Marigold Nursery Ltd. v. Victoria Ford Alliance Ltd.

2009 BCSC 1255 Marigold Nursery Ltd. v. Victoria Ford Alliance Ltd.

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Marigold Nursery Ltd. v. Victoria Ford Alliance Ltd., 2009 BCSC 1255 Date: 20090914 Docket: 07 1956 Registry: Victoria Between: Marigold Nursery Ltd. Plaintiff And Victoria Ford Alliance Ltd. Defendant Before: The Honourable Madam Justice Ker Reasons for Judgment Counsel for Plaintiff: G. Coad Counsel for Defendant: E. Drown Place and Date of Trial: Victoria, B.C. February 16, 17, 2009 Place and Date of Judgment: Victoria, B.C. September 14, 2009 I. Introduction: [1] Marigold Nurseries Ltd. ("Marigold"), the plaintiff in this action, is a family owned and operated garden centre business on Vancouver Island, started by Raymond Smith's father in 1944. Raymond Smith has spent his entire working life at Marigold Nurseries, starting there on a full-time basis after graduating in 1968. Mr. Smith's father was fully active in the family business until his death in 1997. [2] Raymond Smith and his brother, Leonard, assumed ownership of the business on their father's death and ran it jointly until 2001 when Raymond Smith bought out his brother and became the sole owner and operator of the business. The business has 25 full-time employees and during the high season employs about 40 employees. [3] Since 1970, Marigold has leased various vehicles as part of its business operations including eight pickup trucks, five cube vans and a variety

of other vehicles. Marigold has always leased Ford vehicles as that was the brand preferred by Mr. Smith's father. [4] In December 1997, Marigold negotiated three vehicle lease agreements with Victoria Ford Alliance Ltd., the defendant in this action, through the Glenoak Ford dealership in Victoria ("the dealership"), to be executed in the spring of 1998 once new vehicle stock was available. [5] The vehicle lease agreements were for a term of 36 months with an option to purchase the vehicles for their residual values at the end of their leases in the spring of 2001. Marigold asserts that rather than purchasing the three vehicles in the spring of 2001, it then entered into three vehicle lease extension agreements with Murrage Savage, the Fleet and Lease Manager with the dealership, in order to finance the purchase of the vehicles over a further 30 month period. Marigold would then purchase the three vehicles for their residual value, totalling approximately $10,655, at the end of the lease extension agreements. [6] In November 2003, at about the time the lease extension agreements were due to expire, an employee of Marigold, operating on instructions from Raymond Smith, made inquiries of the dealership as to the status of Marigold's vehicle leases. The employee was verbally told that "the leases were still in effect" but received faxed documents indicating the actual signed

lease extension agreements were missing. Raymond Smith was advised of the status update and that documents about the lease extension agreements, faxed from the dealership to Marigold, were on his desk for review. Mr. Smith failed to look at the documents and made no follow-up inquiries at the time. [7] Notwithstanding annual insurance authorization documents forwarded by the dealership to Marigold, referencing the vehicles as "leased", and Marigold continuing to claim the vehicle lease payments on its annual income tax return as a business operating expense, the issue of the leases did not arise again until the spring of 2007 when Marigold's bookkeeper queried Mr. Smith as to why Marigold continued to make lease payments on the three vehicles. Mr. Smith stopped payment on the leases in April 2007, contacted the dealership, and expressed dissatisfaction that the leases had continued for as long as they had. The parties were unable to reach a satisfactory resolution and Marigold initiated proceedings against the dealership. The dealership initiated a counterclaim against Marigold for damages for the unpaid monthly lease payments from April 2007 until the trial of this matter. [8] Marigold is suing the dealership for monies it argues were wrongfully removed from its bank account by the dealership when Marigold overpaid, by three and a half years, on the vehicle lease extension

agreements. Marigold seeks the return of $82,465.31 representing the amount it says it overpaid between November 2003 and April 2007 when it ceased making any lease payments. [9] Marigold further argues that the dealership owed it a "duty of care" to advise it as to the proper status of the leases when inquiries were made by an employee of Marigold in November 2003. It is Marigold's position that the response by the dealership's employee that "the leases were still in effect" was misleading and in breach of the duty of care it owed to Marigold. [10] For its part, the dealership denies that any lease extension agreements existed, arguing that no such lease extension agreements were authorized by its principal owner, James Carson. Moreover, argues the dealership, the absence of any actual executed lease extension agreement documents in its master or accounts receivable files is proof that no lease extension agreements were made in this case. The dealership argues Marigold simply continued to lease the three vehicles from the dealership on a month to month lease pursuant to the overholding provisions of the original lease agreements from 1998. [11] In the alternative, the dealership argues that even if lease extension agreements were granted in this case, the terms of the extension agreements would be the same as the standard form for the original lease agreements from 1998. The

terms of the standard form contract provide that where the lessee does not notify the lessor that it intends to exercise its option to purchase 30 days before the expiry of the lease agreements, the lessor has the option to permit the lessee to continue to use the vehicles provided the monthly lease payments continue to be made. [12] Accordingly, even if the lease extension agreements are found to have been made in this case they nonetheless converted to month to month leases at the expiry of the extension agreements in November 2003. As Marigold failed to notify the dealership that it was exercising its option to purchase prior to the expiry of the agreements and simply continued to make the lease payments, the dealership argues the lease extension agreements converted to month to month leases pursuant to the overholding terms of the standard form contract. [13] The dealership further argues that it did not owe Marigold any duty of care in November 2003 when Murray Savage advised Marigold that the leases were still in effect, arguing that the standard form contract clearly outlines the terms of the lease agreement. [14] In addition, the dealership sues Marigold by way of counterclaim for damages in the sum of $53,179.68 plus contractual interest at a rate of 34.5% per annum, compounded and calculated monthly, as the amount due and owing on the continuing month to month leases

on the three vehicles which Marigold has failed to pay since April 2007. The dealership seeks an order for damages in this amount and an order that Marigold surrender the three vehicles immediately. [15] Raymond Smith, the owner/operator of Marigold, and Brooke Smith, his daughter and Marigold's Retail Manager, testified for the plaintiff. [16] James Carson, the dealer principal and general manager for the dealership, and Carolyn Bruce, the payroll clerk and accounts receivable manager for the dealership, were the only defence witnesses. [17] In addition to the viva voce evidence, an agreed statement of facts was filed and marked Exhibit #1 in the trial. It outlines the non-contentious issues and appends various lease agreements, work sheets and other documents germane to the issues in this case. II. Issues [18] There are a number of contested factual questions for determination. They can be conveniently divided into the following four issues: a. Did the parties enter into lease extension agreements with respect to the three vehicle leases in question? b. If the parties entered into lease extension agreements, what were the terms of those further agreements and have the vehicle leases in question become month to month leases by virtue of the overholding terms contained in the standard form lease agreements? c. Did the dealership owe Marigold any "duty of care" to advise it of

the proper status of the leases when inquiries were made in November 2003? d. If the vehicle leases in question are month to month leases under the original lease agreement or by the lapse of any lease extension agreement, what, if any, damages does Marigold owe the dealership? III. Evidentiary Synopsis and Findings from the Evidence A. Agreed Statement of Facts and Documentary Evidence [19] The details of the three original lease agreements are outlined in Exhibit #1, the agreed statement of facts, which provides the following: The Plaintiff is a corporation duly incorporated under the laws of British Columbia and carries on business at 7874 Lochside Drive, Saanichton, B.C. The Defendant is a corporation duly incorporated under the laws of British Columbia and carries on business at 3377 Douglas Street, Victoria, B.C. In or about December 1997, the Plaintiff entered into three lease agreements with the Defendant for the purchase of two 3 ton cube vans (serial numbers IFDXE40F0WHB03338 and IFDXE40F0WHA08147) and one 3/4 ton regular van (serial number IFTPE2421WHB32878). Copies of the Motor Vehicle Purchase Agreements pertaining to these transactions are attached as Schedule "A" to this Agreed Statement of Facts. Copies of the Lease Agreements are attached as Schedule "B" to this Agreed Statement of Facts. The lease that was entered into between the parties for the two 3 ton

