Roy v. 1216393 Ontario Inc.

2016 BCSC 1635 Roy v. 1216393 Ontario Inc.

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Roy v. 1216393 Ontario Inc., 2016 BCSC 1635 Date: 20160902 Docket: S76210 Registry: Kelowna Between: Richard Roy and Diane Roy Plaintiffs And 1216393 Ontario Inc. and Dennis Kretschmer also known as Dennis Kretschner Defendants Before: The Honourable Mr. Justice Harvey Reasons for Judgment Counsel for the Plaintiffs: J.G. Hardwick Counsel for the Defendants: D.J. Taylor Place and Dates of Trial: Kelowna, B.C. June 27-29, 2016 Place and Date of Judgment: Kelowna, B.C. September 2, 2016 Introduction [1] This is a damage assessment arising from a contract of purchase and sale dated August 10, 2005, wherein the plaintiffs, Mr. and Mrs. Roy, agreed to purchase Strata Lot 33 in a bare land strata project known as Crystal Waters from the defendant, 1216393 Ontario Inc. ("121"), for $184,700. The other defendant, Dennis Kretschmer, was at all material times the agent acting on 121's behalf. [2] This matter has an extensive litigation history, including two appeals. In the most recent, indexed as Roy v. Kretschmer, 2014 BCCA 429 [Roy BCCA], the Court of Appeal upheld the trial judge's findings on the liability of both 121 and Mr. Kretschmer but remitted the assessment of damages flowing from the defendants' delicts to be heard in this court. Issues [3] The singular issue in this trial is the measure of damages payable by the defendants

arising out of 121's breach of a contract for the sale to the plaintiffs of Strata Lot 33 at the Crystal Waters development located on Kalamalka Lake in the Okanagan and Mr. Kretschmer's deceit in misleading the plaintiffs as to the status of the project when development permits were issued in 2006. [4] In previous proceedings in this court, indexed as Roy v. 1216393 Ontario Inc., 2012 BCSC 1752 [Roy BCSC], Bruce J. assessed damages in respect of design fees incurred by the plaintiffs. Counsel agree that aspect of the earlier judgment endures. [5] The only damages remaining to be assessed are those referenced by the Court of Appeal in Roy BCCA, as follows: [82] I would allow the cross appeal and declare that clause 1.2(b)(iii) is unenforceable. On the appeal, I would remit this matter to the Supreme Court to assess damages based on the value of Lot 33 as of the end of January 2007 and otherwise would dismiss the appeal. [6] Counsel for the plaintiffs argues the only matter for consideration by me is the difference in value between the stated purchase price, $184,470, and the value as determined by me of Lot 33 as at January 2007. [7] Counsel for the defendants argues the measure of damages is the difference between the value of the lot as at January 31, 2007, less the cost to the purchaser to complete the purchase; specifically, the contract price plus GST of 6% and the

property purchase tax payable on the $184,700 contract price. Background [8] Nothing is served by reviewing the extensive litigation resulting in this assessment. [9] As for the factual background leading to the underlying action, it is set out in detail in Roy BCSC. Findings made by Bruce J. bind me save for the question of the determination of the monetary damages suffered by the plaintiffs as a result of the defendants' respective breaches. [10] Roy BCCA provides the framework for the damage assessment. Lot 33 [11] The plaintiffs entered into a contract of purchase and sale for Lot 33 on August 10, 2005. They ultimately intended to construct a dwelling there. The purchase price was $184,700, "excluding federal goods and services tax" ("GST"). For reasons detailed in Roy BCSC, the sale never completed. [12] The property at issue was within a bare strata lot development overlooking Kalamalka Lake. The various lots differed in size and afforded waterfront views of varying quality. However, all lots were entitled to enjoy a unique package of amenities, which included secure waterfront access, a wharf, boat slips and an area for boat launching. [13] Lot 33, the subject lot, was one of 34 hillside lots offered for sale by 121, commencing in 2005. It is one of the smaller lots in the development situated at the crest, near or adjacent to the entry gates to the complex. [14] I

