Category: British Columbia law

Legal Cause Matters: Sense and Sensibility in British Columbia

Amended 14 Feb 2017

The Owners, Strata Plan LMS 3851 v. Homer Street Development Limited Partnership,  2016 BCCA 371 (CanLII) deals with a number of issues including the nature of the causation requirement, if any, for recovery of damages under the Real Estate Act, R.S.B.C. 1979, c. 356 (subsequently R.S.B.C. 1996 c. 397).

The facts, conclusion, and reason for the conclusion as summarised by the court:

This appeal arises out of the sale of strata units in the Westin Grand Hotel in downtown Vancouver. The Investors purchased their units in November 1996 after receiving a disclosure statement issued under the Real Estate Act. The sales closed in April 1999. At the liability trial, the judge found that the disclosure statement contained a material misrepresentation concerning a projection of anticipated occupancy rates. His conclusion was upheld on appeal. After a 26-day quantum trial, the judge assessed damages at $8,000,000, which represented the fall in the value of the units as of the date of closing. The Developers appeal, raising two grounds: first, that the judge erred in excluding evidence on the issue of reliance on the part of the Investors; and second, that the judge erred in his determination of compensation by choosing the incorrect date to assess the Investors’ losses and by not limiting them to those caused by the misrepresentation.

Held: appeal allowed. With respect to the issue of reliance, the judge did not err in concluding that deemed reliance under the Real Estate Act can only be rebutted when the investor had knowledge of the misrepresented or omitted facts at the time of the investment. Thus, the evidence the Developers sought to lead was not relevant to any available defence. As for the assessment of damages, the judge erred in finding that the Investors were entitled to recover all damages sustained as a result of entering the sales agreements. Section 75(2) of the Real Estate Act, properly interpreted, does not require the Developers to compensate the Investors for losses suffered solely as a result of an external cause, here a change in market conditions, which did not result from the inaccuracy of the representation.

(My emphasis)

The related paragraphs in the reasons:

[102]     The purpose of the Real Estate Act is to protect the investing public. However, the legislation also balances the needs of the investor community against the burden imposed on issuers: Sharbern SCC at paras. 118–119. Section 75 promotes this purpose by protecting investors from material false representations.  It provides the statutory mechanism pursuant to which an investor can hold a developer liable with respect to the representations found in a disclosure statement. Through its deeming provisions it relieves the investor from the sometimes onerous task of proving reliance.

[103]     I see no special reason why the liability of developers to pay compensation under s. 75(2)(b) of the Real Estate Act for a material misrepresentation should extend to losses arising, not from the inaccuracy of the representation, but from market forces. First, a deceit measure of damages is not appropriate as the statute imposes liability in situations far removed from where a developer engaged in fraudulent conduct. Imposing such an obligation would place developers in the role of insurers to investors for losses arising from market forces. This is not the function of the disclosure obligations of developers under the statute, nor is such a result required to serve the statutory purposes underlying disclosure obligations: Sharbern SCC at para. 118.

[104]     Second, in my view, a developer’s requirement to pay compensation for a material misrepresentation under s. 75(2)(b) must be interpreted in light of the nature of its statutory disclosure obligations.  The principal statutory obligation placed on developers under Part 2 of the Real Estate Act is to provide full and accurate information in the disclosure statement. A developer is not required to advise potential investors generally.

[105]      I would adopt the course charted by Slatter J.A. in Hogarth. To succeed in an action for compensation under s. 75 of the Real Estate Act, an investor must prove both the material misrepresentation and that a loss would not have resulted if the representation had been true. A developer is not liable to compensate an investor for losses suffered as a result of external causes, such as changes in the market, which do not result from the inaccuracy of the representation.

[106]     In this case, no loss or damage resulted from the inaccuracy of the misrepresentation. Instead, the losses arose from external causes.  Thus, the Investors would have suffered a loss even if the representation was true. The loss arose because of a change in market conditions, a risk that was clearly identified in the Disclosure Statement. As the loss arose solely for reasons unrelated to the representation, it is not recoverable against the Developers.

[107]     In the result I find that the Investors have not proven any damages arising from the material misrepresentation. I would allow the appeal and dismiss the action.

[All emphasis added.]