cube vans was a 36-month lease. The lease was based on a purchase price of $37,742.29 per vehicle with fixed regular monthly payments of $1,815.34 at an interest rate of 8.25%. At the end of the term of the lease, the terms of the lease gave the Plaintiff the option to purchase each cube van for $16,500.00. The lease that was entered into between the parties for the 3/4 ton regular van was a 36-month lease. The lease was based on a purchase price of $23,262.68 with fixed regular monthly payments of $517.27 at an interest rate of 8.25%. At the end of the term of the lease the terms of the lease gave the Plaintiff the option to purchase the 3/4 ton regular van for $12,000.00. The Plaintiff signed an authorization to allow the Defendant to automatically withdraw the lease payments from the Plaintiff's bank account. In November 2003, the Plaintiff made enquiries of the Defendant to determine when the leases were up and was advised by an employee and/or agent of the Defendant that the leases were still in effect. Attached as Schedule "C" to the Agreement is a Fax from the Defendant's Employee to the Plaintiff indicating the same. Attached as Schedule "D" to this Agreement are three quotes prepared by the Defendant for the Plaintiff. The Defendant has regularly withdrawn funds from the Plaintiff's account pursuant to the Plaintiff's signed authorization. Such payments are set out in

the attached Schedule "E" to this Agreed Statement of Facts. On or about April 1, 2007, the Plaintiff quit making monthly payments to the Defendant. To date, the Plaintiff continues to have the vehicles in its possession. To date, the Defendant remains the registered owner of the vehicles. [20] The three original lease agreements from 1998 all contain as a clear term of the contract that the Net Lease Purchase Option places the onus on the lessee to notify the lessor 30 days prior to the expiry of the lease if it wishes to exercise its option to purchase the vehicle at the end of the lease. [21] All three original lease agreements also include a term for "overholding" that provides: OVERHOLDING: if the Lessee fails to return the Vehicle to the Lessor on the earlier of the expiry or termination date, the Lessor may elect not to terminate this lease and allow it to continue on a month to month basis in which the Lessee shall pay to the Lessor the monthly payment, any applicable late charges, and other such amounts as the Lessor shall deem appropriate. [22] The two documents faxed to Marigold in November 2003 as referred to in point # 7 of the agreed statement of facts outlined above, were sent on November 13, 2003, by Murray Savage, the Fleet and Lease Manager of the dealership. The document in Exhibit #1 at Tab C contains two pages - a fax cover sheet and a letter dated November

13, 2003. [23] The fax cover sheet indicates that five pages including the cover sheet were sent and the cover sheet contains the following handwritten comments: I have reprinted the info from the lease extensions from March April 2001. I don't have the original signed copies of the extension, only the original lease from 1998. Any questions please call me. [Emphasis added.] [24] The letter of November 13, 2003 that accompanied the fax cover sheet reads as follows: Attached are copies of the work sheets used to determine the lease payments on the two cube vans and 1 cargo van that you are currently leasing from us. For some reason, I am unable to locate the signed contracts that were issued for the extensions in 2001. These are the work sheets that were in the computer to calculate the extensions. If you have any questions please feel free to contact me. Murray Savage [Emphasis added.] [25] Attached to the fax cover sheet and letter of November 13 were three work sheets, referred to as Schedule D in the agreed statement of facts and which are found at Tab D of Exhibit #1. The handwriting on the work sheets was not that of any of the witnesses called in this trial. [26] The contract date for two of the work sheets shows as November 13, 2003, presumably the date the work sheets were printed from the dealership's computer system by Mr. Savage and faxed to Brooke Smith at Marigold.

On the third work sheet, however, the November date is crossed out and the contract date is handwritten in as May 1, 2001. All three work sheets show the term of the lease extension agreements to be 30 months, which would result in the extension agreements expiring in November 2003, at a time contemporaneous with Mr. Smith's recollection that the lease agreements were about due. [27] The three work sheets contain figures as to the amount of the monthly lease payments, the value of the vehicles at the time of the lease extension discussions ($16,500 for each of the E450 Cube Vans and $12,000 for the E250 Cargo Van) and the proposed residual value of the vehicles which represents the proposed purchase price for each vehicle at the end of the 30 month lease extension agreement ($2,514 for each of the E450 cube vans and $5,627.04 for the E250 Cargo Van). [28] The fax cover sheet, the November 13, 2003, letter signed by Murray Savage, and the three work sheets were found by Ms. Bruce in April 2007 in the dealership's master files when she briefly searched the files for evidence of the lease extension agreements. B. Credibility [29] The two parties have given sharply conflicting testimony with respect to the events and circumstances in relation to the critical fact of whether a lease extension agreement was in fact executed and it is appropriate at this juncture to comment on the

credibility of the parties. My findings on essential facts are addressed in the course of the evidentiary review and findings of fact component of these reasons contained below. [30] In Faryna v. Chorny, [1952] 2 D.L.R. 354 (B.C.C.A.) at 357, the Court of Appeal stated the following test for the assessment of credibility of interested witnesses: The credibility of interested witnesses, particularly in cases of conflict of evidence, cannot be gauged solely by the test of whether the personal demeanour of the particular witness carried conviction of the truth. The test must reasonably subject his story to an examination of its consistency with the probabilities that surround the current existing conditions. In short, the real test of the truth of the story of a witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions [31] Mr. Smith presented himself as an earnest and honest individual but not the most thorough of businessmen in his approach to the business and financial arrangements of Marigold and in particular the details of the leasing arrangements. However, his assertion that he entered into the three lease extension agreements is confirmed by the documents sent to him by Murray Savage at the dealership, on November 13, 2003. [32]

Although Mr. Carson and Ms. Bruce appear to have convinced themselves of the truth of their testimony that lease extension agreements were never signed, authorized or granted, and I accept that they were honestly attempting to tell the truth as they recall it, there are aspects of their evidence and the evidence as a whole that demonstrate that their evidence on the lack of existence of any lease extension agreements has to be rejected. To put it another way, there is no harmony of either witness's evidence with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in the circumstances, viewing the plain and unequivocal meaning of the words contained in Mr. Savage's letter to Marigold on November 13, 2003. [33] Some examples of Ms. Bruce's evidence which demonstrate that it has to be rejected as unreliable are as follows: Ms. Bruce, although prepared to outline in detail the paperwork process for lease extension agreements, in fact admitted she had never done such an agreement in her 16 years with the dealership. She appeared unprepared to admit the possibility of documents being misplaced notwithstanding the clear evidence from the materials in the defendant's own files that would suggest the contrary. Namely, Mr. Savage's letter, stating that lease extension agreements had been signed but were missing from the

dealership's files. The tautological reasoning of her evidence that because there were no lease extension agreements in the file they did not exist. [34] Mr. Carson presented as resentful and defensive about the circumstances in which the dealership found itself over the leasing issue with Marigold. Although his evidence outlines a standard business practice that he engages in when a lease extension agreement is finalized, it fails to address the clear meaning of the materials faxed from the dealership by Murray Savage. [35] Moreover, Mr. Carson endeavoured to have the Court believe that the first time he ever really considered the actual contents of the materials faxed by Murray Savage to Marigold was the day he testified in this trial. Such a proposition is inconceivable given the fact that the action centres on the existence or otherwise of vehicle lease extension agreements. Furthermore, and significantly, the documents were produced from the dealership's files. [36] While there are some inconsistencies in Mr. Smith's evidence, I am not persuaded that in the context of all the evidence they are particularly significant. For the most part, he responded to questions carefully and was forthright when he could not recall details about the particular transactions or events. [37] Moreover, Mr. Smith's evidence is confirmed by the contents of the materials faxed by Murray Savage