conclude on the totality of the evidence presented, mainly photographs of sightlines from Lot 33 coupled with the oral evidence of the three appraisers called to offer opinion evidence, that Lot 33 will have, at best, a peekaboo view of the lake once the lot across from it is developed. [15] Further, it is situated near the entrance into the development such that traffic would be a minor irritant to its occupants; certainly more so than to the occupants of Lots 13 and 29 of Crystal Waters, two comparables alluded to in the evidence. [16] On the positive side, Lot 33 is adjacent to two separate pleasingly landscaped greenspaces; an amenity unavailable to the two comparables within the complex. [17] Lot 33 is smaller than each of Lot 13 and 29 but the weight of the evidence is that the size difference is of minimal import to the valuation of the three lots. Valuation [18] I heard evidence from three appraisers, each of whom provided an opinion as to the value of Lot 33 on January 31, 2007. The necessary qualifications of all three appraisers were admitted. Each had differing degrees of experience. [19] The appraisers all employed the same methodology for valuation, the comparison approach; given the subject property was bare land and provided no income to the owner absent construction of a dwelling. Each appraiser, I am satisfied, used as the definition of fair market value the

appropriate standard contained in the Canadian Uniform Standards of Professional Appraisal Practice ("CUSPAP"), which defines fair market value as: The most probable price which a property should bring in a competitive and open market as of the specified date under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. [20] Mr. Bliss, the appraiser retained by the plaintiffs, originally estimated the fair market value of Lot 33 at $425,000 as at January 31, 2007. In his supplemental report, dated August 7, 2015, Mr. Bliss corrected that amount to $433,500 as a result of what he described as a "typographical error" in the original. The error resulted from him transposing numbers in one of the comparables' sale price, thus resulting in a lower figure for the transaction than was the actual selling price. [21] Mr. Markle, one of the appraisers retained by the defendants, estimated the fair market value of Lot 33 as at the relevant date as being $360,000. [22] Mr. Roworth, the other appraiser retained by the defendants, estimated the value of Lot 33 at $350,000 as at January 31, 2007. [23] Mr. Bliss and Mr. Markle each used sales of Lots 13 and 29 of Crystal Waters as comparables. [24] Mr. Roworth used Lot 13 as one of his comparables but agreed, while testifying, that Lot 29

was also an appropriate comparable given the agreement for purchase and sale was signed in mid-August 2006; some five-and-one-half months before the valuation date. The reason offered for its omission was that the registry's record of transfers indicated that the transaction closed in January 2007. [25] Both of the defendants' appraisers acknowledged that the date the contract of purchase and sale was formed was the proper date on which to assess the sale and its suitability for comparison purposes; not the date of closing. [26] Although all three appraisers utilized other comparables in arriving at their respective opinions, all agreed the best comparables were those within the Crystal Waters development, owing to its unique offering of amenities. They agreed the market for properties such as Lot 33 was a rising market and continued as such until well past the valuation date. [27] I agree. The descriptions of the other comparables, their locations and their amenities all leave me with little confidence that they are effective in determining the appropriate value of Lot 33 as at the relevant date. The two comparables within the Crystal Waters development, Lot 13 and Lot 29, provide the best reference points because of their similarity in location and amenities, as well as the proximity of their sales to the valuation date for Lot 33. [28] Included in the comparables utilized by

