Bison Properties Ltd. (Re)

2018 BCSC 1299 Bison Properties Ltd. (Re)

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Bison Properties Ltd. (Re), 2018 BCSC 1299 Date: 20180802 Docket: S149327 Registry: Vancouver

IN BANKRUPTCY AND INSOLVENCY IN THE MATTER OF THE RECEIVERSHIP OF BISON PROPERTIES LTD. IN THE MATTER OF THE RECEIVERSHIP OF WALKER HOSPITALITY LTD.

IN THE MATTER OF THE RECEIVERSHIP OF KEVIN BRUCE WALKER - and - Docket: S156989 Registry: Vancouver Between: Allan Markin, 1008127 Alberta Inc., 754653 Alberta Inc., Acorn Developments Ltd., Mark Asser and Barbara Asser, Thomas Axmann and Christine Axmann, Darlene Belford and Barry Swettenham, Carrington Lane Homes Ltd., Cass Investments Ltd., Glen Kerunsky and Cindy Kerunsky, Clissold Holdings Ltd., Kathryn Drew and Christina Thorsell, Marc Dumaine and Elizabeth Dumaine, Felcan Investments Inc., G&J Developments Ltd., JM Durocher Professional Corporation, Joanne Kryski and Kirby Kryski, Wu-Sheng Lu and Chi-Tang Catherine Chang, Robert Mitchell and Dorothy Mitchell, Penrose Holdings Ltd., Jeff Rolheiser and Monique Rolheiser, Sand Piper Inn Ltd., Hilda Lea Shaw, David Waterhouse, William G Keenan Professional Corporation, and Willpak Industries Ltd. Plaintiffs And Fasken Martineau DuMoulin LLP Defendant Before: The Honourable Mr. Justice Walker Reasons for Judgment Counsel for the Claimants: D.E. Gruber T. Louman-Gardiner Counsel for Rev Investments Inc. and Metro-Can Construction Ltd.: C.P. Dennis, Q.C. D.L.R. Yaverbaum Counsel for Fasken Martineau DuMoulin LLP: K.J. McEwan, Q.C. C. Hunter Place and Dates of Trial: Vancouver, B.C. August 28-31, 2017 September 1, 5-8, 2017 October 11-12, 18, 23, 27 & 31, 2017 January 10-12, 15-19, 22-24, 26, 29-31, 2018 February 1-2, 5, 19-23,

26-28, 2018 March 1-2, 5-7, 9, 14-16 26-27, 2018 Written Submissions Received: April 3, 2018 Place and Date of Judgment: Vancouver, B.C. August 2, 2018 Table of Contents Introduction. 5 Background Facts. 6 Issues. 7 The Bond Offering.. 12 The Documents Prepared by Fasken. 18 Overview. 18 The Bond Documents. 23 Standard Form Documents. 23 Minimum Subscription Required. 24 Release of the Bond Subscription Proceeds. 25 Additional Bonds May Be Sold. 27 Bondholders' Security May Be Subordinated to Construction Lenders. 27 No Insurance for the Bonds. 28 The Risks Inherent in the Bond Offering are Acknowledged. 29 Bond Maturity and Redemption. 31 OTPs. 33 The Bond Offering and Construction Are Underway. 35 The Priority Agreements. 37 The Claimants. 39 Bond Subscriptions. 40 OTPs. 40 OTPs Entered Into After Bond Subscriptions. 40 The Kerunskys. 41 Acorn. 43 David Waterhouse. 45 $10,000 Deposits. 45 754653 Alberta Inc. 46 Mr. and Mrs. Asser 46 Darlene Belford and Barry Swettenham.. 47 Legal Advice. 52 Financing from Rev and Metro-Can. 52 Background. 52 Rev's Loans to Bison. 54 Loans from Metro-Can. 56 Rationale For the Loans. 56 Completion of the Project. 57 Receivership. 58 Analysis and Determination. 59 Principles of Statutory Interpretation. 60 Principles of Contract Interpretation. 60 The Twin Goals of REDMA. 61 Treatment of REDMA Deposits. 66 The Nature of a REDMA Trust 67 The

Claimants' Funds are not "Deposits" Falling Under REDMA. 70 The Claimants' Funds Were Not Paid "In Relation to a Development Unit" 73 Commercial Purpose. 76 Claimants' Submissions Concerning Seven Day Rescission Period. 76 The Disclosure Statements Lack Contractual Effect 78 The Linking Letter Lacks Contractual Effect 80 The $10,000 Deposits. 82 Summary. 85 Additional Findings. 86 Mr. Finley. 86 The Fraud Claim against Rev and Metro-Can. 89 Conclusion. 94 Introduction [1] This dispute arises out of certain transactions that were intended to raise construction financing for the development of a new hotel and residence in the place of the iconic Oak Bay Beach Hotel, located in Oak Bay near Victoria, B.C. [2] The claimants are individuals and limited companies who purchased at-risk equity bonds in the developer between 2009 and 2012. The developer was Bison Properties Ltd. ("Bison"). Bison has been insolvent since 2014. [3] The claimants seek an interpretation of the Real Estate Development Marketing Act, S.B.C. 2004, c. 41 [REDMA], that would capture the monies they paid to purchase bonds issued by Bison as trust funds, which they allege were disbursed in breach of trust by the law firm Fasken Martineau DuMoulin LLP ("Fasken"). Specifically, they seek declaratory relief that those monies were deposits falling under REDMA in order to recover them either from the funds realized

from the sale of the new hotel development (which was sold during the receivership proceeding) or against Fasken, or both. According to the claimants, their claim is founded on their interpretation of the contract documents. [4] The claimants further seek to rely on their interpretation of REDMA so as to overcome the priority scheme established in the contract documents that they signed. They challenge the priority of the claims to the sale proceeds asserted by two construction lenders of the project, Rev Investments Inc. ("Rev") and Metro-Can Construction Ltd. ("Metro-Can"), under the Land Title Act, R.S.B.C. 1996, c. 250 [LTA]. [5] These reasons follow from the joint trial of the claimants' trust and priority claims advanced in the insolvency proceeding and their breach of trust claim advanced against Fasken in a separate action. Although the claimants in the insolvency proceeding are styled as plaintiffs in the case against Fasken, for ease of reference, I shall refer to them as "claimants" in these reasons. Further, when I refer to "defendants", I am referring to Rev, Metro-Can, and Fasken collectively. [6] The following reasons set out the basis for my determination that the monies paid by the claimants to purchase Bison's bonds do not fall within the ambit of REDMA and my decision that the claimants' claims against Fasken for breach of trust and their claims against Rev

and Metro-Can must be dismissed. Background Facts [7] At the time of the development, Bison owned the Oak Bay Beach Hotel and the prime oceanfront property on which it sat. By 2004, Bison determined that the hotel structure had reached the end of its usable life span. The hotel was demolished in spring 2007 to make way for Bison's plan to build a world-class luxury resort hotel and adjacent residential units (collectively, the "Hotel"). The plan for the Hotel was to include 100 vacation hotel suites, with limited usage rights, to be managed by the Hotel (referred to by the parties as "VHS" units) and 20 residential condominium units intended for full-time occupation ("Residences"). As part of its plan to raise capital to finance construction, Bison marketed pre-sales of (air-space) strata title to both the VHS units and the Residences. [8] Throughout, Bison held no assets other than the original hotel prior to its demolition, the newly built Hotel, and the property on which both were located. This was the first development undertaken by Bison and its principal, Kevin Walker, who was Bison's president and sole director. Mr. Walker was the driving force behind the new development. He was bullish on the prospects for successful and profitable redevelopment even though the property was encumbered, with no cash flow to service existing debt since demolition of the old hotel. Mr.

Walker believed that incorporating many of the design elements and artifacts from the old hotel, coupled with the proposed Hotel's renowned location and luxury design, would cause sales to be brisk and his project to be a success. Completion of the project, including the opening of the Hotel, was initially planned for November 2010. [9] Unfortunately, the global economic downturn in 2008 intervened. The anticipated completion date was rescheduled to November 2012. Faced with significant pre-construction debt, advanced mainly as secured bridge loans by private lending facilities at high interest rates, and waning interest in pre-sales, the viability of the project was at significant risk of failure. [10] Ultimately, to help raise capital to fund the project, Bison, as an issuer, marketed at-risk equity bonds. For those who purchased its bonds, Bison offered the opportunity to purchase a strata unit as preferred investors, meaning they could obtain a discount on the purchase price of a strata unit. [11] Not every bondholder is a claimant. Not every bondholder purchased a strata unit. One claimant signed a real estate contract with Bison but is not a bondholder. For those bondholders who purchased bonds and signed real estate contracts, the purchase price for their strata unit was often the same as the bond subscription amount. However, some bondholders signed real estate

contracts with purchase prices exceeding their bond subscription amounts. Some bondholders were originally creditors who loaned money to Bison for the project and only later chose to subscribe for bonds, in part, to either secure their position or to help Bison obtain favourable financing from a senior lender (or both). All but three of the real estate contracts in issue in this case stipulated that no deposits were paid for the purchase of real estate. Of the three that provided for deposits, one was a mistake in recording on the document; no deposit was ever paid. As for the other two, the deposit amounts were $10,000 each. Each deposit was provided by two different sets of claimants - Mark and Barbara Asser on the one hand, and Darlene Belford and Barry Swettenham, on the other. Those claimants agreed with Bison that those deposits could be released as part of their payments to purchase bonds. Issues [12] To put the facts that I discuss in these reasons, which are my findings of fact, in context, I will briefly describe the many issues raised by the parties in this case and their positions. [13] The principal issue is whether the monies paid by the claimants to purchase bonds are "deposits", and hence trust funds, falling under the ambit of REDMA. [14] The claimants assert that the monies they paid to purchase bonds are trust funds protected by REDMA standing in priority to

all other registered encumbrances, including the registered security of Rev and Metro-Can. They allege that their trust funds were disbursed by Fasken in breach of trust since none of the criteria in REDMA that permit payment out of trust funds, such as the existence of deposit protection insurance, were engaged. In that respect, they maintain that Fasken is liable for breach of trust. [15] There is no claim advanced in the claimants' pleadings that a common law trust existed over the claimants' funds. The claim is confined to breach of a statutory trust the claimants allege was imposed by REDMA. Nor is there a claim against Fasken that it breached its duties in providing legal services or otherwise acted negligently or improperly in designing the structure for the bond offering and real estate contracts. Furthermore, there is no relief sought premised on a claim that Fasken acted other than provided for in the contract documents. [16] The claimants assert that Bison had knowledge of all the material facts giving rise to the statutory trust so as to have constructive knowledge of the breach of trust and of Bison's beneficial receipt of allegedly traceable trust assets disbursed from Fasken. The claimants argue that Bison therefore held their funds in trust for them. As Bison is insolvent, it was not present as a party at the trial to defend itself (although its principal, Mr.

Kevin Walker, was called as a witness as part of the claimants' case). [17] Given Bison's insolvency, the claimants seek to hold Rev and Metro-Can, who provided construction financing to Bison and are parties to the insolvency proceeding, to account. The claimants assert that their claim to traceable trust funds takes priority to the interests of Rev and Metro-Can in the proceeds from the sale of the Hotel, in spite of the priority provided by the LTA for those defendants' registered security. [18] To overcome the priority provided under the LTA, the claimants advance numerous arguments. [19] By way of example, and not in any particular order, the claimants argue that Bison owned only the legal interest in the Hotel property but not the beneficial interest, because it was not Bison's to pledge to the construction lenders, including Rev and Metro-Can, as security. The basis of that submission is that Bison held traceable proceeds of the claimants' trust funds on a substantive constructive trust such that Bison's interest in the Hotel property was to legal title only. [20] The claimants also argue that while in ordinary commercial transactions the conduct of Rev and Metro-Can might not otherwise be objectionable, in the context of REDMA and those defendants' knowledge of the bond program (actual and imputed), their actions offend "good commercial conscience" and constitute

equitable fraud, rendering their registered security without priority to the claimants' trust funds. [21] In addition, the claimants assert that Rev and Metro-Can had constructive knowledge of the application of REDMA to the claimants' funds and of Fasken's disbursement of those funds in breach of trust. They further allege that Rev and Metro-Can received the benefit of enhanced value of their mortgage security through increased value of the Hotel property as a result of the expenditure of the claimants' funds and are thus beneficiaries of the claimants' trust funds. The claimants' position is that the economic interests of Rev and Metro-Can, founded under the construction lenders' registered mortgage security and certain priority agreements ("Priority Agreements") executed in accordance with the contract documents, are not sufficient to bar their claims (which they advance as in rem claims in support of their effort to trace their trust funds into the Hotel property). [22] Knowing receipt, unjust enrichment, and a claim for the imposition of a remedial constructive trust are also amongst the numerous claims pleaded by the claimants against Rev and Metro-Can. [23] Thus, at a minimum, for any of their claims to succeed against Rev and Metro-Can, the claimants must prove the existence of the statutory trust under REDMA. [24] The defendants deny that REDMA applies to the monies

the claimants paid to purchase bonds. Their position is that the claimants' funds were not deposits paid to purchase strata units but instead were funds paid to purchase at-risk equity bonds in order to facilitate ongoing development and construction of the Hotel. [25] All parties agree that if I determine that the claimants' bond subscription proceeds are not REDMA trust funds, the claim should be dismissed. Since I have determined that is the case, I will only briefly describe some of the many issues raised in the alternative by the defendants. [26] The numerous defences raised by some or all of the defendants in the alternative include whether the claims should be dismissed due to: (a) the "acting honestly" defence provided in s. 96 of the Trustee Act, R.S.B.C., 1966 c. 464 [Trustee Act]; (b) the effect of the Priority Agreements; (c) the claimants' inability to establish fraud per s. 29(2) of the LTA in order to defeat the presumptive priority of the interests of Rev and Metro-Can registered against title; (d) the claimants' inability to establish a constructive trust claim in light of the Torrens system in British Columbia; (e) legal and factual impediments to the claimants' ability to prove a knowing receipt claim, trace trust funds, and obtain a remedy based on a remedial constructive trust; (f) the doctrines of waiver, estoppel, acquiescence; and (g) the claimants'

affirmation of contract documents (e.g., regarding the disbursement of funds) and their subsequent conduct in continuing to affirm the contracts. [27] Another component of Fasken's defence is that it facilitated the transfer of funds in accordance with the claimants' specific instructions set out in the contract documents, such that the claimants cannot now say to Fasken that it should have ignored those instructions and acted to frustrate their clear terms. [28] To elaborate on the Priority Agreements issue, Rev and Metro-Can rely on the priority of their registered security to the claimants' security, which is a mortgage granted by Bison to all bondholders and held by the bondholders' trustee, Computershare ("Computershare Mortgage"). Rev and Metro-Can specifically rely on the Priority Agreements, which subordinate all bondholders' security, including those of the claimant bondholders, to their registered mortgage security. They submit that the Priority Agreements and the subordination of bondholders' security in the Computershare Mortgage were specifically contemplated by the contract documents, executed by each of the bondholder claimants, and defeat the trust claims in the event REDMA applies. Rev and Metro-Can submit that the presumption granted by s. 29 of the LTA as to the validity and priority of their registered interest bars the claims. They deny the allegations of

fraud and take issue with the claimants' assertion (advanced in the claimants' reply pleading) that the fraud exception in s. 29(2) is engaged on the facts of this case. They also maintain that there is no cause of action for "good commercial conscience" and it is not a basis for a stand-alone remedy. [29] Rev and Metro-Can also take issue with the knowing receipt claim alleged against them, also in the claimants' reply pleading, not only on its merits, but also on the basis that the claim is impermissibly advanced because a cause of action cannot be pleaded in a reply. The claimants deny any deficiency in their pleadings and in doing so, seek to rely on certain remarks I made during the parties' attempt to resolve the trust issue at summary trial. [30] As an aside, the claimants, Rev, and Metro-Can, previously sought to determine some of the issues raised at trial on a summary application brought in the insolvency proceeding. The claimants sought declarations of trust and priority over the interests of the construction lenders (including Rev and Metro-Can), in spite of registered Priority Agreements subordinating the first mortgage security of all bondholders (including the claimants) to the construction lenders. Given the conflicts in the evidence and issues arising from the claimants' assertion of equitable fraud against Rev and Metro-Can, as well as overlap with the issues

raised in the case against Fasken, I concluded that the claims should be determined at trial. My reasons are indexed at 2016 BCSC 507. [31] The remarks in my summary trial reasons that are relied on by the claimants were made before the claimants and Rev and Metro-Can had formally joined issue. I agree with Rev and Metro-Can that the claimants cannot elevate those remarks into a prior determination of an appropriately pleaded claim, not only for the reasons that I set out in the decision, but also because the claimants were afforded the opportunity to amend their notice of civil claim (which did not specifically advance a knowing receipt claim against them in their notice of claim). No amended notice of claim was filed. In any event, based on my findings of fact, there is no factual basis for a knowing receipt claim in this case. [32] In terms of the remedy sought by the claimants, their position is that if they are successful in obtaining declaratory relief, then, as a matter of course, they should recover the $18.121 million that they paid to subscribe for bonds, plus interest that was to have been paid on redemption (although in submissions they suggested an alternative position of court ordered interest). The defendants disagree with that approach and assert that even if the declaratory relief is granted, another hearing is required to determine the amount that should be

paid to the claimants (due to individual issues concerning tracing, waiver, and estoppel amongst others). The Bond Offering [33] In the midst of the 2008 economic climate, at least one potential purchaser asked Mr. Walker if he could obtain a discount on the purchase price of a unit in the Hotel if he paid all of it up front, even though completion would not occur for several years. Mr. Walker saw an opportunity to save the project by using the cash obtained from pre-sales to help finance development and pay for construction costs. He appreciated that he needed legal advice concerning appropriate structures within which to raise capital to finance the project. Through his own inquiries, Mr. Walker determined that Peter Finley, of Fasken's Vancouver office, was the best lawyer to advise him. Bison retained Fasken in early July 2008. [34] Mr. Walker asked Mr. Finley if Bison could pre-sell strata units and use those proceeds to finance construction. Mr. Finley advised Mr. Walker that Bison could not use pre-sale proceeds paid to purchase strata units in the Hotel for ongoing construction as it would fall afoul of the provisions of REDMA. Mr. Finley told Mr. Walker that " using purchasers' funds flies in the face of the protections built into the legislation..." The Superintendent of Real Estate, he warned, could impose sanctions on Bison, including a stop work order, which would

halt Bison's ability to raise capital through bond sales. [35] In general terms, and insofar as this case is concerned, REDMA requires that "deposits" paid in respect of the purchase of a VHS unit or Residence must be placed with a designated professional. Absent any of the conditions set out in s. 18 of REDMA being engaged ─ e.g., an exemption issued by the Superintendent of Real Estate, the acquisition of deposit protection insurance from a licensed insurer in substitution for the trust property, or the consent of the purchaser and the developer ─ any deposits that Bison received for the purchase of units in the Hotel would have to be held in trust until title could be delivered, and could not be used to finance the project. [36] Bison sought to raise construction financing that would permit it to pay off existing financing and proceed with development and construction. It was apparent to Mr. Finley that Bison needed to raise additional equity to meet loan-to-value ratios required by potential new construction lenders that Bison hoped to obtain financing on more favourable terms. [37] Mr. Walker asked Mr. Finley to consider whether there were other options available to raise capital for the project that would not fall afoul of REDMA. Mr. Finley agreed to determine if there was a means for Bison to raise capital and comply with all legislation, including REDMA. Mr. Finley was

aware that recent changes had been enacted to REDMA. After careful consideration, and following Mr. Walker's rejection of Mr. Finley's suggestion that he consider selling shares in Bison to raise money, Mr. Finley determined that Bison could raise capital by selling at-risk equity bonds in Bison through a securities offering without contravening REDMA. Bond subscription proceeds would be available to be used by Bison for the project once a certain sales threshold was met. [38] Some approaches to bond sales used by developers simply allow the purchase proceeds to be paid directly to the issuer. Bison's bond offering, however, was designed with built-in supervision and a control mechanism for the protection of the bondholders. The purpose was to mirror construction loan financing where funds are released once certain documents are filed or presented to the lender. In this case, Fasken drafted a bond indenture so that funds would be held by Deloitte Touche ("Deloitte"), as the funds administrator, who could not release them until it received documents establishing that approved project expenses had in fact been incurred in accordance with the development budget. In this manner, bondholders could be assured that the funds were properly expended. [39] The bond offering fell under applicable provincial securities legislation such as the Securities Act, R.S.B.C. 1996, c.

