Prestigious Properties Inc v Cold Lake Estates Inc, 2016 ABQB 632

Court of Queen’s Bench of Alberta Citation: Prestigious Properties Inc v Cold Lake Estates Inc, 2016 ABQB 632 Date: 20161110 Docket: 1603 04928 Registry: Edmonton Between: Prestigious Properties Inc. Plaintiff - and - Cold Lake Estates Inc., Northern Alberta Estates Inc., the Muller Ryan Richard Development Group Inc., also known as the MRR Development Group Inc., M Double M Engineering Services Inc., Charles Ryan, Matthys Muller, Roger Richard and Tri-City Capital Corp. Defendants _______________________________________________________ Reasons for Decision of W.S.

Schlosser , a Master of the Court of Queen’s Bench of Alberta _______________________________________________________ [ 1 ] This is an application by the Defendants, Cold Lake Estates Inc, Northern Alberta Estates Inc. and The Muller Ryan Richard Development Group Inc. for

summary dismissal of the Plaintiff’s claim. [ 2 ] The application is based largely on the Limitations Act , RSA 2000, c L-12 [ 3 ] I am following the road map set out in 1214777 Alberta Ltd v 480955 Alberta Ltd , 2014 ABQB 301 , beginning at para 17 . I am going to begin by assuming that the best evidence is before the Court. [ 4 ] The Applicants have the legal burden throughout.

Once the Applicants have satisfied their evidentiary burden, the evidentiary burden then passes to the Respondent. [ 5 ] If this matter were to go to trial, Prestigious Properties Inc. would not only have the Plaintiff’s burden of proving its case against the Defendants on a balance of probabilities, it also has the burden under section 3(5) (

a) of the Limitations Act of showing that the two year limitation period in section 3(1) (

a) has been met. List of Authorities: Applicants’ Authorities

1. Alberta Rules of Court, Alta Reg 124/2010, at s 7.3(1); 2. Hryniak v Mauldin, 2014 SCC 7; 3. Windsor v CPR, 2014 ABCA 108; 4. De Shazo v Nations Energy Co, 2005 ABCA 241 Alta CA. Respondent’s Authorities 5. Alberta Rules of Court, Alta Reg 124/2010, Rule 7.3(1); 6. Limitations Act, RSA 2000, c L-12, s 3(1); 7. Condominium Corporation No 0321364 v Prairie Communities Corp, 2015 ABQB 753; 8. DeShazo v Nations Energy Co, 2005 ABCA 241; 9. Condominium Plan No 0125764 v Amber Equities Inc, 2015 ABQB 235; 10. Luzia v Baptisa, 2015 ABQB 736; 11. Infante v Dzagov, 2016 ABQB 41; 12. Huet v Lynch, 2000 ABCA 97; 13.

Frydman v Pelletier, 2015 ABQB 289; 14. Sattva Corp v Creston Molly Corp, 2014 SCC 53; 15. Benfield Corporate Risk Canada Limited v Beaufort International Insurance Inc, 2013 ABCA 200; 16. Bhasin v Hreynew, 2014 SCC 71. By the Court 17. 1214777 Alberta Ltd v 480955 Alberta Ltd, 2014 ABQB 301; 18. Boyd v Cook 2013 ABCA 27; 19. Hamill v Kudryk, 2013 ABCA 37; 20. Amex Electrical Ltd v 726934 Alberta Ltd,2014 ABQB 66 , 2014 ABQB66.

Facts [6] The main facts are as follows: [7] The lawsuit concerns a failed residential subdivision development outside the City of Cold Lake. [8] An area structure plan prepared by Matthys Muller on behalf of the MRR Development Group Inc. said: ... after mutual discussion instigated by the developer and with the agreement and permission of the MD, the City of Cold Lake agreed tothe provision of the requested water supply to a trickling service standard, and to the receiving of the semi-treated sewage effluent fromthe septic tanks on the lots into the municipal sewer by means of a small diameter low-pressure reticulation system and a lift station. ... [9] There were two development options: a lower density 200 unserviced lot option of 1 acre each (with wells, or cisterns andseptic systems), or a higher density option of 300 serviced lots of ½ acre each.