Mr. Bliss were a number that were sold after January 31, 2007. While the provisions of CUSPAP allow for the use of post-valuation sales for the purpose of establishing market trends, CUSPAP specifically precludes the use of post-valuation sales in the actual assessment of the value of the subject property. [29] Mr. Bliss improperly included such calculations into his conclusion regarding the appropriate price for Lot 33 as at the valuation date by averaging the sales prices of all comparables, including those which occurred after January 2007, despite the agreement of all three appraisers that it was a rising market throughout 2006 and into 2007/2008 for properties similar to the subject property. The result, in my mind, is that Mr. Bliss's opinion is improperly influenced by sales which occurred after the valuation date. [30] A general averaging of all the comparables Mr. Bliss included, without weighting, seems an unsafe approach, generally. Mr. Bliss failed to differentiate between the quality of water views between Lot 12 and Lot 29 despite evidence which leads to the conclusion that of the three Crystal Water lots considered, Lot 29 had the superior view to the other two and Lot 13's view was superior to that of Lot 33. Instead of making individual adjustments to the two comparables, Mr. Bliss simply concluded the superior, but different, views of Lots 13 and 29 warranted

a $25,000 premium for each of them. This, too, I find undermines his opinion. [31] Nonetheless, the rejection of Mr. Bliss's report does not lead to the inevitable conclusion that one or the other of the two remaining appraisals, or the midpoint between them, is the value of Lot 33. [32] Mr. Roworth would have adjusted Lot 33 downward by $10,000 from the other two Crystal Water lots, owing to its smaller size, but Mr. Markel and Mr. Bliss agreed that no such adjustment was required. Hence, on the totality of the evidence, I am satisfied that Lot 33's lesser size makes it only minimally less valuable to the comparables within the Crystal Waters development. [33] Mr. Roworth also did not include Lot 29 in his analysis because, according to his testimony, it closed at or near the same time as the valuation date and, as such, the sales information would not have been known to an informed buyer and seller. [34] However, all three sales in Crystal Waters involved the defendants such that the selling price and trends would have been known to the defendants and, in all probability, conveyed to prospective purchasers. [35] Further, there are two key pieces of information either not known or not considered by both of the defendants' appraisers. These pieces of information result in an undervaluation of both Lot 29 and Lot 13. [36] With respect to Lot 29, neither of the appraisers

considered the fact that the sale of this lot became a binding contract on August 16, 2006; some five-and-one-half months prior to the valuation date for Lot 33. Each assessed it as a sale occurring, for comparison purposes, at or near the same as the valuation date. [37] In a rising market such, in my view, results in an undervaluation of Lot 33. Mr. Markle opined that prices were increasing at a rate of 1.5-2% monthly during the latter part of 2006. Such is confirmed by Mr. Bliss's observations as to the changes generally in the Okanagan area during 2006. [38] The same applies to Lot 13. The contract of purchase and sale was finalized September 15, 2006; approximately 4 months prior to the valuation date. [39] Both of the defendants' appraisers considered Lot 13 as superior to Lot 33 and, thus, concluded that the value of Lot 33 as at January 31, 2007 could not have exceeded the stated sale price of Lot 13: $388,250. [40] The plaintiffs contend that part of the consideration for the purchase of Lot 13, unnoted in the contract of purchase and sale was approximately $45,000 of recreational vehicles and, perhaps, a trailer to tow them. [41] In part, this proposition is founded on the testimony of Malcolm Rolfson, a former friend of Mr. Kretschmer who testified that he met Mr. Kretschmer at an unspecified time at a carwash in Kelowna in anticipation of a lunch meeting and was

advised by Mr. Kretschmer that the deal with the Weinberg's, the couple who purchased Lot 13, included snowmobiles and a trailer as "contra" for the sale. The testimony was no more specific than that. No values were discussed nor the consideration given in return by the defendants. [42] Mr. Kretschmer denied such a meeting ever took place and credits, or discredits, Mr. Rolfson's account of events to enmity that existed between the two of them which has grown over time. [43] Despite the denial of the meeting with Mr. Rolfson, Mr. Kretschmer acknowledged receipt of the four vehicles, which he estimated to be worth $45,000, in respect of "offsets" to be made in the future as against the construction of the Weinberg's home by Mr. Kretschmer's construction company: Tylon Steepe. Nowhere is that documented. Rather, it is consistent with Mr. Rolfson's testimony concerning the involvement of "contra" in the Weinberg transaction. [44] Mr. Kretschmer's construction company never did build the residence but, instead, released the Weinberg's from their covenant to have Mr. Kretschmer's construction company build the residence. As consideration for the release, Mr. Kretschmer retained the snowmobiles. [45] The same construction rider was present in the contracts of earlier purchasers in the "first phase" of the development. However, all of these purchasers were released from their covenant

