Western Canada Business Litigation Blog

Disclosure Obligations in Residential Real Estate Transactions

Posted in Civil Litigation, Real Estate

The residential real estate market in the Lower Mainland is incredibly active. Prices continue to rise by significant amounts in a matter of weeks, sometimes days. Stories abound of bidding wars and sales without subject clauses. Out of anxiety or excitement, purchasers sometimes forgo viewing the property or having an inspection done.

What happens when the home you bought turns out to be not quite what you expected? Perhaps the roof leaks or there is a rodent infestation. Maybe the plumbing is faulty or the construction defective. What recourse does a purchaser have against the vendor?

The critical question is what disclosure obligations the vendor has when selling their property. As is often the case in legal matters, there are competing principles at play in determining who bears the loss for such defects.  The first is caveat emptor, colloquially know as “buyer beware”.  It has been described as meaning:

Absent fraud, mistake or misrepresentation, a purchaser takes existing property as he finds it, whether it be dilapidated, bug-infested or otherwise uninhabitable or deficient in expected amenities, unless he protects himself by contract terms.

This means there is a fairly high onus on purchasers to conduct a reasonable inspection and make reasonable inquiries in order to discover patent defects. A “patent defect” is one which might not be observable on a casual inspection but may nonetheless have been discoverable upon a reasonable inspection by a qualified person.  In many cases, this means a purchaser should retain an inspector to inspect the property and the failure to do so cannot shift blame to the vendor.

A competing principle is consumer protection. This means the court will intervene to prevent fraud and non-innocent misrepresentation where a purchaser has been lied to about a property’s condition. However, the court may also intervene where a vendor has failed to disclose material (meaning dangerous) latent defects about the property that they knew about or ought to have known about. A latent defect is one that is not discoverable by a purchaser through reasonable inspection and inquiry. But not every latent defect will result in a remedy against a vendor.  It must be a defect of “substance” that makes the property uninhabitable or dangerous.

In reconciling these competing interests, the courts delineate exceptions to the caveat emptor principle.  For example, it will not apply in situations where the vendor:

  1. fraudulently misrepresents or conceals;
  2. knows of a latent defect rendering the house unfit for human habitation;
  3. is reckless as to the truth or falsity of statements relating to the fitness of the house for habitation; or
  4. breached the duty to disclose a latent defect which renders the premises dangerous.

Given these competing principles, determining the outcome of any given case is entirely dependent on the underlying facts. Some cases have held that the subsequent discovery of slope instability, or leaks, mould, and faulty retaining walls will entitle recovery from a vendor.  In other cases, the discovery of a hidden ravine, or faulty plumbing have not been the types of defect that allow a purchaser to shift liability to a vendor.

Most residential sales involve the vendor providing a Property Disclosure Statement (PDS). A PDS is meant to identify any problems or concerns with the property, not to give detailed comments in answer to the questions posed.  A vendor need only say that they are or are not aware of problems.  When completing a PDS, a vendor must correctly and honestly disclose their current actual knowledge about the property, but that knowledge does not have to be correct.  The contents of a PDS are representations upon which a purchaser can rely.

If you are caught up in the residential real estate frenzy, remember that generally it is “buyer beware”. Before you close a purchase, properly inspect the property and, if necessary, retain professionals to help you.  As a purchaser, if you want a promise of fitness for the home you are going to buy, your safest bet is to negotiate express warranties by the vendor to that effect by the vendor.

“Today just got better”… unless you had a prepaid cellphone card from Bell Mobility

Posted in Civil Litigation, Class Actions

Bell Mobility’s slogan may ring hollow for some Canadians in light of the Ontario Court of Appeal’s decision in Sankar v. Bell Mobility Inc., 2016 ONCA 242, which will likely end the $200-million class action involving as many as one million Canadians. In reasons issued April 4, 2016, the Court upheld the decision of the motions judge who, on a summary judgment motion, found that Bell’s practice of reclaiming unused balances on prepaid cards was not a breach of contract and dismissed the claim. The decision is noteworthy because the class action was dismissed on a summary judgment motion (rather than after a full trial) and because of the way the Court determined what documents formed the contract between the parties.

The class proceeding involved Bell’s pre-paid cellular phone services and the “fate” of the balance remaining in a customer’s account when a customer failed to “top up” the account before the end of its “active period.” One of the main common issues in the class action was whether the prepaid cards expired on the last day of their active period or if they expired the day after. Bell’s practice was to claim any unused funds the day after the end of the active period. For example, if the active period ended on June 30, and the customer had not purchased a top-up in order to extend their active period, Bell would claim any remaining prepaid funds on July 1. The plaintiffs claimed that their contract with Bell required Bell to wait until the second day after the end of the active period before claiming any remaining funds (i.e. July 2).