The trickling service standard in the Area Structure Planapplied to the second option. The Plaintiff says it relied on being able to service the 300 lots to the trickling service standard when itdecided to buy the land and close this deal. The ‘trickling service standard’ is an economical choice. It would have insured the financialviability of the proposed subdivision if the ‘high density’ option had been pursued. [10] The land for subdivision was sold by Cold Lake Estates Inc. to Prestigious Properties Inc. in October 2010. The Agreementfor Sale was prepared by the Plaintiff.

It was unconditional with respect to the details of development. The Agreement provided: ... 6.1(

b) Subdivision approval has been obtained for the property for not less than 300 country residential lots. ... (h) [The Seller] will forward all documents pertaining to said lands and its subdivision will be turned over to the buyer on or before

completion date. ... 6.2 The Seller and the Buyer each acknowledge that, except as otherwise described in this Contract, there are no other warranties, representations or collateral agreements made by or with the other party, the Seller’s Brokerage and the Buyer’s Brokerage about the Property, any neighbouring lands, and this transaction, including any warranty, representation or collateral agreement relating to the size/measurements of the land and buildings or the existence or non-existence of any environmental condition or problem. 6.3 Any action relating to a warranty or representation in this Contract must be started within one (1) year from the Completion Day. [ 11 ] The sale was to be completed no later than April 30, 2011.

However, Mr. Byer, the President of Prestigious Properties, purported to renegotiate the contract based on uncertainties about servicing costs. The sale did not close until May 11, 2011. [ 12 ] The Plaintiff claims that the trickling service standard had been rejected by the City of Cold Lake on or about March 15, 2011. It is a premise of the lawsuit that this decision was not revealed to the Plaintiff and documents evidencing it were kept concealed by the Applicants.

The Plaintiff claims that it was unaware that the subdivision would have to be serviced to a higher standard until sometime in June or November 2013. [ 13 ] The initial development approval, dated October 22, 2010, required: 2. Pursuant to Section 655(1)(

b) that all lots shall be serviced with City of Cold Lake water and sewer with the City’s approval.

The developer shall be responsible for the design and construction of the water and sewer to City of Cold Lake’s standards including upgrades to the City’s system. (emphasis added) The City of Cold Lake’s standards were not defined in the development approval and part of this issue is whether this was a reference to rural or municipal standards. [ 14 ] The Plaintiff’s property was not a holding property. [ 15 ] This lawsuit was commenced in November of 2014; roughly two years and 18 months after closing in May of 2011, or roughly four years after the contract of sale.

Analysis [ 16 ] The limitations clock begins to run with the coincidence of the three elements set out in section 3(1)(

a) of the Act . All three requirements depend on reasonable knowledge. Something less than actual subjective knowledge is required (eg DeShazo v Nations Energy Co , 2005 ABCA 241 ; Boyd v Cook , 2013 ABCA 27 , at para 15 and following). [ 17 ] Let us assume, for the sake of argument, that the City had in fact made up its mind that servicing for the 300 lot option would have to be done to a higher (more expensive) standard in March of 2011.

Let us even assume that the Applicants knew this; perhaps even had documents evidencing the decision, and that these documents were not revealed to the Plaintiff until June or November 2013. How is it that a developer in the position of Prestigious Property could not (or did not) discover the City’s position until three years after the contract was signed, or roughly a year and a half after the deal closed – especially when this piece of information was crucial to the viability of the project? [ 18 ] The Plaintiff argues: 56.

After the Completion Date, Prestigious spent well over a year pursuing the 200 Unserviced Lot Option outlined in the [Area Structure Plan] and awaiting the outcome of a low density development application brought on nearby property. 57. By June 2013, Prestigious became aware that insofar as the 200 Unserviced Lot Option in the ASP would not be accepted by the City, High Pressure Servicing would be required at far greater expense than originally contemplated based on the Vendor Disclosure.

On this basis, Prestigious retained Canadian Wetlands Inc. (“Canadian Wetlands”), of which David Perehudoff was President and Prestigious’ key contact. 58 Although Prestigious became aware through its consultants after the Completion Date that there were uncertainties with respect to servicing the Property with water and sewer , at no time prior to retaining Canadian Wetlands in 2013 was Prestigious advised by the City or the MD of the Concealed Information or that the City had previously communicated to Muller and Richard directly that there was only one servicing option, namely the True Servicing Requirement. 28.

