Woodsmere Holdings Corp v Hasco Development Corporation, 2016 ABQB 725

Court of Queen’s Bench of Alberta Citation: Woodsmere Holdings Corp v Hasco Development Corporation, 2016 ABQB 725 Date: 20161220 Docket: 0803 05358 Registry: Edmonton Between: Woodsmere Holdings Corp. Plaintiff - and - Hasco Development Corporation Defendant _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice E.J. Simpson _______________________________________________________ Table of Contents Introduction . 2 Facts . 3 Analysis . 6 Rectification . 6 Issue . 6 Law .. 6 Relevant Evidence . 7 Decision . 8 Honesty, Good Faith and all Reasonable Steps . 9

Issue . 9 Law .. 9 Relevant Evidence and Findings . 9 Decision . 11 Disclosure of Rezoning Problem .. 11 Pursuit of Substitute Agreement 12 Reasonable Steps to Rezone Lot A to RM74 . 13 Conclusion . 16 Outstanding Issues . 17 Introduction [ 1 ] In December 2007, the plaintiff, Woodsmere Holdings Corp. (Woodsmere), a British Columbia corporation carrying on business there and in Alberta, signed a contract with the defendant, Hasco Development Corporation (Hasco), an Alberta corporation, to purchase a parcel of land in the Town of Beaumont (the Town).

Woodsmere alleges that Hasco breached the contract by failing to have the land rezoned so apartment buildings could be built on it. Woodsmere claims it suffered damages as a result of Hasco’s breach and brings this action to recover those damages. [ 2 ] Woodsmere’s action must be dismissed as (

i) the rezoning of the land was a condition precedent to the performance of the parties’ obligations to sell and buy the land; (ii) Hasco fulfilled its obligations to act honestly and in good faith and take all reasonable steps to obtain the rezoning; (iii) notwithstanding Hasco’s efforts, the rezoning condition precedent was left unsatisfied; and (iv) consequentially, the parties’ contract was rendered void. These are my reasons. Facts [ 3 ] The analysis portion of this decision requires a detailed examination of the facts.

The following provides a general overview of the facts to place the analysis in context. [ 4 ] Hasco owned a 3.76-acre parcel of land in the Town, located in the northeast quadrant at the intersection of Highway 625 (running east and west) and Range Road 243 (running north and south). Hasco purchased the land for $1,200,000 in January 2007. For the purpose of this litigation, the parties referred to the land as Lot A. [ 5 ] Lot A was zoned AR (Agricultural Reserve District). It lay to the west of other land Hasco owned that was zoned CBP (Commercial Business Park).

As of January 2007, the Town’s municipal development plan showed the future use of Lot A as residential. [ 6 ] In November 2007, Hasco applied to the Town to subdivide and rezone Lot A to RM74 (Residential Multi-Family High Density District), which would allow for the construction of up to thirty multi-family residences per acre.

The tentative subdivision plan submitted with Hasco’s application showed that Lot A would net out at 3.02 acres after the dedication of land for road widening and a municipal reserve. [ 7 ] The Town Council gave first reading to a bylaw rezoning Lot A from AR to RM74 on November 13, 2007, and held a public hearing regarding the rezoning of Lot A on December 11, 2007. Raj Sharma, a construction manager, and Kashif Alam attended the public hearing for Hasco. [ 8 ] Syed Hasan, the principal of Hasco, knew that the rezoning bylaw had passed first reading and that everything went well at the public hearing.

He understood that the second and third readings of the rezoning bylaw would proceed in the latter half of January 2008. [ 9 ] In December 2007, Danny Jadresko, the principal of Woodsmere, learned from a realtor, Murray Kulak, that Lot A was for sale and was a possible site to build apartment buildings on. Mr. Kulak knew Mr. Jadresko from other dealings with him and thought Lot A would fit with Woodsmere’s business ventures. [ 10 ] Woodsmere had developed a business model of purchasing land, building apartment buildings on the land, retaining the apartments, and managing them as rental properties for a profit.

In the decade before December 2007, Woodsmere had completed about twenty such projects. In December 2007, Woodsmere was working on a project in Fort St. John, British Columbia. It completed that project in early 2008. [ 11 ] Woodsmere’s method of developing a project included using the same professionals and trades. As to the type of apartment buildings constructed, Woodsmere refined a plan for a four-storey 47-unit building that it used for each project, with minor variations in colours and finishes. Mr. Jadresko referred to this as the cookie-cutter plan.

