http://www.courts.gov.bc.ca/jdb-txt/ca/92/05/C92-0520.htm

No. CA014596

Vancouver Registry

Court of Appeal for British Columbia

DEAN GRENOBLE

6853477 HOLDINGS LTD., et al.

Reasons For Judgment of Madam Justice Prowse:

1 This is an appeal from a judgment of the Honourable Mr. Justice Cohen in which he dismissed the plaintiff's claim against the defendant, 6853477 Holdings Ltd., (the "company") pursuant to an application by the company under Rule l8A of theRules of Court. In so doing, he held that the plaintiff was not a purchaser within the meaning of s. 59(1)(a) of theReal Estate Act, R.S.B.C. l979, Chapter 356 (the "Act").

2 The l8A application did not deal with the plaintiff's claim against the other named defendants in the action.

3 The appeal was heard on September 16, l992, and was dismissed at that time, with reasons to follow. These are the reasons.

4 The subject matter of this action is two lots, Lot 26 and Lot 28, which form part of a subdivision developed by the company in the early l970's. In May, l973, the company filed the required prospectus under the Act relating to this subdivision. In October, l985, the plaintiff purchased Lots 26 and 28 from the defendants, Mr. and Mrs. MacNaught. They, in turn, had purchased the lots in late l976 or early l977, either from the company, or from someone who had previously purchased the lots from the company. It is common ground that the plaintiff never read the prospectus prior to purchasing the lots.

5 After purchasing the lots, the plaintiff discovered that there were problems with access to them. He also discovered a statement in the prospectus referring to access to the lots which he says amounts to a "material false statement". It is these facts which gave rise to his claim against the company under s. 59 of the Act.

6 Section 59(1) of the Act provides, in part, as follows:

59. (1) Where a prospectus has been accepted for filing by the superintendent under this Part,

(a) every purchaser of any part of the subdivided land or time share interest to which the prospectus relates shall be deemed to have relied on the representations made in the prospectus whether the purchaser has received the prospectus or not; and

(b) if any material false statement is contained in the prospectus,

(i) every person who is a director of the developer at the time of the issue of the prospectus;

(ii) every person who, having authorized such naming of him, is named in the prospectus as a director of the developer;

(iii) every developer; and

(iv) every person who has authorized the issue of the prospectus

is liable to make compensation to all persons who have purchased the subdivided land or time share interest for any loss or damages those persons may have sustained, unless....

(Emphasis added.)

The section then goes on to provide several exceptions, none of which are relevant to the narrow issue before us.

7 The issue before Mr. Justice Cohen, and before this Court, was whether the words "every purchaser" in s. 59(1)(a) of the Act include not just those who purchase directly from a developer, but also subsequent purchasers who purchase from someone other than a developer.

8 In support of his submission that subsequent purchasers are afforded the protection of the "deemed reliance" provisions of s. 59 of the Act, the plaintiff relied onSchlackl et al. v. Eagle Realty Ltd. (l983), 43 B.C.L.R. 222 (B.C.S.C.). In that case, the plaintiffs purchased their property from someone who had, in turn, purchased the property from the developer. Problems arose with respect to the property, and the plaintiffs sued the developer for compensation for false material representations pursuant to s. 59 of the Act. The trial judge found the developer liable under s. 59, as indicated by the following passage at p. 229 of the decision:

In my view a purchaser, whether one who purchases directly from a promoter or on a resale as occurred here, is entitled to rely upon the provisions of this section.

9 The developer appealed. The only issue dealt with on appeal was whether the developer was entitled to rely on a defence raised under s. 59(1)(b)(viii) of the Act. The Court of Appeal found that a defence was made out under that subsection and allowed the appeal. The Court of Appeal was not asked to, and did not, address the question of whether s. 59 applied to purchasers from someone other than a developer. That being the case, I agree with Mr. Justice Cohen thatSchlackl is not binding authority for the proposition that the words "every purchaser" in s. 59(1)(a) of the Act apply to purchasers who subsequently purchase subdivided property from someone other than a developer.

10 In coming to the conclusion that s. 59 of the Act had no application to subsequent purchasers from someone other than a developer, Mr. Justice Cohen considered and relied upon a series of cases in the British Columbia Court of Appeal. Those cases did not deal directly with s. 59 of the Act, but their analysis of the scope and purpose of Part 2 of the Act, in which s. 59 is found, is of assistance in determining the scope of s. 59(1)(a). The cases are: Mountain Village Developments Ltd. v. Engineered Homes Ltd. (l985), 37 R.P.R. 258;Cano Projects Ltd. v. Corrales (l985), 64 B.C.L.R. 218;Eng-Choon and Nam-Chee Nancy v. Selby Property Investments Ltd. (l985), 64 B.C.L.R. 227; andChambers v. Pennyfarthing Development Corp. and Turbo Resources Ltd. (l985), 64 B.C.L.R. 145.