The BCCA’s rationale for this conclusion is that the but-for test governs the causation requirement for claims based on the statute.

[88]        In Hogarth, the Alberta Court of Appeal considered the elements at common law for damages from a negligent misrepresentation. Slatter J.A. noted, at para. 34, that the general test for causation in tort is that a plaintiff must generally establish on a balance of probabilities that the injury would not have occurred but for “the negligence of the defendant”: Fullowka v. Pinkerton’s of Canada Ltd., 2010 SCC 5 (CanLII) at para. 93; Resurfice Corp. v. Hanke, 2007 SCC 7 (CanLII) at paras. 21–22; Athey v. Leonati, 1996 CanLII 183 (SCC), [1996] 3 S.C.R. 458 at para. 14; and Clements v. Clements, 2012 SCC 32 (CanLII) at paras. 6–8.

[89]         Based on that foundation, Slatter J.A. concluded that in regards to the tort of negligent misrepresentation, a two-part test for causation arose. He found:

[36]      An application of the law set out in these binding authorities to the tort of negligent representation leads to a two part test for causation in negligent misrepresentation. The plaintiff must demonstrate that “but for” the representation, the damage would not have been suffered. This requires proof that but for the representations, the plaintiffs “would not have invested the monies they did”, and that the damage would not have resulted if the representations had been true. If either of these two tests is not met, then the “but for” test is not satisfied. If the plaintiffs would have lost their investment even if the representation was true, then their losses did not occur “but for” the tort. In the words of Clements, there is no correlative relationship of doer and sufferer of the same harm.

[37]      It is true that “but for” making the investment, the respondents would not have suffered any damage. In a factual sense, entering into the investment contracts was one necessary cause of the losses. But the law is not concerned only with causation in fact. “Causation” is a legal concept about the relationship between the tort and the injury that is needed to claim damages: Snell v Farrell, 1990 CanLII 70 (SCC), [1990] 2 SCR 311 at p. 326. In order to tie the damage to the misrepresentations, there were two necessary preconditions: entry into the contract, and the inaccuracy of the representations. Where the investor plaintiff suffers other losses that are unrelated to the misrepresentation, the defendant representor is not responsible:

Separation of distinct and divisible injuries is not truly apportionment; it is simply making each defendant liable only for the injury he or she has caused, according to the usual rule. The respondents are correct that separation is also permitted where some of the injuries have tortious causes and some of the injuries have non‑tortious causes: Fleming, supra, at p. 202. Again, such cases merely recognize that the defendant is not liable for injuries which were not caused by his or her negligence. (Athey at para. 24)

The losses suffered by the respondents as a result of the inaccuracy of the representations are distinct and divisible from the losses they suffered as a result of external causes. Under the general rules of causation, the latter are not recoverable.

[Emphasis in original.]

[90]        Slatter J.A. then held that his conclusion was similar to the result in SAAMCO. He indicated that the same approach had also been followed in Australia (Kenny & Good v. MGICA, [1999] HCA 25 at paras. 26, 29, 48, 54–6, 80) and New Zealand (Bank of New Zealand v. Zealand Guardian Trust Co. Ltd., [1999] 1 N.Z.L.R. 664 at 682–683 (C.A.); and Sherwin Chan & Walshe Ltd. (in Liq) v. Jones, [2012] NZCA 474 at paras. 36–41).

[Ehmphasis in para. 37 in original.]

The result is correct. The analysis is broadly correct. However, the analysis is capable of misleading the unwary and the less than expert because of its succinctness and the manner of its presentation. At a glance, the the casual reader might take the conclusion to be that the BCCA found no more than that the plaintiffs had failed to establish, on a but-for meaning necessary basis, that loss was caused by defendants who made the misrepresentation. However, that is not what the BCCA held. The court held merely that the loss was not by  the wrongful act of the defendants; that is, the misrepresentation. The court wrote at para. 100: “In the normal course the law limits liability to those consequences which are attributable to that which made the act wrongful.” 

In this respect, it is important to note what the panel wrote in para. 82, referring to Rainbow Industrial Caterers Ltd. v. Canadian National Railway Co., [1991] 3 SCR 3, 1991 CanLII 27.

