the effective cause of the sale, which I have concluded they were in that they materially contributed to it, they (the Plaintiffs) are entitled to be paid a commission. See: NRS Realty Centre Ltd v. Tkalcic (1988), 59 Alta L.R (2d) 235 (Q.B.). [70] Consequently, as the Plaintiffs have proven that the Defendants were enriched by the services that they (the Plaintiffs) provided to them; that as the Plaintiffs suffered a corresponding deprivation; and that as the Defendants have not established a juristic reason, entitling them to this enrichment, the Plaintiffs are granted judgment on the basis of unjust enrichment. [71] With respect to the quantum of the commission, as was set out in the case of Bancorp Mortgage Ltd. v. Sicon Group Inc. (supra), in situations in which the fee is tied to a result (as occurred in this case - namely, the fee was tied to the successful purchase of Malkin Property), the amount of the award should be derived from the value of that service. [72] As the evidence discloses, the parties had agreed that the value of the service was $150,000.00. [73] As was set out in the evidence, the Plaintiffs worked together to facilitate the Defendants' purchase of the Malkin Property. They are both agreed that they are each entitled to a portion of this commission, and that that apportionment will be made by them. [74] Judgment is granted to the Plaintiffs in the amount of $150,000.00 plus interest, that interest to run as of November 24, 1994, which was the date on which the purchase was approved by the Court. IV) Costs [75] As the successful party, the Plaintiffs are awarded costs. Those cost are to be calculated at Scale 3. "Sinclair Prowse, J."