to have Mr. Kretschmer's construction company build their homes without penalty or cost. The fact that the Weinbergs were obliged to buy their way out of the same obligation presents an obstacle to accepting that the "contra" had nothing to do with the lot transfer. [46] The Weinberg's were never called to testify as to the consideration paid for Lot 13. On the face of the contract of purchase and sale, the price would appear to be $388,250. As against that is the sale of Lot 29 one month earlier for an amount far in excess of the price of Lot 13. [47] Mr. Kretschmer prepared a pricing list for offerings of lots in May 2006, which included both Lot 13 and Lot 29. Lot 13 was listed for $469,700; $10,000 more than Lot 29. Mr. Kretschmer was reluctant, initially, to acknowledge that he had prepared the price list and that he had then passed it on to the Weinbergs via an email the next day. Rather than simply acknowledging its authenticity, he testified the pricing list "was not produced to the plaintiffs by us". [48] Lot 29 sold in August 2006 for $472,700; some $13,000 in excess of the May listing price. Lot 13 sold a month later, in a rising market, for over $80,000 less than the price on the May pricing list. [49] The plaintiffs contend the purchase price of Lot 13, for comparison purposes, should be adjusted by at least $45,000 upwards to reflect the additional value received

by the vendor. [50] Mr. Kretschmer's evidence as to the breakdown of the pricing for Lot 13, specifically his certainty that the contra related to the future construction costs, is at odds with correspondence written by his counsel, Mr. Taylor, to both appraisers engaged by the defendants, which reads as follows: With respect to the property at lot 13-18451 Crystal Waters Road, we wish to inform you that the seller of the lot had additional negotiations with the purchasers with respect to a package of agreements connected to the transactions. The sellers received four recreational vehicles from the purchasers. Mr. Kretschmer has informed us that there are no documents that exist and there were no discussions between the parties regarding the allocation of any additional consideration as between the lot acquisition and building construction costs. Would you please let us know if these facts are relevant to your opinion in any manner? [51] This statement differed sharply from Mr. Kretschmer's evidence that the inclusion of the recreational vehicles was solely in respect of the construction contract, not Lot 13. [52] After discussion between counsel regarding the possible need for Mr. Taylor to testify as to his instructions in drafting the paragraph quoted above, counsel agreed I was not to use Mr. Taylor's letter as impeachment of Mr. Kretschmer's testimony. Accordingly, it

forms no part of my analysis of Mr. Kretschmer's credibility on the issue of the sale price of Lot 13. [53] However, the quoted paragraph has importance as it relates to my confidence in the opinions of both Mr. Markle and Mr. Roworth. Neither felt the need to address the implied question contained in Mr. Taylor's letter: specifically, did the stated price of $388,250 accurately reflect the value for which Lot 13 was transferred? [54] The two appraisers' common response in their evidence in chief, to the effect that absent evidence the contra was directed toward the lot value it was of no help in arriving at an opinion as to Lot 33's value is, with respect, disingenuous. Mr. Roworth, in cross examination, agreed it was a 'gray area'. [55] Their response ignores the obvious. The unspecified contra had to be in respect of one or the other; the lot value or future construction costs. Absent any documents or discussion as to the effect of the contra, it must have at least raised concerns. Further investigation would have revealed the pricing list earlier referenced and necessitated at least some clarification from Mr. Kretschmer as to how the contra came to be and what was its value. [56] I also agree with counsel for the plaintiffs' submission that both Mr. Markle and, to a lesser degree, Mr. Roworth seemed uncomfortable with the price differential between Lots 29 and 13 and