to Marigold on November 13, 2003. Overall I find Mr. Smith to be a credible witness. [38] Except where other evidence confirms Mr. Carson's evidence, where his evidence conflicts with the evidence of Mr. Smith, Mr. Carson's evidence must be rejected as unreliable and therefore not credible with respect to the existence of the lease extension agreements. [39] Ms. Bruce's evidence about the existence of lease extension agreements or otherwise is of no assistance in confirming Mr. Carson given her admission that she had never done a lease extension agreement during her tenure at the dealership. C. The Plaintiff's Case [40] Raymond Smith, the owner/operator of Marigold, testified that Marigold had always leased Ford vehicles, since at least 1970. In December 1997, Mr. Smith and his brother negotiated lease agreements for the three vehicles in issue in this case. The vehicle lease agreements, signed in March, April and May of 1998, were for 36 months and expired in the spring of 2001. [41] Sometime in the spring of 2001, Mr. Smith recalled it to be May, Murray Savage, the Fleet and Lease Manager of the dealership, came out to Marigold's Nursery to review the vehicles for damage and mileage and to discuss the state of the leases. Marigold did not want to purchase the three vehicles at that time for the total residual values on the leases (about $45,000) but instead wished to finance

the purchase of the vehicles by extending all three leases over a further 30 month term. [42] The arrangement Mr. Smith made with Murray Savage was that Marigold would continue to make the same monthly payments on all three vehicles over 30 months to reduce the residual values to a reasonable residual purchase price of approximately $2,500 for each of the cube vans and about $5,000 for the cargo van. [43] Mr. Smith testified that at the end of Murray Savage's visit to the nursery, they both signed some documents and then Mr. Savage left. Murray Savage later faxed the final agreements to Marigold and the documents were placed in Marigold's business files and placed in a filing cabinet. [44] Thinking that the lease extensions agreements must be "coming due," Mr. Smith instructed his daughter, in November 2003, to contact the dealership and inquire about the status of the vehicle leases. [45] Brooke Smith largely confirmed her father's evidence as to the steps she took to determine the status of the vehicle leases Marigold held with the dealership in November 2003. [46] Ms. Smith telephoned the dealership and spoke to a man named "Murray" who advised her that "the leases were still in effect" and that he would fax over the documents. Murray Savage then faxed Ms. Smith the documents contained in Schedule C and D of Exhibit #1 on November 13, 2003. [47] Ms. Smith informed her father

she had spoken to "Murray" and was advised "the leases were still in effect." Ms. Smith also told her father that she had placed the documents faxed by the dealership on his desk. [48] Mr. Smith testified that he knew his daughter placed some documents on his desk that addressed the vehicle leases but failed to review the documents. Mr. Smith indicated he simply forgot about the details, notwithstanding he used the vehicles every day. When asked why he failed to review the documents, Mr. Smith replied "just forgot. Busy with other things. Just slipped through the cracks I guess." [49] Nothing further was done about the leases until the spring of 2007 when the bookkeeper for Marigold, who had been with Marigold for at least two years at that point in time, questioned Mr. Smith as to why Marigold was still paying for the vehicle leases. Mr. Smith did not realize the leases were still being paid as he did not sign any monthly cheques as the lease payments were made by means of automatic bank withdrawals. [50] As a result of this discussion, Marigold placed a stop payment on all further automatic debits for the lease payments. Mr. Smith contacted the dealership and went in to meet with John Malone, the dealership's General Sales Manager, to discuss the fact that Marigold had overpaid on the vehicle leases for a significant period of time. [51] According to Raymond Smith, his first

meeting was just with Mr. Malone. After Mr. Malone admitted there was a problem and acknowledged the leases had gone on longer than they should have, he left the room to speak to Mr. Carson. When Mr. Malone returned, he offered Mr. Smith some compensation which Mr. Smith rejected as inadequate. Mr. Smith's evidence is uncontradicted on this point. [52] When Mr. Smith rejected the compensation offer as inadequate, both Mr. Malone and Mr. Smith went in to meet with Mr. Carson. At this time, according to Mr. Smith, Mr. Carson also admitted there was a problem, although he could not recall the exact wording used, and that Mr. Carson then offered him an agreement to help him out on the purchase of a new vehicle, which Mr. Smith declined. [53] Mr. Smith testified that when he told Mr. Carson he was not interested in a new vehicle, Mr. Carson got up, leaned over his desk and told Mr. Smith "you'll be lucky if you get one f'ing cent, and I know where you are going from here, you're going to see a lawyer." [54] At no time during this meeting did Mr. Carson or Mr. Malone ever advise Raymond Smith that he had not signed any lease extension agreement in May 2001 nor did they advise him that he was on a month to month lease by virtue of the overholding terms of the original 1998 lease agreement. The first time Mr. Smith became aware that the dealership's position was that the three vehicle

lease agreements were on a month to month basis was when he received and reviewed the statement of defence filed in this case. Mr. Smith is uncontradicted on this point. [55] Mr. Smith testified he no longer had his copy of the faxed sheets for the lease extension agreements, explaining that at the time the agreements were sent to him in May 2001, Marigold had an older style fax machine that used thin rolled sheets of thermal paper. Since this action was commenced, Marigold's copy of the lease extension agreements on the thermal fax paper had faded away. [56] The faded thermal fax sheets were thrown out because there was nothing left on them. Mr. Smith could not recall who threw the documents out or when but thought it was unlikely to have been done before any meeting at the dealership in 2007 because there was no reason for the matter to come to his attention before that time. [57] Mr. Smith explained that between May 2001 and November 2003 there were a number of significant changes in the life of the business and in his own personal circumstances. In the spring of 2001 there was an abrupt change in the office management with no transition training for the new manager. On the personal side, on November 11, 2001, Mr. Smith was involved in a head-on motor vehicle collision on the Malahat Pass outside Victoria. Mr. Smith, who was not at fault, sustained head and knee injuries. As

a consequence of this accident, Mr. Smith suffers from memory loss and is forgetful about some things, although not everything, and his memory for events prior to the accident is unaffected. Finally, sometime in 2001 or 2002, Mr. Smith bought out his brother's share of the business and took over responsibility for all facets of Marigold's business. [58] Mr. Smith acknowledged that he is ultimately responsible for Marigold's financial statements and tax returns although he has a bookkeeper, an accountant, and a tax lawyer taking care of the details of those matters. He also acknowledged reviewing Marigold's financial statements and going through the statements by general item category, including items such as vehicle expenses. [59] Mr. Smith explained that Marigold decided to lease the three vehicles with the option to purchase for cash flow and tax reasons as it made business sense to pay monthly payments rather than a large initial lump sum for the vehicles. [60] Mr. Smith read the lease agreements "in detail" when he signed them, as they were legal documents, but did not read the fine print and was unaware, notwithstanding it being clearly marked on the lease agreement, that he had to notify the lessor 30 days prior to the expiry of the lease if he wished to exercise the option to purchase the vehicles at the end of the lease. [61] Mr. Smith acknowledged that he did not

provide any written notification to the dealership indicating an intention to exercise the option to purchase at the end of the lease. The only notification Mr. Smith provided the dealership of a desire to purchase the vehicles was in the spring of 2001 when he verbally advised Mr. Savage that he wished to re-lease the residual on the vehicles to reduce the residual value and purchase price to a reasonable amount. [62] Mr. Smith testified he received the faxed lease extension agreements from Mr. Savage in May 2001 but did not recall what they looked like. He thought that the terms contained in the work sheets filed in this trial represented the agreement he reached with Mr. Savage in the spring of 2001. He was unable, however, to recall if he paid the initial "Amount Due At Start" amounts as shown on each of the work sheets. He was only able to assume that if it was part of the agreement, those amounts were paid. [63] Mr. Smith acknowledged receiving Exhibit #2, a fax from the dealership on April 13, 2006, with a cover sheet and letters for the insurance authorization for the three vehicles he continued to lease from the dealership. Despite the fact that the fax cover sheet refers to "all three of your vehicles leased through Glenoak Ford" and the authorizations themselves clearly refer to " the dealership" as the owner/lessor of the vehicles and Marigold being entitled to be