11 The following passage at p. 260 of the dissenting judgment of Mr. Justice Esson, as he then was, inMountain Village Developments, supra, is of some assistance in ascertaining the intent and purpose of Part 2 of the Act:

The language of Pt. 2 is murkily obscure and so leaves much room for disagreement as to its meaning. On one point, however, all agree. That is, that the object of the Part is to protect those who purchase lots or other units from developers of subdivisions, and to accomplish that object by requiring full disclosure to be made in a prospectus.

(Emphasis added.)

This passage indicates that the protection afforded by the Act is for purchasers "from developers", rather than for purchasers at large.

12 Indirect support for this proposition is also found in theCana Projects case. There, a developer, Nu West, sold subdivided lots to another developer, who then sold the lots to the defendant. The defendant failed to pay the amounts owing for the lots and the second developer sued for specific performance. The defendant relied on s. 62 of the Act and alleged that the contract was unenforceable since the second developer had failed to file a prospectus as required by s. 50 in Part 2 of the Act. The trial judge agreed with this submission and dismissed the action. The Court of Appeal upheld that decision. In so doing, the Court of Appeal set out the position of the appellant at p. 223 of the decision:

...the appellant [second developer] argued the purpose of the Act was to control the development of subdivisions and protect purchasers of lots. In this case it was said that purpose is accomplished because Nu West [the original developer] filed with the superintendent a prospectus and it is available for the protection of purchasers of individual lots. Because that prospectus was filed, the respondent would have the protection of s. 59(1)(a). That section provides that where a prospectus has been accepted for filing by the superintendent, every purchaser of a lot is deemed to have relied on the representations made in the prospectus whether the purchaser has received a prospectus or not.

The Court of Appeal dealt with that submission at p. 224 as follows:

The respondent is not protected by the prospectus provided to the appellant by Nu West although the appellant, as a purchaser from Nu West, is. Section 50(6) and (7) obliged the appellant to file a prospectus with the superintendent, provide a copy to the respondent and take from her a certificate showing she was afforded an opportunity to read it. The prospectus referred to in s. 59 is that same prospectus and not the one prepared by Nu West and given to the appellant.

13 AlthoughCano Projects did not deal directly with the specific issue that confronts us in this case, the passages quoted above lend some support to the argument that the words "every purchaser" in s. 59(1)(a) do not include anyone other than the first purchaser from a developer.

14 A more complete history of Part 2 of the Act is set out in both theChambersandEng-Choondecisions. Apart from reiterating that Part 2 of the Act was designed to protect purchasers of subdivided lands, those cases do not resolve the question of whether the purchasers to be protected include all purchasers for all time, or only those who purchase subdivided land from developers.

15 The only other authority to which we were referred dealing with the protection afforded by s. 59 of the Act isBraun Investment Group Inc. v. Emco Investments Corporation et al. (l985), 35 R.P.R. 62 (B.C.S.C.). The main issue inBraun was whether the vendor of lots in that case was a developer within the meaning of Part 2 of the Act. In examining that question, the Court considered the issue of whether s. 59 of the Act was intended to protect purchasers other than those who purchased from a developer. At pp. 68 and 69 of the decision, the Court reached the following conclusion with respect to that issue:

Here the Legislature's thoughts seem to be directed to new subdivisions and the need to protect the first consumer-owner of freshly created, registerable lots, by obliging the developer of the subdivision to make "full, true and plain disclosure" (s. 51(1)) to these consumer-owners of information not otherwise readily available to them.

. . .

Does this obligation to disclose by filing a prospectus carry over when that original consumer-owner, in his turn, sells his lot? The answer is provided by the exclusionary words of s. 49 which exempt not only him from that obligation but any subsequent purchaser from him so long as "the purchase is in respect of not more than 4 lots". The rationale behind this, as I see it, is that once the land has gone through "subdivision" a settled condition results - utilities and services have been established, zoning by-laws have been made, title has been registered with encumbrances endorsed on the title. Information previously known only to the developer has become general knowledge or readily acquirable knowledge. By the exclusionary words the Legislature has exempted all subsequent purchasers from the obligation to file a prospectus except those who buy lots in batches of more than four. As I see it, the Legislature viewed such purchasers as merchandisers of lots in the same sense as it viewed the original subdivider and consequently it imposed upon that merchandiser the same obligation to file a prospectus to inform his purchasers.