The motions judge found that at the time it entered into contracts with its customers, Bell intended and customers understood, that the agreement would expire at the end of the active period and unused funds would be reclaimed by Bell after that time unless the account was topped up before it expired. One of the main grounds of appeal was that the motions judge improperly relied on material beyond the initial agreements customers entered into when they purchased these cards to interpret the contract between Bell and its customers.

The Court found that the motions judge was entitled to rely on documents such as the PIN receipts customers received when they topped up their account, phone cards, brochures and websites in addition to the initial agreements customers entered into and that all these documents formed part of the contract between Bell and its customers. The Court made it clear that there is a difference between considering the factual matrix surrounding the formation of a contact and considering the documents that make up the contract itself. In its decision, the Court noted that “it is not uncommon in modern contracts, including contracts made partly on ‘paper’ and partly on the internet, for contract terms to be found in several ‘documents’” and that “where parties enter into interrelated agreements, the court is required to look at all those agreements to determine their construction.”

Although the appellant argued that the motions judge should have considered communications Bell sent customers after they purchased prepaid cards, but before they expired because these were misleading, and suggested customers had an additional day after the end of the activation period to top-up their accounts, the Court found that “these communications were not part of the factual matrix surrounding the formation of the contract” and that “at their highest” were post-contractual representations. While these communications might be relevant for a misrepresentation claim, they were not relevant for the contractual claim that had been certified as a common issue.

Given the manner in which the Court determined what documents formed the contract between Bell and its customers, the Sankar decision may be increasingly significant in light of the rise in internet-based components of service agreements that begin with a customer signing a traditional paper-based agreement.

With thanks to Alexandra Hughes for her assistance.

How to Remove a Certificate of Pending Litigation

Posted in Civil Litigation

A certificate of pending litigation (a CPL) is a form of charge that can be registered on title to land where someone commences a legal claim in which they assert an interest in that land. CPLs are intended to protect the claimant’s interest in that land. For example, if a plaintiff asserts money they lent was used to purchase or maintain land, they will claim a CPL. Similarly, a purchaser will claim an interest in land where their vendor later tries to get out of the sale.

As a practical matter, a CPL is an effective tool in tying up land and putting pressure on its owner to resolve the dispute. It is unlikely anyone else will deal with the land if there is a CPL on title. For example, no one else is likely to buy the land and no lender will take mortgage security because, if they do, their interest in the land will be subject to the yet-to-be adjudicated rights of the CPL holder.

CPLs are often used as a veiled method of leverage to secure a financial claim or a tenuous interest in land. What, then, happens if there is a CPL on title to your land and you need to get rid of it? How do you go about that?

Absent agreement with the CPL claimant, your recourse is to seek a court order removing the CPL. Section 256 of the Land Title Act grants a land owner the authority to apply to court to remove a CPL. On such an application, the court may cancel the CPL outright, do so on term that security be posted instead, or may refuse to cancel the CPL but require the CPL claimant to either post their own security or give an undertaking to pay damages if their claim ultimately fails.

On such applications, a threshold question is whether the land owner can demonstrate “hardship and inconvenience” as a result of the CPL. The hardship and inconvenience must be more than trifling or insignificant. For example, if the CPL is thwarting a sale, preventing development of the land or stalling a financing, then “hardship and inconvenience” may well exist. The next question is whether or not the land owner can establish that an order requiring security is proper and that damages will provide adequate relief to the CPL claimant rather than the land itself. For example, if the claim is only about monies owed to a contractor, damages will suffice.

However, if the claim is for specific performance of the sale of a unique parcel of land, damages will not be an adequate remedy. Where the claim is for specific performance, it must be plain and obvious that it will not succeed in order to have the CPL cancelled. However, the CPL claimant must also prove readiness and willingness to perform their contractual obligations. This includes continuing of future obligations of the purchaser that are interdependent and to be performed concurrently with obligations of the vendor that the purchaser seeks to enforce. In other words, if you needed financing to complete the purchase but have not or cannot obtain it, the specific performance claim will fail, even if the land is “unique.” In cases like this, the fight over cancelling the CPL will revolve around the issue of whether or not the subject property is sufficiently “unique” that specific performance is an appropriate remedy.