He explained that the cookie-cutter plan could be adjusted to add up to eight units (two per floor) or to replace a unit with a large lobby, gym or recreation room. Woodsmere engaged a related family

corporation, W & J Construction Ltd., to construct the buildings. [ 12 ] Hasco purchased Lot A as part of its land development business. Prior to this purchase, Hasco worked at developing an 88- acre parcel of land in Beaumont. Mr. Hasan explained that Hasco purchased Lot A because the Town’s municipal development plan showed its future use as residential. He considered land with this designation more valuable than land with a commercial designation. Indeed, by January 2007, Hasco has only managed to sell one and a half acres of a twenty-acre parcel of land east of Lot A that was zoned commercial.

When Hasco received an offer on Lot A from Woodsmere, through its realtor, Moses Baldwin, Mr. Hasan became very interested. [ 13 ] In late December 2007, Woodsmere and Hasco executed a Contract of Purchase and Sale wherein Woodsmere agreed to purchase Lot A from Hasco for $2,050,000.

The contract indicated that Lot A was 3.76 acres and provided that April 15, 2008 would be the adjustment, possession and closing date. [ 14 ] The first paragraph under the Terms and Conditions portion of the contract provided: “The Seller warrants that the Property at the closing date will be zoned to RM74 apartment buildings.” That paragraph originally contained the words “accommodate four- storey”, instead of “RM74”; the change was made by Mr. Baldwin, Hasco’s realtor, and initialed by Mr.

Hasan. [ 15 ] Paragraph 8 under Terms and Conditions made the contract subject to “the Buyer obtaining a Development Permit from the Town of Beaumont to permit its proposed development of 2 – four storey 55 unit apartment buildings totalling 110 units with one on-site maintenance garage.” February 15, 2008 was provided as the date by which this “condition precedent” had to be satisfied or waived. [ 16 ] A handwritten clause at the end of the contract provided: “In the event the rezoning of the property to RM74 is not done by Feb 15/07, the seller will extend the condition removal date.” The parties agree that the date in this clause should read “Feb 15/08”. [ 17 ] Mr.

Jadresko immediately went into action to obtain all the information he could with respect to the site servicing, as well as geotechnical and environmental assessments. He engaged his professionals to assist him and to draft a site plan. [ 18 ] On January 2, 2008, Mr. Jadresko flew from Victoria, British Columbia to Edmonton to meet with Mr. Kulak, deliver Woodsmere’s $50,000 deposit for Lot A, and meet with staff from the Town about Woodsmere’s proposed development. When Mr. Jadresko met with the Town’s staff, he then learned that, after subdivision, Lot A would net out at 3.02 acres. [ 19 ] Mr.

Kulak discussed the size of Lot A with Mr. Baldwin. On January 16, 2008, he advised Mr. Jadresko that Hasco was not prepared to reduce the price of Lot A as the parcel’s size was only going to be reduced because of the subdivision and rezoning application. [ 20 ] Mr. Jadresko considered the situation. Although he was disappointed with the reduction in the size of Lot A, he thought he could work with it and decided to accept it and move on. [ 21 ] Mr. Jadresko continued to work towards obtaining the necessary documents for Woodsmere’s development permit application.

He wanted to provide the application to the Town even before the Town had dealt with Hasco’s subdivision and rezoning application, so that the Town would be familiar with Woodsmere’s application and deal with it as quickly as possible once Hasco’s application was approved. [ 22 ] Dean McCartney was the Town’s planner at this time. He assumed that position in April 2007. It was Mr. McCartney who recommended that the Town Council give first reading to, and hold a public hearing regarding, the rezoning bylaw. After those events occurred, it was up to Mr.

McCartney to prepare a development agreement for the Town and Hasco to sign. The rezoning bylaw could not proceed to second and third readings until such an agreement was in place. [ 23 ] Mr. McCartney did not prepare the required development agreement because he discovered an inconsistency in the Town’s records regarding Lot A. He found an outline plan (approved in 2005) that showed the future use of Lot A as business park. He was surprised by this, as the existing municipal development plan (revised December 2006) showed the future use of Lot A as residential. After some further digging, Mr.