418. Limiting bond sales to accredited investors who subscribed for a minimum amount of $150,000 would qualify as an exempt securities offering under applicable securities legislation, eliminating the need to file a securities prospectus. [40] Under one approach available under the bond offering program structured by Fasken, Bison could sell at-risk equity bonds to interested investors, with principal and accrued interest to be paid at the time the bonds were redeemed. In the meantime, bond purchase proceeds were available for distribution to fund development and construction. [41] However, a person purchasing bonds could be offered the opportunity to purchase strata title to VHS units or Residences at a discounted price. All monies paid for bond subscriptions would nevertheless continue to be available for distribution to pay for development and construction costs. Under this approach, Bison would typically waive the requirement for a deposit to be paid for the purchase of real estate. That is what occurred for all but three of the real estate contracts in issue in this case. On bond redemption, an investor's bond subscription proceeds plus accrued interest would be paid out to the bond subscriber's agent, in this case, Computershare, and then remitted to Bison to pay some or all of the purchase price of the bondholder's purchase of a strata unit. Bond maturity and redemption

would be targeted, if possible, to occur upon the completion of the project when title could be transferred to individual purchasers. [42] According to Mr. Finley, a preferred pricing discount structured in this way is something offered by developers and was not unique to Bison's project. [43] Mr. Finley emphasized to Mr. Walker and Bison that under this approach, the bond subscription must not be treated as a real estate transaction. Mr. Finley emphasized to Bison, through Mr. Walker, that the purchase of bonds and the purchase of strata title must be marketed as two independent transactions: one was the sale of a security instrument and the other a sale of title to real property, regardless of any discounts offered to the purchase price. They were two separate transactions involving their own rights and obligations. The purchase of bonds was an at-risk investment of capital in the equity of the developer that carried with it the risk of failure (and in that event, there would be no payout on the bonds). Mr. Finley cautioned Mr. Walker and Bison not to conflate the two in its marketing and sales. [44] Mr. Finley made this clear to Mr. Walker and Bison from nearly the outset of Fasken's retainer, when he read a draft concept document from his client. In an early email, sent December 8, 2008, dealing with the point, Mr. Finley advised Mr. Walker: Kevin, I have reviewed the

concept document and have some significant concerns regarding the approach. As we discussed previously, what you are now marketing is a security. It is a subscription for a bond that effectively results in the investor becom[ing] an equity player in the development. One of the consequences of the equity investment is that the investor is granted the concurrent right to enter into a separate purchase contract to buy a unit in the hotel at a price that reflects a pre-development discount to the equity participants. The bond investment is the primary business arrangement which brings with it the collateral benefit of being able to acquire a unit once construction is completed at a discount to the estimated post-completion value. If the bond financing is marketed as a real estate purchase transaction with a right to purchase real estate at a discount, that almost certainly will be viewed as offside by the Superintendent of Real Estate. [Emphasis added] [45] Mr. Finley also provided a clear explanation to Bison that the transaction could not be structured in such a way that it might give a bondholder purchasing a strata unit an unfair preference over other bondholders. [46] Mr. Finley was consistent in his advice in these respects to Mr. Walker and Bison throughout. [47] All monies paid by an investor to purchase equity bonds in Bison, regardless of whether an investor signed an

offer to purchase a strata unit, would be secured by a first mortgage ─ the Computershare Mortgage ─ registered against the property. In addition, all bond subscription proceeds would be held in trust at Fasken until a minimum subscription amount in the aggregate of $10 million was obtained. Once that occurred, all bond subscription proceeds would be disbursed in order to retire specific pre-existing loans as well as designated past and future development and construction costs. [48] Anyone wishing to purchase title to a strata unit on a conventional basis would pay full price. An initial deposit of 10% of the purchase price and a further deposit in that amount at a later date, for a total of 20%, would be put up. Both deposits would be held in trust until title was transferred on completion. These funds would not be available to Bison in the meantime. [49] Bison liked the approach and wished to proceed on that basis. [50] Fasken was not involved in Bison's marketing of the bond program. Nor did it draft or review Bison's marketing materials unless Bison asked specific questions. On the several occasions that Mr. Finley learned Bison was not heeding his advice and its employees were either about to or were conflating bond and real estate purchases in their marketing efforts, Mr. Finley called Bison out on it with stark reminders, such as the following in an email sent January

14, 2009: Kevin, I have been out at another meeting and have just received your voicemail and seen this. I will have to review this in more detail, but at first blush it doesn't look to me like this works. As discussed this morning, the purchase agreement will stand alone and will not be amended or interpreted in the context of the Bond Offering. The Purchaser should be advised and understand that acceptance of the purchase agreement by the Developer at this price point will not be made unless and until a Bond Subscription is completed and funds paid under the Bond Offering. You should not in any circumstances be characterizing the payment of the Bond Proceeds as pre-payment of the purchase price for the strata lot. Subscribers for bonds must understand that the bond subscription amount is being paid as a separate investment transaction that is independent of the strata lot purchase although at the end of the day if and when the project is completed, the bond repayment proceeds will be applied on account of the purchase price payable upon completion of the transfer of the strata lot. This highlights the concern that I have expressed to you before that your marketing people must recognize and understand that the bond subscription payment is an independent business transaction from the purchase of the Strata Lot. If it is not possible to ensure that a clear distinction between

the two transactions is recognized by your marketing people and by the purchasers to ensure that the purchaser recognizes that the bond financing is an equity investment in the project and not simply a purchase of a strata lot, this will result in serious ramifications that could involve regulatory sanctions. [Bold in original; underlining added] [51] When referring to "sanctions", Mr. Finley was not limiting himself to the trust provisions of REDMA. This included the potential for sanctions under securities legislation if the nature of the bond transaction was misrepresented. His continued advice to Bison was that it should accurately represent the character of the transaction as a subscription for bonds. [52] Some claimants testified that Bison misled them when they purchased bond and real estate into thinking that their bond purchase contained conversion rights and was, in effect, a pre-payment of real estate. Without, at this point, dealing with the merits of those complaints, I will say that it is clear from all of the evidence in this case that Mr. Walker's evidence that Bison assiduously followed Mr. Finley's advice is incorrect. [53] The testimony of claimants critical of Bison's staff and Mr. Walker conflating the bond and real estate transactions in oral and written communications have no bearing on the case as pleaded against the defendants and in any event cannot be

laid at the feet of Mr. Finley and Fasken. Their complaints do not found their claim against Fasken. Mr. Finley not only provided clear and consistent advice to Bison and Mr. Walker both at the outset and when he became aware that Bison was acting offside from it, but strove to structure a transaction that was transparent and fully compliant with all applicable laws. [54] Mr. Finley was confident that the transaction he structured was fully compliant with securities legislation in Canada. There is no suggestion, let alone evidence adduced in this case, to the contrary. Mr. Finley was also of the opinion, and remains so to this day, that the bond subscription proceeds were not deposits falling under the ambit of REDMA or that that transaction otherwise fell afoul of REDMA. I accept his evidence in these respects. I found him to be a candid and forthright witness who epitomized a careful, highly competent, and prudent solicitor and officer of the court. The Documents Prepared by Fasken Overview [55] Led by Mr. Finley, a group of lawyers and legal assistants at Fasken prepared a package of documents to implement the plan. Included within the package were: (a) a bond indenture agreement dated November 2, 2009, which was the document governing the contractual relationship between Bison and all bondholders ("Bond Indenture"); (b) a bond subscription agreement which, in addition to

the purchase price, set out the amount of bonds subscribed for and the interest rate, summarized the critical aspects of the Bond Indenture, and described many of the risks inherent in the transaction ("Bond Subscription Agreement"); (c) a disclosure statement also describing in detail numerous risks to the transaction ("Disclosure Statement"); and (d) a draft offer of purchase and sale to be signed by purchasers of strata units ("OTP"). [56] Those documents were prepared in standard form to be used for bond subscriptions and the purchase of strata units. Fasken also assisted Bison with other aspects of the development such as developing air space parcels so as to be able to sell strata units. [57] When I refer to the Bond Indenture and Bond Subscription Agreement collectively, I do so as the "Bond Documents". I have used the words "bondholders" and "bond subscribers" interchangeably, depending on the context, without any difference in meaning. [58] My finding is that the documents having contractual force and effect in this case are the Bond Documents and the executed OTPs. I have determined that the Disclosure Statement and subsequent amendments of the document lack contractual force and effect. I have made the same determination regarding a letter sent by Bison to many of the claimants describing the relationship between the purchase of bonds and the purchase of a strata

unit. The parties refer to this document generically and singularly as a "Linking Letter" and for ease of convenience, I will do so as well. The Linking Letter was prepared and given to some bondholders purchasing strata units without the knowledge of Mr. Finley and Fasken. [59] Broadly speaking, the documents prepared by Fasken structured the following transaction: (a) Bison would market and issue bonds to subscribing bondholders up to the maximum total amount of $95 million, to provide funding to retire pre-existing debt (including debt secured against the property) and all pre-existing and future development and construction costs. (b) The bonds would be sold in three different tranches at various interest rates. (c) Bonds would only be sold to persons meeting prospectus exemption requirements and falling under the definition of an accredited investor who paid a minimum subscription price of $150,000. (d) Bison would not obtain insurance for the bonds as a form of security or substitute in the event the project was unsuccessful. (e) On the other hand, Bison "may" obtain deposit insurance coverage for deposits paid for the purchase of strata units. (f) Bond subscribers were required to remit their subscription proceeds to Fasken, who would in turn hold them in trust until bond sales reached the threshold amount of $10 million, at which time bond subscription proceeds would be

released to Deloitte. Deloitte's financial advisory group was retained by Bison to assist with planning and structuring the development of the Hotel, including the raising of capital. (g) Deloitte acted as the fund administrator and was responsible to disburse bond subscription proceeds in accordance with the specific purposes set out in the Bond Documents, i.e., to extinguish certain pre-existing secured financing and to pay past and future development and construction costs. (h) The monies paid by bond subscribers to purchase their bonds were secured by the Computershare Mortgage, which was a pooled first mortgage registered against the Hotel property. (i) Computershare was to have full control over the bond subscription transactions and was responsible for reviewing all documents to ensure that they were consistent with the Bond Indenture. It was also responsible for issuing the bond certificates. Computershare was authorized to act on behalf of the bondholders in respect of all matters relating to the bonds. (j) The Computershare Mortgage would rank in priority to the existing security held by the then second mortgage lender, but not in respect of security that may be taken by subsequent construction lenders. (k) Bond subscribers were advised in the Bond Documents that additional construction financing for Bison may be required. They were also advised that if obtained, the

Computershare Mortgage "may be" subordinated to and rank in second position behind any security taken by the construction loan facility(ies). Computershare was specifically authorized to execute the Priority Agreements on behalf of the bond subscribers for this purpose. (l) Once the minimum offering was obtained, bond funds paid up to that point would be released to fund development and construction. (m) The bonds were to mature and be redeemed on the earlier of December 31, 2012, and 60 days following the issuance of occupancy permits for the Hotel. (n) The bond offering was available on a stand-alone basis. (o) If, however, a purchaser chose to purchase a VHS unit or Residence, then the purchase could be structured in one of two ways: (p) The purchaser could purchase the unit on conventional or standard terms, requiring a deposit of up to 20% of the purchase price, which would be held in trust pending completion; (q) The other approach allowed a purchaser who subscribed for bonds to use their bond proceeds, upon redemption, to be paid to Bison on account of the purchase price. It was not necessary for the bond subscription proceeds and accrued interest to match the purchase price. Any shortfall would be paid by the purchaser. (r) Otherwise, in the absence of a valid, executed purchase agreement, the bond proceeds would be paid directly to each bond subscriber on maturity and

redemption of each bond. [60] Thus, funding for the Hotel development and construction would be supplied by debt (owed to any lending facilities who agreed to finance construction and to bondholders). [61] In addition to proof of the suitability of draw requests, protections were built into the transaction to ensure that funds were not released to Bison that exceeded the remaining amount available under the construction loan facility and available bond funds. The maximum aggregate amount due under the bonds and the principal amount of construction financing could not exceed 80% of the estimated completed value of the project as determined by an independent appraiser. Bison was also required to obtain a cost overrun guarantee (by a letter of credit or a third party funder). [62] As previously mentioned, it is the Bond Subscription Agreement, the Bond Indenture, and the OTPs that constitute the contract documents in this case. They do not speak of a pre-payment of real estate or the bond program as a real estate transaction. Nor do they describe the bond subscription proceeds as deposits on account of the purchase of real estate. [63] Fasken was not a party to the contracts between the claimants and Bison. [64] Fasken provided Computershare and Deloitte, and their counsel, with drafts of the Bond Documents, for review. Computershare and Deloitte provided their comments, including

suggested wording, to Fasken. [65] It never occurred to Mr. Finley that the bond subscription proceeds could fall within the ambit of REDMA. There is no evidence to suggest that any other participants in the transaction, such as Computershare and Deloitte (and their counsel), or the lawyers who provided independent legal advice to claimants, thought otherwise. [66] Fasken also attended to the requisite filings in British Columbia, Alberta, and Ontario under applicable provincial securities legislation, since the proposed sales of Bison's bonds involved the marketing of securities instruments. Since bonds were only to be sold to persons who warranted they were accredited investors who subscribed for a minimum of $150,000 of bonds, there was no requirement for Bison to file a prospectus. Securities legislation and the regulations enacted by securities regulators permit the purchase of exempt securities on this basis and do not void them as a matter of consumer protection. [67] An accredited investor includes a person with assets exceeding $1 million, excluding their principal residence (and, depending on how regulators' policy documents are construed, possibly RRSPs). Participation in the bond program and hence, the opportunity to purchase real estate at discounted pricing (which Bison referred to as "preferred investor pricing") was limited to accredited investors. The Bond

Documents Standard Form Documents [68] The Bond Documents were drafted as standard form documents. The Bond Indenture was the contract document that contained the rights and obligations of all bondholders and Bison in respect of the bonds. Deloitte and Computershare were also parties to the Bond Indenture. The Bond Subscription Agreement refers to many of the governing terms contained in the Bond Indenture. It includes a seven-page Accredited Investor Questionnaire and a five-page appendix outlining in great detail many of the inherent risks of the transaction and advises bond subscribers to obtain professional advice before purchasing bonds. It also contains warranties and representations provided by bond subscribers to Bison. [69] The Bond Subscription Agreement was drafted to permit the specific dollar amounts of the bonds subscribed for in each purchase transaction along with the interest rate payable on redemption to be inserted. For those bondholders who signed OTPs, the interest rate payable on the bonds was typically, although not always, 3%. [70] Except for the claimant, Cass Investments Ltd. ("Cass"), of which another claimant, Glen Kerunsky, is president (as well as director and shareholder), each claimant executed a Bond Subscription Agreement to purchase bonds. The factual circumstances surrounding Cass' claim will be discussed in the section concerning the

claimants. Minimum Subscription Required [71] Bison was limited to issuing bonds in the total amount of $95 million. [72] As mentioned, the bonds were to mature at the earlier of December 31, 2012 and 60 days following the date of the issuance of occupancy permits: cl. 1(aa), Bond Indenture. However, at its option, Bison was permitted to redeem earlier, in whole or in part, the principal amount of bonds plus accrued interest: cl. 3.1, Bond Indenture. Partial redemption was also available in the minimum amount of $1,000 or multiples thereof: cl. 3.2, Bond Indenture. [73] Mr. Finley structured the transaction so that the bonds could only be sold to persons eligible to purchase exempt securities under applicable securities legislation. Accordingly, each bond subscriber was required to warrant in the Bond Subscription Agreement that they were an accredited investor, in the following language: 3.1 The Subscriber on its own behalf and on behalf of any Disclosed Principal for whom the Subscriber may be contracting hereunder, acknowledges, represents, warrants and covenants to and with the Issuer as follows, as at the date given above and at the Closing Date: (c) (i) is an Accredited Investor and is: . [74] An Accredited Investor is defined in the Bond Subscription Agreement. A detailed list of categories falling within the definition is set out in Appendix I. The Bond Subscription