If a purchaser is not entitled to specific performance, then it follows that damages are an adequate remedy. The CPL will be cancelled. If a CPL is cancelled and replaced by posting security, then the court will need to set the amount of the security. It will not always be the amount of the claim. The amount depends, among other things, on the strength of the case.

If you seek to remove a CPL from your property, you will need to analyze the underlying claim and assemble the evidence necessary to convince a judge there is little or no merit to it. You will also need to be prepared, and should consider proposing, an amount of security to post as an alternative.

Who says it’s clean enough? Municipality Appeals Ministry Decision to Issue Certificate of Compliance

Posted in Environmental

An appeal due to come before the Environmental Appeal Board (the “Board”) may address questions about the intersection between the provincial Ministry of Environment (the “Ministry”) and municipalities relating to the standards to be applied to remediation of contaminated land.

In October 2016, the City of Burnaby is appealing the Ministry’s decision to issue a Certificate of Compliance to Suncor Energy Inc. in respect of lands in Burnaby which include portions of two roads owned by the City.  The Certificate of Compliance (issued in December 2015 under the Environmental Management Act) confirms that the lands have been remediated to the required standard using, among others, a risk-based approach.

A risk-based approach to remediation is generally more economically efficient and less invasive than a numerical approach. It mandates a number of risk controls which must be implemented by the responsible person to prevent the risk of harm to the public, instead of requiring the responsible person(s) to remediate the land to specific numerical standards.

Section 56 of the Environmental Management Act says that a person conducting remediation must give preference to a remediation method which provides a permanent solution to the maximum extent practicable, taking into account, among other things, any potential adverse effects on human health or the environment and risks associated with the different remediation options. This is not to say that a risk-based approach does not strictly afford the relevant mandate as remediation costs associated with alternative remediation options, economic benefits, costs and effects and technical feasibility are also relevant factors.  However, there still often exists a tension between proponents of a risk based or a numerical based method.

The authority to issue Certificates of Compliance lies with the Provincial Ministry. However, as a matter of practicality, it is typically the municipality which the landowner has to deal with in terms of other land usage issues.

An example of this tension is Imperial Oil Ltd. v. Vancouver (City) 2005 BCSC 387, affirmed 2005 BCCA 402. The City of Vancouver had refused to issue Imperial Oil a development permit unless Imperial Oil entered into an agreement to remediate nearby City-owned streets in relation to hydrocarbons which had migrated from Imperial Oil’s land. Imperial Oil had remediated to the extent required by the Ministry: the City attempted to use the development permit process to require further remediation. Ultimately, the B.C. Court of Appeal held that the City did not have power to impose conditions relating to off-site matters and that issues of environmental contamination were for the Ministry. That case, however, depended on the court’s interpretation of the Vancouver Charter and so the issue is not definitively settled.

The appeal will take place in October.  We eagerly await the decision – watch this space for further updates.

With special thanks to articling student Tom Boyd for his assistance with the preparation of this article.

A Cautionary Tale for U.S. Corporations with Canadian Subsidiaries

Posted in Intellectual Property

If one sets up an American subsidiary to do business in the United States and a Canadian subsidiary to do business in Canada, then only the latter would find itself sued as a defendant in Canadian courts, right? Perhaps not.

The recent decision of the British Columbia Supreme Court in Canadian Olympic Committee v. VF Outdoor Canada Co., 2016 BCSC 238, shows the risk of liability in Canadian courts for American parent or affiliated corporations, notwithstanding the use of a dedicated Canadian subsidiary within the organization.

The Corporate Organization at Issue

The corporations at issue in the case design, manufacture and sell the “The North Face” brand of apparel in North America. VF Corporation, the parent Pennsylvania corporation, holds ownership interests in various “VF Group” companies including VF Outdoor, Inc. (“VF USA”) and VF Outdoor Canada Co. (“VF Canada”), which are each indirectly wholly owned subsidiaries of VF Corporation. VF USA develops, creates, designs, and arranges for the manufacture of all products and merchandise under The North Face brand, including the line of products at issue in the case. VF USA is then responsible for ordering merchandise from the foreign factory for sales and distribution in the USA. VF USA had presented evidence that it does not carry on business in Canada, including no employees, no address, no retail stores, no accounts, etc. in Canada. VF USA does not sell, import, or arrange for the import of North Face products into Canada.

VF Canada places its own purchase orders for North Face merchandise directly with the foreign factory and receives and pays for the merchandise directly with the factory. The products are shipped directly to Canada. These products are then sold by VF Canada to licensed and independent retailers throughout Canada. Orders can also be placed by consumers through websites for delivery in Canada, and VF Canada pays all duties for these shipments and receives all revenues from these online sales. All marketing materials are originally designed by VF USA and printed in the USA, but VF Canada selects what materials will be chosen for Canadian retailers.