registered as the lessee on the insurance certificates, these reference to the three vehicles continuing to be leased escaped Mr. Smith's attention. [64] Mr. Smith agreed that nowhere between 2003 and 2007 did he seek to have the dealership transfer ownership of the vehicles to Marigold. And, although the monthly payments would continue to be withdrawn and show up on Marigold's financial statements, he acknowledged that a further three and a half years elapsed before his bookkeeper noticed and questioned the continuation of the lease payments. [65] Mr. Smith admitted he was aware that if did not renew the lease or surrender the vehicles at the expiry of the lease agreement that it would turn into a month to month lease, but denied that was what happened in this case. Mr. Smith disagreed with the suggestion that he only discussed the various options available with Mr. Savage in the spring of 2001 at the end of the original lease agreements but never entered into any new agreement or extension. As far as the lease extension agreements were concerned, Mr. Smith testified he signed the extension agreements when Mr. Savage was out at the Nursery looking at the vehicles in May 2001 and then Mr. Savage faxed the final agreements back at a later date. [66] Mr. Smith also acknowledged that the vehicles continued to be shown as leased vehicles on Marigold's tax returns for the period of

2003 through 2007 and were written off on its tax returns as business operating expenses. D. The Defendant's Case [67] James Carson, the owner and general manager of the dealership, testified that the original vehicle lease agreements that Marigold entered into with the dealership in the spring of 1998 were done with the previous owners of Glenoak Ford. Mr. Carson bought the dealership in July 1998 and assumed the lease portfolio and the vehicle leases after that time. [68] As noted, Carolyn Bruce, the payroll clerk and accounts receivable manager for the dealership, has worked there for the past 16 years. [69] Both Mr. Carson and Ms. Bruce outlined in their evidence the usual operating process for any vehicle lease and lease extension agreements made with the dealership. Ms. Bruce's evidence on the extension process is of no assistance however, given her acknowledgement in cross-examination that in her 16 years of work at the dealership she had never processed a vehicle lease extension agreement and that they were done very rarely. Mr. Carson, on the other hand, seemed to recall authorizing about 5 to 10 vehicle lease extension agreements during his ownership of the dealership. [70] The thrust of Mr. Carson's evidence on the usual extension process was that if a customer seeks to extend a vehicle lease, the customer first discusses the matter with the sales representative

administering the lease files in question. Before they can enter into any sort of extension agreement, the sales representative must then obtain Mr. Carson's authorization of the terms of the agreement. [71] According to Mr. Carson, the usual course for authorization involves him initialling the work sheet that sets out the terms and conditions of the proposed lease extension agreement and thus indicating his approval and authorization of the lease extension agreement. Ms. Bruce's evidence was slightly vaguer on this point, simply indicating that a signature is placed on the dealership's lease file to indicate authorization of the lease or its extension. Both witnesses stated that the dealership's salesmen are not able to finalize a lease extension agreement without Mr. Carson's approval. [72] Generally, after the terms and conditions for any lease extension agreements are outlined in the work sheets, approved, and authorized, a new net lease agreement, in the same standard form as the original lease agreement found at Tab B of Exhibit #1, is prepared and signed by all the parties. Any initial start up payment, such as an amount due at the start of the lease agreement or customer cash down amounts included in the work sheet terms, is paid by the customer to the dealership at the time the lease agreement is extended. [73] According to both Mr. Carson and Ms. Bruce, when a

vehicle lease term approaches expiry, it is the responsibility of the lessee to contact the dealership and come in and either re-negotiate the lease or buy the lease out. The dealership does not have a computerized system that alerts them that a lease term is about to expire. So long as the payments continue to be made on the lease agreement, the original lease converts to a month to month lease by virtue of the overholding terms of the lease. The dealerships system is, as Mr. Carson testified, "geared up to collect the money and unless the money isn't being collected, there's no red lights." [74] The standard form contract used by the dealership on all its lease agreements and lease extension agreements provides for a net lease purchase option, permitting the lessee to purchase the vehicle at the end of the lease, provided the lessee notifies the lessor of this intention 30 days prior to the expiry of the contract. If the lessee does not notify the lessor of an intention to purchase the vehicle at the expiry of the lease agreement but continues to make the monthly payments, the lessor may, pursuant to the "overholding" terms of the contract, allow the lease to continue on a month to month basis. It was Mr. Carson's evidence that this is what happened in the case of Marigold's three vehicle leases from 1998. [75] Ms. Bruce's evidence as to the steps involved in processing lease

agreements largely confirmed Mr. Carson's general evidence on the business practice he employed at the dealership. However, this general process evidence does not help address the critical point of whether vehicle lease extension agreements were issued to Marigold in May 2001. [76] In the spring of 2001 when Marigold's three 1998 vehicle lease agreements were about to expire, Mr. Carson did not have any discussions with Marigold about the state of their leases. Nor did Murray Savage have any discussions with him about any lease extension agreements with Marigold. And, according to Mr. Carson, he did not authorize any lease extension agreement. [77] Similarly, Ms. Bruce had no recollection of processing any paperwork for lease extension agreements that pertained to the three vehicles leased by Marigold. Nor did she ever speak to Mr. Savage about the three vehicle leases in issue in 2001. As noted earlier though, Ms. Bruce's evidence on this particular point is of no assistance as she has never processed a lease extension agreement in her 16 years employment at the dealership. Clearly, however, lease extension agreements have been authorized and done at the dealership since Mr. Carson assumed ownership of the dealership in the summer of 1998. [78] Mr. Carson testified that the documents faxed by Murray Savage to Marigold did not accurately represent the state of affairs with

respect to Marigold's vehicle leases in November 2003 as he had not authorized any lease extension agreements. However, he could not explain why Murray Savage had written what was contained in the faxed letter and cover sheet. [79] When directed to look at the materials faxed by Mr. Savage to Marigold and asked what he made of them he replied: "I don't really know what to make of them, to tell you the truth. I think it - - it means what it says". [80] In April 2007, Ms. Bruce simply checked the contents of each of the Marigold vehicle lease files in an effort to locate the lease extension agreements but found no such document in the files. Ms. Bruce did find the fax cover page, letter and work sheets Mr. Savage sent to Marigold in November 2003, and agreed that someone reading Mr. Savage's communications could reasonably infer that lease extensions had been granted. I infer from Ms. Bruce's evidence that no other files or areas of the dealership were searched in an effort to try and locate the missing documents. [81] As far as Mr. Carson and Ms. Bruce were concerned there were no other agreements between the parties in respect of the three vehicles other than the original lease agreements of 1998 as contained in Tab B of Exhibit #1 simply because the dealership files do not contain any of the required paperwork to support the existence of any lease extension agreements. [82]