Agreement also advised subscribing bondholders that Bison will use the information provided to determine whether the subscriber met the requirements of the prospectus exemption and applicable securities legislation. Bond subscribers also acknowledged that no prospectus was filed with any provincial securities commission in British Columbia, Alberta, and Ontario. [75] The language found in the first paragraph of the Bond Subscription Agreement, located on the same page as, and sitting close to and above the place for execution by a subscribing bondholder, is clear that the funds paid by each bond subscriber were on account of their purchase of bonds issued by Bison for a subscription price of $1,000 per bond, with a minimum subscription amount of $150,000: The undersigned (the "Subscriber") hereby acknowledges that the Issuer is proceeding with a private placement offering of bonds (the "Bonds"), which may be issued in series, at a subscription price of $1,000 per Bond with a minimum subscription amount of $150,000 to raise minimum aggregate gross proceeds of $10,000,000 and tenders to the Issuer this subscription offer which, upon acceptance by the Issuer, will constitute an agreement of the Subscriber to subscribe for, take up, purchase and pay for and, on the part of the Issuer, to issue and sell to the Subscriber the Bonds set out below on the terms and subject to the

conditions set out in this Agreement. [Bold in original; underlining added] Release of the Bond Subscription Proceeds [76] The terms of the Bond Subscription Agreement expressly provide for Fasken to pay out the bond proceeds for defined purposes once the $10 million threshold was reached: 2.2 The Subscriber understands that the Bonds subscribed for hereunder constitute a portion of the aggregate number of Bonds which are being offered for sale pursuant to the Bond Offering. The minimum subscription proceeds that must be raised under the Bond Offering is $10,000,000. Until such time as the Minimum Offering is achieved, all Subscription Proceeds will be held in trust by [Fasken]. Upon the Minimum Offering being achieved, the initial Closing of the Bond Offering will take place and [Fasken] will release the Subscription Proceeds to or to the order of the Funds Administrator who will use such Subscription Proceeds as described below and in the Indenture. [77] A covenant instructing Fasken to pay bond funds of the same effect is contained in cl. 2.11 of the Bond Indenture. [78] Bondholders were also advised in the Bond Documents that once the minimum $10 million offering had been achieved and the first mortgage facility (comprised of two lenders, Lanyard Mercantile Inc. and Fisgard Capital Corporation) was repaid in full, Bison could request the bond subscription proceeds to pay

development and construction costs in accordance with the project budget. Additional language in the document provided that upon closing of the initial bond offering, Bison was "irrevocably entitled" to the bond subscription proceeds. [79] The purposes for which bondholders' funds would be used were clearly stated in the Bond Documents, i.e., to pay existing debt and to finance development and construction. The following excerpt is taken from the Bond Subscription Agreement (a nearly identical provision is found in cl. 2.10 of the Bond Indenture): 2.6 The Bond Certificates and/or the Bond Indenture will contain standard positive and negative covenants and events of default and will also contain provisions to the following effect, the following being a summary only of such provisions, and being qualified in its entirety by the terms of the Bonds set out in the Bond Certificates and/or the Bond Indenture: (a) The Subscription Proceeds received under the Bond Offering will be used for the following purposes: (i) to refinance the existing first mortgage credit facility (the "First Mortgage Facility") provided to the Issuer by Lanyard Mercantile Inc. and Fisgard Capital Corporation (the "First Mortgage Lender"), which currently has an outstanding balance of $10,000,000; (ii) to refinance the existing second mortgage credit facility (the "Second Mortgage Facility") provided to the

Issuer by Investit Financial Inc. (the "Second Mortgage Lender"), which currently has an outstanding balance of $10,000,000; (iii) to fund ongoing development costs and overhead expenses as set out in the Project Budget; and (iv) to fund construction costs incurred in connection with the development of the Development in accordance with the Project Budget; [Bold in original; underlining added] [80] "Subscription proceeds" are defined in cl. 1(pp) of the Bond Subscription Agreement as "the gross proceeds from the sale of Bonds under the Bond Offering." There is a similar definition in the Bond Indenture at cl. 1(nn): "Subscription Proceeds" means the gross proceeds raised from the sale of Bonds or, where applicable in respect of any individual Bondholder, the gross proceeds paid by that Bondholder in respect of its subscription for Bonds. Additional Bonds May Be Sold [81] Bond subscribers knew that Bison could issue additional bonds to raise funds for the development with various interest rates up to 8%. They were also told in the Bond Subscription Agreement that their bonds "will be direct junior obligations of " Bison and are governed by the terms of the Bond Indenture and the bond certificates. Bondholders' Security May Be Subordinated to Construction Lenders [82] Bond subscribers were made aware in the Bond Documents that their security, the Computershare Mortgage, may be

subordinated to a senior lending facility in the event that construction financing was necessary. For example, the Bond Subscription Agreement provided: 2.6 (b) The Bondholders' Mortgage will initially be registered as a first mortgage charge and will rank in priority to security granted to the Second Mortgage Lender. If sufficient funds are raised through the issuance of Bonds to pay out the existing First Mortgage and the existing Second Mortgage and to provide additional funds to provide construction funding for the Development, then the Issuer shall use such funds to finance the cost of construction. However, the Issuer expects that it will be necessary to arrange additional construction financing for the Development. Once the construction financing for the Development is arranged, the Bondholder[s'] Mortgage may be subordinated to security granted in favour of the construction lender or the Bondholders' Mortgage may be a jointly registered mortgage held by the Construction Lender and the [Computershare] pursuant to an inter-lender's agreement whereby the Bondholders will be the Tranche B portion of the first mortgage facility and will rank subsequent in priority to the funds advanced by the Construction Lender. [Emphasis added] [83] Like provisions are found in cl. 2.12 of the Bond Indenture. [84] In the same clause, subscribing bondholders authorized Computershare to

execute a subordination agreement (i.e., the Priority Agreements) in favour of the construction lender(s). In this case, Computershare signed two Priority Agreements subordinating the bondholders' security, i.e., the Computershare Mortgage, in favour of construction lenders' security (including Rev and Metro-Can). No Insurance for the Bonds [85] Each subscribing bondholder acknowledged in the Bond Subscription Agreement that there was no insurance obtained in respect of the bonds: 3.1(e) the Subscriber acknowledges that: (i) no securities commission or similar regulatory authority has reviewed or passed on the merits of the Bonds; (ii) there is no government or other insurance covering the Bonds; (iii) there are risks associated with the purchase of the Bonds; [Emphasis added] [86] The Disclosure Statement and its amendments provided that Bison "may" obtain deposit insurance, but that was in respect of deposits paid for the purchase of strata units. [87] However, the Bond Indenture did require Bison, per cl. 4.10, to obtain insurance (" against all loss or damage by fire and other insurable hazards ") for the mortgaged property and all improvements so long as any bonds remain outstanding. The Risks Inherent in the Bond Offering are Acknowledged [88] All bond subscribers, including the claimants (except for Cass who did not purchase bonds), acknowledged that the transaction had

risks and that they were advised to obtain professional advice. Their acknowledgment was highlighted in bold font, on the first page of the Bond Subscription Agreement, above the execution portion of the page: The Subscriber acknowledges that a subscription for Bonds is subject to numerous risks and that the Subscriber has reviewed this Subscription Agreement in its entirety including the Risk Factors described in Appendix II. The Subscriber acknowledges that it recognizes and understands the risks involved in an investment in Bonds. The Subscriber further acknowledges that it has been advised to consult its own professional advisors with respect to tax, securities and other matters relating to a subscription for Bonds including with respect to the resale restrictions applicable to the Bonds. [Bold in original] [89] Elsewhere in the body of the document, subscribing bondholders acknowledged that they had the opportunity to review the Bond Indenture and consult with professional advisors concerning the Bond Documents prior to executing the Bond Subscription Agreement. They also acknowledged that they were advised to consult with their own legal advisors concerning tax matters and "other legal matters relating to this Agreement". [90] The risks are elaborated upon in the main body of the Bond Subscription Agreement and in Appendix II to it. When Mr. Finley drafted those

documents, he included specific risks involved with the purchase of Bison's bonds. The language is stark and its overall effect is clear: any one of a number of possible events could materially affect Bison's ability to carry on with or complete the project, including the possibility that there would be no ability to redeem the bonds. Bondholders were told that they could lose all of their money. Greater detail is provided in the document and the Appendix. For example, in cl. 3.1(y) of the Bond Subscription Agreement, the bond subscriber acknowledges that the risk is speculative, and involved a significant degree of risk, including the "risk of losing part or all of the Subscriber's investment." [91] Bond subscribers were told that Bison had limited assets other than its interest in the project, which was in its formative stages, and did not have significant cash reserves. They were also told that if Bison was unable to arrange construction financing or was otherwise unable to successfully complete the project, it may become necessary to sell the property, and at a time when market prices are depressed. In that event, Bison may be unable to repay the principal amount of the bonds or accrued interest. [92] Some of the other risks discussed in detail include these warnings: (a) Repayment of the bonds and payment of interest will depend upon the earnings, capital requirements, and

financial conditions of Bison. (b) If the project is not successfully completed, it is unlikely that a bond subscriber will receive full recovery on its bonds, and the bond subscriber's investment may not be recoverable at all. (c) Bison's bonds are not transferrable or assignable and there "will be" no market for its bonds, so that "an investment in bonds is suitable solely for persons able to make a long-term investment". (d) Real estate development in Canada is historically cyclical in nature and is significantly affected by changes in general and local economic conditions, levels of consumer confidence, employment and income, housing demand, interest rates, and financing. (e) The real estate industry is capital intensive and sensitive to interest rates, labour and materials costs, competition, and financing costs. (f) If Bison is unable to meet the debt service payments for mortgages registered against title, sale or foreclosure could result. (g) Bison does not have construction financing in place and if it is unable to secure it, it may not be able to proceed with the project; in that event, it is possible that the realizable value of the project would not be sufficient to repay the principal amount of the bonds or interest. (h) Liability for unknown environmental matters is an inherent risk that could affect the viability of the project. [93] Although each claimant (or if

a corporation, its principal) warranted in their Bond Subscription Agreements that they were accredited investors, which qualified them to purchase bonds, some of those who testified said that they either believed or understood that they were not, but provided the warranty nonetheless. [94] The claimants who testified also admitted, when presented with the contract documents, their acknowledgement that they had read the Bond Subscription Agreement prior to signing it, were able to bear the risk of the investment, and understood their bond purchase was a speculative investment involving a significant degree of risk. Each claimant (or its principal) who testified admitted that they were advised or understood they should obtain legal advice before signing the contract documents. Bond Maturity and Redemption [95] The key redemption provisions are contained in articles 3 and 6 of the Bond Indenture. On maturity, the principal amount of a bond and accrued interest payable were to be paid to Computershare at least one business day prior to the redemption date. Computershare would in turn disburse the funds to the subscribing bondholder in accordance with the bondholder's written directions. In that respect, cl. 3.5 provides: Upon Bonds having been called for redemption as hereinbefore provided, [Bison] shall deposit with [Computershare], at least one business day prior to the date

fixed for redemption, in trust for the holders of the Bonds called for redemption, on or before the redemption date fixed in the notice of the redemption thereof, such sums as may be sufficient to pay the redemption price of the Bonds so to be redeemed. From the sums so deposited, [Computershare] shall pay or cause to be paid to the holders of such Bonds the principal and interest to which they are respectively entitled on redemption, in accordance with written directions provided to [Computershare] by [Bison] which payment shall be made by cheque issued by [Computershare] and mailed to the address of the Bondholder at the address shown on the register of Bondholders. [96] However, if a bondholder had entered into an OTP, the Bond Documents contain an irrevocable direction from the bondholder to Computershare to remit its bond proceeds to Bison to be set off against any amount owing to Bison under the OTP. Once that occurred, the bond subscriber's security position (through the Computershare Mortgage) would be discharged and Bison's liability in respect of the bond redemption would be released. [97] The set-off provisions are described in the Bond Subscription Agreement and Bond Indenture. The former provided: 2.6 The Bond Certificates and/or the Bond Indenture will contain standard positive and negative covenants and events of default and will also contain provisions to the

following effect, : (e) On the Maturity Date, the principal amount due under the Bonds, together with all accrued and unpaid interest thereon, will be paid to the Subscriber provided that if the Subscriber has entered into an [OTP] with the Issuer then the Subscriber irrevocably directs [Computershare] that the Bond proceeds, including interest, be paid by [Computershare] to the Issuer to be applied on account of the purchase price payable by the Subscriber for its Designated Strata Lot. If the Subscriber has entered into an [OTP], any amounts payable by the Issuer under the Subscriber's Bonds will be applied on account of the purchase price for the Designated Strata Lot and shall be automatically set off against any amounts owing by the Subscriber under its [OTP] and the Subscriber shall be entitled to set off any amounts payable to it in respect of the Subscriber's Bonds against amounts payable by the Subscriber under its [OTP]. [98] A provision to that effect in similar but not identical language is contained in the Bond Indenture at cl. 6.1: 6.1 Satisfaction On the Maturity Date, the principal amount due under each of the Bonds, together with all accrued and unpaid interest thereon, (the "Bond Proceeds") will be paid to the respective Bondholder provided that if a Bondholder is a party to an [OTP], the Bond Proceeds otherwise payable to such Bondholder shall be paid to

[Bison] to be applied on account of the purchase price payable by such Bondholder for its Designated Strata Lot and each such Bondholder who is a party to an [OTP] hereby irrevocably directs that the Bond Proceeds be applied on account of the purchase price payable by such Bondholder for its Designated Strata Lot in consideration of the transfer by [Bison] to such Bondholder of title to the Designated Strata Lot in accordance with the terms of the Bondholder's [OTP]. Any amounts payable by [Bison] under the Bondholder's Bonds and applied on account of the purchase price for the Designated Strata Lot shall be automatically set off against any amounts owing by the Bondholder under its [OTP] and the Bondholder shall be entitled to set off any amounts payable to it in respect of the Bondholder[s'] Bonds against amounts payable by the Bondholder under its [OTP]. Upon full payment of [Bison's] indebtedness under a Bondholder's Bonds, [Bison] is entitled to the full and immediate release, discharge and return of all of such Bondholder's Bonds and the security in connection therewith and any replacement or substituted security and any registration or filing in connection therewith at the Company's cost, as applicable. [99] The Bond Indenture also provided the mechanism for a bondholder who had signed an OTP to receive title upon payment of the purchase proceeds, notwithstanding the

continued registration of the Computershare Mortgage in respect of the interests of other bondholders. Computershare was irrevocably authorized to execute and deliver a registerable form of partial discharge of the mortgage to permit closing on condition that the net proceeds of sale are paid to the construction lender: cl. 6.5, Bond Indenture. OTPs [100] As all subscribing bondholders were made aware, the bond investment was a high-risk investment with the potential for complete failure; there was no guarantee of redemption. In that event, there would be no funds to offset against the purchase price of a unit. The purchaser was nonetheless obliged, under the terms of the OTP, to provide the funds to satisfy the purchase price. There are no provisions in the OTP relieving the purchaser of its obligation to pay the purchase price in the event a bond redemption did not occur. [101] The OTPs contain two standard form clauses concerning deposits. Deposits represent a portion of the purchase price. [102] The first clause (1.7) concerns an initial deposit. The amount was left blank to be filled in. The contract language states that it represents "ten per cent (10%) of the Purchase Price". The second deposit clause is found at cl. 1 of Schedule "A". There is no place for the amount of the deposit to be written in. Instead, the clause provides that the purchaser is to increase the

original deposit (found in cl. 1.7) by an additional 10%, for a combined total of 20% of the purchase price. The additional ten per cent deposit was to paid within seven days from the date the purchaser receives an amendment to the Disclosure Statement "setting out the particulars of the Vendor's satisfactory financing commitment and issuance of the building permit for the Strata Lot." [103] Except for three OTPs, each OTP document signed by the claimants specified that there was no deposit. I deal with these three instances in the section of these reasons entitled, "$10,000 Deposits". [104] For the other claimants, however, the amount in the first deposit clause was stated to be "N/A": 1.7 A deposit in the amount of $ N/A accompanies this offer . [105] In many instances, the clause requiring a second "deposit" was entirely crossed out and initialed by each of the claimants and the developer: 1. Deposit: The First Deposit, referred to in section 1.7 of this Agreement will be increased by an additional ten percent (10%) of the Purchase Price (the "Second Deposit") to a combined total of twenty percent (20%) of the Purchase Price within seven (7) days after receipt by the Purchaser of an amendment to the Disclosure Statement setting out the particulars of the Vendor's satisfactory financing commitment and issuance of the building permit for the Strata Lot. The First Deposit and

the Second Deposit shall be referred to collectively as the "Deposit". [Bold in original] [106] For those that were not, the clause had no application where the original deposit was waived; the second deposit clause only applied where the first deposit was actually required. [107] In construing the contract documents, I agree with the defendants that in these instances, and apart from the three instances where deposits were noted in OTPs, the claimants and Bison agreed that no deposits were to be paid in respect of the claimants' purchase of strata units in the Hotel. [108] The OTP does not refer to or treat bond subscription proceeds as deposits under the real estate contract. An entire agreement clause in Schedule "A" confines the ambit of the OTP to the language contained in it and also limits representations, conditions, or warranties to those contained within it and the Disclosure Statement: 27. Entire Agreement: This Agreement is the entire agreement between the parties and there are no other representations, warranties, conditions or collateral agreements, express or implied, whether made by the Vendor, any agent, employee or representative of the Vendor or any other person including, without limitation, anything arising out of any marketing material including sales brochures, models, representative view sets, show room displays, photographs, illustrations, renderings,

revenue projections or pro-formas provided to the Purchaser other than those contained in this Agreement or in the Disclosure Statement. The agreements, representations and warranties contained herein will survive completion and the conveyance of the Strata Lot to the Purchaser. This Agreement may not be altered or amended except by an amendment in writing signed by both parties. [Bold in original] The Bond Offering and Construction Are Underway [109] The general contractor for the project was Metro-Can (AB) Construction Ltd. ("Metro-Can (AB)"), a company related to the defendants, Rev and Metro-Can. Metro-Can (AB) is not a party to these proceedings. [110] The construction launch date for the Hotel was in November 2009. Excavation work began at that time and was anticipated to complete by April 2010. Metro-Can (AB) entered into a letter of intent with Bison to act as its general contractor in late February 2010 and assumed its role as general contractor the following month (the fixed price contract was executed approximately some two months later). [111] The designated start date of the bond offering program was November 2, 2009, although Bison began marketing the sale of bonds beforehand and during that period sold bonds in the approximate amount of $5.635 million (including to some bondholders who sought to purchase strata units). Those who agreed to purchase bonds prior to

that date signed Bond Subscription Agreements once the Bond Documents were in hand. [112] Fasken deposited bond subscription proceeds into its trust account prior to November 2 but did not release them until the $10 million threshold was reached, which, as it turned out, coincided with the start date of the bond program. [113] The Computershare Mortgage was executed and then registered with the Land Title Office on November 4, 2009. [114] It was a condition of the Bond Indenture that Bison secure construction financing by June 30, 2010. Many of the claimants purchased their bonds after construction financing was obtained and registered in priority to the Computershare Mortgage (consequent upon the Priority Agreements). [115] Given that some bondholders remitted their bond purchase funds before the bond offering program officially began in November 2009, and at the urging of Deloitte, who sought to ensure there was no misunderstanding concerning the use to which the bond subscription proceeds would be put, Bison wrote to each bondholder on June 23, 2010 ("June 23 Letter"). Bison advised that it had obtained favourable terms from a construction lender and confirmed that the bond subscription proceeds would be released to pay for development and construction costs. Bison asked each bond subscriber to return their written acknowledgment on the document. Except for two claimants,