The Lawsuit in Canada

The plaintiff, the Canadian Olympic Committee (“COC”), which is a public authority with specific rights in certain Olympic marks, sued VF Canada and VF USA for trade-mark infringement, false and misleading advertising, and passing off with respect to a North Face collection of apparel and accessories that allegedly used Olympic marks and were promoted in a manner likely to mislead the public into believing that the defendants are official sponsors of the COC in Canada.

VF USA applied to have the action stayed on jurisdictional grounds. It argued that the B.C. Court lacks territorial competence or, in the alternative, that the Court should decline to exercise its jurisdiction in favour of the courts of California as a more appropriate forum.

The Court’s Decision

The Court dismissed the application, finding that there was a real and substantial connection to British Columbia (which is the test in Canada for territorial competence) based on VF USA’s role in marketing an online sweepstakes contest that allowed users to “find a store,” including locations in Canada, and treated residents of Canada as eligible entrants. The Court also made the following findings:

On the evidence, the plaintiff has presented an arguable case that VF Corporation through its various subsidiary companies, including VF Canada and VF USA, operates a functionally integrated business group for the joint benefit of the North Face brand. VF USA and VF Canada share parents and common resources such as legal counsel, technical support, designers, and manufacturers. VF USA designed and developed products and marketing materials for the collection with the intention that the collection would be available at choice for all “North Face” distributing companies, including VF Canada. The distribution pipeline created by VF Corporation uses a foreign manufacturer who produces the collection and then receives orders and exports the collection to VF Canada as an indirect subsidiary company. VF Canada uses materials and branding strategies developed by VF USA to sell the collection in Canada. VF USA directly sponsored a contest directed at Canadian residents to promote the North Face brand and the collection in Canada. In these circumstances, it could be concluded that VF USA intended or at least ought to have known that the infringing products and materials would ultimately be sold and distributed in Canada.

The Court went on to consider the relevant factors connecting the dispute to B.C. and California and concluded that California could not be said to be a more convenient forum.

The Take-Away

Even when care has been taken to create and operate distinct subsidiaries according to national boundaries, an American (or any other foreign) parent or subsidiary may nevertheless find itself a defendant in legal proceedings in Canada depending on the facts of the dispute and the coordination amongst the subsidiaries. And small details can matter, as illustrated in this case by the simple inclusion of Canadian store locations on an online sweepstakes operated by the American subsidiary, which now faces the cost and risk of litigation in Canada.


Use it or lose it: Restrictive covenants in Franchise Agreements

Posted in Franchises

A recent case from the Ontario Court of Appeal suggests franchisors may lose the protection of a restrictive covenant in a franchise agreement if, at the time the franchisor wants to enforce the covenant, it can’t establish a “legitimate or proprietary interest to protect” within the territorial scope of the covenant.

In MEDIchair LP v. DME Medequip Inc., 2016 ONCA 168, the Ontario Court of Appeal refused  to enforce a restrictive covenant against a former franchisee, where the franchisor had no intention of operating or granting any further franchises in the territory.

In that case, the respondent franchisor, MEDIchair LP, operates a network of franchise stores that sell and lease home medical equipment. In 2008, the appellants purchased a MEDIchair franchise operating in Peterborough, DME Medequip Inc., and agreed to assume the obligations in a 2005 Franchise Agreement between MEDIchair and DME. The Franchise Agreement contained a restrictive covenant that prohibited the franchisee, on termination of the Franchise Agreement, from engaging in or operating “any business similar to the business carried on by MEDIchair or any of its authorized Franchisees within an area of 30 miles of the nearest MEDIchair Store business in Canada” or the Peterborough store, for a period of 18 months.

In June 2011, the franchise system was sold to Centric Health Corporation, which also purchased Motion Specialties, a group of corporate stores. One of the Motion stores operated in Peterborough and competed directly with the DME store. The franchisee alleges that after acquiring Motion, the MEDIchair franchise system declined as the corporate owners focused more on the Motion stores. Dissatisfied with the level of support of the franchise system, in January 2015, the franchisees terminated the Franchise Agreement on expiry. The now former franchisee removed the MEDIchair signage and continued to operate the same Peterborough store with the same merchandise and the same employees, under the name “Living Well Home Medical Equipment”.