McCartney found that, like the outline plan, an earlier municipal development plan (revised April 2004) showed the future use of Lot A as business park. [ 24 ] When Mr. McCartney found nothing to support the amendment of the future use of Lot A to residential, he concluded that the existing municipal development plan contained an error. He advised other members of the Town administration of the error and suggested that logical planning would be to continue with the business park use. [ 25 ] Mr. McCartney met with Mr. Hasan on January 18, 2008 and explained the situation. He told Mr.

Hasan that the Town administration would not support Hasco’s application to rezone Lot A to RM74, and that they wanted Lot A to be rezoned to CBP instead. Mr. McCartney explained that he was virtually certain that the Town Council would not approve the rezoning of Lot A to RM74. [ 26 ] This news deeply disturbed Mr. Hasan as he wanted Hasco to complete its deal with Woodsmere. On January 23, 2008, he met with Town administrators Mark Landry and Cody Lavasseur at his office to see what they might accomplish on Hasco’s behalf.

He also had informal discussions with various councillors and the mayor, but this was all to no avail. Mr. Hasan received no indication that Hasco would receive any support from the Town Council unless it sought to rezone Lot A to CBP. [ 27 ] On January 24, 2008, Mr. Kulak emailed Mr. Jadresko an addendum he received from Mr. Baldwin, in which Hasco offered to reduce the price by $20,000 and indicated that “the zoning could change to RM74 or commercial.” Mr. Kulak advised Mr.

Jadresko that Hasco “may be having some zoning issues” and suggested that he call the Town to “discuss the zoning with them directly.” (Woodsmere never executed the addendum.) [ 28 ] After receiving information from Brenda Matthews, the Town’s planning and development officer, Mr. Jadresko flew from Victoria to Edmonton to meet, separately, with Mr. Hasan and some Town representatives. The meetings took place on February 6, 2008.

[ 29 ] On February 7, 2008, Mr. Jadresko began advising his professionals to stop the work they were doing on Lot A as Woodsmere was considering an alternative site in Beaumont, north of Lot A on Range Road 243. For the purpose of this litigation, the parties referred to the alternative site as the Montrose North property. [ 30 ] On February 13, 2008, Mr. Kulak sent Mr. Jadresko an unexecuted proposed commercial real estate purchase contract he received from Mr. Baldwin regarding the Montrose North property. Mr.

Jadresko sent the document to his lawyer, Les Jamieson, who drafted an offer to purchase the Montrose North property for Woodsmere. Mr. Jadresko executed the offer on February 15, 2008 (a Friday) and forwarded it to Mr. Kulak, who sent it to Mr. Baldwin. The offer was open for acceptance until 5:00pm the following Monday (February 18, 2008). Mr. Hasan did not see the offer until after the deadline. [ 31 ] Two weeks passed. Having received no response to Woodsmere’s offer, Mr. Jadresko instructed Mr.

Jamieson to send Hasco a letter alleging breach of contract and insisting that Hasco fulfil its obligations under the December 2007 contract, or reach a new agreement with Woodsmere. Mr. Jamieson sent such a letter to Hasco on February 29, 2008. He received a response, setting out Hasco’s position, from Hasco’s lawyer, Kevin Ozubko, on March 7, 2008. [ 32 ] The lawyers reached no resolution. [ 33 ] After March 15, 2008, Hasco worked with the Town to rezone Lot A to commercial, rather than RM74. That was achieved on April 22, 2008. [ 34 ] On April 23, 2008, Mr. Kulak advised Mr. Jadresko that Mr.

Baldwin had called him and indicated that Hasco was “ready to meet and sign up a deal”. Nothing came of this. [ 35 ] At the end of May 2008, Mr. Baldwin sent Mr. Kulak a memorandum proposing that Woodsmere purchase the Montrose North property from Hasco on different terms than those it had proposed in February, including a significantly higher price per acre. Woodsmere declined this proposal and pursued its action (commenced in April 2008).