Mr. and Mrs. Asser, for whom there was no proof, the bondholder claimants who were sent the letter signed it. [116] There is no direct evidence that Mr. and Mrs. Asser signed their acknowledgment on the June 23 Letter. Nonetheless, I am satisfied and find that they and the claimants who had purchased bonds after that letter was sent knew that their bond subscription proceeds were to be released by Fasken to pay for development and construction costs in the absence of any protective insurance. [117] Concerns voiced by some of the claimants during trial that Deloitte did not disburse all of the bond subscription proceeds strictly in accordance with the Bond Documents and the construction budget have no bearing on the claims pleaded against the defendants. The defendants had no participation in or knowledge of the June 23 Letter and Deloitte's handling of the funds. I will add, however, that I accept Mr. Finley's unchallenged evidence that as far as he was aware, Computershare, as trustee for all bondholders, was typically kept involved and told what was taking place as bond subscription funds were disbursed. [118] Bison continued to sell bonds through to 2012. Some bond subscribers only bought bonds; others purchased bonds and signed OTPs to purchase strata units at discounted prices. Some, but not all, of those falling within the latter group are the claimants. Some people

purchased real estate on the traditional basis, paying deposits totalling 20% of the purchase price of their respective units. [119] Mr. Finley and Fasken were not required to be told but in some instances were advised of bond subscribers who also signed OTPs. The Priority Agreements [120] Acting in its role as "trustee", "attorney", and "collateral agent" for all of the bondholders, including the claimants, and acting in accordance with the provisions of the Bond Documents, Computershare executed two Priority Agreements in 2011, the first in the summer of 2011 and the other in December of that year. Both were registered in the Land Title Office. The effect of those agreements was to grant priority to the construction lenders' mortgage over the Computershare Mortgage and Computershare's collateral security (which includes a general security agreement), such that the construction lenders have first priority over Bison's assets, including the Hotel property. The Priority Agreements contained terms which aligned with the Bond Documents, and provided: (a) Computershare grants to the construction lenders "priority over the interests which it has in the Lands (a defined term) and other assets of" Bison; (b) Computershare postpones all its right, title, and interest in and to the Lands and Bison's assets with the "intent" that Computershare's interest is subject to the construction

lenders' security; (c) no proceeds realized from the sale of the Hotel property would be paid to the bondholders until Bison had paid the construction lenders' mortgage in full; and (d) Computershare postpones in favour of the construction lenders "all monies, debts and obligations" due from Bison until the construction lenders' are paid. [121] The priority claimed by Rev and Metro-Can flows from the registration of those Priority Agreements. [122] The Priority Agreements also contained a no contest clause concerning the validity and enforcement of the construction lenders' security: 4. [Computershare] hereby covenants and agrees with the Lender that it will not dispute or contest the validity, enforcement or perfection of any of the Lender's Security or any enforcement action or realization proceeding taken by the Lender under or in respect of the Lenders' Security or the Liabilities against all or any part of the Lands or against the Borrower or against any guarantor or covenantor of the Liabilities, as defined below. [Computershare] hereby agrees with the Lender that [Computershare] shall not at any time while any amount remains owing to the Lender under or pursuant to the Commitment Letter or under the Lender's Security, including protective disbursements and funding of cost overruns (the "Liabilities"). 7. [Computershare] hereby postpones to the Lender all monies, debts,

and obligations now or at any time hereafter due by the Borrower to the Subordinate Lender and postpones payment of the same until the Liabilities have been paid in full to the Lender. [123] Rev and Metro-Can also raise these clauses as a defence to the ability of the claimants to pursue their claims. The Claimants [124] The 25 claimants in this case consist of private corporations and individuals residing in British Columbia, Alberta, and Ontario. [125] The individual claimants or principals of the corporate claimants have varied educational and financial backgrounds. Many are sophisticated professionals or investors (or both), who fully appreciated they were purchasing high-risk equity bonds in Bison (with an opportunity to use the bond proceeds on redemption to pay for the purchase price of a strata unit). As well, many claimants or their principals had prior experience purchasing real estate, and for some, that included purchasing strata title property. Some claimants had prior experience as real estate sales agents and developers. [126] Not every claimant testified. Testimony from corporate claimants was elicited through a principal (and in one instance, where the principal had passed away, through her executrix). Individual claimants who jointly subscribed for bonds provided testimony from only one of the subscribers. [127] Several claimants were initially reluctant or

opposed to purchasing bonds, thinking that the traditional purchase method of real estate was preferable. However, they were sufficiently enamoured with the preferred investor pricing and the opportunity to use the Hotel and its facilities with credits (known as "Founders Club Credits") until title to their units was conveyed, that they relented and subscribed for bonds. Founders Club Credits were used by almost every claimant entitled to them. [128] Other claimants were only offered the opportunity to purchase real estate if they subscribed for bonds. Despite their misgivings about purchasing at-risk bonds, those claimants nonetheless chose to proceed on that basis because they were intent on owning a VHS unit or Residence. [129] Two of the claimants, Mark and Barbara Asser, received a discount on the purchase price of their strata unit because Mr. Asser participated in certain lifestyle advertisements for the project (allowing his picture to be shown). [130] None of the claimants ever suggested that their bond subscription proceeds were impressed with a REDMA trust and should be repaid to them until these actions were commenced. Bond Subscriptions [131] Between 2009 and 2012, all of the claimants (except Cass) subscribed for bonds and signed Bond Subscription Agreements. The purchase price of their bond subscriptions reflected in their Bond Subscription Agreements varied,

ranging between $150,000 and $3.35 million, with different rates of interest (ranging between 3 and 8%). Two of the claimants, Mr. and Mrs. Kerunsky, entered into a side agreement with Bison to receive 24% interest, which is a different and much higher interest rate than the rate shown on their Bond Subscription Agreement. OTPs [132] All but four of the claimants who purchased bonds signed OTPs at the same time they purchased bonds. In some instances, bond subscription amounts did not equal the purchase price set out in the OTPs. Some claimants purchased bonds and signed OTPs after the Computershare Mortgage or the Priority Agreements were executed and registered on title. OTPs Entered Into After Bond Subscriptions [133] Two of the claimants ─ Acorn Developments Ltd. ("Acorn") and David Waterhouse ─ did not sign OTPs until well after they subscribed for bonds. As for the Kerunksys, it was their company, Cass, that executed the OTP even though they were the ones who subscribed for bonds. According to Mr. Kerunsky, Cass' business has varied from new home construction to holding investments unrelated to its operations (such as syndicated mortgages). Mr. Kerunsky testified that Cass was designated to be the purchaser for "tax reasons". [134] All of these claimants assert nonetheless, just as the claimants who signed OTPs at the time they subscribed for bonds, that all of the bond

subscription proceeds they paid (whether actual or notional), are "deposits" falling within REDMA. A brief summary of the circumstances surrounding their bond subscriptions and their involvement with OTPs illustrates the elastic nature of the claimants' overly broad interpretation of the ambit of REDMA. The Kerunskys [135] Mr. and Mrs. Kerunsky loaned $3.5 million to Bison at an early stage of development, prior to construction and before the bond program was implemented in November 2009, on what was intended to be a short-term basis. They loaned their money to Bison through a syndicated mortgage investment. According to Mr. Kerunsky, he did not know or care to know of the identity of the borrower and the guarantor of the funding request. He was not aware of the intended use of the proceeds and did not turn his mind to how the borrower would use them. [136] In February 2010, when it appeared that payment of the principal amount of their loan would be delayed, the Kerunskys agreed with Bison to secure their unsecured loan position with a notional purchase of bonds in amounts equivalent to their loan, less payments they had received. The total bond subscription amount was shown as $2.341 million. Bison agreed to pay the Kerunskys bond interest at 24% interest on their loan. As mentioned, the interest rate commitment was documented by a separate written side agreement between them

which was not reflected in the Bond Documents (which showed interest payable at 8%). The Kerunskys did not consider their loan or their bond subscription as a purchase of real estate. Bison paid the Kerunskys interest at 24% until 2013, although, according to Mr. Kerunsky, he and his wife wished to be paid out as soon as possible despite the high rate of return. At one point before Bison stopped paying them interest altogether, the Kerunskys agreed to reduce the interest rate to 14% in light of Bison's cash flow issues. [137] Between February 28, 2010 and April 30, 2013, the Kerunskys received interest payments from Bison totalling $1,691,143.60. From that point on, Bison was not able to make the interest payments. It is not clear when the other claimants (aside from Cass) learned of these payments, although the evidence from some was that they did not know until they were in the witness box. [138] By late 2011, the Kerunskys understood that the registered mortgage security for their bonds, i.e., the Computershare Mortgage, was not in first position and ranked behind the construction lenders' mortgage. The Kerunskys became concerned about the security for their loan (and subsequent bond acquisition), which was now through the Computershare Mortgage. [139] After receiving legal advice, the Kerunskys agreed with Bison that their company, Cass, could purchase several strata units,

with the purchase price to be paid from bond redemption proceeds. I take from the evidence of Mr. Kerunsky that he thought this might possibly afford him some greater security for his loan to Bison. In written communications with his lawyer, Mr. Kerunsky disclosed that Bison had offered property to him and his wife " in lieu of our paper contract that is no longer paying interest ," and remarked that the property on offer "may possibly not be of any value once all of the dust has settled on paying off all of the interested parties." [140] Even though Mr. Kerunsky testified as to his prior passing interest in purchasing a unit, I am satisfied and find that it was not until this point that he and his wife became seriously interested in owning a unit and only then, as a means to try to secure their loan. [141] Cass executed an OTP for three VHS units on July 26, 2013, which was accepted by Bison a few days later, on July 29. Cass did not pay a deposit for its real estate purchase. The deposit in cl. 1.7 is described in the OTP to be on account of both the first and second deposit totalling 20%. The amount is stated to be "$N/A". The purchase price for the three units was shown as the total of the loan amount owing to the Kerunskys ─ $2.341 million. Completion was set to take place not before July 1, 2013 and no later than September 30, 2013. Schedule "C" to the OTP provided that

upon transfer of title of the units to Cass, all of Bison's obligations to the Kerunskys under the Bond Subscription Agreement, " the Early Occupancy Agreement (and any side agreements) for the bond principle [sic] of $2,341,000 and any further interest earnings on those bond funds as of the date of the acceptance of this [OTP]" would be satisfied. I construe this to refer to bonds held by Mr. and Mrs. Kerunsky as well as Bison's obligation to pay interest to them at the much higher rate contained in their side agreement and any remaining loan obligation owed by Bison. [142] Cass did not purchase bonds, nor did it sign a Bond Subscription Agreement. [143] The claimants' position in this case is that all of the funds shown as paid by the Kerunskys in the Bond Documents to purchase bonds, even though notional, are deposits falling under REDMA because they relate to Cass' purchase of strata units. Their position illustrates the impossibly broad construction the claimants attribute to the meaning of "deposits" in REDMA. Moreover, it will be clear from my review of REDMA in the Analysis and Determination section of these reasons, that the Kerunsky's loan proceeds were never advanced to purchase real estate (and to use the words of the statute, never advanced "in relation to a development unit.") Acorn [144] The principal of Acorn, Sherwin Goerlitz, was a professional builder who has

developed or built multiple multi- and single-family residential properties as well as commercial properties. He received his real estate license in 1986, prior to founding Acorn. He owned and managed a Century 21 real estate brokerage in Peachland. [145] Mr. Goerlitz worked for Bison for a time as part of its sales team from mid-April 2009. He was familiar with the structure of the bond program as well as its risks and the different approaches to purchasing strata units. He made only one sale of bonds, to two friends from school. [146] Acorn subscribed for different tranches of bonds throughout 2009. It executed a Bond Subscription Agreement dated May 20, 2009, for bonds in the amount of $250,000 with interest payable on redemption at 8%. Acorn subsequently signed Bond Subscription Agreements for additional bonds over time, at different rates of interest. In total, Acorn subscribed for bonds in the amount of $620,000. [147] On November 4, 2009, Acorn executed an OTP to purchase a VHS unit for $620,000. Subsequently, on October 27, 2011, it entered into an amended OTP for the purchase of the same VHS unit. The amendments changed the completion date from a date to occur between January 15, 2011 and November 30, 2012 to between some time in January 2011 and May 31, 2011. The initial deposit requirement in cl. 1.7 continued to be shown as "$N/A"; the second deposit clause was not

deleted, however no deposit was required given that the initial deposit in cl. 1.7 was waived. Further, no deposit was sought by Bison from Acorn. [148] Acorn's position in this case is that all of the money shown as paid in its Bond Subscription Agreements is a deposit falling under REDMA. [149] Yet, Mr. Goerlitz, who testified as the principal of Acorn, made the following admissions in his evidence: (a) Acorn's first purchase of bonds in May 2009 was not connected to the purchase of a strata unit; (b) he could have obtained legal advice from his lawyer, who was listed as Acorn's lawyer on the OTP, but did not; (c) he understood that Acorn was purchasing bonds; (d) he never expected Acorn's funds to remain in Fasken's trust account; (e) Acorn's bond subscription proceeds would be used by Bison for construction; (f) the construction lenders' security would rank in priority over Acorn's bond security (Computershare Mortgage) in the event that Bison became insolvent; and (g) Acorn's bond purchases were an at-risk investment. [150] Mr. Goerlitz also admitted that one of the Bond Subscription Agreements Acorn signed was on behalf of his friend, whom he knew did not qualify as an accredited investor. [151] Thus, Mr. Goerlitz' funds were used to purchase bonds and were not deposits paid to acquire a strata unit. He understood that as well as the purpose and details of the bond

program. David Waterhouse [152] Mr. Waterhouse advances a similar REDMA trust claim for all of his bond subscription proceeds, even though he admitted he had no intention of purchasing a strata unit when he made his first subscription for bonds for $150,000 on October 7, 2009. He also admitted that his first bond investment was not connected to real estate. [153] On February 1, 2010, Mr. Waterhouse subscribed for an additional $100,000 of series "B" bonds. [154] A few days later, on February 4, he entered into an OTP for a purchase price of $250,000. The OTP provided that no deposit was paid. [155] Mr. Waterhouse also understood that his bond subscription proceeds would be used by Bison to construct the new hotel. [156] I am satisfied and find that Mr. Waterhouse understood his funds were paid to purchase bonds and not as deposits for the purchase of a strata unit. $10,000 Deposits [157] As mentioned earlier, three OTPs executed by claimants refer to deposits. These involved 754653 Alberta Inc., Mark and Barbara Asser, and Darlene Belford and Barry Swettenham. The notation on the OTP signed by the corporate claimant was made in error. As for the two others, REDMA provides that deposits paid to purchase real estate may be released from trust to the purchaser with the written consent of the purchaser and the developer: s. 18(2)(b). That is, I find, the effect of what occurred

with the deposits paid by the latter two sets of claimants when those funds were released, on those claimants' behalf, to their credit, and at their direction as per the Bond Subscription Agreement, to the funds administrator, Deloitte. 754653 Alberta Inc. [158] I will start with this claimant. Its principal, Mervyn Koughan, testified that reference to a deposit in the OTP was a mistake. No deposit was ever paid. Therefore, REDMA has no application. Mr. and Mrs. Asser [159] Between January 2009 and November 30, 2009, Mr. and Mrs. Asser purchased bonds and signed two separate OTPs. [160] Initially, in January 2009, they paid a "holding" deposit of $10,000 for Bison to hold unit 412 to allow them time to consider purchasing it. Bison sent them a receipt for the deposit dated January 23, 2009, noting it "will be held as a fully refundable fee against your purchase agreement". The payment was described in the body of the receipt issued by Bison as a "Deposit on Purchase." [161] The Assers eventually signed an OTP dated March 5, 2009 ("March 5 OTP"), for suite 412 in the amount of $1.235 million. The day before, on March 4, Bison had sent them a letter advising, in part, that the $10,000 deposit "you have on account with us for your real estate purchase is non refundable except in the event of default by the developer". Whether the statement concerning the non-refundable aspect of

the deposit accords with REDMA has not been put in issue by the parties. [162] Regardless, the $10,000 amount was referred to in the March 5 OTP as a deposit. As well, cl. 1 of Schedule "A" of the OTP requiring a further deposit of 10% was not deleted from the document. [163] The March 5 OTP was later cancelled with Bison's agreement as the Assers decided to purchase a slightly more expensive suite for $1.385 million. [164] In April 2009, shortly after Mr. and Mrs. Asser signed the March 5 OTP, which was prior to the formal implementation of Bison's bond offering program and the availability of the Bond Documents in early November of that year, the Assers decided to purchase bonds. They purchased $600,000 of bonds on April 30, 2009. They sent a bank draft payable to Fasken in the amount of $590,000. At the Asser's direction, the $10,000 they previously paid was to be included as part of the funds used to pay for their bond subscription. That was sufficient to engage s. 18(2)(b) of REDMA, permitting the release of trust funds by a trustee. [165] In October 2009, they subscribed for additional bonds in the amount of $635,000. [166] The March 5 OTP, where the $10,000 deposit is shown, was subsequently terminated by mutual agreement. The Assers signed a new OTP on November 12, 2009 ("November 12 OTP"). No deposit was required. Clause 1.7 stated that the deposit amount was "N/A".

The clause referring to the second 10% deposit is not attached to the OTP in evidence. [167] The Assers also purchased a further $150,000 of Bison's bonds on November 12, 2009. The total amount of their bond purchases was $1.385 million. The Assers signed separate Bond Subscription Agreements for each of their bond subscriptions. [168] In conclusion, I agree with Mr. and Mrs. Asser that the $10,000 they initially paid for the purchase of VHS unit 412 fell within the ambit of REDMA. However, I find that it was subsequently released at their direction and with the agreement of Bison to pay for their bond purchase. Darlene Belford and Barry Swettenham [169] In the case of Ms. Belford and Mr. Swettenham, Ms. Belford initially remitted $10,000 to hold the unit they were potentially interested in purchasing while she and Mr. Swettenham decided whether to purchase bonds and proceed to sign an OTP. In that respect, Bison notified Fasken on February 28, 2012: The client is Darlene L. Belford from Winfield, Alberta. She has provided the $10,000 to put VHS 233 on hold with us, subject to their site visit to occur by March 18, 2012. We will advise you after that date whether the purchase is going ahead, and the final terms both have agreed to. [170] The day before, Ms. Belford wrote to her banking institution (and to Bison) evidencing her intention to apply those funds to the bond

subscription. In her mind, she was purchasing an investment in bonds. On February 27, 2012, before she signed an OTP, Ms. Belford wrote to her bank, the CIBC, advising that she and Mr. Swettenham " are in the process of buying a bond investment and need to secure the purchase with a wire transfer of the deposit ($10,000) from our checking account..." "If things go as planned," she added, "we will be transferring funds from our Ally account into our CIBC checking account to fund this subsequent transfer." Their $10,000 was wired to Fasken. [171] On the same day, one of Bison's senior sales staff wrote to Ms. Belford confirming the various terms of the transaction. Key aspects concerned the amount of the bond purchase, the subordination of bondholders' mortgage security (through Computershare) to the construction lenders, and the waiver of any deposit for the OTP: Hi Darlene, Attached are the documents that you (and your lawyer) will need to review (in addition to the ones I already sent you).

1) Bond Subscription Agreement · this covers the $490,000 bond investment that will earn 3% annual interest between March 2012 (exact date TBD) and when the bond matures. · you are in a pooled second mortgage security position in behind construction financing.