[82]        McLachlin J., as she then was, dissented. In her view, the question was not what the total loss on the contract was but what loss was shown to have been caused by the negligent misrepresentation. She held that if the defendant could show the loss was caused by factors other than the misrepresentation, then the chain of causation was broken. She reasoned at 19:

Tort liability is based on fault, and losses not caused by the defendant’s fault cannot be charged to it.

[Emphasis added.] For what its now worth, the point made by (now) McLachlin C.J., which has always been the correct law, even in British Columbia, is also the point appellants’ counsel made in Hansen v. Sulyma, 2013 BCCA 349 (CanLII). However, the panel either misunderstood or, I suppose we have to assume, felt that on the evidence the loss had to treated as also having been caused by the portion of the defendant’s conduct which was the wrongful conduct because the nature of the loss made it indivisible.

I’d not rely on the BCCA’s understanding of U.K. cases such as SAAMCO because it is ambiguous. There is no problem with that understanding if it is captured by the sentence quoted above form para. 100. However, the first sentence para. 100 is a problem. The full text of paras. 100-101 of Strata is

[100]       As noted in SAAMCO, rules which make the wrongdoer liable for all the consequences of his wrongful conduct are the exception and need to be justified by some special policy.In the normal course the law limits liability to those consequences which are attributable to that which made the act wrongful.

[101]     Southin J.A. highlighted a similar point in Webster v. Ernst & Young, 2003 BCCA 95 (CanLII). After referring to SAAMCO, she observed that there is no “moral foundation” for equating damages from a negligent breach of a duty with damages for fraudulent conduct:

[87]      In that judgment, I take the House of Lords to be saying that one must not carry the “but for” principle too far.

[88]      A reason for not carrying the “but for” proposition too far is that it will lead the law into equating, for the purpose of assessing damages, negligent breach of the duty of care and skill in the management of another’s business with fraud. In my opinion, there is no moral foundation for such an outcome.

However, paras. 100-101 are incorrect if their purpose was to assert that SAAMCO stands for the proposition that there can be liability for negligence at common law without factual causation. I suspect that the BCCA did not quite intend the paragraphs to mean what the paragraphs assert, not the least because what the BCCA said about SAAMCO elsewhere in the reasons, and ; however, this is moot because that conclusion regarding SAAMCO is irrelevant to the end result given that the BCCA found no liability. Southin JA’s  point in Webster is not the point in issue here although it highlights the need to not use the but-for test literally.  

The Respondents, having succeeded at trial and having lost on appeal, seem to have been rather vexed. They applied to the BCCA seeking to reopen the appeal so that they could obtain an order referring the  back to the trial judge for another assessment of damages, rather than dismissing the action. The grounds the Respondents hoped to rely on at the new assessment were new: grounds not argued at trial or on appeal. Unsurprisingly, the BCCA wasn’t impressed. The answer was no: The Owners, Strata Plan LMS 3851 v. Homer Street Development Limited Partnership, 2016 BCCA 491 (CanLII), <>

The respondents apply to re-open the appeal. They submit that their claim should not be dismissed but rather referred back to the trial judge to make damage findings in light of this Court’s reasons. Held: application dismissed. The respondents now seek to raise a point not raised or argued in the original appeal and contrary to the admission made at the case management conference. Having chosen their field of battle and having lost, the respondents are not entitled to a second chance to establish damages.

[11]        With respect, the circumstances here are not exceptional. We are not persuaded that the Court overlooked or misapprehended the evidence in any material respect. The respondents now seek to raise a point not raised or argued in the original appeal and contrary to the admission made at the case management conference.

[12]        The respondents had the onus of proving their damages. They sought to do so by proving the loss of capital value being the difference between what the respondents paid for the units and the units’ value in April 1999. This Court has decided that the loss which the respondents sought to establish did not represent the proper measure of damages for a claim arising under the Real Estate Act.

[13]        The respondents, by way of this application, are seeking a do-over. Having persuaded the trial judge to adopt what that this Court has concluded was an erroneous view, they now want to re-argue damages on an entirely different basis.

[14]        In this case, the respondents, both at trial and on the appeal, chose the field upon which they wish to fight the damages battle. Having now lost that battle, they wish to re-group and fight again. Litigants do not get multiple opportunities to present their case. Having chosen their field of battle and having lost, the respondents are not entitled to a second chance to establish damages.