Analysis Rectification Issue [ 36 ] As mentioned above, the parties’ contract provided that: “The Seller warrants that the Property at the closing date will be zoned to RM74 apartment buildings” (the impugned clause). Hasco seeks to have this clause rectified so as to make it clear that the rezoning of Lot A was a condition precedent, not a warranty. Law [ 37 ] Rectification is an equitable remedy available in the discretion of the Court.

In the recent case of Canada (Attorney General) v Fairmont Hotels Inc , 2016 SCC 56 , [2016] SCJ No 56 (QL) at para 12 [ Fairmont ], the Supreme Court described the remedy this way: If by mistake a legal instrument does not accord with the true agreement it was intended to record – because a term has been omitted, an unwanted term included, or a term incorrectly expresses the parties’ agreement – a court may exercise its equitable jurisdiction to rectify the instrument so as to make it accord with the parties’ true agreement.

Alternatively put, rectification allows a court to achieve correspondence between the parties’ agreement and the substance of a legal instrument intended to record that agreement, when there is discrepancy between the two.

Its purpose is to give effect to the parties’ true intentions, rather than to an erroneous transcription of those true intentions [citation omitted]. [ 38 ] Later in Fairmont , at paragraph 14 , the Court explained that, in a case where “both parties subscribe to an instrument under a common mistake that it accurately records the terms of their antecedent agreement”, rectification is available if the applicant shows: that the parties had reached a prior agreement whose terms are definite and ascertainable; that the agreement was still effective when the instrument was executed; that the instrument fails to record accurately that prior agreement; and that, if rectified as proposed, the instrument would carry out the agreement [citations omitted].

This test must be proven on a balance of probabilities by “evidence exhibiting a high degree of clarity, persuasiveness and cogency”: Fairmont at para 36 . [ 39 ] In McLean v McLean, 2013 ONCA 788 , [2013] OJ No 5956 (QL) at para 60 , leave to appeal to SCC refused, 35744 (May 8, 2014), the Ontario Court of Appeal explained that: the question that the court must answer is whether the totality of the evidence supports the conclusion on a balance of probabilities that an agreement was in place but that an error was made in recording it. This is an objective inquiry.

The totality of the evidence can include the testimony of a party as to what he or she understood the terms to be. The weight of this testimonial evidence will vary depending on the documentary and other evidence available [citations omitted]. Relevant Evidence [ 40 ] Mr. Kulak testified that he found Lot A in late 2007 and contacted Mr. Baldwin to inquire about it. Mr. Baldwin told Mr. Kulak that he felt the property could be zoned residential and sent Mr. Kulak a municipal development plan which showed Lot A as a

future multi-family residential site. [ 41 ] Mr. Jadresko testified that, when Mr. Kulak introduced Lot A to him, he presented it as a property that was “going to be zoned RM74”. Mr. Kulak provided Mr. Jadresko with the municipal development plan he received from Mr. Baldwin and some information on RM74 zoning. Mr. Jadresko said Woodsmere started to put an offer together right away. He explained: “We put together what we called a shell offer, and I laid out what I thought [were] the basic points of the offer. Then I forwarded it on to my lawyer”, Mr. Jamieson. [ 42 ] Mr.

Jamieson formalized Woodsmere’s offer and forwarded it to Mr. Kulak, who forwarded it to Mr. Baldwin. Numerous handwritten changes were made to the document before the contract was finalized. The only change made to the impugned clause was the replacement of the words “accommodate four-storey” with “RM74”. [ 43 ] Mr. Hasan testified that he did not understand why the impugned clause was written the way it was and that it was his understanding that Woodsmere’s “offer [was] subject to the rezoning, the condition for the rezoning.” He said that is why he “didn’t focus on the wording.” Mr.

Hasan repeatedly explained that he understood that the parties’ deal was conditional on the rezoning of Lot A to RM74 and that, if the rezoning did not happen, the deal would be dead. [ 44 ] Mr. Kulak testified that he understood that Woodsmere was only interested in purchasing an appropriately-zoned property and, in Beaumont, the appropriate zoning was RM74. He also testified that he understood the impugned paragraph to mean that it was a condition of the contract that Lot A would be zoned RM74. [ 45 ] Mr. Jadresko offered similar testimony.