conveyed the thought that perhaps the buyer of Lot 29 had over-valued the property at the agreed upon purchase price of $472,700. [57] That takes me to the evidence of Mr. Kretschmer as it relates to the sale of Lot 13. [58] Like Justices Josephson and Bruce before me, I found Mr. Kretschmer to be unreliable as a witness. He was reluctant to admit authorship of the price list because, in my view, it raised the issue, which he never answered, as to why Lot 13 was sold for $80,000 less than asking price when Lot 29 sold for $13,000 more. [59] Similarly, he testified in his direct examination that Lot 29's view was only marginally better than that of Lot 13. Not until it became clear during cross-examination that the only significant differentiating factor between Lot 29 and 13 was the view did he testify that Lot 29's view was far superior to Lot 13, thus warranting the significant price differential. That said, it leaves unexplained how Mr. Kretschmer could price Lot 13 in excess of Lot 29 in May 2006. [60] Further, his dismissal of Mr. Rolfson's evidence as to the meeting at the car wash begs the question of how Mr. Rolfson was able to so accurately describe the recreational vehicles, right down to their decals and makes, and know that "contra" was involved at all. [61] I find it more probable than not that such a meeting did occur and that Mr. Kretschmer displayed the vehicles

to Mr. Rolfson and discussed contra from the Weinbergs. With that in mind, it would be unsafe to rely on Mr. Kretschmer's evidence as to the allocation of the contra or its value to the future construction of a residence by Tylon Steepe. [62] While I disagree that I can add $45,000 to the value of Lot 13 and thereafter adjust the opinions of Messrs. Markle and Roworth accordingly, I reject Mr. Kretschmer's testimony as to the allocation of the 'contra' and, as such, I am sceptical that the actual selling price for Lot 13 is as stated on the documents. All three appraisers accepted the value as fair market value and with the result such skewed their resulting opinions and had the effect of undervaluing Lot 33. [63] I conclude it is unsafe to consider Lot 13 as a comparable because of uncertainty as to the actual selling price. [64] Because of the uniqueness of the Crystal Waters development, I conclude that Lot 29 is the best comparable available, although its selling price needs to be adjusted for the passage of time in a sharply rising market as was the situation for Okanagan recreational property in late 2006 and early 2007. [65] Both of the defendants' appraisals did not reference the actual date of the agreement for sale in mid-August 2006. Mr. Markle estimated prices were rising 1.5-2% monthly during the last months of 2006 and early 2007. [66] Despite learning of the

actual date of the agreement, Mr. Markle was unwilling to adjust the price of Lot 29 upward to reflect the volatility in the market, which all three appraisers acknowledged. I agree with the submission of the plaintiffs' counsel that Mr. Markle's refusal to adjust the price upward was founded on a concern about the difference in the sale prices between Lot 13 and 29 and a reluctance to exacerbate the difference with a further increase to reflect an adjustment for time. [67] I conclude Lot 29's selling price was reflective of fair market value and that an adjustment upward of 10% is warranted so as to account for the five-and-a-half months which passed before the valuation date for Lot 33. Therefore, the single most useful comparable, Lot 29, should be seen as having a value of $520,000 (rounded). [68] Had I any confidence that the documents tendered in evidence regarding Lot 13 were reflective of its September 2006 value; I would have made a similar, albeit smaller, price adjustment to its price for comparison purposes. [69] The major differences requiring adjustment between Lots 29 and 33 are: Lot 29's far superior view and its more remote location from the front gate. The latter consideration, I find, would have only a modest impact on value and is offset, to some extent, by the greenspace proximate to Lot 33. [70] Mr. Bliss adjusted each of Lots 13 and 29 upwards by $25,000