The franchisor sued to enforce the restrictive covenant. In cross-examination, the franchisor acknowledged that it had no plans to open a Peterborough MEDIchair store, and that it would not seek to do so in competition with the existing Peterborough Motion store. The central issue in this case was whether the restrictive covenant could be enforced against the former franchisee given the franchisor’s stated intention not to operate in the territory.

Generally, restrictive covenants in the commercial context (as opposed to the employment context) are enforceable unless the covenant is shown to be commercially unreasonable. The Court in this case acknowledged there is a debate in franchise practice as to whether restrictive covenants in franchise agreements will enjoy presumptive enforceability, given the power imbalance between franchisees and franchisors, but did not have to resolve the issue in this case.

In the court below, the application judge considered the evidence that the franchisor had no plans to open a location or grant a franchise in the territory covered by the restrictive covenant, but was swayed by his consideration that failure to enforce the restrictive covenant could “significantly compromise” the integrity of the franchise system as a whole, and held the covenant was enforceable.

The Court of Appeal found that the application judge erred in law by focusing on the effect of non-enforcement of the covenant on the franchise system as a whole. The court found that the evidence of the franchisor’s lack of intention to operate in Peterborough showed the franchisor had acknowledged it had “no legitimate or proprietary interest to protect within the defined territorial scope of the covenant”, and therefore the covenant was “unreasonable as between these two parties in the circumstances of the particular Peterborough franchise.”

The Court also considered a second aspect of the enforceability of the restrictive covenant. In this case, the decision not to continue to operate in Peterborough arose after the parties agreed to the restrictive covenant in the Franchise Agreement. The Court resolved this “timing” issue by considering the parties’ expectations at the time of the Franchise Agreement as to what might happen in the future. The Court said:

[51] As the reasonableness of the covenant will be interpreted based on the parties’ anticipated expansion of the business when they entered into their agreement, it should similarly be interpreted to take account of the parties’ expectations at that time with respect to the future continued operation of the franchise in the territory. In this case, the clause was reasonable on the assumption and understanding that MEDIchair would want to continue to operate in the protected Peterborough area, but not if it did not.

In this case, the franchisor lost the protection of the restrictive covenant because the present direction of the franchise was not consistent with the expectations of the parties in 2005. The Court did emphasize that each case must be examined on the facts and the particular franchise agreement between the parties.

The Court considered and rejected a number of other arguments by the appellants. In particular, the Court confirmed the application judge’s finding that the franchisor was not required to provide the appellants with a disclosure document under sections 5(1) and (4) of the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 when the appellants purchased the franchise in 2008. In this case, the franchisor was only peripherally involved in the grant of the franchise – it approved the transfer of the franchise to the appellants, accepted a transfer fee and obtained personal covenants from the individual appellants to be bound by the 2005 Franchise Agreement. The franchisor was therefore exempt from disclosure requirements under the Act. Sections 5(8) of the proposed British Columbia Franchises Act contain the same exemptions from disclosure obligations when a franchise is granted by a franchisee.

The little search engine that could, but would prefer not to: Google’s appeal to the Supreme Court of Canada against a new kind of worldwide injunction

Posted in Intellectual Property

On February 18, 2016, the Supreme Court of Canada granted Google leave to appeal the decision of the British Columbia Court of Appeal in the case of Google Inc. v. Equustek Solutions Inc., 2015 BCCA 265, a case previously discussed on this blog in October 2014 while it was before the Court of Appeal.  The appeal will have important ramifications for companies seeking to protect their intellectual property online, and raises questions about the appropriate length of the courts’ reach into cyberspace.

The respondent Equustek is a manufacturer of networking devices for industrial equipment that sued a former distributor and other defendants for infringing its intellectual property rights, including by passing-off, and by developing a competing product based on Equustek’s.  After the action was brought, the defendant stopped doing business in Vancouver and became solely web-based.  Certain of the defendants continued, and continue, to sell the infringing products around the world using a constantly changing network of websites, in defiance of court orders directing them to stop selling the infringing products, and in circumvention of court orders that took down specific web pages. Attempts to shut down this network of websites was likened to a game of ‘whack-a-mole’.

Equustek proposed an innovative method of pest control and obtained an order from the Supreme Court of British Columbia requiring Google to stop including all of the defendants’ web sites in its search results, not only in Canada, but across the world. This required Google not only to block search results on google.ca, viewable in Canada, but on google.com itself and all other Google sites, such as google.fr; google.co.uk, etc. The rationale behind seeking the order was that if one could prevent the offending websites from appearing in search results on Google sites, one would effectively render them invisible, given that Google sites accounted for over 70% of internet search traffic at the time.