Both Mr. Carson and Ms. Bruce were adamant that the files in issue were never misplaced. However, Mr. Carson could not explain why the defendant's counsel had written the plaintiff's counsel asking for copies of the lease extension agreements "[i]n order to assist our client in locating the file." [83] It seems clear, and I find from the totality of the evidence adduced in this case, particularly the written documents generated by the dealership through Mr. Savage, that the lease extension agreements were granted but were misplaced before making it into the dealership's lease files. [84] The two defence witnesses have differing recollections as to how the issue of Marigold's vehicle leases surfaced in April 2007. [85] It was Mr. Carson's evidence that in April 2007, the issue of Marigold's leases first came to his attention when he instructed Ms. Bruce and John Malone to contact Marigold and discuss bringing the leases to a conclusion. Mr. Carson explained that the dealership was in the process of liquidating its lease fleet and wanted to remove the leases, and the attendant liability, from the defendant's books. [86] Within a week or two of instructing his staff to contact Marigold, Mr. Carson recalled meeting with Mr. Smith, who expressed his displeasure over the situation. Mr. Smith told him he had signed a lease extension agreement with Murray Savage in 2001. Mr. Carson

told Mr. Smith he would investigate the matter and get back to him and hopefully they could reach an amicable solution. It was Mr. Carson's recollection that once it became apparent that a lawsuit was going to be launched, the defendant decided not to make things worse and stopped collecting the monthly payments and agreed not to repossess the vehicle so the plaintiff could continue to conduct its business. [87] Mr. Carson did not think that matters came to a head because Mr. Smith contacted the dealership to complain that they had been withdrawing money for too long on the leases. He explained that he had no inkling that there was any problem until he actually met with Mr. Smith and Mr. Smith raised his concerns about the lease extension agreement. [88] In respect of the three vehicle lease agreements with Marigold, Mr. Carson recalled asking Ms. Bruce in April 2007 to bring him the master files for the Marigold leases. He searched Marigold's master files, which should contain all the paperwork for any particular lease agreement, but found no lease extension agreements. The contents of the files were simply the original 1998 lease agreements, paperwork associated to those lease agreements and the fax cover sheet, letter and work sheets of November 2003 from Murray Savage. [89] In contrast to Mr. Carson's evidence on how the issue of Marigold's leases came to the dealership's

attention in April 2007, Ms. Bruce testified that it was not until after Marigold placed a stop payment on the automatic withdrawals to the dealership in April 2007 that the matter came to the attention of the accounts receivable department. When this happened, Ms. Bruce took the files to Mr. Carson and asked him what was to be done about them. [90] Ms. Bruce recalled she was asked by Mr. Carson to look at the lease files for Marigold to ensure they were current and to look for any lease extension documents in the files as Mr. Smith was saying he had signed lease extension agreements. [91] Ms. Bruce quickly checked the contents of each of the Marigold vehicle lease files in an effort to find the lease extension agreements but found no such document in the files, only find the fax cover page, letter and work sheets Mr. Savage sent to Marigold Nursery on November 13, 2003. [92] On Mr. Carson's evidence, Marigold would have been alerted to the issue of the leases by the dealership contacting it to discuss bringing the matters to a close. Mr. Smith was never asked about this scenario. Moreover, it is contradicted by Ms. Bruce's recollection of the matter first coming to the defendant's attention through the accounts receivable department when Marigold stopped making payments on the lease, and Mr. Smith's recollection that he brought the matter up with the dealership before they

were aware of anything. I find Mr. Carson to be mistaken on his recollection as to how the matter was first raised with Marigold. I accept Mr. Smith's evidence on this point that he raised the matter with the dealership, meeting first with Mr. Malone and then with both Mr. Malone and Mr. Carson. Mr. Carson's recollection that he knew nothing of Mr. Smith's concern about the lease extension agreements until he met with him is not inconsistent with Mr. Smith's explanation of meeting with Mr. Malone first and then both men meeting with Mr. Carson. [93] Mr. Carson testified that at no time during the meetings with Mr. Smith did he admit that the dealership had made a mistake. He agreed in cross-examination that at one point in the discussions with Mr. Smith he offered to settle the matter by paying Marigold $6,000 and turning over ownership of the vehicles to Mr. Smith for the sum of $1.00 per vehicle but that this was purely a good faith business decision, to avoid going to court and paying legal fees. I do not accept Mr. Carson's evidence on this point. When one looks at the content of the documents faxed by Murray Savage and how the matter was raised first by Marigold stopping the automatic withdrawal payments for the leases and then arranging a meeting with Mr. Malone to clarify the matter, it is entirely conceivable, and I accept Mr. Smith's evidence, that both Mr. Malone and

then Mr. Carson acknowledged making a mistake in this case. Moreover, Mr. Carson's offer to settle by refunding $6,000 and turning over ownership in the three vehicles can be fairly interpreted as an acknowledgment of a mistake and problem over the lease agreements. The offer is in my view inconsistent with any belief that the lease agreements were simply month to month leases by virtue of the overholding provisions of the original agreements. [94] Neither party called Mr. Savage as a witness to provide any evidence about his recollection of signing lease extension agreements with Marigold or as to what he meant by his cover sheet and faxed letter of November 13, 2003, that clearly indicate the existence of "signed contracts that were issued for the extensions in 2001". Accordingly the Court is left to simply construe the meaning of the faxed materials from the words contained in the documents. [95] Ms. Bruce testified that she reviews all the vehicle lease files annually for insurance purposes as the dealership has to send the lessee's insurance company an authorization letter saying they authorize the vehicles to be insured. In Marigold's case, Ms. Bruce would either send the authorization directly to the insurance company if they requested it or she would send it the plaintiff if they had requested the authorization. [96] On April 13, 2006, Ms. Bruce faxed to "Ray" at

Marigold Nurseries three authorization letters for the three vehicles he leased through the Glenoak Ford dealership in order for Marigold to reinsure the three leased vehicles. No one from Marigold contacted her about the contents of this fax or the three vehicles in question. [97] Ms. Bruce reviewed the accounts receivable for the three vehicle leases held by Marigold and noted that only the monthly lease payments had been made. Although the three work sheets all contain a value for "Amount Due At Start" at line 25 of the documents, line 23 of the documents, "Customer Cash Down", contains no sum at all. This evidence might suggest that Marigold had not actually entered into the lease extension agreement. However, it is not inconceivable that the "Amount Due At Start" was somehow waived given the fact that Marigold had been overholding and on a month to month lease with the original 1998 lease agreements for one vehicle for three months, one vehicle for two months and the third vehicle for one month at the time Mr. Savage attended at Marigold's business premises on May 2001. No evidence was adduced by either party to show what specific payments were made by Marigold at the time of the lease extension agreements that Mr. Savage's correspondence indicates were made. IV. Analysis A. Were lease extension agreements completed in the spring of 2001? [98] Ms. Bruce simply checked the

dealership lease files and flipped through the file to try and locate the lease extension agreements. Both Mr. Carson and Ms. Bruce maintained the position that because no lease extension agreements and authorizations were in the lease files, no extensions had been granted. Ms. Bruce went one step further in her evidence and suggested that the reason Mr. Savage could not find any lease extension agreements was because there were none, as none had crossed her desk. This rather simplistic reasoning is of no assistance in this matter, particularly in light of her admission in cross-examination that she had never "done" a lease extension agreement in her 16 years with the dealership. Clearly, on Mr. Carson's evidence, vehicle lease extension agreements had been done at the dealership. Simply because Ms. Bruce did not see or process any such agreements in her entire career with the dealership does not support the conclusion that no lease extension agreements were granted in this case. [99] The logical inference available on all the evidence, particularly in light of the clear wording of the documents produced by Mr. Savage on November 13, 2003, is that lease extension agreements were made between Mr. Savage on behalf of the dealership and Mr. Smith on behalf of Marigold. Sometime after the extension agreements were signed and faxed to Marigold, the original documents were misplaced,

possibly misfiled, and did not make it into the dealership's lease files for Marigold, which were kept in the general office area. [100] I am reinforced in my conclusion that lease extension agreements were granted but misplaced in this case by the fact that no one from the dealership told Mr. Smith or Marigold during their meetings with him in April 2007 that there were no lease extension agreements and that he was simply on a month to month lease pursuant to the overholding provisions of the 1998 agreements. If Mr. Carson had believed that this was the case he would have clearly said so in this meeting with Mr. Smith, and neither he or Mr. Malone would have admitted to Mr. Smith that there was a problem and offered a settlement to address it. Had no lease extensions ever been granted, furthermore, Mr. Savage would not have written what he did to Marigold in November 2003. [101] Mr. Carson and Ms. Bruce were clear in their evidence that no other lease agreements for the three vehicles leased by Marigold were in place apart from the original vehicle lease agreements signed in 1998, simply because no lease extension agreements had been authorized by him and the master files contained none of the usual documentation. The logic of that position, however, ignores the reality of the situation, namely that Murray Savage had forwarded documents to Marigold in November 2003 that