He said the impugned clause was “critical” to Woodsmere’s offer, and explained that: “Any other zoning would not work for us. RM74 was the apartment zoning that we require[d].” He also had these exchanges with Hasco’s counsel: Page 138, lines 25 to 29: Q Okay. Okay. So are you saying then that the agreement was subject to the rezoning? A The agreement was conditional on – on getting the rezoning to [RM74], yes. Q Okay. That’s what you understood, correct? A Yes. Page 140, lines 6 to 19: Q And you also testified just earlier that you understood the deal was subject to the property getting rezoned. A Yes.

Q And if the property didn’t get rezoned, it was no more deal. A If the property did not get rezoned, there was no use to me for the property. Q And is it not correct that really what your lawsuit is about, or your complaint is, is that you think Hasco didn’t use its best efforts. A Correct. Q And if Hasco did use its best efforts and it didn’t get rezoned, your understanding would be the deal is over and no one’s liable. A.

Correct. [ 46 ] It is also worth noting that the proposed contracts the parties exchanged in February 2008, relating to the Montrose North property, each specified the rezoning of the property to RM74 as a condition precedent. Decision [ 47 ] I am satisfied, based on the totality of the evidence, that the parties (that is, Mr. Jadresko for Woodsmere and Mr. Hasan for Hasco) executed the contract under a common mistake that it accurately recorded their agreement that the rezoning of Lot A to RM74 was a condition precedent.

The impugned clause incorrectly expressed the parties’ true agreement by suggesting that Hasco was merely providing a warranty regarding the rezoning of Lot A. [ 48 ] Although the parties did not have direct discussions before executing the contract, it is clear that each of them understood that

they had agreed that, if Lot A was not rezoned RM74, neither party would have further obligations under the contract. The principals ofboth companies, and Woodsmere’s realtor, testified that this was their understanding.

The fact that the proposed contracts the partiesexchanged for the Montrose North property made rezoning a condition precedent is further evidence that this was what the partiesintended to do in their contract for Lot A. [49] Accordingly, in order to correctly record what the parties intended to do, the impugned clause is rectified to make therezoning of Lot A to RM74 a condition precedent to the performance of the parties’ obligations to sell and buy the property.

Honesty, Good Faith and all Reasonable Steps Issue [50] At the heart of the dispute between the parties is whether Hasco fulfilled its duty to act honestly and in good faith and take allreasonable steps to rezone Lot A to RM74.

Law [51] In Dynamic Transport Ltd v OK Detailing Ltd, (SCC), [1978] 2 SCR 1072 at 1084 [Dynamic], a casewhere the vendor’s obtaining of subdivision approval was a condition precedent to the performance of the parties’ obligations to sell andbuy the land, the Supreme Court held that “[t]he vendor is under a duty to act in good faith and to take all reasonable steps to completethe sale.” The Court went on to hold that it was up to the vendor to “make a proper application for subdivision and use his best efforts toobtain such subdivision.” [52] In the more recent case of Bhasin v Hrynew, 2014 SCC 71, [2014] 3 SCR 494, the Supreme Court confirmed the duty ofgood faith performance enunciated in Dynamic and held that there is also “a general duty of honesty in contractual performance” thatapplies to all contracts: paras 47, 49, 73 and 75.

The Court went on to explain that the duty of honesty requires that parties “not lie orotherwise knowingly mislead each other about matters directly linked to the performance of the contract”, but that it “does not impose aduty of loyalty or of disclosure or require a party to forego advantages flowing from the contract”: para 73. Relevant Evidence and Findings [53] The parties dispute very few of the facts in this case. However, they have left the Court with diametrically opposeddescriptions of what transpired when Mr. Jadresko and Mr. Hasan met on February 6, 2008. [54] Mr.

Hasan testified that he clearly explained “all the situation” to Mr. Jadresko at the meeting, including the fact that theTown was unwilling to rezone Lot A to RM74 and that it wanted to rezone Lot A to commercial instead. [55] In contrast, Mr. Jadresko testified that Mr. Hasan asked him to consider an alternate property (the Montrose North property) atthe meeting, without explaining the situation with the Town. He said Mr.