The Court inBraun concluded that the resale of subdivided land to a subsequent purchaser from someone other than a developer did not fall within the ambit of Part 2 of the Act. Prior to the entry of judgment inBraun, the Court received further evidence which led it to reverse its original decision that the vendor was not a developer within the meaning of the Act, but that conclusion did not effect the Court's analysis reflected in the passage above. (See supplementary Reasons for Judgment reported at (l985), 62 B.C.L.R. 397.)

16 In this case, the company also submits that s. 49(1) and s. 50(7) of the Act support its position that the words: "every purchaser" in s. 59(1)(a) refer only to purchasers from developers and not to other purchasers. Those sections provide as follows:

49. (1) In this Part the word "developer" means a person who, as principal, sells or leases, or offers or proposes to offer for sale or lease, subdivided land or more than 4 time share interests in one time share plan, but does not include a purchaser from the developer, or any subsequent purchaser, where the purchase is in respect of not more than 4 lots, 4 strata lots, one cooperative unit within a subdivision or 4 time share interests in one time share plan.

50. (7) No developer, and no person on behalf of a developer shall sell, or lease, or enter into any contract for the sale or lease of, subdivided land or a time share interest, unless

(a) a true copy of the prospectus referred to in subsection (6) has been delivered to the prospective purchaser or lessee; and

(b) the prospective purchaser or lessee has been afforded the opportunity to read the prospectus and a receipt has been taken from the prospective purchaser or lessee acknowledging that he has been afforded that opportunity, and every receipt shall be retained on file by the person taking the same and be available for inspection by the superintendent for a period of 3 years after the date it was taken.

17 While I agree that s. 49(1) distinguishes between "purchasers from the developer" and "subsequent purchasers", I am not inclined to give that distinction much weight in determining the ambit of s. 59 of the Act, since the purpose of s. 49(1) is to define "developer", not "purchaser". The reference to s. 49(1) by Mr. Justice Cohen was by way of afterthought and did not constitute the ratio of his decision.

18 Section 50(7), on the other hand, directs its attention and protection specifically toward the purchaser from the developer, for it insists that the developer provide those purchasers with a copy of the prospectus and obtain a receipt from those purchasers acknowledging that they have had the opportunity to read the prospectus. In the event that a developer fails to comply with s. 50(7), s. 59(1)(a) provides a remedy to those purchasers who should have received a prospectus but did not. In other words, when s. 50(7) and s. 59(1)(a) are read together, it becomes evident that the words, "every purchaser", mean every purchaser who has purchased from a developer.

19 The plaintiff submits that s. 50(11)(c) belies this interpretation and supports its position that unlimited purchasers are caught within the ambit of s. 59(1)(a). That subsection provides as follows:

50. (11) This section [requiring a prospectus] does not apply to a strata lot or cooperative unit that is...

(c) a strata lot for which a prospectus has been filed under this Act and previously sold to a purchaser other than a purchaser who acquired directly or indirectly by one or more acquisitions, either all of, or 5 or more of, the strata lots;...

This subsection provides that, if a prospectus has already been filed with respect to a strata lot which was previously sold to someone other than a developer, a further prospectus does not have to be filed in relation to that strata lot. The plaintiff submits that this subsection somehow suggests that the original prospectus stands as protection for all subsequent purchasers of the strata lot. In my view, the subsection does not support this interpretation. Rather, the subsection is consistent with the company's position that, since the original purchaser from the developer was entitled to the protection of the original prospectus, no further prospectus was required. On the whole, I find that this subsection is of little assistance in determining the ambit of s. 59(1)(a) of the Act.

20 In my view, the conclusion reached by Mr. Justice Cohen as to the meaning to be attributed to the words, "every purchaser", in s. 59(1)(a) of the Act is supported, not only by the authorities upon which he relied, and by an analysis of the whole of Part 2 of the Act, but also by common sense. While there is no doubt that Part 2 of the Act is designed for the protection of the public, it is unreasonable to suppose that the Legislature intended Part 2 to create an indefinite and unlimited liability on developers of property and on the other persons described in s. 59(1)(b) of the Act. I do not accept the proposition advanced by the plaintiff that s. 59 (1)(a) of the Act creates a form of statutory tort which makes developers, and the others described in s. 59(1)(b) of the Act, liable in damages to all purchasers of subdivided property for all time.

21 In the result, I would dismiss the appeal.

"The Honourable Madam Justice Prowse"

I AGREE:

"The Honourable Mr. Justice Toy"

I AGREE:

"The Honourable Mr. Justice Hollinrake"