Prestigious was not aware that the City would only permit High Pressure Servicing until approximately June 2013. [ 19 ] Mr. Beyer is the President of Prestigious Properties and the Officer who spoke on behalf of the company. There is no unequivocal statement in evidence that Mr. Beyer (or Prestigious Properties) had no actual knowledge of the servicing requirements prior to November 2012. Paragraph 21 of Mr. Beyer’s affidavit refers to disclosure of two documents in November 2013. Paragraphs 25 and 26 refer to a time in March or May 2011.

The absence of a denial is a puzzling omission on this crucial point. [ 20 ] When Mr. Beyer was questioned on his affidavit, he said (at page 37, line 17 – page 38, line 5): Q So the uncertainty came about because the options were shut down?

A Correct. But at the time, I didn’t know that. We found that out only about in 2013. Even Spur and Scheffer Andrews didn’t find that out. Only once we hired David Perehudoff from Canadian Wetlands did we – did sort of a record search with the City, and that’s when it came out. That the City at that time, in sometime around March 2011, basically told Mattys in several meetings that the only option they would accept ever was this expensive sewer and water line, and they didn’t tell us that. Q So before, I think you said 2013 or something like that, you had no idea?

A We relied on the [Area Structure Plan]: correct. This comes close, but later, he says (at page 53, line 21 – page 54, line 21): Q That would be an e-mail that was used but this e-mail was sent to Roger Richard? A That’s what it appears to be, yes. Q And at the bottom, it says: (As read) Fundraising is difficult, water/sewer options difficult, and I need dollars to development services. What water/sewer options that were difficult were you referring to there at that time? A I don’t remember. As I mentioned, we engaged another firm in 2011.

And by October 2012, I think we would have received the no -- I need to go through my records, but the City would have shut down that option which was laid out in the [Area Structure Plan]. So by that time, we would have realized that the only option available was the expensive water/sewer option, the one which Mattys Muller and Roger choose to withhold from us that information. Q That was by this time, by October 29 th , 2012? A Yeah, that sounds about right. And then later we engaged – that was about nine months later we engaged David Perehudoff of Canadian Wetlands.

So this was sort of an in-between time where we realized now that the option shown to us in the [Area Structure Plan] (i.e., the 200 lot option) was essentially not an option any more. And at page 135, line 19 – page 136, – line 22 he says: Q So on May 31, 2011, you knew that Mattie’s Area Structure Plan and the trickle water system would not be supported by the City. Correct? A I’m not sure whether I would go that far. That was perhaps an indication or opinion by Chad that there is issues. Q What steps did you take to investigate those issues on May 31, 2011, or at any time afterwards?

A Well, around that time, Scheffer Andrew came on the scene as well so they were more in-depth expert in that, and they had worked in Cold Lake for many years so Chad and Scheffer Andrew, together, would investigate these issues further. Q So you knew there was an issue with the Area Structure Plan at that time. A Well, we knew there was uncertainties, and we knew that Mattie Muller had laid out a bunch of options, and it appears that some of these options are perhaps not as depicted as written in the [Area Structure Plan]. Q Right. And you knew that the City was not supporting them.

A That was an opinion by Chad. We had not seen this document you showed me earlier, namely, these minute meetings. We didn’t know about. Q Well, that’s -- A So we had suspicion, let’s call it, that there might be issues, right. And, as you see, I mean, Chad hasn’t even met Mattie yet so this is an opinion by Chad after a meeting or two. So this is a sort of a -- let’s call it a yellow flag, right. Not a red flag, but a yellow flag.

Finally, at page 138, line 27 – page 139, line 8 he says: Q Well, you are told May of 2011 that much of the information in the Area Structure Plan presented by Mattie would not even be supported by the City. Did you not concern yourself with that? A As I said, that was a yellow flag, and that was an opinion by Chad; and, as I said, shortly thereafter we decided to go down the other route, the cheaper route then to not use City water and City sewer but go down the low density route. Actual Knowledge [ 21 ] The Plaintiff’s own evidence about actual knowledge is inconsistent.