to account for their superior views. Mr. Roworth adjusted Lot 13 upwards by $30,000 to account for its modest view and greater area. He said he would have adjusted Lot 29 upward by a further 10-15% to account for its superior view. [71] Mr. Markle adjusted the value of Lot 33 by setting a ceiling of $388,250, the stated selling price of Lot 13; and a basement of $325,000, based on the superiority of the subject property over his comparable #4. [72] In setting the ceiling at $388,250, for the reasons set out above, I find Mr. Markle's consideration of Lot 33's value was skewed downward based on, at best, questionable data. [73] Allowing for the fact that Lot 29 has a markedly superior view, greater lot size and quieter surroundings, I conclude that the proper price adjustment to reflect those differences as at January 31, 2007 is 20%, or $104,000. Accordingly, I conclude the value of Lot 33 was $416,000 as at the valuation date set by the Court of Appeal. I note parenthetically this means that Lot 29 was worth 125% of the value I ascribe to Lot 33; a percentage difference close to that ultimately chosen by Mr. Markle. The Plaintiffs' Damages [74] I agree with the defendants that the calculation of damages requires more than merely the subtraction of the purchase price from the value of Lot 33 as at January 31, 2007. [75] The clearest statement of the law regarding the assessment

of damages in real estate cases where sellers have breached the contract of sale is set out in Jamie Cassels and Elizabeth Adjin-Tettey, Remedies: The Law of Damages, 3rd ed. (Toronto: Irwin Law, 2014) at p. 75, where the learned authors observe as follows: Expectation damages in real estate cases will be the difference between the contract price and the market price of the land, For example, if the vendor refuses to deliver the property at a contract price of $100,000, and its value has increased to $110,000 at the time of the breach, the vendor will be liable for $10,000 (and the buyer will be entitled to the return of any deposit paid). Likewise, if the buyer is in breach, and the land has decreased in value, the vendor will be entitled to the loss. If the buyer has incurred legal fees or other expenses in anticipation of closing, these are not recoverable since they would have been incurred in any event had the contract gone through. And if the plaintiff has saved such expenses, they must be deducted from the damages for the lost value of the land since, had the contract been performed, these expenses would have been incurred in order to earn that value. [Footnotes omitted.] [76] Such was the case in Schweickardt v. Thorne, [1976] 4 W.W.R. 249 (B.C.S.C.); Pitcher v. Shoebottom, 1970 CarswellOnt 835, at para. 52 (H.C.); and First Real Properties Ltd. v. Biogen Idec Canada

Inc., 2013 ONSC 6281, at paras 49-51, 58. [77] To complete the transaction, the plaintiffs would also have incurred GST and been required to pay property purchase tax. The measure of the plaintiffs' damages is the difference between the property's value as at January 31, 2007 and the total purchase price, which includes these taxes. [78] Accordingly, the payment of GST by the purchaser as contemplated by the contract for purchase and sale and the property purchase tax are proper considerations in determining the purchase price. GST was 6% and the property purchase tax was 1% of the first $200,000. Therefore, the plaintiffs would have paid, in total, $184,700 plus GST of $11,082 and property purchase tax of $1847. The total cost to close would have been $197,629. [79] That leaves only the matter of the GST rebate program available to purchasers who build a structure on the property and then occupy same within a specified period of time. No evidence was led as to the mechanics of the rebate program and I decline to "fill in the gaps". [80] Nonetheless, I do find that the plaintiffs would have availed themselves of the program, given their stated intention to build a recreational home on Lot 33 as set out in Roy BCSC. [81] The parties are at liberty to agree as to the appropriate rebate thus affecting the ultimate damages payable or the plaintiffs are at liberty to lead evidence

on this point and I will determine the impact of a rebate on the damages payable. Such evidence is necessary to achieve a just result and dispose of this case on its merits: Supreme Court Civil Rules, R. 1-3. Otherwise the plaintiffs would be undercompensated, since they would not be placed in the same position they would have been in had the contract been performed: First Real Properties Ltd. at para. 49; Roy BCCA at para. 46. [82] If damages can be agreed upon, the plaintiffs shall have pre-judgment interest on the sum agreed to from January 31, 2007, until the date of the agreement. [83] Costs will be awarded to the plaintiffs unless there are outstanding offers to settle which might affect the issue. "Harvey J."