Google had voluntarily de-indexed specific web pages from its google.ca search page, but refused to block the search results in other countries, as well as the “mother sites” which hosted the specific web pages. Google vigorously opposed the application on a number of grounds: that the injunction was beyond the jurisdiction of the court, would improperly affect an innocent non-party to the litigation, and would have an impermissible extraterritorial reach.

The Court held that it had jurisdiction over Google, had the ability to grant injunctions with extra-territorial effect against third parties and that, in this case, an injunction was warranted. The Court rejected Google’s arguments that removal of the defendants’ web sites from search results would constitute censorship, as Google regularly and voluntarily removed other websites from searches on other grounds. The Court also did not agree that Google’s First Amendment rights would be breached, or with Google’s objection that the order would therefore by unenforceable in California where its servers were located. The injunction required Google to cease indexing and/or referencing the defendant’s websites in its search engines across the world within 14 days.

The Court of Appeal upheld the judgment, finding that the Supreme Court had the necessary jurisdiction over Google, and that the spectre, raised by Google at the hearing, of Google being subject to restrictive orders from courts around the world concerned with their own domestic law, was a result of Google’s worldwide operations, and not a defect in the law. The Court of Appeal confirmed that the courts had the authority to make orders with extraterritorial effect in appropriate circumstances and that, in this case, the granting of the injunction was necessary and appropriate.

In a move that should surprise no-one, Google sought leave to appeal to the Supreme Court of Canada, and leave has now been granted. This is a complicated and rapidly evolving area of law that will require clarity  and which touches on issues that the Supreme Court of Canada is best placed to decide, including: freedom of speech; the degree to which, in an increasingly interconnected world, domestic courts should and, indeed, must, make orders with extraterritorial effect in order to enforce their judgments; and how courts will handle similar orders from other jurisdictions.

Among Google’s concerns is being subject to an increasing number of orders made in one jurisdiction but purporting to regulate its operations in another, possibly in ways incompatible with the laws or public policy of the receiving jurisdiction. From Google’s perspective, it acts as a passive indexer of other people’s information and should not be required to vet or censor search results according to the various concerns of the courts in every country in the world where Google operates, particularly where those results are not visible within the originating jurisdiction. It likely sees this case as a dangerous invitation for multiple jurisdictions to do so.

Conversely, in cases such as this, domestic remedies may be meaningless without the ability of Courts to make orders with extraterritorial effect, and to avail themselves of creative solutions such as the one provided in this case: cutting off wrongdoers from potential customers by removing their websites from Google, thus rendering the websites effectively invisible.

It is also worth noting that representatives of the film and music industries (among others) obtained intervenor status at the British Columbia Court of Appeal. Should the injunction be upheld, it could herald the arrival of an important new weapon in the fight against online file-sharing, which frequently involves wrongdoers who seek virtual refuge in a series of foreign jurisdictions where copyright laws are either underdeveloped or unenforced. Obviously, this would also raise the prospect of significant additional litigation in which Google and other search engine providers would be involved.

The appeal is likely to be heard in 2016.  Watch this space for updates.

With special thanks to articling student Tom Boyd for his assistance with the preparation of this article.

BCCA Confirms That “Buyer Beware” Still Rules the Day in Real Estate Transactions – Why Property Disclosure Statements Don’t Tell the Whole Story

Posted in Real Estate

In a recent B.C. Court of Appeal decision, the court was asked to revisit the age old question of whether vendors of real property in British Columbia can still rely on the doctrine of caveat emptor or ‘buyer beware’ to avoid certain types of claims made by disgruntled purchasers.  In short, the court ultimately recognized the continuing application of the doctrine with only certain limited exceptions: fraud, non-innocent misrepresentations, an implied warranty of habitability for newly constructed homes, and a duty to disclose latent defects.  Absent one of these exceptions, and despite the existence of a property disclosure statement (“PDS”) in most residential property transactions, a purchaser may be precluded from successfully pursuing a claim against a vendor.  In another important aspect of the case, the court also confirmed that a PDS only requires a vendor to provide its current state of knowledge in response to questions contained therein and therefore there is very limited opportunity for a vendor to be liable based on those responses even if the vendor’s knowledge is factually not correct.