2) VHS Disclosure Statement (& 3 Amendments) · this covers the purchase of VHS 233 for $490,000. · because you are investing in the bond, we waive any requirement for a deposit. · you owe the full $490,0000 plus applicable taxes at completion. I look forward to receiving the signed/initialed copy of the updated Exhibit K that I sent you this morning, and also the $10K being sent to Fasken, so that we can officially put VHS 233 on hold for you. [Emphasis added] [172] Ms. Belford also contacted a lawyer practicing in Victoria on February 28, 2009, and obtained legal advice at that time. As part of the advice she received, Ms. Belford was told that her bond security was in second position behind the construction lenders' registered security. [173] Consistent with Ms. Belford's advice to the CIBC, she and Mr. Swettenham proceeded to purchase bonds. They signed a Bond Subscription Agreement, which is also dated March 17, 2012, to purchase $490,000 of bonds. Ms. Belford transferred $480,000 by wire to Fasken. The $10,000 they previously wired to Fasken was to be used as part of the proceeds to purchase bonds. [174] Ms. Belford also signed an OTP dated March 17, 2012 ("March 17 OTP"), for herself and Mr. Swettenham. [175] In spite of Ms. Belford's stated intention to use the $10,000 to purchase bonds, the March 17 OTP showed the deposit to be $10,000. Schedule "C" to the document

stated that the "$10,000 Holding Deposit will become part of the purchase price " However, the clause requiring a second deposit of 10% was stroked through and shown to be deleted in the document. [176] Bison sent a receipt of bond investment funds to Ms. Belford and Mr. Swettenham two days later, on March 19, 2012, clearly describing all of the funds as payment for the purchase of bonds: Receipt of Investment Funds Please note: Your investment funds will be deposited with Fasken, Martineau DuMoulin L.L.P., and a notarized bond investment certificate will be sent to you shortly. Description Amount Bond Offering Investment Funds, Investment Dated April 1st, 2012 $490,000 (plus applicable taxes due at closing) Interest Rate: 3% Founders Club Benefit Credit: $6,100 (1% of the bond investment of $490,000 plus $1,200 reimbursement for Fly'n 'Try program) Sub-total $490,000 Taxes Total $490,000 [Emphasis added] [177] The reference to "taxes" in the receipt document is to taxes payable if real estate is purchased. The absence of any amount also makes it clear that all of their money, including the $10,000, was for their purchase of Bison's bonds and not for real estate. [178] The March 17 OTP was later replaced with an OTP dated a year later, March 8, 2013, for the purchase of a different unit, although at the same price. The deposit required in the initial deposit clause, 1.7, was

deleted and shown as "N/A". The previous reference to the $10,000 holding deposit referred to in Schedule "C" of the March 17 OTP was deleted as well. The clause requiring the further 10% remained deleted. [179] From the outset, Ms. Belford did not expect nor wish her funds to remain in Fasken's trust account. I am satisfied and find that she was determined to make sure that the initial $10,000 deposit she had wired to Fasken was used to purchase bonds, which paid a higher interest rate. She followed up with Bison and Fasken directly, in writing, to ensure that they had received the funds and used them to purchase bonds. [180] In cross-examination, Ms. Belford was asked if her "understanding was that the $10,000 also went into the bond?", to which she answered, "Yes, I did." [181] Ms. Belford testified. Mr. Swettenham did not. Ms. Belford's evidence is clear that she fully appreciated the distinction between purchasing bonds and a strata unit. [182] Before subscribing for bonds, Ms. Belford asked numerous and very thorough questions of a senior member of Bison's sales staff. She understood the different options to purchase a strata unit and understood that the purpose of the bond offering was to raise capital for the project and that the bond proceeds would be used for construction. Her communications with Bison are clear that the bondholders' mortgage was subordinated to the

construction loan. [183] Ms. Belford also appreciated that the Bond Subscription Agreement and the OTP are separate contracts. I have excerpted a portion of that email where she said as much to Bison's vice-president and its senior sales manager on December 20, 2012, while coming to grips with how to deal with accounting issues for bond interest and tax issues from revenue earned from her VHS unit as a Goods and Services Tax exempt owner: I.e., in our opinion, the bond arrangement and the purchase/lease are two separate and distinct events the amount paid on one has nothing to do with what is paid on the other. They are separate arrangements. [184] She also confirmed to Bison in correspondence she sent in late December 2012 that she appreciated the money she and Mr. Swettenham paid to purchase bonds were "potentially at 100% risk". [185] In conclusion, I am satisfied and find that Ms. Belford directed, for herself and Mr. Swettenham, the $10,000 deposit (as shown in their March 17 OTP) to be disbursed on account of the bond purchase she made with her partner, Mr. Swettenham. I am also satisfied and find that the references to that sum as a deposit in the March 17 OTP document, including Schedule "C", do not reflect the intention of the parties at that time, which was to include those funds as part of those claimants' payment for the purchase of at-risk bonds. The funds were

appropriately released by Fasken with the consent of the parties and for the benefit of those claimants' purchase of bonds in light of s. 18(2)(b) of REDMA. Legal Advice [186] Bison recommended to each claimant that they obtain legal advice and suggested a lawyer practicing in the Victoria area who was familiar with the transaction and documents. None of the claimants who did consult with that lawyer suggested that he was anything other than independent of Bison. [187] The majority of the claimants in fact obtained legal advice. The remainder chose not to. For those that did, they were clearly warned that if the project was not successfully completed, they could lose all of their money. For those claimants that received legal advice, there is no evidence to suggest that they received advice consistent with the position they now advance. [188] Some of the claimants who did not obtain legal advice admitted they knew that they could lose all of their money. For the rest, that risk along with the numerous other economic risks involved in the transaction were clearly identified in the contract documents before any claimant entered into the Bond Subscription Agreement and paid their money. [189] Further, many claimants did not read the entirety of the transaction documents before signing the Bond Subscription Agreement and OTP. Some merely skimmed them, while others did not read them

at all. [190] None of the claimants or their principals who testified believed that Fasken acted as their lawyer in the transaction. Financing from Rev and Metro-Can Background [191] I will provide some background facts before turning to Bison's requests of Rev and Metro-Can for short term financing to relieve its cash flow problems. [192] Don Voth was the president of Metro-Can from its inception in 1985 to 2010 when the company was sold. During that time, it was a family-owned business. Rev is a related company that provided financing for construction projects through joint ventures with other developers. It also provides financial guarantees if required. Bison's project was the first significant financing project for Rev. Jason Ratzlaff, who is Mr. Voth's son-in-law, is the principal of Rev. [193] Rev and Metro-Can stand as the final lenders whose security registered against the Hotel property stands in priority to the Computershare mortgage. Both enjoy favourable reputations in the construction industry, with Metro-Can in particular enjoying a stellar reputation as a first class contractor or contracting facility that completes its projects on time and within budget. During Mr. Voth's stewardship, Metro-Can completed approximately 83 high-rise buildings and several hundred projects, all brought in at or close to budget. Not once during his tenure as president did Metro-Can

have to enforce on any security or fail to complete construction of a project. [194] Bison continued to market bonds in an effort to reduce its debt load and improve its lender financing with better terms. Bison required senior financing in addition to bond sales. As mentioned, financing was obtained through various means, although not without difficulty. The history of the financing transactions is complex and involved several different lending facilities. [195] Throughout, Bison sought the assistance of professionals at Deloitte and Gatland Capital, a mortgage broker, to help it secure senior financing. With Gatland's assistance, Bison secured an initial commitment from Rev to provide financing with what is known as a "credit enhancement facility" or "CEF", which Rev agreed to provide for a fee. The purpose of the CEF was two-fold: to provide an additional layer of financing at the top of the capital stack in the event of cost overruns and to enhance Bison's prospects of securing a senior construction lender (and hopefully, on more favourable terms than those in place at the time). [196] In addition to the CEF, and at different points in time between 2010 and 2011, Bison asked Rev, and later, Metro-Can, to advance it funds on a short-term basis to assist with its cash flow problems, pending its further bond sales and new senior financing. Both defendants agreed, albeit

reluctantly, to facilitate construction. [197] Rev and Metro-Can were aware that Bison was looking for senior financing in addition to selling bonds through the bond program and marketing pre-sales of strata units in the hotel through different purchase options in order to raise capital. I accept the evidence of their principals who testified at trial, Jason Ratzlaff (Rev) and Don Voth (Metro-Can), that they and their respective companies were aware of the bond program in the most general terms and that Mr. Walker was careful not to disclose the identity of Bison's clients (including bondholders). They were not provided with copies of the Bond Subscription Agreements or OTPs signed by others, including the claimants, nor did they review them. They were unaware of the Linking Letter. They were prepared to have Rev and Metro-Can participate in the project based on their review and evaluation of the proposed construction budget and their favourable opinion of the value of the Hotel and property when the project completed. They were also not aware of (nor did they suspect) anything that would have relieved Bison from paying them or the general contractor, Metro-Can (AB). [198] In spite of Bison's ongoing and optimistic reports to bondholders, Bison was plagued with ongoing cash flow issues. Its problems with cash flow resulted, in part, from its difficulties in selling a sufficient

amount of bonds in a timely manner to finance construction and its failure to attract senior lending facilities on favourable terms in a timely manner. [199] Bison was repeatedly behind in its payments to the general contractor, Metro-Can (AB). Construction was behind schedule, not due to any fault of the general contractor, who brought in the construction costs of the project close to budget, but due to Bison's cash flow difficulties. Over time, delays in completion also ran up other costs, notably interest payable to lenders. Rev's Loans to Bison [200] As mentioned, Bison turned to Rev and Metro-Can for short-term financial assistance. At Bison's request, Rev loaned it money in 2010 and through to 2011. [201] The history of the loans from Rev and Metro-Can Rev to Bison is also factually complex, involving different senior lending facilities, but may be summarized as follows. [202] Different vehicles were used to facilitate these loans. Ultimately, when it appeared that Bison required a longer period to satisfy them in full, the loans were secured through what the parties refer to as the Facility "B" side of the construction lenders' mortgage registered against the Hotel property (the senior lender's side is Facility "A" and involved different senior lenders over time). [203] The manner of Rev's participation in Facility "B" arose in this way. Rev's initial loans to Bison were

unsecured. For much of the time, Rev insisted that its loans to Bison were short-term bridge financing, and Bison agreed. Bison made payments to Rev from time to time but continued to seek funding from Rev as it faced cash flow issues. As Bison needed money and more time to pay the loan amounts, it proposed to Rev that its loans could be secured if they were reflected as bond subscriptions. Rev agreed, but on the basis that its loans would continue to be short-term bridge financing and re-paid in priority when Bison was in funds. Bison agreed. [204] However, when Bison asked Rev for a further loan of $1.6 million in the fall of 2010, Rev agreed to do so on condition that this new amount as well as its outstanding loans totalling $3.4 million were secured through Facility "B". Bison agreed. As a result, $5 million was advanced on behalf of Rev from Facility "B" to Bison who in turn redeemed Rev's bond holdings. [205] Then, in December 2010, Bison asked both Rev and Metro-Can for further funding. Rev agreed to loan a further $2.5 million to Bison, again on an interim, short-term basis so long as certain conditions were met, notably, repayment of this new advance must be made by April 30, 2011. The loan was not made through Facility "B". Instead, Rev was provided with security through bonds (in the amount of $2.5 million) held by another potential senior lender who had previously

made a conditional and yet unfulfilled funding commitment on offer to Bison. [206] When it became clear that Bison was unable to repay the advance to Rev by the due date, Bison and Rev met to discuss terms for repayment. They ultimately agreed that it would be secured through an advance from Facility "B", which would redeem the bonds. [207] In addition to an extension of time in which to repay Rev through the advance under Facility "B", Bison obtained other benefits from this transaction. Paying the Rev loan in this manner was seen at that time to help Bison in its efforts to secure a new senior lender with better interest rates. Redeeming Rev's bond holdings of $2.5 million also freed up room for Bison to market further bond sales to raise additional capital within the overall capital stack permitted by the terms of the Bond Documents. [208] By late November 2011, the bonds held by Rev were redeemed. In all, a total of $7.5 million was advanced on behalf of Rev to Bison through Facility "B". Loans from Metro-Can [209] Metro-Can also loaned money to Bison on a short-term basis. In late fall 2011, Bison asked Metro-Can for an additional advance beyond the funds it had advanced in March and April 2010. Metro-Can reluctantly agreed to advance $5 million through Facility "B" on November 2, 2011. Its prior loans of $2.8 million were repaid from these proceeds. [210] Metro-Can never

held bonds issued by Bison. Rationale For the Loans [211] I accept that Rev and Metro-Can advanced funds to Bison in the belief that it would be for a short term and that they would be re-paid. Their principals thought Bison's problems in paying the general contractor were due to cash flow issues and not reflective of a project doomed to failure. I also accept the evidence from Mr. Voth and Mr. Ratzlaff that they continued to believe that the project would be completed successfully and had no concerns about Bison's solvency. [212] On several occasions, Mr. Voth advised Bison that unless the arrears owed to the general contractor were paid by a certain date, it would have no choice but to issue a default notice, which would suspend construction. Mr. Voth was most reluctant to issue a default notice because, he explained, if construction is prematurely terminated so as to leave an unfinished product, the "vultures come out of the woodwork and everything is sold at cents on the dollar." In his opinion, that result would be to the detriment of everyone involved in the project, not just the general contractor, Rev, and Metro-Can. [213] It was only close to the completion of the project that Mr. Voth became concerned about what he believed would be a diminished profit margin for the project. He remained of the opinion that once in operation, the Hotel would be highly profitable due

to its ability to command room rates commensurate with a luxury waterfront hotel. The security held by Rev and Metro-Can ─ through Facility "B" of the construction lenders' mortgage ─ was safe. In his mind, the Hotel and its location were unique to the west coast of North America. Further, neither Mr. Ratzlaff nor Mr. Voth ever suspected that bond subscription proceeds would be characterized as real estate deposits and only first heard of that suggestion once the insolvency litigation was commenced. [214] I will conclude this section by stating that I found the evidence given by the principals of Rev and Metro-Can, Mr. Ratzlaff and Mr. Voth, to be highly credible and candid. For reasons that I explain in a later section, I did not find their evidence to found a basis for the claimants' allegations of fraud or impropriety. Completion of the Project [215] Metro-Can (AB) completed construction close to the $50 million construction budget. [216] Bison obtained a partial occupancy permit in early October 2012 and opened the Hotel on December 1, 2012. Construction ultimately completed in 2013. [217] Bison closed on pre-sale contracts with purchasers who had not participated in the bond program but had executed OTPs on a traditional basis where deposits were held in trust pending completion. [218] As previously noted, under the Bond Indenture, the maturity date for bond redemption was

defined as the earlier of December 31, 2012, and 60 days following the issuance of occupancy permits. Faced with a gap in the amount of bond sales required under the bond program and problems with securing re-financing, Bison asked bondholders, including those who signed OTPs, to extend the maturity and redemption dates in the Bond Documents. The bondholders agreed and approved extraordinary resolutions ("Extraordinary Resolutions") to extend, and then further extend, the maturity date to allow Bison additional time to obtain (additional or new) financing and to sell more bonds. [219] In return, bondholders were allowed to occupy the units they were to purchase "early", prior to transfer of title. Some signed agreements to that effect ("Early Occupancy Agreements"). Those who signed Early Occupancy Agreements for the VHS units - approximately 24 in total - allowed their units to be used in the hotel rental pool in the absence of holding title. Early Occupancy Agreements were also signed in respect of several Residences. [220] Before redemption could occur, the project was put into receivership. Receivership [221] The receivership order was issued on December 3, 2014 ("Receivership Order") by Madam Justice Brown, with Bison's consent. Ernst and Young was appointed Receiver. As a result of the Extraordinary Resolutions, the bonds did not reach maturity prior to

receivership. [222] The Hotel was sold through court order, in what had become an insolvency proceeding, on April 29, 2015 ("Vesting Order"). In my reasons, indexed at 2016 BCSC 793, at paras. 13 and 19, I said that Bison was indebted to the various construction lenders (including Rev and Metro-Can) in the approximate amount of $79 million. Rev and Metro-Can were owed just over $12.76 million and $6.098 million, respectively (their claims are admitted claims in the receivership). The amount required to pay the bond subscription amounts to the claimants alone was over $18.12 million; the amount required for other bondholders was, according to the Receiver, well in excess of $30 million. The bonds were never redeemed. Bison lacked the funds to pay the redemption amounts. [223] The claimants did not seek to complete their OTPs when Bison was unable to redeem the bonds of those claimants who held them. The claimant bondholders did not suggest that they should obtain title to strata units on the basis that the amounts they owed under their OTPs should be offset by the bond proceeds they were entitled to on redemption. Instead, the claimants sought recovery of all of their bond subscription purchase proceeds on the basis that they were impressed with a REDMA trust. In view of their claims, and to facilitate the sale of the Hotel, funds equal to the principal amount of the aggregate

of their bond subscription payments were secured and placed in trust pending determination of the issues in dispute. Fasken was not a party to that application. The funds held in trust were later substituted, by a consent order, with a bond issued by an insurer. [224] The effect of the Vesting Order, which included a term that provided the claimants with security for their claims, was to terminate the OTPs in issue. The Vesting Order also permitted continued occupancy of certain Residences by specific claimants, with a right of first refusal to purchase, as part of an agreement worked out amongst the Receiver, Bison, and interested secured creditors. At the time of trial, occupancy continued in the absence of title. However, two claimants, who signed an OTP in the preferred investor program, paid the purchase price for their Residence with new money and obtained title. Analysis and Determination [225] Whether REDMA applies to the bond subscription proceeds involves statutory interpretation in conjunction with an interpretation of the contract documents. Principles of Statutory Interpretation [226] The leading authority describing the principles of statutory interpretation remains Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R.

27. The words of a statute must be read in their entire context and in their grammatical and ordinary sense, harmoniously with the scheme of the statute, its objects, and the intention of the legislature: at 40-41. In The Owners, Strata Plan KAS 2428 v. Baettig, 2017 BCCA 377, the Court of Appeal, citing Rizzo, emphasized the importance of reading statutory provisions with their most obvious meaning, one that accords with the context and purpose of the statute in which they occur. In its decision, the Court said that the plain words of each provision, the statute's legislative history, its internal logic, and evident purpose are "all important considerations": para.

37. It is also important to consider the consequences of each possible interpretation of a statute since the legislature does not intend to produce absurd, unreasonable, inequitable, illogical, or incoherent consequences. Predecessor legislation may be a useful starting point for interpreting the meaning of a provision: paras. 32, 37, 43. Principles of Contract Interpretation [227] The contract documents in this case are construed based on the principles set out in numerous leading case authorities. The goal is to ascertain the objective intention of the parties at the time the contract was entered into. The contract is to be construed as a whole, " giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract": Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para.

47. Contracts are not interpreted in a vacuum. According to Sattva, the meaning of words in a contract is often derived from contextual factors, including the purpose of the agreement and the nature of the relationship created by it: paras. 48, 50. Surrounding circumstances cannot, however, depart from the text of the document so as to create a new agreement. It is objective intention that is ascertained, not evidence of subjective intention or post-contractual statements attempting to disavow terms or agreements voluntarily entered into: Sattva Capital Corp. at paras. 50, 57-60; British Columbia (Minister of Technology, Innovation and Citizens' Services) v. Columbus Real Estate Inc., 2016 BCCA 283, paras. 41-50; Marvco Colour Research Ltd. v. Harris, [1982] 2 S.C.R. 774 at 785-787. [228] For commercial contracts, the commercial purpose of the agreement should be ascertained. Courts prefer an interpretation of commercial contracts that accords with sound commercial principles, the manner in which a reasonable commercial person would construe them, and good business sense that avoids commercial absurdity: Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888 at 901; BS&N Ltd. (VVI) v. Micado Shipping Ltd. (Malta), [2001] C.L.C. 421 at para. 82; Jumbo King Ltd. v. Faithful Properties Ltd., [1999] HKCFA 38 at para. 59; Prenn v.