Hasan did not indicate that the Town had anything to do withthe alternate property request, and denied that he was told that the Town wanted Lot A zoned commercial, rather than residential. [56] Regarding this factual dispute, I prefer the evidence of Mr. Hasan and find as a fact that he did advise Mr. Jadresko of theTown’s position. Indeed this is the only logical conclusion on the evidence. [57] On January 18, 2008, Mr. McCartney made it clear to Mr. Hasan that the Town administration would not recommend to TownCouncil that Lot A be rezoned to RM74. [58] On January 24, 2008, Mr. Kulak forwarded Mr.

Jadresko an addendum he received from Mr. Baldwin which, among otherthings, indicated that the “zoning could change to RM74 or commercial” (emphasis added). In his cover email, Mr. Kulak advised Mr.Jadresko that Hasco might be having zoning issues and recommended that they check the matter out as soon as possible. [59] Mr. Jadresko arranged to meet with Mr. Hasan on February 6, 2008. During his flight to Edmonton, he made a list of thematters he wished to discuss with Hasco. “Zoneing” (sic) was the first item on his list. [60] During the February 6th meeting, Mr. Jadresko and Mr.

Hasan discussed the possibility of Woodsmere purchasing theMontrose North property from Hasco, instead of Lot A. Mr. Jadresko agreed to consider the alternate property. [61] After the meeting, Mr. Jadresko stopped the work his various professionals were doing on Lot A and began gatheringinformation on the Montrose North property. Mr. Sharma of Hasco provided Mr. Jadresko with some information on the alternateproperty. [62] Later in February, before the parties completely fell out with one another, they exchanged proposals regarding the MontroseNorth property but did not reach an agreement. [63] That Mr.

Jadresko, having zoning at the top of his list of matters to discuss at the February 6th meeting, would not inquire asto why Lot A might be rezoned to commercial instead of RM74 defies common sense. That Mr. Hasan, who knew he faced losing thesale of Lot A as a result of the Town’s position on rezoning, would not tell Mr. Jadresko his problem also defies common sense. Mr.Hasan did not want to lose a sale. He knew he would likely lose the sale of Lot A and it behooved him to tell Mr. Jadresko why, so hecould strike a new deal on the Montrose North property. Mr.

Jadresko wanted Lot A and, if it looked like Hasco was experiencingzoning problems, he would want to know why. [64] When the two men met on February 6, 2008, they had a common goal in mind: the sale of land to Woodsmere for the

development of apartment buildings. Nothing in the evidence demonstrates that it would have made any sense for Mr. Hasan not to explain the rezoning problem to Mr. Jadresko. Mr. Hasan did not stand to benefit from failing to explain the situation, especially as Hasco had already indicated to Woodsmere (in the proposed addendum) that Lot A might be rezoned to commercial. [ 65 ] Mr. Jadresko suspected a zoning problem, he inquired, and I’m persuaded on the evidence that Mr. Hasan explained it to him. [ 66 ] Woodsmere also disputes that Mr. Hasan had a meeting with Mr. Landry and Mr. Lavasseur on January 23, 2008.

Earlier in this decision I set it out as a fact that he did. This is why. [ 67 ] Mr. Hasan knew he had a problem after his meeting with Mr. McCartney on January 18, 2008. He testified that he recalled that Mr. Landry and Mr. Lavasseur were also in attendance at the January 18 th meeting. Mr. McCartney testified that he thought Ms. Matthews attended the meeting with him. I prefer the evidence of Mr. McCartney on this point as there is nothing to suggest there was any reason for four members of the Town administration to attend the meeting. On balance, it seems most likely that Mr. Hasan contacted Mr.

Landry and Mr. Lavasseur after the January 18 th meeting to further plead his case with them. If Mr. Landry and Mr. Lavasseur attended the January 18 th meeting, it is unlikely that Mr. Hasan would have met with them again a few days later. [ 68 ] Mr. Hasan testified that, after the January 18 th meeting, he still wanted to sell Lot A to Woodsmere, so he asked Mr. Landry and Mr. Lavasseur to visit him at Hasco’s office to see what they could do about the rezoning problem. He explained that he met with the two Town administrators on January 23, 2008 but his lobbying efforts proved fruitless.