The facts of the case were not that unusual.  The plaintiffs/purchasers (the “Purchasers”) were looking to buy a property that was no more than five or six years old.  The house in question had been constructed by a previous owner of the property which incorporated an older cabin from elsewhere into a newly constructed foundation and lower level on the property. Therefore, when the defendant/vendor (“Vendor”) indicated on the PDS that the roof was six years old, that is what she believed even though the roof had not been replaced at the time of consolidation.  After the Purchasers closed on the transaction and moved into the property, they discovered at that time that the property had previously been consolidated, and therefore they argued the PDS was wrong and wanted to rescind the contract.  The Plaintiffs claimed the Defendant had deliberately concealed latent defects and that she had misrepresented the age of the roof.  The trial court dismissed the action and the Purchasers appealed.

The Court of Appeal dismissed out of hand the aspect of the appeal dealing with latent defects and moved on to consider firstly the doctrine of caveat emptor and then secondly the obligation on the Vendor when completing a PDS. After confirming the continued existence of the doctrine of caveat emptor in British Columbia real estate transactions (subject to the exceptions noted above), the court moved on to consider the import of responses contained in a PDS.

The court concluded that a vendor is only obliged to disclose his or her current actual knowledge of the state of affairs of the property to the extent promised in the PDS and need say no more than that he or she is not aware of problems.  In other words, the court said vendors must correctly and honestly disclose their actual knowledge, but the knowledge itself does not have to be correct in fact.

As the Vendor answered the question of the age of the roof based on her actual knowledge of the current state of affairs, she was not liable to the Purchasers.  There was no positive obligation on the part of the Vendor to disclose information that may be relevant to a particular purchaser if that information was not directly responsive to one of the specific questions in the PDS.  As such, the appeal was dismissed.

The takeaway from this case is that purchasers of real property in British Columbia ought to be cautioned to not simply rely on information contained in a PDS, as that information could be factually incorrect.  Rather, they ought to conduct their own due diligence to determine the suitability of a specific property for their own purposes.  If issues with the property are only identified after closing, purchasers will likely have no recourse against an honest, yet mistaken, vendor unless they can fit themselves within one of the narrow exceptions to the doctrine of caveat emptor.  ‘Buyer beware’ is still sound advice in BC.

Supreme Court clarifies balance between deterrence and protection in securities class actions

Posted in Class Actions

On December 4, 2015, the Supreme Court of Canada (the “SCC”) issued its decision in Canadian Imperial Bank of Commerce v. Green, 2015 SCC 60. In the highly anticipated decision, a deeply divided Court rendered their reasons for a trilogy of appeals that arose from securities class action cases against CIBC, IMAX Corporation, and Celestica Inc. In each case the plaintiff respondents sought damages under the common law tort of negligent misrepresentation as well as under the new statutory cause of action found at s. 138.8 of the Ontario Securities Act (the “OSA”) in respect of shares trading in the secondary market. In split decisions, the SCC dismissed the appeals of CIBC (4-3) and IMAX (4-3) and allowed the appeal of Celestica (4-3).

The CIBC decision clarifies two key issues in relation to commencing securities class actions that seek damages for alleged secondary market misrepresentations. The first issue relates to the appropriate limitation period for commencing such claims, as it was previously unclear whether the three-year period extended until the application for leave (or permission to advance the claim) was filed or until permission was granted. The second issue clarifies what standard is required for a court to grant a plaintiff leave to proceed with a claim for damages under the secondary market provisions found in the OSA.

Limitation Period: Clarifying the Confusion

The SCC found that Part XXIII.1 of the OSA was drafted as a comprehensive scheme and was therefore intended to work harmoniously with s. 28 of the Class Proceedings Act (the “CPA”). The purpose of s. 28 CPA is to suspend the limitation period in order to protect potential class members until the feasibility of the class action is determined. Accordingly, the SCC held that the Ontario legislature drafted the OSA to strike a delicate balance between efficiency and fairness for various market participants. To interpret the OSA otherwise, as the Ontario Court of Appeal had in their decision in the instant cases, would frustrate the legislative structures and their purposes at issue in these appeals.

Consequently, the SCC held that while the three-year limitation period is only suspended once the plaintiffs obtain leave to proceed under s. 138.8 OSA, the recent changes to the law indicate a need for judicial discretion and interpretation in determining the trio of cases. In July 2014 the Ontario legislature amended the OSA in order to clarify that the limitation period is suspended when a notice of motion seeking leave to proceed is filed in court, not when leave is granted. As these clarifying amendments were enacted while these three cases were before the courts, the SCC allowed claims to proceed against CIBC and IMAX through the court’s inherent jurisdiction to issue orders nunc pro tunc, a remedy which allows the court to “backdate” to a time prior to the expiry of the limitation period. This remedy was not available in Celestica, as leave had not been filed prior to the expiry of the limitation period and thus the limitation period would not have been suspended.