Simmonds, [1971] 3 All E.R. 237 at 240. The Twin Goals of REDMA [229] REDMA deals with different aspects of a developer's marketing and pre-sale of development units. I will focus on those of immediate concern to this case. I will begin this section with a summary of the claimants' characterization of REDMA and then discuss the statute's twin goals as described in prior cases decided in this province. [230] The claimants point out in their submissions that pre-sale contracts pose different risks to purchasers than a contract of purchase and sale for property in which title is ready to be conveyed. For pre-sale contracts, completion is generally longer than a few weeks or months, and as was intended in this case, may be delayed for several years. In the interim, a deposit paid to purchase a pre-sale of a strata unit is protected from the risks associated with the development, including financial failure and potential limits on the developer's assets. [231] A key aspect of the claimant's submissions is that REDMA is a consumer protection statute for the general protection of the public, and is of mandatory application. As such, they argue, it is not open to parties to contract out of or waive its application. [232] The claimants submit that REDMA goes so far as to establish that they "are entitled to claim the benefit of statutory protection regardless of the terms of the

agreements they enter into" or their knowledge of those terms. In that vein, the claimants characterize REDMA as applicable to a heterogeneous class of persons without regard to their individual levels of sophistication or even knowledge of the nature of and specific risks involved in the transaction. [233] The case authorities and extracts from the Hansard debates that I have been taken to in closing arguments do not support the totality of the claimants' submissions. The Hansard extracts are: British Columbia, Legislative Assembly, House of Commons Debates, 37th Parl., 5th Sess, Vol 25 (6 May 2004) at 10914, 10964, 11021-11034. I discuss the key authorities below. [234] There is no doubt that the legislature enacted REDMA as consumer protection legislation, but the legislative debates and the case authorities establish that the legislature intended twin goals. In addition to consumer protection, the legislature's goal was to enable the " efficient and profitable operation of the real estate development sector ", which the legislature viewed to be a "key economic driver in British Columbia": Drake v. North Ellis Developments Ltd., 2012 BCCA 256 at para.

38. See also, Woo v. Onni Ioco Road Five Development Limited Partnership, 2014 BCCA 76 at para. 50 [235] In Drake, also at para. 38, the Court of Appeal acknowledged the twin goals of REDMA: The Act appears to have twin goals: to afford consumers protection whilst also enabling efficient and profitable operation of the real estate development sector, a "key economic driver in British Columbia". The specific provisions under consideration here protect consumers by limiting deposits in respect of condominium units not yet built while permitting developers to market before the commencement of construction. [236] In Woo, the Court of Appeal elaborated further, stating at para. 71 that REDMA involves a balancing of interests of developers and purchasers and is not exclusively consumer protection legislation. [237] Woo concerned the consequences of a developer's failure to deliver amended disclosure statements. In its reasons, the Court of Appeal, at para. 72, cited with approval the following remarks of the Ontario Court of Appeal when dealing with similar legislation in Abdool v. Somerset Place Developments of Georgetown Ltd. (1992), 10 O.R. (3d) 120 at 41: Agreements should not be rendered unenforceable by technical deficiencies in a disclosure statement. Contracting parties, it must be remembered, owe one another a duty to act reasonably and in good faith to perform contracts

honestly made. LeMesurier v. Andrus [citation omitted]. Consumer protection legislation intended, as this Act is, to promote fair dealing between contracting parties, ought not to be applied in a manner which produces the opposite result by allowing a party to resile from an otherwise valid agreement on grounds that are unfair, unreasonable or capricious. [238] Statutory interpretation of REDMA, the Court in Woo said at para. 50, "must also take into account the statutory purpose of enabling the efficient and productive operation of this sector of real estate development." While the statute has consumer protection as one of its objects, "REDMA involves a balancing of the interests of developers and purchasers. It is not exclusively consumer protection legislation": para. 71. [239] The remarks of the Court of Appeal in Pinto v. Revelstoke Mountain Resort Limited Partnership, 2011 BCCA 210, relied on by the claimants for its holding that consumer protection legislation should be interpreted generously, must be viewed in the context of the statements concerning legislative intent and the holdings in the subsequent decisions of Drake and Woo. [240] The analysis in Woo and Drake have been reiterated in subsequent cases. In Chen v. West Georgia Development Limited Partnership, 2017 BCSC 1293, Mr. Justice Sewell said: [27] The principles of statutory interpretation are well settled.

They were affirmed in Rizzo & Rizzo Shoes Ltd. (Re) [citation omitted], followed with respect to REDMA in Woo v. Onni Ioco Road Fire Development Limited Partnership [citation omitted]. The words of an enactment must be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the objects of the Act and the intention of Parliament. [28] In Woo, the court held that the objects of REDMA include consumer protection and the facilitation of an orderly and efficient means of permitting development and marketing of real estate projects. There can be no doubt that consumer protection is a central object of REDMA. However, REDMA should not be interpreted in a manner that unduly interferes with the efficient operation of the real estate development industry without providing any genuine protection to consumers. [241] In Chaisson v. Avra Development Corp., 2014 BCSC 925, Mr. Justice Steeves dealt with a claim for rescission on the basis of alleged misrepresentations in the disclosure statement. He determined that the disclosure statement was deficient in its description of the effective date of deposit protection insurance. After discussing the reasons in Woo and Drake, he recognized REDMA's twin goals when he said, at para. 55, "Overall, I take from Woo that the rights of both parties to a contract for sale must be considered. Not

every defect in a disclosure statement will warrant a declaration that the contract for sale is non-binding." To be actionable, he wrote, the "defect must be of such substance as to render the statement defective in a material respect ". Agreements will not become unenforceable by technical deficiencies or immaterial omissions in a disclosure statement. [242] Indeed, these objects are reflected in the Hansard extracts cited by the claimants in their submissions concerning legislative intent. [243] Further instructive guidance for the case at bar comes from the Court's determination in Drake that the legislature did not intend for REDMA to prescribe or mandate a precise structure of an agreement of purchase and sale. [244] In that case, the Court of Appeal considered whether a deposit bond fell within the meaning of "deposit" under REDMA. A deposit bond is a form of insurance policy obligating the insurance company to pay the amount of the deposit in circumstances where it would be forfeited, such as a purchaser's failure to close. The bond was not payable until completion, outside what is known as the early marketing period of the development, during which time a developer is prohibited from requiring a deposit greater than 10% of the purchase price, pursuant to a policy statement effective January 1, 2005 ("Policy Statement") per s. 10 of REDMA: Drake at para.

4. The deposit bond in Drake secured payment of part of the purchase price on completion. In exchange, the developer agreed to collect a reduced portion of the deposit it was otherwise entitled to under the purchase contract. [245] Excerpted below are the Court's reasons rejecting the claimant's submission that the deposit bond aspect of the purchase agreement offended the legislative scheme established by REDMA: [38] The Act appears to have twin goals: to afford consumers protection whilst also enabling efficient and profitable operation of the real estate development sector, a "key economic driver in British Columbia". The specific provisions under consideration here protect consumers by limiting deposits in respect of condominium units not yet built while permitting developers to market before the commencement of construction. [39] Mr. Drake argues that permitting a developer to use a deposit bond in the manner done in this case would "subvert the purpose of the legislative scheme", i.e. to protect purchasers. He argues further that by using a deposit bond, "A developer could secure any amount in advance by way of a bond at an early stage, thus compelling the purchaser to close on units they might no longer wish to purchase through fear of financial ruin and exposure to what amounts to a penalty through redemption of the bond." [40] In my view, Mr. Drake's argument requires

us to ignore the plain language of the statute. Rizzo Shoes does not stand for the principle that a purposive interpretation permits a court to override clear and unambiguous statutory language. The deposit bond is an option offered to a purchaser. The purchaser may accept the option or not. The advantage to the purchaser is the reduction in the amount of the deposit. There is nothing in the statute or the policy statement that mandates a precise structure of an agreement of purchase and sale. The legislation merely restricts the amount of deposit payable during the early marketing phase. It does not otherwise restrict the parties' rights to contract freely. There is nothing nefarious about the deposit bond that would be inconsistent with the overall scheme of the legislation. Mr. Drake freely chose to accept the option of a deposit bond. If the Legislature had wished to further restrict the manner in which developers could pre-sell property, it could have done so explicitly. [Emphasis added] [246] In discussing the Policy Statement, the Court of Appeal remarked on the protection afforded to consumers by limiting the maximum initial deposit to 10% of the purchase price. The Policy Statement, the Court said at para. 38, "protect[s] consumers by limiting deposits in respect of condominium units not yet built while permitting developers to market before the commencement of

construction." [247] The temporal element was a critical factor in the Court of Appeal's determination that the deposit bond was not a deposit. At trial, Madam Justice Gray found that the deposit bond was not a "deposit" per REDMA because it was not payable in cash, rather it was security: 2011 BCSC 1182, paras. 18-20. The Court of Appeal took a different view, based on its determination that the relevant time for assessment is when the money is actually paid rather than when the purchaser had contractually agreed that it would be paid. In Drake, the deposit bond was not a deposit because the funds were contingent funds and were not actually paid "before the purchaser acquired title or any other interest in the development unit": paras. 32-34. Applying that reasoning to the present case illustrates that contingent bond proceeds potentially available on bond redemption to pay for the purchase of a strata unit are not deposits falling under REDMA. Treatment of REDMA Deposits [248] REDMA changed the manner in which deposits paid for pre-sales of strata units are held and released. [249] Section 18(1) of REDMA specifies how deposits are to be held in trust. Its predecessor, the Real Estate Act, R.S.B.C. 1996, c. 397, required that " all money received from a purchaser " was to be held in trust pending completion: s. 61(5)(d). Now, under REDMA, a developer who receives a deposit

from a purchaser "in relation to a development unit" must "promptly place the deposit" with a designated professional, such as a brokerage, lawyer, notary, who in turn is required to hold it in trust in the province. [250] REDMA also requires deposits to be held in trust absent certain defined circumstances, e.g., the purchaser who paid the deposit has no right of rescission; the subdivision or strata plan has been deposited in the appropriate land title office; the developer's acquisition of deposit protection insurance from a qualified insurer; consent from the purchaser and developer; or a court order: s. 18(2). [251] The developer's failure to place deposits falling within the ambit of REDMA with a designated person in accordance with s. 18(1) exposes the developer to liability and an inability to enforce the agreement: ss. 18(6), 23. [252] REDMA also narrows the scope of funds held as "deposits" to those "paid in relation to a development unit before the purchaser acquires any other title or interest in the development unit": s.

1. The Nature of a REDMA Trust [253] The trust provision is found in s. 18: Handling deposits 18 (1) A developer who receives a deposit from a purchaser in relation to a development unit must promptly place the deposit with a brokerage, lawyer, notary public or prescribed person who must hold the deposit as trustee in a trust account in a savings institution in British Columbia. [Emphasis added] [254] Turning to the beneficiary of the trust property, a unique feature of s. 18 is that the trustee does not hold the trust property solely and at all times for the purchaser. Section 18(2) provides that the trustee holds the deposit in trust for both the purchaser and the developer, and the trustee's obligation to disburse trust funds depends on the existence of specific circumstances: (2) A trustee under subsection (1) holds the deposit for the developer and the purchaser and not as an agent for either of them and must not release the deposit from trust except as follows: [255] Those circumstances are enumerated in ss. 18(2), (3) and (4), 19, and 20, and include: (a) when the developer certifies in writing that the purchaser has no right of rescission or when title is ready to be transferred to the purchaser when the strata plan has been deposited with the Land Title Office (ss. 18(3)(a),(b)); (b) when the developer has obtained deposit protection insurance from a licensed insurer

to stand in place of the trust funds (s. 19); (c) when an exemption has been obtained from the Superintendent of Real Estate (s. 20); (d) the funds may be released to the purchaser with the written consent of the purchaser and the developer (s. 18(b)); (e) the funds may be released in accordance with a court order (s. 18(h)). [256] Consequently, a developer such as Bison is not at liberty to use deposits for its own purposes absent any of those circumstances. [257] Rev and Metro-Can correctly point out that it is open to the legislature to create a statutory trust of the nature set out in REDMA, so long as it is within its legislative competence (and in that respect, no issue has been raised). However, they submit that if the monies paid by the claimants were trust property, the claimants are not necessarily entitled to recover them because the claimants cannot say that at all material times they were the sole beneficiaries of trust property and solely entitled to those funds. [258] Those defendants submit that s. 18 does not create a "true" trust in the common law sense since it lacks certainty of object: Senger v. Patterson Real Estate Inc., 2015 ABQB 511 at paras. 11, 17. Had I concluded that the bond subscription payments fell within the ambit of REDMA, then a further analysis of that issue, and the claimants' sole entitlement to the trust funds, would be required before

the claimants could recover the funds in issue in this case. [259] A submission made by all of the defendants is that the word "place" in s. 18 of REDMA requires that deposit funds received by the developer must not only be given to the trustee as deposits in relation to a development unit, they must be accepted by the putative trustee as a deposit as trust funds before REDMA is engaged. They submit that by requiring intention in respect of placement and acceptance by the trustee of funds as deposits per REDMA, all parties involved in a commercial transaction will be aware of the trust. Retrospective arguments made later concerning the existence of a trust exposing an unwitting trustee to liability and potential conviction are avoided. Nothing prohibits a wronged claimant from asserting a remedy at common law, such as a remedial constructive trust in appropriate circumstances. But if mere delivery were sufficient to constitute "place" within the meaning of s. 18 of REDMA, the defendants argue that an unwitting and possibly unwilling recipient who would otherwise not be prepared to act as a trustee is exposed to the potential liability for breach of trust and conviction under the offence provisions. [260] A trustee is exposed to conviction for an offence if it releases the deposit in breach of the provisions in s. 18 of REDMA. Section 39 states that "a person" who contravenes s.

18 "commits an offence". If convicted, s. 40 provides that in the case of an individual, they are liable to a fine of not more than $100,000 or to imprisonment for not more than two years for a first offence; for each subsequent conviction, the penalty provision increases to a fine not exceeding $200,000, although the maximum term of incarceration remains the same. [261] There are no cases interpreting the word "place" in REDMA. In the few decisions involving statutory construction, courts have considered the context in which the word is used in the statute: see, e.g., Cam Cement Contractors Ltd. et. al. v. Royal Bank of Canada, Canadian National Railway Co., Third Party (1973), 38 D.L.R. (3d) 427 at 429-430 (B.C.C.A.); Northern Broadcasting Co. Ltd. v. District of Mountjoy, [1950] S.C.R. 502 at 510. In these cases, "place" was interpreted as different from mere delivery or transfer. It involves an intentional component and " the idea of setting a thing in a particular position with some idea of permanency": Northern Broadcasting at 510. In my opinion, this approach is also appropriate for REDMA. [262] Although it is unnecessary for the point to be determined, I will observe that in construing REDMA, it is a fair question to ask whether the imposition of a statutory trust on the impugned funds should turn on the putative trustee's acceptance of the funds qua trustee. [263] The

defendants' interpretation of "place" may also bear on the defence of the recipient of the trust funds to a breach of trust claim and to potential liability under the offence provisions of the statute. [264] I do agree with the defendants', and find, that Fasken did not intend to accept the bondholder claimants' funds as trust funds falling under the ambit of REDMA. [265] As a final note, REDMA does not provide a cause of action in the event of a breach of trust. In terms of consequences, the statute states that it is an offence to contravene its provisions and contravention renders the contract unenforceable by the developer: ss. 23, 39. There is no provision in the statute that would render an offending contract void ab initio. [266] A claim for breach of trust against a trustee, such as that advanced by the claimants, is grounded in a common law action for breach of trust. The legislature did not remove or alter common law rights when enacting REDMA, such that the presumption that no alteration is intended absent express words applies: Sullivan at 538-539; Grinnell Supply Sales Company v. Heger Contracting Ltd. (1999), 22 B.C.T.C. 155 at para. 18 (S.C.) (WL). [267] The equitable and legal rules and defences applicable to common law trusts apply to the defences to claims for breach of a REDMA trust in appropriate circumstances. The Claimants' Funds are not "Deposits" Falling