[15]        We would dismiss the application for reconsideration.

Given the amounts involved, the over / under on leave to appeal being sought from the SCC is zero.

Consider the implications of this statement. Counsel for the Respondents (plaintiffs) would not have filed for reconsideration if counsel thought there was no merit to the new grounds that the plaintiffs planned to argue if the case had been remitted. You should be able to do the math yourself.

An Alternate Reality: Once Again, British Columbia, Canada

One would hope that if a Canadian trial judge is going to quote or paraphrase any summary of Supreme Court of Canada law, the trial judge would use the Supreme Court’s own summary. This doesn’t require a Homer Simpson palm slap to the forehead for emphasis.

That didn’t happen, again, in a decision a judge of the British Columbia  Supreme Court. Instead, the trial judge used something else from somewhere else that, by almost 4 years after the SCC decision that established the law, should be known to be wrong even in the remotest regions of British Columbia.

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WTF

The Supreme Court of Canada has reminded the bar, often enough, of the presumption that trial judges are presumed to know the law that they are required to apply. That’s good enough, I suppose, where the reasons are silent on what the applicable law is but the judge’s conclusion, considered reasonably, is consistent with that law.

But what is the bar supposed to do when judges regularly misstate the law, as set out by the Supreme Court of Canada, when we know, or ought to know, that law has reached BC? Check CanLII and satisfy yourself. You could restrict yourself to BCCA decisions because, after all, they’re binding on BCSC judges, because of what’s sometimes referred to as the big pecker – little pecker rule.  (Those of you who follow CJC inquiries into judicial (mis)conduct will know that two judges are offering as the defence for their conduct the assertion that they didn’t know the applicable law. Right. Imagine what most judges would do to counsel who tried that as an explanation for doing something inappropriate during a trial.) But we’re not going to talk about CJC-type judicial misconduct.

We’re going to talk – actually I’m going to write, those of you who care will read along, but none of us are going to “talk” because I’ve not turned comments back on – about a B.C. problem I’ve complained about before. It’s the refusal, unwillingness, inability – use whatever term you want – of some BC trial judges to at least quote the current SCC explanation of the test for proof of causation (factual and legal) in negligence. Instead, what we (I, you, whoever) see is some versmion of something which may or may not have been BC law back in 2007, provided we assume that BC could then and can now have law that’s contrary to what the SCC has said the law was and is.

I suppose I shouldn’t be surprised the problem hasn’t improved since I left BC. After all, it didn’t improve while I was there.

Maybe it’s the case that, sometimes, the misstatement of the law isn’t something the losing side should worry about because it’s clear enough from the evidence accepted by the judge as outlined in the reasons, and the knowledge counsel should have of the evidence that went in, that the result reached is the result required by the current law. Where there’s a jury trial, maybe it’s the case that the result is one that a properly instructed jury probably would have arrived at.

Let’s focus, though, on cases tried by judge alone, if only because those are the cases that usually have reported reasons from the trial judge.

However, sometimes it’s not the case that it’s clear enough that the result is the one required by the current law because there’s no other reasonable alternative, or at least the result that probably would have been reached had the judge instructed himself or herself properly.

I’ll now quote the portion of the reasons, dealing with proof of causation, in the recent McKenzie v. Lloyd, 2016 BCSC 1745 (CanLII), <http://canlii.ca/t/gttrj&gt;

[154]     To establish causation for MVA#3 and MVA#4, I consider the “material contribution” test as affirmed and explained in Resurfice Corp. v. Hanke,2007 SCC 7 (CanLII), where the Court reaffirmed the finding in Athey that at times the “but for” test is unworkable: para. 18. I find in the case of these subsequent accidents (MVA#3 and MVA#4) that I cannot hold that “but for” the negligent act of each defendant the injury would not have occurred. In fact, the injuries had already occurred, and would have continued to persist, though it is impossible to say in what degree, absent the subsequent accidents. However, it is clear on the facts that in the cases of MVA#3 and MVA#4, the defendants “breached a duty of care owed to the plaintiff, thereby exposing the plaintiff to an unreasonable risk of injury,” both of which are required elements of the “material contribution test”: Resurfice Corp. at para. 25. The test also requires that the plaintiff suffered a form of injury which was in the ambit of the risk created by the breach.