There is no direct evidence about knowledge of servicing standards from any of the three consultants retained by the Plaintiff in the 2011-2013 time-frame. There are lost emails; both by the Plaintiff and by one of their consultants. There were two computer crashes; which appear to have destroyed evidence. There is nothing in the MD’s files for 2011 – 2012. There is no direct evidence from the City.

[ 22 ] The absence of this evidence is troublesome and it invites an inference. I acknowledge that the Plaintiff’s explanation is that it was pursuing the ‘low density’ option but it is not clear what motivated this choice. (It could be equally well explained by the existence of knowledge that only the more expensive servicing option for the high-density development would be permitted by the City).

It seems almost inconceivable that the Plaintiff would not have known or could not have discovered, before November 2012, what it says was an absolute and unequivocal decision by the City about servicing standards made in March 2011.

Even assuming the alleged nondisclosure of documents pleaded in the Statement of Claim, high density servicing standards must have been one of the best kept secrets in Cold Lake. [ 23 ] The evidence about what was actually known by the Plaintiff in this crucial period is not only conflicting, it is self-serving; at least in the sense that it could be coloured by something other than an assiduous desire to tell the truth. Mr. Beyer’s recollection is not good. The internal inconsistency (at least) raises a red flag on the issue of credibility.

Constructive Knowledge [ 24 ] Whether the Plaintiff ought to have known (for the purposes of the limitation) is a mixed question of fact and law. The starting point is that it seems unlikely that the City’s position on servicing could not have been discovered with reasonable diligence long before November 2012. [ 25 ] The Plaintiff says in his affidavit, that he relied on clause 6.1(

h) in the Contract (cited in paragraph 10 above). That clause imposes a disclosure obligation on the seller. There is no mention of clause 6.3, which seems to shift the due diligence risk to the purchaser - at least for the year following completion. This is part of the context.

Not only is the development of the property actively being pursued, there is an impetus on the Plaintiff, imposed by the contract it drafted, to make sure everything was as it seemed. [ 26 ] As noted, there is no direct evidence from the City and no evidence from the Plaintiff’s consultants, Spur Construction, Scheffer Andrew or Canadian Wetlands.

I acknowledge that the Plaintiff’s excuse is that they were busy pursuing the unserviced lot option during much of the time following completion, but there is a looming negative inference from the absence of evidence from the consultants who were in direct contact with the City. [ 27 ] If the City did not, in fact, make up its mind about servicing option until after May 2011, that takes away the cause of action. Disposition [ 28 ] I appreciate that the Court is typically reluctant to give

summary judgment on a limitations issue on less than a full factual record. This is one of those cases where the Court will have to see the witnesses because, without more, the credibility of the Plaintiff’s officer is front and centre. If this were a trial, there would be live issues of credibility and a large negative inference. [ 29 ] I am not confident that a fair and just disposition can be made on the factual record presently before the Court; though I say this with some reluctance given the present state of the evidence.

However, this result is the nearest of misses and a near miss should count for something. The Court of Appeal instructs us that in such cases, Security for Costs and a Procedural Order is a “wholesome practice”. ( Hamill v Kudryk , at paras 9, 10 ). [ 30 ] The application is dismissed, with costs in the cause. As the matter is being Case-managed, a Procedural Order may not be necessary.

Security for Costs is ordered in favour of the Applicants in an amount to be quantified by a pro forma Bill of Costs in accordance with the principles stated in Amex Electrical Ltd v 726934 Alberta Ltd, at paras 78 and following; unless the Plaintiff can show cause why security should not be provided. [ 31 ] There is one final housekeeping matter. These actions were ordered to be consolidated in February 2016. A consolidation file was opened, as was another, inadvertently. These two files: action numbers 1603 04928 and 1603 06360 are consolidated with materials to be filed in action number 1603 04928 henceforth.

Heard on the 24 th day of August, 2016. Dated at the City of Edmonton, Alberta this 10 th day of November, 2016. W.S. Schlosser M.C.C.Q.B.A.

Appearances: Nestor Makuch Wheatley Sadownik for the Defendants, Applicants Cold Lake Estates Inc., Northern Alberta Estates Inc. and The Muller Ryan Richard Development Group Inc. Sandeep Dhir, Q.C., Lindsey Miller Field LLP for the Plaintiff, Respondent