Under REDMA [268] REDMA defines many, but not all, of the key words or terms material to this dispute in s. 1. [269] A deposit is defined in s. 1 as being in relation to a "development unit": "deposit" means money paid by a purchaser to a developer in relation to a development unit before the purchaser acquires title or any other interest in the development unit; [270] "Purchaser" is defined in s. 1 as follows: "purchaser" means (a) a purchaser, from a developer, of a development unit, (b) a lessee, from a developer, of a development unit, and (c) a prospective purchaser or lessee, from a developer, of a development unit. [271] Although the claimants who signed OTPs fall within the definition of purchaser, the funds paid by the claimant bondholders do not fall within the definition of deposit in the statute. The monies paid by all of the claimant bondholders were on account of the purchase of bonds. Except for the $10,000 deposits paid for by Mr. and Mrs. Asser and Ms. Belford and Mr. Swettenham, the OTPs waived the requirement for deposits to be paid by the claimants for the purchase of their strata units. [272] A ready example of the claimants' interpretative overreach given to the definitions of purchaser and deposit is their submission that all of the monies paid by bond subscribers who only later signed OTPs fall within the definition of purchaser, even though their

initial payments were made to purchase bonds with no intention of purchasing real estate. [273] One example concerns Mr. and Mrs. Kerunsky. According to the claimants, the loan proceeds advanced by Mr. and Mrs. Kerunsky to Bison are caught by s. 18 because, at or around the time that Mr. and Mrs. Kerunsky signed a Bond Subscription Agreement in February 2010 as a means to secure their loan, Mr. Kerunsky said words to Bison to the effect that the property was attractive and he might consider purchasing a unit. On that construction, the date of the enquiry to determine whether a person falls under the definition of "purchaser" is the point in time when bonds are subscribed for without enquiry into the circumstances and context of the transaction, which in the Kerunskys' case involved no payment of money at the time of bond subscription. If that were the relevant time for the inquiry, it would create unreasonable commercial uncertainty (and absurdity) since Bison would be required to wait, perhaps for several years, and hold on to the bond subscription proceeds to determine with certainty whether the Kerunksys (or, in this case, their holding company) would sign an OTP to purchase real estate. [274] The claimants' position also ignores Mr. Kerunksy's admission that at the time he signed the Bond Subscription Agreement, he did not contemplate, nor did he intend to purchase real

estate. He admitted in cross-examination that he did not make a real estate deposit at any point in 2010, 2011, and 2012. [275] The legislature is presumed not to intend absurd or unreasonable results: Baettig; Ruth Sullivan, Sullivan on the Construction of Statutes, 6th ed. (Markham: LexisNexis, 2014) at §. 10.1-10.4; Waugh v. Pedneault (Nos. 2&3), [1949] 1 W.W.R. 14 at 15 (B.C.C.A.). In my opinion, a mere expression of a passing or possible interest in real estate is not sufficient to meet the definition of purchaser under REDMA. The claimants' interpretation also reads down the word "prospective" to "potential" purchaser. Finding the Kerunskys to be prospective purchasers in these circumstances would ignore the plain and ordinary meaning of prospective purchaser. [276] The same result occurs if the initial bond purchases made by Mr. Goerlitz and Mr. Waterhouse fall within the definition. Both admitted that their initial bond subscriptions had no connection with the purchase of real estate. [277] Thus, and quite apart from the notional aspect of the Kerunskys' payment to purchase bonds, these claimants are in the same position as the rest of the claimants (except for Cass): the proceeds they paid were for the purchase of Bison bonds and are not deposits falling within the ambit of REDMA. [278] In addition, the facts surrounding these claimants, including Cass' subsequent

execution of OTPs without purchasing bonds, highlights one of the difficulties with the claimants' submission that Bond Documents and OTPs are inter-related contracts with the former falling under the umbrella of the latter. The notion of a global transaction involving interrelated contracts requiring one agreement to be construed in light of the other applies only where, and unlike the present case, the agreements are components of one larger transaction and are entered into "on the faith of the others being executed": 3869130 Canada Inc. v. I.C.B. Distribution Inc., 2008 ONCA 396 at para. 33, citing Professor John D. McCamus, The Law of Contracts (Toronto: Irwin Law, 2005) at 715. [279] The transaction structured by Fasken did not require the Bond Subscription Agreements and OTPs to be entered into on the faith of both being executed. In fact, many bondholders only purchased bonds. Some claimants admitted that they understood the transaction to be separate contracts. The "Entire Agreement" clause in the OTP also precludes the claimants' submission that the OTP is the umbrella agreement. The Claimants' Funds Were Not Paid "In Relation to a Development Unit" [280] A "development unit" is defined in s. 1 of REDMA to include a bare strata lot. However, neither the words "in relation to" nor the phrase "in relation to a development unit" are defined in REDMA. Nor is there any case

authority addressing their specific meaning. [281] I reject the claimants' submission that all of their bond subscription proceeds are captured by the words "in relation to a development unit". The approach taken by the Court of Appeal in Woo, Drake, and other cases interpreting REDMA and describing the statute's twin goals shows the claimants' submission is overbroad. Their submission also overlooks the manifest intention of the legislature to narrow the ambit of funds impressed with a REDMA trust when it enacted REDMA. [282] Guidance is also obtained from other, apt case authorities. I agree with the defendants that the reasoning of the Court of Appeal in Northern Thunderbird Air Ltd. v. Royal Oak Mines Inc., 2002 BCCA 58, and the Ontario Court of Appeal in Wawanesa Mutual Insurance Company v. Axa Insurance (Canada), 2012 ONCA 592, are instructive. [283] In Northern Thunderbird, Chief Justice Finch considered the meaning of "in relation to" under s. 2(1) of the Builders Lien Act, S.B.C. 1997 c. 45, at paras. 48-51, 56. He interpreted the words to require services to have a "direct relationship" with an improvement or be "in relation to an integral part of the improvement." [284] In Wawanesa, the Court rejected the argument that "in relation to" should be interpreted broadly to include the cost of insurer-generated medical assessment as "in relation to" statutory benefits paid

to an insured. It relied on a prior decision of Mr. Justice Dickson of the Supreme Court of Canada in Nowegijick v. The Queen, [1983] 1 S.C.R. 29 discussing the contextual aspect of the phrase: [47] Dickson J.'s reasoning indicates that, like the words "in respect of", the words "in relation to" are intended to convey some connection between two related subject matters. In this case, that connection must be between the Statutory Benefits paid and the cost of the insurer-generated medical assessment. Wawanesa argues that these two subjects are connected because an insurer-generated medical assessment is used to determine if Statutory Benefits are paid to an insured. I do not think the analysis can stop there. [285] The court then examined the context of the relationship between statutory benefits and insurer-generated medical assessments and concluded, at paras. 50 and 70, that the words could not be construed so broadly as to include the cost of those medical assessments. [286] Drawing on the analysis in those cases, the words "in relation to" found in s. 18 of REDMA must be interpreted in their context within the statute and the contract documents. [287] This interpretative approach is also supported by the statute. A slightly closer look at the language used in s. 18 shows its connection to the purchase agreement, which in this case, is the OTP. For example, in addition to

the excepting circumstances set out in s. 18(2), s. 18(4) requires the trustee to release the deposit where the developer certifies in writing that certain events concerning the purchase agreement have occurred: 18 (4) A trustee under subsection (1) must release the deposit to the developer if the developer certifies in writing that (b) the purchaser has failed to pay a subsequent deposit or the balance of the purchase price when required by the purchase agreement under which the deposit held by the trustee was paid, (c) under the terms of the purchase agreement, if the purchaser fails to pay a subsequent deposit or the balance of the purchase price when required, the developer may elect to cancel the purchase agreement and, if the developer elects to cancel the purchase agreement, the amount of the deposit is forfeited to the developer, and (d) the developer has elected to cancel the purchase agreement. [Emphasis added] [288] Here, the contract documents are clear that the bond purchase proceeds were paid for the purchase of bonds. The Bond Subscription Agreement contains a covenant from Bison that it has complied with all "Acts", which is defined to mean securities legislation in B.C., Alberta, and Ontario. REDMA is not referred to in the Bond Documents to apply to the purchase of bonds and no covenant is given to that effect. Likewise, the OTPs do not treat bond subscription

proceeds as deposits for the purchase of strata units. The parties were free to provide for the payment of deposits in accordance with the provisions of the Policy Statement (of up to 10% during the early marketing period) in the standard form OTP document. Instead, and as I have previously discussed, in all cases but three, they chose to indicate that no deposit was paid. [289] Further, and applying Drake, the claimants' bond subscription proceeds could not be paid "in relation to a development unit" since it was uncertain whether any of the claimants' bonds would in fact be redeemed given the at-risk nature of their investment. If matters unfolded as planned, the bond subscription proceeds would be applied against the purchase price under an OTP per the off-set provisions in the Bond Documents. There was, however, a possibility that the bonds may never be redeemed at all. At most, the bond proceeds available on redemption were a contingent future payment by virtue of the set-off mechanism in the Bond Documents. Commercial Purpose [290] The claimants' assertion that the bond subscription proceeds are in relation to the purchase of a development unit would also frustrate the commercial purpose of their transactions with Bison. As Lord Wilberforce said in Prenn at para. 240: [T]he commercial, or business object, of the transaction, objectively ascertained, may be a surrounding

fact .And if it can be shown that one interpretation completely frustrates that object, to the extent of rendering the contract futile, that may be a strong argument for an alternative interpretation, if that can be reasonably found. [291] The commercial purpose of the bond transaction is evident from the Bond Documents themselves, i.e., to fund construction of the Hotel project and for the investors to earn interest on their at-risk investment. Bond subscribers were told in no uncertain terms that their money will be released to fund construction of the project, no insurance will be obtained for the bond subscriptions, and that they could lose their entire investment if the project is unsuccessful. A construction of the Bond Documents that required the bond proceeds to be held in trust until completion of the Hotel development, as the claimants suggest, is contrary to the commercial purpose of the transaction and common sense. [292] It is incompatible with the commercial context of the contract documents to interpret them such that proceeds paid for an at-risk investment in Bison, secured by a mortgage registered against the property, without security from government or other insurance, to be used by Bison for development and construction, were deposits for the purchase of strata units. Claimants' Submissions Concerning Seven Day Rescission Period [293] The claimants argue

that a seven-day rescission provision contained in the Bond Documents supports their characterization of their bond subscription proceeds as REDMA deposits. I disagree. [294] The Bond Documents provide a right of rescission to purchasing bondholders who sign OTPs either prior to or concurrently with a subscription for bonds. A subscribing bondholder falling within that category may rescind a bond subscription if they have exercised their right of rescission of the OTP by complying with the procedures set out in the Disclosure Statement, but only if they serve written notice of rescission of the Bond Subscription Agreement within seven days of entering into it: 5.3 If a Subscriber has entered into an [OTP] prior to or concurrently with entering into this Subscription Agreement, as described in the Disclosure Statements, under section 21 of [REDMA], the Subscriber may rescind its [OTP] in certain circumstances by strictly complying with the procedures set out in the Disclosure Statement (the "Rescission Rights"). Only in the event that the Subscriber has duly exercised its Rescission Rights in respect of the [OTP], the Subscriber may also rescind its subscription for Bonds under this Agreement by serving written notice on the Issuer or its brokerage, if any, within seven days after the date this Agreement was entered into. [Bold in original] [295] Under the Bond Documents, Fasken

was to hold bond subscription proceeds in its trust account for seven days pending expiry of the time period in which rescission could be exercised. In some instances, Fasken remitted bond funds to Deloitte within that period. I agree with Fasken's submission that the seven-day holding provision in the Bond Documents was inserted by Mr. Finley as a matter of convenience, to avoid paying out bond subscription funds while waiting to learn whether a real estate purchaser sought to rescind its purchase of bonds. [296] Regardless, the claimants do not advance a claim for breach of trust in this respect and the issue is without moment in the litigation. [297] As well, Fasken's failure to observe the seven-day holding requirement in some instances does not found any claim for liability because none of the claimants ever sought to rescind their Bond Subscription Agreements within that period. Four claimants, Mr. and Mrs. Mitchell and Darlene Belford and Barry Swettenham, terminated their real estate contracts at a later date, although the Mitchells purchased a unit in the Hotel with new money after the Hotel was sold in the receivership proceedings. Their bond subscriptions were not rescinded. The Disclosure Statements Lack Contractual Effect [298] Fasken prepared an initial Disclosure Statement and amendments concerning the purchase of strata units, and filed them with the

Superintendent of Real Estate as required by REDMA. For convenience, I shall refer to the original Disclosure Statement in the singular and the original and the amendments collectively in the plural. Some of the contents of the Disclosure Statements differ between their treatment of VHS units and Residences, although for the issues in this case, those differences are of no consequence. The Disclosure Statements provide a wide ranging amount of information to prospective purchasers of strata units, of Bison's plans for development, the nature of the Hotel and its operations (including budget), details concerning the VHS units and Residences and their use, warranties, the Hotel property, and issues concerning legal title. [299] The claimants assert that the Disclosure Statements are incorporated with contractual force into the OTP. I disagree and find otherwise. The Disclosure Statements do not have contractual force, either standing alone or through Bond Documents and the OTP. To form part of the OTP, the Disclosure Statement must be explicitly incorporated into it: 413255 B.C. Ltd. v. Jesson., 2006 BCSC 1070 at paras. 30-32. At para. 31, Madam Justice Gerow determined that similar language found in an entire agreement clause in a contract of purchase and sale negated the submission that a disclosure statement had been incorporated into or had become part of the contract.

Likewise, in the present case, the contents of the Disclosure Statements are not incorporated into the OTPs in light of the Entire Agreement clause contained within the OTPs. At most, the contents of the Disclosure Statements contain representations from Bison. [300] The claimants also argue that certain words in s. 7 of the Disclosure Statement suggest that bond subscription proceeds are deposits falling within the ambit of REDMA. The claimants point to the words in s. 7 that state, "All monies received from a purchaser will be held in trust in the manner required by the Act [defined in the document as REDMA]" until the Final Strata Plan is deposited in the Land Title Office...." They argue that the words, "All monies" captures their bond subscription proceeds. [301] I disagree, not only because the Disclosure Statement lacks contractual force and cannot impact upon the interpretation of the contract documents, but because the claimants' submission misconstrues the language in the document. [302] Information concerning the proposed real estate purchase agreement (the OTP) is found within the "Miscellaneous" section of the Disclosure Statement at s. 7.2. The section specifically deals with real estate matters, such as extension of the completion date set out in the OTP. For clarity, the OTP is attached to the document. There is no reference to bond subscriptions in this

section. [303] However, s. 6 separately addresses the bond program, construction financing, and subordination of bondholder's security to construction financing. It is entitled "Approvals and Finances". In it, readers, including any claimants who read the document, are clearly advised that Bison has and will continue to raise funds through the bond program to finance construction costs. [304] Equally important is the fact that s. 6, which refers to funds that can presently be used for construction, is to be contrasted with that in s. 7, which speaks of contingent future use of monies for construction. It is at this point in s. 7 that the "All monies" phrase appears, advising readers that if Bison obtains deposit protection insurance, deposits would be released for construction. Since Bison did not obtain deposit protection insurance, no amendment to the Disclosure Statement was ever filed and delivered to the claimants to that effect. In the circumstances, no claimant could reasonably believe that the reference to "All monies" referred to their bond subscription proceeds since it was clear in s. 6 and in the Bond Documents that their funds were being disbursed to Bison once the $10 million minimum threshold for bond sales was reached. [305] In summary, the Disclosure Statements lack contractual force. They do not link the purchase of bonds and real estate so as to suggest, let

alone render, bond purchase proceeds "deposits" under REDMA. The Linking Letter Lacks Contractual Effect [306] Bison sent the Linking Letter to some but not all bondholders who signed an OTP confirming the amount of their bond subscription amounts, purchase date(s), interest rate payable, and that a bond certificate will be issued with each bond subscription. This letter also confirmed that the principal amount of their bond subscription (referred to as an "investment" in the letter) would be used at bond maturity to satisfy their purchase obligation up to the amount of the bond subscription amount. [307] My findings in respect of the Linking Letter are as follows. [308] First, standing alone, the Linking Letter does not have any contractual force or effect. It simply confirms the particulars of the bond subscription transaction, including the set-off provided for in the Bond Documents. [309] Second, in some instances, the OTPs contained a subject clause stipulating that Bison's acceptance of the purchaser's offer was subject to a "signed letter" (i.e., the Linking Letter) directing the bond subscription payment to be used at maturity on account of the purchase price shown in the OTP. This is consistent with the set-off provisions in the Bond Documents. [310] Third, the contents of the Linking Letter are not incorporated into the OTPs or the Bond Documents as terms or

conditions. The contents are a partial explanation of the bond investment that might, depending on the circumstances, be construed as representations from Bison. Having the acceptance of some OTPs be subject to the provision of the Linking Letter does not elevate the letter's contents into additional contractual terms or conditions of the OTP. [311] Fourth, and contrary to Mr. Finlay's advice, Bison used the word "conversion" in discussing the use of bond funds on redemption to pay the purchase price for real estate. No explanation was provided at trial for its use. I disagree with the claimants that the word's appearance in the Linking Letter supports their claim. The Linking Letter clearly directs the reader to the Bond Subscription Agreement in respect of their bond purchase proceeds and advises that those proceeds will be used to finance construction. As well, and as mentioned, the Linking Letter's contents are not incorporated into the OTP or the Bond Documents. Further, no claim is advanced by the claimants of a collateral contract arising from the Linking Letter or, for that matter, any of the other marketing materials or written communications they received from Bison, or that they constitute a novation or variation of any of the contract documents. [312] Fifth, Mr. Finley and Fasken did not know that Bison drafted and sent a Linking Letter to some bondholders until

2012, close to or just prior to completion of the real estate contracts as they were preparing for closing. I am also satisfied and find that had Mr. Finley known of them, he would have taken the same prudent course he had in other instances and advised Bison and Mr. Walker not to send them without, at a minimum, reiterating the separate nature of the bond subscription and real estate purchase transactions. I am also satisfied and find from his evidence that he would have reiterated his advice to Mr. Walker and Bison not to use the word "conversion". Rev and Metro-Can were also unaware of the Linking Letter. [313] In conclusion, I do not find that Bison's use of the word "conversion" in the Linking Letter changes the independent contractual nature of the Bond Subscription Agreement and the OTP. The Linking Letter does not support the breach of trust claim against the defendants or the other claims advanced against Rev and Metro-Can. [314] A contrary interpretation of the effect of the Linking Letter would not afford the claimants' the relief they seek in any event. The Linking Letter does not detract from the clear terms of the Bond Documents that bond subscription proceeds will not be held in trust. The Bond Documents clearly state that bond subscription proceeds will be disbursed to finance construction. It does not detract from the terms and effect of the Bond Documents, and

in some instances, restates that only deposits (of 20%) paid to purchase strata units on the traditional basis where full price is paid will be held in trust until completion. Nothing in the Linking Letter detracts from the fact that the bondholder claimants clearly consented to the release of their bond subscription proceeds to Deloitte and provided that instruction when they signed their Bond Subscription Agreements. [315] Any complaints that the Linking Letter in some manner misrepresented the true nature of the transactions should be directed to Bison. If Bison's use of the word "conversion" bona fide affected a claimant's perception or understanding of the transaction in spite of the clear words of the contract documents, so as to lead a claimant to misapprehend the actual nature of its bond subscription, then any issue arising from it rests between that claimant and Bison and not with the defendants. The $10,000 Deposits [316] I have previously set out my findings concerning the circumstances in which these deposits were made by Mr. and Mrs. Asser and Ms. Belford and Mr. Swettenham. I have also set out my finding that these funds were disbursed with their consent, on their behalf, and to their credit, as part of their bond purchase proceeds, such that to the extent they were caught by REDMA when initially paid, they were appropriately released per s. 18(2)(b). That

section permits a trustee to disburse funds to the purchaser with the written consent of the purchaser and developer. That, in effect, is what occurred in both cases. [317] The claimants' oral submissions misconstrue certain handwritten notes in Schedule "C" of the Assers' November 12 OTP when they argue that it confirms their position that all of their funds were deposits for the purchase of real estate. To the contrary, the notes in Schedule "C" describe the Asser's bond purchases. Clause 1.7 of the Assers' November 12 OTP is clear that no deposit was to be paid (it is marked "$N/A" and the schedule requiring the second deposit of 10% is not attached). [318] The Assers clearly understood that their money was paid on account of their purchase of bonds. They are both chartered accountants. Mrs. Asser testified. Mr. Asser did not. Mrs. Asser holds a university degree in business and has been a partner in a Victoria accounting firm for many years. She has experience in purchasing residential homes and condominiums, as well as a commercial apartment building for investment. [319] I am satisfied and find, not only from the plain reading of the contract documents as well as Mrs. Asser's evidence along with the evidence of Mr. Walker about his discussions with Mr. Asser, that the Assers knew their payments were for the purchase of at-risk bonds in Bison and not deposits for the

purchase of a strata unit. They may have perceived the risk to be low in light of their discussions with Bison about the security offered by the Computershare Mortgage, but they nonetheless knew they were purchasing bonds. [320] They also knew that their bond purchase proceeds were going to be disbursed to and used by Bison for ongoing construction. Mrs. Asser was aware of the importance to obtain legal advice before signing documents but did not obtain it. In her evidence, she agreed that she understood when signing the Bond Subscription Agreement that she was agreeing with the full terms of the document. [321] Like the rest of the claimants, the Assers do not allege in their pleadings that they were required to pay deposits in excess of the maximum 10% allowable under the Policy Statement, which would be the case if, as the claimant bondholders assert in the litigation, their bond subscription proceeds were paid as deposits for their strata unit. [322] The defendants advanced numerous alternative defences to the ability of Mr. and Mrs. Asser and Ms. Belford and Mr. Swettenham to recover their $10,000 deposits, assuming their character as deposits had never changed. One of the defences concerned what the defendants submitted were numerous impediments to those claimants' ability to trace those funds. Indeed, the defendants raised tracing defences, in the alternative, to the

ability of most of the claimants' ability to recover should their funds have been determined to be deposits falling under REDMA. [323] By way of example, the defendants pointed to the Assers' case where their $10,000 was not disbursed to Bison and did not go into the property, and instead went with other funds directly from Deloitte to a law firm acting for a different lender to pay a pre-existing mortgage debt. Quite apart from the defences concerning the claimants' failure to prove their individual ability to trace, the defendants argued that trust funds used to pay pre-existing debts, including a mortgage, cannot be traced because of the rule against "backward tracing", which prohibits tracing of misappropriated funds used to discharge a debt (they relied, in part, on Metalworks Canada Ltd. v. Warrack, 2014 ABCA 389 at para. 36 and Bishopsgate Investment Management Ltd. v. Horman & Others, [1994] EWCA Civ 33). The claimants, on the other hand, denied that the rule against backward tracing is good law in Canada. They argued, in the main, that the legal presumption against the wrongdoer should apply on the facts of this case such that the wrongdoer, i.e., Bison, is presumed to spend its own money first, thus allowing trust funds to be traced (the claimants relied in part on Shenzhen v. Yao, 2000 BCSC 677 at paras. 248-51, 275, 289, 335-76 and Central Capital Corp. v. Clausi