Given the legislative amendments to the OSA, future claims under Part XXIII.1 will not face the previously strict interpretation of the three-year deadline. As such, it is unlikely that this element of the SCC’s decision will have any major impact on future securities class action cases.

Leave Requirement: Reasonable and Realistic

Though divided on the issue of limitation periods, the SCC unanimously held the threshold that must be met by a plaintiff applying for leave under s. 138.8 OSA requires only a reasonable or realistic chance that the action will succeed. This decision affirmed the SCC’s prior ruling in Theratechnologies inc. v. 121851 Canada inc., which set a reasonably low bar for leave and certification of class actions. Though Theratechnologies was on appeal from the Quebec Court of Appeal and was based in Quebec’s Securities Act, the SCC noted that there is no difference in language between Quebec’s Act and the OSA. For this reason, the same threshold test for granting leave will apply in other common law provinces that have similar legislative schemes, as does British Columbia (see s. 140.8 Securities Act).

By reaffirming a low threshold to attain leave, the SCC has provided more certainty for statutory securities actions in common law provinces. As a result, the SCC’s decision signals that investors will have greater access to bring claims for alleged misrepresentations.

Out-of-Province Class Actions go to the Supreme Court of Canada

Posted in Class Actions

On November 5, 2015, the Supreme Court of Canada (the “SCC”) granted leave to appeal in two related cases: Endean v. British Columbia, 2014 BCCA 61, and Parsons v. Ontario, 2015 ONCA 158. The resolution of these two cases will shape the scope of inter-jurisdictional coordination for national class actions in Canada by determining whether or not provincial judges may sit outside their own jurisdiction when supervising a settlement in a national class action.

These cases stem from multi-jurisdictional claims pertaining to individuals infected with Hepatitis C by the Canadian blood supply between 1986 and 1990. Separately, these claims were certified as class proceedings in the provinces of British Columbia, Ontario, and Quebec. In 1999 the class proceedings culminated with the signing of a national settlement agreement. The Supreme Court of British Columbia, the Superior Court of Justice for Ontario, and the Superior Court of Quebec were each assigned a supervisory role over the implementation and enforcement of this settlement agreement. Included in the settlement agreement is the condition that any court order issued by one of the aforementioned courts, would only take effect upon materially identical orders being issued by the other two courts.

Such a condition created problems with the coordination of the settlement agreement between the three jurisdictions. This was exemplified in 2012 when class counsel sought an extension to the time allotted for making a claim for compensation. To help facilitate this application, class counsel proposed a single hearing before the three supervisory judges at one location – the proposed location was Alberta, a neutral jurisdiction in this matter. Doing so would have avoided hearing separate motions in each of the three provinces. In response, the Attorneys Generals of the respective provinces objected to their judges sitting outside their territorial boundaries.

As a result, class counsel sought direction from the courts in all three of the provinces. In separate decisions, two of the three courts held that the inherent jurisdiction of the courts permitted judges to sit outside their territorial jurisdiction if the court had personal and subject matter jurisdiction over the parties and the issues to the proceeding.

The first court to hold that judges were permitted to sit outside the territorial boundaries of their court was the Ontario Court of Appeal in Parsons. Here the Court considered whether Ontario judges had jurisdiction to sit outside the territorial boundaries of the province of Ontario. The Court held that a judge of the Ontario Superior Court may participate in joint motions outside of Ontario when supervising a settlement agreement in a national class action.

In Quebec, the Superior Court of Quebec in Honhon v. Canada (Procureur general), 2013 QCCS 2782, held the same result as the Ontario Court of Appeal in Parsons.

However, the British Columbia Court of Appeal did not follow this line of authority and, instead, applied the English common law rule that prevented judges from sitting outside of England. The Court held that British Columbian judges have no jurisdiction to conduct hearings outside the province of British Columbia by reasoning that allowing judges to do so would endanger the open courts principle. The Court went on to state that if this principle is to be contravened, it is for the legislature to authorize.

Following these decisions, there now stands conflicting authorities on the question at issue. As a result, the Ontario and British Columbia decisions have been appealed with leave to appeal to the SCC granted. Whether the SCC will favour the English common law rule applied in the British Columbia decision or the approach used in the Ontario decision and subsequently affirmed in the Quebec decision, remains to be seen. What is certain though is that whichever the result of these appeals, together they will shape the scope of inter-jurisdictional coordination for national class actions in Canada.