[155]     I find this to be the case. Although the accidents did not cause the injuries outright, they both aggravated and exacerbated the plaintiff’s pre-existing injuries and ultimately contributed to his current overall mental and physical state. I find this to be within the ambit of risk created by the negligence of each defendant that led to the respective MVAs. Therefore, causation is proved for MVA#3 and MVA#4.

[156]     The defendants have raised the argument that the depression experienced by the plaintiff is the result of financial stress. While I find the plaintiff’s financial circumstances likely contributed to the stress he experiences, and Dr. Caillier acknowledged this in cross-examination, there is insufficient evidence to prove that it is the sole or material cause of his stress and depression. This is especially true in light of the associated physical ailments and functional changes experienced by the plaintiff in the wake of the MVAs.

[157]     I therefore find that MVA#1 caused the plaintiff’s stroke, and that MVA#3 and MVA#4 exacerbated and reactivated his symptoms, thereby materially contributing to his pain, fatigue, cognitive limitations, loss of memory, stress and depression.

Funny thing is that it’s not 2007 any more. It’s 2016. More importantly, in 2012 the SCC restated the law establishing when the material contribution test is available. That case is Clements. I’m going to assume that most (no all) of you reading this know that. The trial judge knew about Clements. We know that because the trial judge quoted from Clements.

[109]     The “but for” test is the general test for factual causation: the plaintiff must prove on a balance of probabilities that but for the defendant’s negligence, he would not have suffered his injuries. As affirmed by the Supreme Court of Canada in Clements v. Clements,2012 SCC 32 (CanLII) at paras. 8-10, this is a factual enquiry and causation must be established by the plaintiff on a balance of probabilities, having regard for all the evidence.

[110]     The Court in Clements at para. 9, affirmed Mr. Justice Sopinka’s statement on the law of causation from Snell v. Farrell, 1990 CanLII 70 (SCC), [1990] 2 S.C.R. 311 at para. 29, where he said that causation need not be determined by scientific precision and that the “but for” test must be applied in a “robust common sense fashion.

So how, then, do we get reasons which don’t mention the later passages in Clements dealing with the Resurfice explanation for the circumstances under which the material contribution test is applicable. I’m not going to quote those passages, yet again. If you’re here, you know how to find them. What I will quote is this from Clements:

[34]  In Resurfice, this Court summarized the cases as holding that a material contribution approach may be appropriate where it is “impossible” for the plaintiff to prove causation on the “but for” test and where it is clear that the defendant breached its duty of care (acted negligently) in a way that exposed the plaintiff to an unreasonable risk of injury. As a summary of the jurisprudence, this is accurate. However, as a test it is incomplete. A clear picture of when “but for” causation can be replaced by material contribution to risk requires further exploration of what is meant by “impossible to prove” (Resurfice, at para. 28) and what substratum of negligence must be shown. I will discuss each of these related concepts in turn.

The Chief Justice then did.

The trial judge did not.

Indeed, one might infer from the reasons that, at least on the day(s) the trial reasons were written at least through the time of their publication, the trial judge did not know the law that the trial judge was supposed to apply.

One might also search on CanLII to see whether there were prior days.

In any event, I leave you with this. Read the reasons, if you care to, and attempt to form a conclusion as to whether, on the evidence recounted by the judge, you’re able to say that the result is justified under the correct statement of the applicable law. Or, perhaps, are you left in this position, again quoting from (the majority reasons) in Clements delivered by the Chief Justice:

[53] We cannot be certain what the trial judge would have concluded had he not made the errors I earlier described. All that can be said is that the parties did not receive a trial based on correct legal principles. In my view, the appropriate remedy in these circumstances is an order for a new trial.

BC counsel, at the least, will know who probably will not suffer, financially, if there is a new trial. I suppose I should not be heard to complain about that. After all (here’s where you get your full disclosure) I was once a practising member of the defence lawyers’ firm, am still on the firm’s letterhead, and, most importantly, I consider the firm’s lawyers my friends.

I’m sure there’s an explanation for what happened. I’m sure there’s an explanation for why this keeps happening in BC. I happen to think there’s no good explanation. You my think otherwise. The virtual floor is yours; just not on this forum. And not with me; here or elsewhere.

FWIW

 

DC