(1993), 13 O.R. (3d) 335 (Gen. Div.) at paras. 13, 18, aff'd by consent 21 O.R. (3d) 95 (C.A.). [324] Without deciding the various tracing defences, I wish to set out my findings and determination concerning the expert evidence adduced on behalf of the parties. [325] The expert evidence adduced on behalf of the claimants engaged a tracing analysis that examined Bison's general ledger and assumed that Bison disbursed non-purchasing bondholders' subscription proceeds first. The expert evidence tendered on behalf of Rev and Metro-Can by Robert Sandy from PricewaterhouseCoopers LLP, on the other hand, went into much further detail, including a review of actual banking records for Fasken, Deloitte, and Bison, without engaging in assumptions. I prefer the more detailed methodology employed by Mr. Sandy when determining whether the $10,000 payments can be traced because it allows for a fact-specific analysis relating to each bondholder claimant. [326] I accept the following factual determinations made by Mr. Sandy, which I summarize as follows. Not all subscription proceeds were sent to Bison. Some, for example, were sent directly to lenders to pay off pre-existing loans. The subscription proceeds that were sent to Bison were deposited into its operating bank accounts and comingled with funds from other sources. In most instances, Bison paid its obligations using these comingled

funds. Bison did not maintain separate bank accounts for subscription proceeds it received from each individual Purchasing Bondholder. [327] In summary, when Fasken disbursed the $10,000 amounts paid by Mr. and Mrs. Asser and Ms. Belford and Mr. Swettenham from its trust account, it was not in contravention of REDMA. Summary [328] I find that the bond subscription proceeds paid by the claimants were to purchase at-risk bonds issued by Bison and are not deposits falling under the ambit of REDMA. The funds at issue in this case are not subject to a statutory trust under REDMA. A proper construction of the contract documents as well as the provisions of REDMA itself clearly demonstrate that the monies paid by the claimants in their capacity as subscribing bondholders were paid to purchase bonds. All funds paid by subscribing bondholders, including the claimants, were given to Fasken on account of the purchase of bonds to be disbursed to finance the development and construction. They were placed with Fasken on that basis. Except for the circumstances in which the two $10,000 deposits were originally paid to Fasken, the claimant bondholders' funds were not placed with Fasken as trust funds falling under REDMA. The two $10,000 deposits were released, however, with the consent of Mr. and Mrs. Asser and Ms. Belford and Mr. Swettenham, who agreed that they should be used to pay for

their bond subscriptions. [329] From the evidence of the claimants (or their representatives) who testified, I am satisfied and find they were aware of the two different methods that were available to purchase strata units. All claimant bondholders were aware that bond subscription proceeds would be released by Deloitte and used for development and construction of the Hotel in the absence of any protective insurance. The claimants who purchased bonds were aware that they were purchasing at-risk equity bonds in Bison. They were all clearly advised that their bond investments may fail and bond redemption may never occur, leaving them exposed to pay the purchase price of any strata unit they purchased under a separate OTP. [330] The claimants' characterization of the money they paid for bond subscriptions ignores the commercial reality of the transactions they entered into and is both inconsistent with the contract documents and overstates the application and ambit of REDMA. [331] If Fasken had refused to pay out the claimants' bond subscription proceeds as instructed in the Bond Documents, it would have defied the commercial expectations of the parties and risked claims from the claimants and Bison for interference with contractual relations. Additional Findings [332] Given my determination that the funds in issue are not deposits falling under REDMA, and not impressed with a

statutory trust, it is unnecessary for me to address the numerous other issues raised by the parties. However, in the course of these proceedings, the claimants have made serious allegations of impropriety against the defendants, which in my view must be addressed by way of my additional findings. Mr. Finley [333] I will begin with Mr. Finley. The claimant's position was that his conduct does not meet the threshold of honesty sufficient to invoke s. 96 of the Trustee Act. [334] Even if I were to have determined that Fasken had acted in breach of trust when it released the claimants' funds, I would dismiss their claims against Fasken based on s. 96 of the Trustee Act, which provides: Jurisdiction of court to relieve trustee of breach of trust 96 If it appears to the court that a trustee, however appointed, is or may be personally liable for a breach of trust, whenever the transaction alleged to be a breach of trust occurred, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which the trustee committed the breach, then the court may relieve the trustee either wholly or partly from that personal liability. [335] To be excused for breach of trust under s. 96, the trustee must establish that he or she acted honestly and reasonably. The court must also find that in the circumstances, it would be fair to excuse the trustee, including its failure to obtain directions from the court. The burden rests on the trustee: Langley, Bevans and Julson v. Brownjohn, 2007 BCSC 156 at para.

63. Whether or not the trustee should be excused for its breach is "highly dependent upon the circumstances peculiar to each case; there are no hard and fast definitions of the types of behaviour that will be excused or those that will not." The trustee must prove that its actions are worthy of the exercise of the court's discretion: Langley at para. 62. [336] I agree with the defendants' submission that prior case authority in this province holds that a s. 96 defence is available to a statutory trustee: Mars v. Dowell, 2004 BCSC 1351 at para.

53. The cases cited by the claimants supporting their submission to the contrary are from Ontario, and were issued in the context of specific builders' lien legislation in that province: Dietrich Steel Ltd. v. Shar-Dee Towers (1987) Ltd. (1999), 42 O.R. (3d) 749; Structural Contractors Ltd. v. Westcola Holdings Inc. (2000), 48 O.R. (3d) 417, leave to appeal ref'd (200a), 195 D.L.R. (4th) vii. [337] Determining honesty is a subjective assessment; determining reasonable conduct is assessed objectively. In Langley, Madam Justice Ballance said that the question of whether a trustee acted honestly "is not typically an issue in the cases": para. 64, citing Donovan W.M. Waters, Waters' Law of Trusts in Canada, 3rd ed. (Toronto: Carswell, 2005) at 1258. The "more contentious question", she said, "ordinarily focuses on whether the other requisite elements have been established", in particular, the issue of reasonableness. She also cited Waters at 1260 for the definition of reasonable conduct, as follows: [65] At 1260, Waters describes in general terms what is considered to be reasonable conduct: Reasonable conduct is what the prudent business person would have exhibited in his own affairs. The court puts itself in the position of the trustee at the time of the disputed conduct, and considers what the prudent business person would have done in the light of the facts as they were then

known and the prevailing opinion among business people at the time [footnotes omitted]. [338] I am satisfied that Mr. Finley and Fasken have met the burden imposed upon them. Honesty and reasonableness have been established. There is no question that Mr. Finley acted honestly and reasonably throughout. Fasken has also established that the lawyers and staff working with Mr. Finley on the project did as well. [339] Until the litigation against Fasken began, Mr. Finley was unaware of any possible suggestion that the bond subscription proceeds might be characterized as deposits falling under the ambit of REDMA. He was aware of REDMA when he structured the transaction, and considered its applications and implications. He structured a transaction that he bona fide believed complied with all legislative requirements. Fasken prepared and filed the requisite Disclosure Statements required by REDMA. Mr. Finley was careful to advise his client not to conflate the independent nature of the bond subscription and the purchase of real estate. Professionals at Computershare and Deloitte and their legal advisors reviewed his proposed transaction documents. No one suggested that REDMA might apply to bond subscription proceeds. [340] Mr. Finley and Fasken disbursed bond subscription proceeds as required by the instructions and directions in the Bond Documents. They facilitated the claimants'

instructions in the Bond Documents and in respect of the two $10,000 deposits. There was nothing brought to the attention of Mr. Finley or Fasken that should have alerted them to the possible need to seek a court order before disbursing the bond subscription proceeds to Deloitte. [341] I am satisfied and find that Mr. Finley was scrupulous in advising Bison to accurately market the nature of the transaction. He was clear in his advice to his client when he learned of potential misstatements. Mr. Finley and Fasken accepted the claimants' funds as bond subscription proceeds, not REDMA deposits. Fasken's role was as interim trustee of those funds until disbursed to Deloitte. [342] Mr. Finley continues to hold the opinion that the bond subscription proceeds are not subject to a REDMA trust. The claimants accept that Mr. Finley honestly holds this belief. I am also satisfied that his continued opinion is held honestly and is reasonable and correct in the particular factual circumstances of this case. I also find that Mr. Finley honestly believed that he was carrying out the bondholders' express written instructions in the Bond Subscription Agreements and the obligations imposed upon Fasken in the Bond Documents. He relied on the validity and enforceability of the covenants, acknowledgments, and warranties contained in the Bond Documents. [343] I have also determined that the

instances where Fasken paid out bond subscription proceeds prior to the expiry of the seven-day rescission period does not detract from its s. 96 defence. Fasken was not always informed when a bond subscriber had also entered into an OTP. Fasken's omission in the circumstances of this case does not detract from the otherwise scrupulous approach taken by Mr. Finley and the law firm in carrying out their obligations in the contract documents. In all other respects, Fasken handled all of the claimants' funds in accordance with the Bond Subscription Agreement and Bond Indenture. The Fraud Claim against Rev and Metro-Can [344] In response to the reliance placed on s. 29 of the LTA by Rev and Metro-Can, the claimants allege the conduct of Rev and Metro-Can offends good commercial conscience and constitutes equitable fraud, which they submit is sufficient to displace the presumption of priority of a registered interest in s. 29(2) of the LTA. There is no claim or allegation that Rev and Metro-Can participated in a fraudulent preference or conveyance. [345] I propose to deal with the claimants' equitable fraud and related improper conduct allegations because a claim of fraud is always serious, particularly in a case such as this where the uncontroverted evidence is that Metro-Can enjoys a first- class reputation in the construction industry. [346] Section 29 of the LTA provides that a

person dealing with a registered owner in order to acquire, inter alia, a charge, is not affected by express, implied or constructive notice of an unregistered interest affecting the land or charge, apart from a few specific exceptions: Effect of notice of unregistered interest 29 (1) For the purposes of this section, "registered owner" includes a person who has made an application for registration and becomes a registered owner as a result of that application. (2) Except in the case of fraud in which he or she has participated, a person contracting or dealing with or taking or proposing to take from a registered owner (b) a charge on land, or a transfer or assignment or subcharge of the charge, is not, despite a rule of law or equity to the contrary, affected by a notice, express, implied, or constructive, of an unregistered interest affecting the land or charge other than (c) an interest, the registration of which is pending, (d) a lease or agreement for lease for a period not exceeding 3 years if there is actual occupation under the lease or agreement, or (e) the title of a person against which the indefeasible title is void under section 23 (4). [Emphasis added] [347] Fraud under s. 29(2) requires actual knowledge and an element of dishonesty: Vancouver City Savings Credit Union v. Serving for Success Consulting Ltd., 2011 BCSC 124 at paras. 70, 88-89; Hudson's Bay Co. v.

Kearns (1896), 4. B.C.R. 536 at 552-53 (S.C.); Greveling v. Greveling, [1950] 2 D.L.R. 308 at 340 (B.C.C.A.); McCaig v. Reys (1978) 7 B.C.L.R. 367 at 378-79 (C.A.); 311165 BC Ltd. v. Derewenko, 2017 BCSC 1512 at paras. 71,74; Worth v. Shuswap Lifestyle Developments Inc., 2013 BCSC 561 at paras. 63-64. [348] To engage the fraud exception in s. 29(2), the claimants must show that there was " some clear intention to use the [LTA] to defeat [their] interests in circumstances contrary to common morality such that it would be inequitable for the court to allow reliance upon the [LTA] as protection": Vancouver City Savings at para.

89. That means the claimants must prove that Rev and Metro-Can had knowledge of the trust and its breach, which they have not done. I am satisfied and find that neither principal of Rev and Metro-Can, Mr. Jason Ratzlaff and Don Voth, knew or suspected that any of the bond proceeds were impressed with any form of trust. There is also no basis to find that other officers or directors of those companies involved in the project had any such knowledge. There is no basis to impute such knowledge to Rev and Metro-Can and their principals. Mr. Voth and Mr. Ratzlaff were aware that Bison was intending to raise capital through the bond program but they were not aware of the details of individual subscribing bondholders. They took the information they received from Bison about the bond sales and the state of the program (e.g., sales results) at face value. They had no knowledge of individual bondholders' arrangements to purchase strata units, nor were they aware of the Linking Letter. They were not aware of the circumstances concerning the two $10,000 deposits. [349] I also accept that neither Mr. Ratzlaff nor Mr. Voth knew at any material time that Bison would fail financially. Rather, Mr. Voth provided a clear, and in my view, reasonable and credible explanation in his evidence concerning the viability of the project upon completion. The most that can be said is that he (and Mr.

Ratzlaff) were aware of Bison's ongoing cash flow problems, which arose from its difficulties with securing senior construction financing, slower than expected bond sales, and potential cost overruns (if certain proposed expenditures were incurred by Mr. Walker for Bison). Otherwise, they, like the majority of the claimants as well as the mortgage broker involved in raising capital for the project, believed that the location and quality of the project would result in a high value, profitable asset. [350] The principal of Gatland Capital, Mr. Graham Thom, who, with over 30 years of experience as a mortgage broker, assisted Bison to secure financing for the Hotel project, shared the views held by Messrs. Voth and Ratzlaff. He continued to believe throughout that the Hotel would be a financial success. I accept his evidence that he never thought, as he worked on the project, that it would fail. He explained that his company works on a contingency; they work on projects that he believes will be successful. He explained, if the project fails, "We don't get paid." [351] Rev and Metro-Can did not wish to declare their loans in default as it would have only devalued the improvements on the property to the detriment of all creditors and bondholders. I find that there was nothing improper about the ongoing efforts that Rev and Metro-Can made to encourage Bison to repay their loans. Had

Bison been declared in default for outstanding arrears, which Mr. Voth believed was a short-term problem, sub-trades would have walked off the job site, leaving construction and the success of the project, and the financial interests of all stakeholders, including bondholders, in jeopardy. It was only towards the end of the construction phase, well after funds had been advanced by Rev and Metro-Can under Facility "B", that Mr. Voth began to think that the profit margin for the project was slim. Even then, he believed the Hotel, when completed, would ultimately be highly profitable. [352] As against Rev, the claimants allege that the manner in which Rev's unsecured loans to Bison were secured ─ initially through a "roll up" into a secured position through the Computershare Mortgage when they purchased bonds, followed by bond redemption and an advance through the construction lenders' mortgage ─ also amounts to equitable fraud. The allegation could only be advanced against Rev since Metro-Can did not purchase bonds. [353] Yet, in closing submissions, the claimants defended the Kerunsky's "roll-up" of their unsecured loan into a secured position under the Computershare Mortgage on the basis that it reduced the amount of bonds Bison was required to sell to avoid default under a second mortgage held by a senior lender. Nonetheless, the claimants, including the Kerunskys, maintain

that the security obtained by Rev for its unsecured loans to Bison, also advanced as short term-financing, and at Bison's request to permit construction to continue, offend good commercial conscience and support a claim for equitable fraud. [354] Bison redeemed Rev's bonds to obtain needed cash flow for ongoing construction. It had the right under the Bond Indenture to redeem some bonds ahead of others. Section 3.2 of the Bond Indenture permitted Bison to redeem an amount less than all of the issued bonds "on such basis" and "in its sole discretion". There is no basis to find that the redemption of Rev's bonds to facilitate construction financing and the subsequent security provided under Facility "B" is tainted with fraud or immoral conduct. [355] I also reject as unproven the claimants' assertion that Rev and Metro-Can knew that the various interest rates payable by Bison on the bonds were not reasonable compensation for the risk taken by all bondholders in purchasing bonds. Moreover, Rev and Metro-Can did not know about the payments to the Kerunskys until 2012, when Mr. Voth found out that they had been receiving interest payments of 24%. It is an understatement to say that he was most unhappy to receive this information given Bison's ongoing delays in paying the general contractor as well as loans from Rev and Metro-Can. [356] It must also be kept in mind that Rev and

Metro-Can owed no duty of care or contractual obligations towards any of the claimants. They had no obligation to look after or protect their interests: Litwin Construction (1973) Ltd. v. Kiss (1988), 29 B.C.L.R. (2d) 88 (C.A.); Delta Smelting & Refining Co. (Re) (1988), 33 B.C.L.R. (2d) 383 at 389. Rev and Metro-Can did not owe an obligation to the claimants to refuse to loan money to Bison because the bondholders now think they were parties to an improvident transaction. [357] Relying on notions of "good commercial conscience" to invoke an exception to s. 29(2), as the claimants seek to do, would result in an untenable and ad hoc application of highly individualistic notions of equity and the risk of judicial innovation: Pacific Shores Resort & Spa Ltd. (Re), 2013 BCSC 480 at paras. 32, 75. It would also overlook the claimants' own obligations to abide by their contractual promises in the absence of any recognized basis to avoid them, none of which, apart from equitable fraud and lack of good commercial conscience, have been alleged in this case. Equity will enforce "what is seen to be the common intention of the parties": Pan Canadian Mortgage Group III Inc. v. 0859811 B.C. Ltd., 2014 BCCA 113 at para. 44. [358] For these reasons, I reject the claimants' equitable fraud and improper conduct submissions advanced against Rev and Metro-Can. Conclusion [359] The claims advanced and relief sought by the claimants against Fasken and Rev and Metro-Can are dismissed. "Walker J." ________ The Honourable Mr. Justice Walker