clearly assumed and supported the existence of signed vehicle lease extension agreements. The documents suggested that lease extensions were in fact executed, but misplaced. The documents did not suggest that no lease extensions had ever been signed. These documents were then placed in the dealership's master files. [102] Based on the evidence of Mr. Smith as confirmed by the documents generated by Mr. Savage on November 13, 2003, I find that there were lease extension agreements for the three vehicles Marigold was leasing from the dealership. The documents faxed to Marigold by Mr. Savage on November 13, 2003, simply admit of no other interpretation. B. What were the terms of the lease extension agreements and did the leases become month to month leases? [103] Mr. Smith is unable to recall what the exact terms of the lease extension agreements were apart from what was contained in the work sheets faxed to Marigold by Mr. Savage in November 2003. Nor did Mr. Smith recall what the documents that he signed with Mr. Savage in May 2001 looked like. [104] Consequently, the issue of the terms of the lease extension agreements falls to be decided based upon the evidence of Mr. Carson. [105] Although I have rejected Mr. Carson's evidence on the point that no lease extension agreements were granted in this case, I do accept his evidence that any extension agreement would be in the same

form as the standard form vehicle lease agreement Mr. Smith and Marigold originally signed in 1998 as contained in Schedule B of Exhibit #1. Accordingly, the lease extension agreements would contain the same net option to purchase term that requires 30 days notice by the lessee to the lessor of any intention to purchase the vehicles. The standard form lease agreements, and by inference, the lease extension agreements that were entered into between Marigold and the dealership in May 2001, therefore also contain the overholding provisions that I have previously outlined in these reasons. [106] By virtue of the evidence of Mr. Smith and the documents generated by Mr. Savage, the lease extension agreements were dated May 1, 2001, and were for a further 30 month term. The residual values for each E450 Cube Van was $2,514 and for the E250 Cargo Van $5,627.40. [107] The lease extension agreements, as evidenced by the work sheets, were for a 30 month term commencing on May 1, 2001. Accordingly, the lease extension agreements would have expired on or about October 31, 2003. By virtue of the 30 day notice requirement, Marigold was required to give the dealership notice of its intention to purchase the vehicles on or about October 1, 2003. It did not do so and it did not return the vehicles to the dealership on the expiry of the extension agreements. [108] The overholding provisions of

the lease extension agreements would come into effect on November 1, 2003, provided the lessor elects not to terminate the lease. The dealership in this case very clearly elected not to terminate the lease and continued to accept the monthly payments made by Marigold treating the agreements as month to month leases. The fact that Marigold did not exercise its option to purchase the vehicles at the expiry of the 30 month lease term and the dealership did not seek the return on the vehicles at that time, coupled with the continuing payments on the lease extension agreements, supports the conclusion that the lease extension agreements did become month to month leases upon expiry of the 30 month term of the lease extension agreements by virtue of the overholding provisions of the standard form contract. C. Did Victoria Ford Alliance owe a "Duty of Care" to Marigold? [109] Marigold has pleaded in its Statement of Claim that the dealership owed it a "duty of care" to advise when the lease terms had expired and failed to do so in November 2003 when the three vehicle lease extension agreements expired. [110] Mr. Smith testified that when he had leased from Ford Canada he always received notification that a lease was about to expire so that the customer would get into the dealership to have the vehicle inspected and terminate the lease. However, that was not the standard practice of the

dealership involved in this case as Mr. Carson and Ms. Bruce so clearly outlined. Moreover, there is no evidence that Ford Canada's lending and leasing practices or vehicle lease agreements are the same as those used in dealership arranged vehicle lease agreements such as occurred in this case. [111] The clear terms of the contract, with the net purchase option term, and the overholding term, clearly place the onus on the lessee to monitor when the lease is set to expire, not the lessor. There is no duty of care to advise a lessee as to when a contract is about to expire in these circumstances. [112] In argument however, Marigold refined its position and argued that the materials Mr. Savage faxed to Marigold and his representation to Brooke Smith during their telephone conversation on November 13, 2003, that "the leases were still in effect" amount to a negligent misrepresentation as to the true status of the leases and as such breached the duty of care the dealership owed to Marigold to properly advise of the status of the leases when asked. [113] For its part, the dealership argues it owed no duty of care in the circumstances and that the terms of the contract clearly delineated the legal and other interests of the parties, both sophisticated corporations familiar with the business and process of leasing vehicles. As this was a business arrangement, argues the dealership,

Marigold had no reasonable expectation that the dealership would protect its interests. [114] In Payne v. Eagle Ridge Pontiac GMC Ltd., 2009 BCSC 530, Madam Justice Smith helpfully summarized the current law on negligent misrepresentation, commencing with Hedley Byrne & Co. v. Heller & Partners Ltd.: 27. Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465, [1963] All E.R. 575 (H.L.), the starting point for the law of negligent misstatement, has been significantly modified by more recent jurisprudence in Canada. In Hedley Byrne, a bank (Heller) negligently provided a positive credit report to the plaintiff in respect of one of the plaintiff's customers, Easipower. The plaintiff relied on the information and took responsibility for some of Easipower's business liabilities, suffering a loss when Easipower went bankrupt. The bank had sought to shield itself from liability by including a written disclaimer in its original report. The House of Lords found that the relationship between Hedley Byrne and Heller was sufficiently proximate to create a duty of care: Heller should have known that Hedley Byrne would rely on its representations. However, in the outcome, Heller was absolved of liability for Hedley Byrne's loss because of it had employed an effective disclaimer.

28. The Supreme Court of Canada has adopted and modified the Hedley Byrne principle concerning duty of care for negligent misstatement: see Queen v. Cognos, [1993] 1 S.C.R. 87, 45 C.C.E.L. 153, and Hercules Management Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, 146 D.L.R. (4th) 577.

29. In Queen v. Cognos, the Court referred (at 110) to the five criteria established in Hedley Byrne for a finding of negligent misrepresentation: (1) the duty of care must be founded on a special relationship between the person making the representation and the person receiving it; (2) the representation must be untrue, inaccurate or misleading; (3) the representor must have acted negligently in making the representation; (4) the representee must have acted reasonably in relying on it; and (5) the reliance must have been detrimental to the representee in that it resulted in damage.

30. In Hercules Management, a case concerning alleged misrepresentations made to shareholders in an auditor's report, the Supreme Court reconciled the negligent misrepresentation cases with the overarching principles regarding duty of care that were stated in Anns v. Merton London Borough Council, [1978] A.C. 728, [1977] 2 All E.R. 492 (H.L.). It ruled that the two-stage test from Anns should be applied, with some modifications, to determine whether a duty of care exists. This approach has more recently been affirmed in Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537.

31. The Court explained in Hercules Management that the first stage of the Anns test requires a decision as to whether the defendant-representor and plaintiff-representee were in a relationship of proximity or neighbourhood (at para. 22). The Court then stated at paras. 23-24: ... In order to render "proximity" a useful tool in defining when a duty of care exists in negligent misrepresentation cases, therefore, it is necessary to infuse that term with some meaning. In other words, it is necessary to set out the basis upon which one may properly reach the conclusion that proximity inheres between a representor and a representee. This can be done most clearly as follows. The label "proximity", as it was used by Lord Wilberforce in Anns, supra, was clearly intended to connote that the circumstances of the relationship inhering between the plaintiff and the defendant are of such a nature that the defendant may be said to be under an obligation to be mindful of the plaintiff's legitimate interests in conducting his or her affairs. Indeed, this idea lies at the very heart of the concept of a "duty of care", as articulated most memorably by Lord Atkin in Donoghue v. Stevenson, [1932] A.C. 562, at pp. 580-81. In cases of negligent misrepresentation, the relationship between the plaintiff and the defendant arises through reliance by the plaintiff on the defendant's words. Thus, if

"proximity" is meant to distinguish the cases where the defendant has a responsibility to take reasonable care of the plaintiff from those where he or she has no such responsibility, then in negligent misrepresentation cases, it must pertain to some aspect of the relationship of reliance. To my mind, proximity can be seen to inhere between a defendant-representor and a plaintiff-representee when two criteria relating to reliance may be said to exist on the facts: (a) the defendant ought reasonably to foresee that the plaintiff will rely on his or her representation; and (b) reliance by the plaintiff would, in the particular circumstances of the case, be reasonable. To use the term employed by my colleague, Iacobucci J., in Cognos, supra, at p. 110, the plaintiff and the defendant can be said to be in a "special relationship" whenever these two factors inhere. [Emphasis added] 32 Thus, the key questions are: 1) whether it was reasonably foreseeable that the plaintiff would rely on the representation, and 2) whether reliance by the plaintiff was reasonable in the circumstances. 33 The Court (at para. 43) listed five indicia of reasonable reliance: (1) The defendant had a direct or indirect financial interest in the transaction in respect of which the representation was made (this factor is often referred to simply as "pecuniary interest"); (2) The defendant was a professional or someone possessed of special skill, judgment or knowledge; (3) The advice or information was provided in the course of the defendant's business; (4) The information was given deliberately and not at a social event; and (5) The information was given in response to a specific inquiry or request.

34. The overarching question is set out in Cooper v. Hobart at paras. 33 -34: As this Court stated in Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, at para. 24, per La Forest J.: The label "proximity", as it was used by Lord Wilberforce in Anns, supra, was clearly intended to connote that the circumstances of the relationship inhering between the plaintiff and the defendant are of such a nature that the defendant may be said to be under an obligation to be mindful of the plaintiff's legitimate interests in conducting his or her affairs. [Emphasis added by the Court in Cooper v. Hobart.] Defining the relationship may involve looking at expectations, representations, reliance, and the property or other interests involved. Essentially, these are factors that allow us to evaluate the closeness of the relationship between the plaintiff and the defendant and to determine whether it is just and fair having regard to that relationship to impose a duty of care in law upon the defendant.

35. The second stage, requiring determination of whether a finding of a prima facie duty of care should be negated on public policy grounds, arises only when the case is "novel" and does not fall within a previously recognized category: Cooper v. Hobart, at para.

39. The Court referred, at para. 36, to liability for negligent misstatement as a previously recognized category of recovery.

36. In Micron Construction Ltd. v. Hongkong Bank, 2000 BCCA 141, 184 D.L.R. (4th) 75, at para. 103, Esson J.A. for the majority in the Court of Appeal suggested that the confusion inherent in the term "reasonable reliance" might be reduced if the term "justifiable reliance" were used to state the test for imposing liability: The confusion inherent in the term "reasonable reliance" might be reduced if the term "justifiable reliance" was employed to state the test for imposing liability. That is a term which Professor Blom has employed in this context, as in this passage in his 1986-1987 article (supra, para. 86) at p. 283: I would suggest the following general proposition, the underlying rationale of which extends beyond negligent misstatement to all forms of negligence: In a case of negligent misstatement causing pure economic loss on a contract or other financial transaction, it is not enough that the average person would foreseeably rely on the defendant's statements. The defendant owes the plaintiff no duty of care unless a reasonably prudent and sceptical person, in the plaintiff's position, would have been led by the defendant's words or conduct to believe that he had an assurance of the defendant's taking reasonable care, equivalent in weight to the defendant's promise. Only in such a case can the plaintiff truly be said to have placed justifiable reliance on the

defendant. This distinction between the plaintiff who foreseeably relies, and the plaintiff who is justified in relying, also mitigates the risk of liability to an indeterminately large group. The relationship between the defendant and such a large group will seldom justify the inference of an assurance like the one suggested here. [115] Considering and applying the principles set out above to the circumstances that exist in this case, it is not unreasonable to infer that Marigold and the dealership were in a special relationship, i.e. a sufficiently close relationship such that it is within the reasonable contemplation of the dealership that carelessness on its part in terms of the information it imparted might cause damage to Marigold. [116] The dealership in this case ought reasonably to have foreseen that Marigold would rely on the representations made by Murray Savage in the telephone conversation and through his faxed correspondence, and that reliance by Marigold on the representations would, in the circumstances, be reasonable. I am reminded of the oft cited statement of Lord Reid at p. 583 (All E.R.) in Hedley Byrne: A reasonable man, knowing that he was being trusted or that his skill and judgment were being relied on, would, I think, have three courses open to him. He could keep silent or decline to give the information or advice sought; or he could give an answer

with a clear qualification that he accepted no responsibility for it or that it was given without that reflection or inquiry which a careful answer would require; or he could simply answer without any such qualification. If he chooses to adopt the last course he must, I think, be held to have accepted some responsibility for his answer being given carefully, or to have accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require [Emphasis added.] [117] In terms of reasonable or justifiable reliance, however, Marigold cannot argue that it simply relied upon the information provided in the telephone conversation between Brooke Smith and Murray Savage as that information was clearly qualified and placed in question by the faxed materials that Mr. Savage forwarded to Marigold right after the telephone call. [118] Indeed, although the comment "the leases were still in effect" might be construed as misrepresenting the facts, the statement was not entirely inaccurate either, since the lease extension agreements were still in effect, albeit having just converted to a month to month basis through the overholding provisions of the contract. As such, and despite the comments made by Mr. Savage over the telephone, the content of the faxed materials clearly put Marigold on notice not only that the original signed lease extension agreements

were missing, but that the 30 month term of the contract outlined in the work sheets had expired. In other words, for Marigold to rely solely on the brief words stated by Mr. Savage, when it had further documentation in its possession that called those words into question, would be unreasonable. [119] Although Mr. Smith explained in his evidence that when he had leased from Ford Canada he had always received notification that a lease was about to expire so that the customer would get into the dealership to have the vehicle inspected and terminate the lease, that was not the standard practice of the dealership involved in this case. Moreover, there is no evidence that Ford Canada's lending and leasing practices or vehicle lease agreements are the same as those used in dealership-arranged vehicle lease agreements such as occurred in this case. As such, Mr. Smith's failure to follow up or even check the documents that had been faxed to Marigold by Mr. Savage vitiates any notion of reliance on the information conveyed. The documentary information conveyed certainly put Marigold on notice that the lease extension agreements had expired. [120] Moreover, it is not unreasonable to infer that a prudent and diligent businessperson would have reviewed the documents forwarded by Mr. Savage and made immediate inquiries as to the status of their own business files in an effort to locate a

copy of the executed lease extension agreements. The dealership owes no enhanced duty of care to protect Mr. Smith from his careless and haphazard approach to the business and status of the vehicle leases in this case. [121] While the dealership, through the verbal and written representations made by Mr. Savage did have a duty of care to provide accurate information to Marigold as to the status of the leases when those inquiries were made, they clearly discharged that burden with the materials faxed to Marigold. [122] Finally, Mr. Smith and Marigold were clearly on notice that the lease extension agreements were continuing on a month to month basis through the insurance renewal authorizations faxed to his attention on April 13, 2006, which clearly state the vehicles were subject to lease agreements. Mr. Smith and Marigold would also have been on notice that the leases were continuing through the company's annual tax returns generated in the years since the expiry of the agreement in 2004, 2005 and 2006 as the vehicle lease payments were claimed as part of the business operating expenses. [123] Mr. Smith's failure to review the documents Marigold received on November 13, 2003, and his seemingly lax approach to certain business and financial details cannot be visited upon the dealership. Any duty of care the dealership may have owed Marigold to provide accurate information about

the leases when asked was discharged by the documents faxed to Marigold. And, even if the materials could be construed to constitute a negligent misrepresentation, Marigold did not rely upon them but simply ignored them and continued to make the lease payments and obtain the benefit of the tax deductions. As Marigold failed to take any further steps to follow up on the notice of a problem with the existence of the signed lease extension agreements it received in November 13, 2003, it can hardly benefit from its own negligence in failing to do anything further. [124] The combination of the plaintiff having failed to establish that the defendant breached any duty of care it may have owed the plaintiff in November 2003 and the plaintiff's continued use and enjoyment of the vehicles and the tax benefits of claiming the lease payments as a business operating expense militate against granting any order that the defendant must return the sum of $82,465.31 to the plaintiff as the amount the plaintiff overpaid on the vehicle leases. D. Has Victoria Ford Alliance sustained damages as a result of the unpaid lease payments since April 2007? [125] Having found that lease extension agreements were made in this case and that they converted to month to month leases on the expiry of the 30 month term in November 2003, the next issue to determine is whether Marigold owes the dealership further

lease payments for the period of time between April 1, 2007, and the time of trial, as it continued to have the benefit of the use of the vehicles. [126] It is important at this point to recall that by the time the lease extension agreements expired in November 2003, the combined residual value of the three vehicles, as evidenced in the work sheets, was approximately $10,655. By continuing to make lease payments for a further three and a half years, Marigold paid $93,120.35 in additional lease payments. Deducting the residual values of the vehicles at the expiry of the lease extension agreement results in Marigold having paid an extra $82,465.31. [127] The total original value of the three vehicles when the leases were first executed in 1998 was $93,703.00. Over the course of the 66 month lease period covered by the original lease agreements in 1998 and the extension agreement that expired in November 2003, Marigold paid a total of $164,640.30 for the lease of the three vehicles. When the extra lease payments are added to this, Marigold, through a combination of business decisions and carelessness, has paid a total of $257,760.65 in payments for the leased vehicles. [128] In these circumstances, it is difficult to conceive what damages the dealership has sustained. [129] Marigold continued to make payments on the lease agreements until April 2007 when it placed a stop payment

on the automatic withdrawal payments for the leases. The dealership, not wanting to disrupt Marigold's business, continued to permit Marigold to use the vehicles while this action was outstanding but placed Marigold on notice that it was seeking the payment of the monthly lease amount for the three vehicles pursuant to the overholding provisions from April 2007 forward. [130] While the dealership may have made this claim, and Marigold was in breach of the contract by failing to continue to pay the monthly lease fees or return the vehicle, there remains the issue of what actual damages the dealership truly sustained in this case. Clearly both parties acknowledged and were aware that there was a problem in April 2007 and that each side, as Marigold's counsel argued, "dropped the ball" in this case. [131] Furthermore, in admitting that there was a problem on the lease agreements in the April 2007 meeting, the dealership was prepared to rectify the matter by refunding Marigold $6,000 and transferring ownership of the vehicles to Marigold. [132] Had Marigold followed through on its intention to purchase the vehicles at the end of the 30 month term for the lease extension agreements, the dealership would only have received an additional $10,655 from Marigold for the residual value of the vehicles. Instead, in light of Marigold's overpayment on the lease extension agreements by a

significant amount ($82,465.31), albeit through its own carelessness, it seems unrealistic to reach any conclusion other than that the dealership has failed to establish what its true damages were in these circumstances. E. Should Marigold forfeit the leased vehicles and return them to the dealership? [133] In addition to damages, the dealership seeks the immediate return of the three leased vehicles which it still owns. However, Marigold, has significantly overpaid the value of the leased vehicles, albeit through its own negligence. I find that this is a case where, in effect, forcing Marigold to forfeit its option to purchase the vehicles under the lease extension agreement, which I have found existed, despite having more than paid the total value of the residual purchase price of the vehicles, would be overly severe in the circumstances. This is particularly so given that the dealership has not established any damages as a result of Marigold's breach. [134] Under s. 24 of the Law and Equity Act, R.S.B.C. 1996, c. 253, the Court has the discretion to provide relief from forfeiture: The court may relieve against all penalties and forfeitures, and in granting relief may impose any terms as to costs, expenses, damages, compensations and all other matters that the court thinks fit. [135] Having regard to the considerable overpayment on the leases made by Marigold, and the

dealership receiving considerably more than the residual values of the vehicles through Marigold's carelessness on the leases, coupled with the dealership's admission of a problem in April 2007 and its then willingness to refund $6,000 and turn over ownership in the vehicles for an additional $1.00 each, I find it would be unduly harsh and inequitable to require Marigold to return the vehicles to the dealership. [136] While Marigold's breach in failing to return the vehicles and ceasing payment on the lease extension agreements in April 2007 ought not to be endorsed, the gravity of its breach of the ongoing month to month leases is, in the circumstances of this unusual case, minimal. Moreover, there is a significant disparity between the likely nominal but unsubstantiated damages sustained by the dealership and the fairly large replacement costs that Marigold would incur in having to replace the three vehicles if ordered to forfeit them to the dealership: Saskatchewan River Bungalows v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490 at ¶32. [137] Given that there was no serious financial loss or prejudice suffered by the dealership and the lease was in good standing for a significant period of time following the expiration of the lease extension agreements, this is a proper case in which the Court should exercise its discretion to grant relief from forfeiture: H. Y. Louie Co.

v. Whistler Noodle House Ltd., 2002 BCSC 1120. [138] Accordingly, Marigold is entitled to have the ownership in the three vehicles transferred to it and the dealership will execute whatever transfer documents are necessary to transfer title in the two E450 Cube Vans and the E250 Cargo van to Marigold within 30 days of this judgment. V. Conclusion/Disposition: [139] Based on the foregoing, Marigold has established on a balance of probabilities that it entered into the three vehicle lease extensions agreements with the dealership on May 1, 2001, when Mr. Smith met with Murray Savage from the dealership. [140] As the lease extension agreements were in the same standard form as the initial lease agreements of 1998, when the lease extension agreements expired, the agreements became month to month lease agreements by virtue of the overholding terms that I have found were part of the lease extension agreement. Marigold therefore continued to operate on a month to month lease with the dealership when the 30 month terms of those lease extension agreements expired. [141] Any duty of care the dealership may have owed Marigold to properly advise as to the status of the lease extension agreements when inquiries were made in November 2003 was properly discharged when Mr. Savage faxed to Marigold the documents contained in Schedules C and D of Exhibit #1. Marigold failed to take any steps to

act upon the information it received and which clearly put it on notice that there was a problem. [142] The plaintiff's claim for damages in the amount of $82,465.31 is therefore dismissed. [143] The dealership has failed to establish the true nature of the damages it sustained in this case and, accordingly, its counterclaim for damages in the sum of $53,179.68 plus contractual interest at a rate of 34.5% per annum is dismissed. [144] Marigold, having significantly overpaid the value of the leased vehicles, albeit through its own negligence, is entitled to have the ownership in the three vehicles transferred to it despite failing to return the vehicles and continue paying on a month to month basis after April 2007. I find that this is a case where, in effect, forcing Marigold to forfeit its option to buy the vehicles under the lease extension agreement, which I have found existed, despite having more than paid the total value of the residual purchase price of the vehicles, would be overly severe and inequitable in the circumstances. This is particularly so given that the dealership has not established any damages as a result of Marigold's breach. [145] The dealership will execute whatever transfer documents are necessary to transfer title in the two E450 Cube Vans and the E250 Cargo Van to Marigold within 30 days of this judgment. [146] Neither party having succeeded in their actions, the parties shall bear their own costs. "Ker J."