Following the meeting, it was his understanding that Lot A would be rezoned to commercial, not RM74. [ 69 ] When Mr. Sharma was questioned as an officer of Hasco, he provided answers that conflict with Mr. Hasan’s testimony regarding the January 23 rd meeting. Mr. Sharma said the only meetings he and Mr. Hasan had with Town representatives in January 2008 were meetings with Mr. McCartney and Ms. Matthews at the Town’s office. [ 70 ] I accept the evidence of Mr. McCartney and Mr. Hasan. With respect to Mr. Sharma, I find that he either did not know of the meeting Mr. Hasan had with Mr. Landry and Mr.

Lavasseur on January 23 rd , or he had forgotten about it when he was questioned. [ 71 ] I accept that Mr. Hasan met with Mr. Landry and Mr. Lavasseur on January 23, 2008. The information on the proposed addendum that Mr. Baldwin sent to Mr. Kulak indicates that it was sent to Century 21 at 9:43 that day. The fax marking appears to show it as 9:43am as it is marked 09:43. Either Mr. Hasan met the two Town administrators before he sent the document or he met with them after it was sent.

In either case he knew he had a serious problem with zoning when he sent the document. [ 72 ] Whether he met with them before or after sending the document, it is clear that the document shows that he knew he had a problem with zoning and that the Town intended to change it to commercial and he intended to take the matter up with the two Town administrators. To Mr. Hasan, this meeting with Mr. Landry and Mr. Lavasseur was a memorable event. An event subsequent to the January 18, 2008 meeting connected temporally to the sending of the proposed addendum to Mr.

Kulak. [ 73 ] Based on the evidence, I find as a fact that Mr. Hasan met with Mr. Landry and Mr. Lavasseur at his office on January 23, 2008 to try and address the zoning problem he was having with the Town. Decision [ 74 ] Ordinarily, when a party to a contract is alleged to have failed to act honestly and in good faith, the allegation relates to the party attempting to avoid an obligation under the contract, or lying or misleading the other party to gain a benefit. [ 75 ] Woodsmere’s brief regarding Hasco’s alleged failure to act honestly and in good faith claims that Hasco failed to: (

i) disclose the rezoning problem to Woodsmere in a timely manner, (ii) act in good faith in pursuing a substitute agreement on the Montrose North property, and (iii) take all reasonable steps to rezone Lot A to RM74. Disclosure of Rezoning Problem [ 76 ] As for timely disclosure, I have already found as a fact that Mr. Hasan explained the rezoning problem to Mr. Jadresko when the two men met on February 6, 2008. In any event, from my reading of Bhasin , Hasco’s duty of honesty did not require that disclosure.

At paragraph 73 of Bhasin , the Supreme Court clearly stated that the duty of honesty in contractual performance does not impose a duty of disclosure. Pursuit of Substitute Agreement [ 77 ] Regarding Woodsmere’s second claim, I am not persuaded that Hasco’s duty of good faith contractual performance required it to pursue a substitute agreement on the Montrose North property. [ 78 ] Woodsmere has sued Hasco for breach of the contract regarding Lot A.

There is nothing in that contract which suggests that Hasco was under any obligation to provide an alternate property if it could not deliver the required rezoning of Lot A. Hasco’s duty of good faith only extends to the contract for Lot A; it does not extend to the failed negotiations on the Montrose North property. Woodsmere has not brought a claim against Hasco regarding the Montrose North property, and there is nothing in Dynamic or Bhasin which suggests that Hasco was obliged to come up with an alternate property when its contract for Lot A fell afoul of the Town’s plans.

[ 79 ] This was not a bait and switch tactic by Hasco. Hasco had a good reason to sell Lot A to Woodsmere. It stood to make a gross profit of $850,000 in approximately fifteen months, amounting to an annual gross return of about sixty percent. [ 80 ] When Mr. Hasan realized that Hasco faced the real possibility of losing the sale of Lot A as an RM74 property, and watching an $850,000 gross profit disappear, he proposed the Montrose North property as an alternative to Lot A, to save a deal for both parties. Mr.

Hasan was not obliged to make this proposal but, as a developer, he wanted a sale and so he offered the Montrose North property as a possibility. [ 81 ] The following calculations show what contributed in large measure to the eventual breakdown of amicable business relations between Mr. Jadresko and Mr. Hasan. [ 82 ] When the contract for Lot A was executed, the parties considered it a 3.76 acre property, at a price of $545,212.77 per acre, for a total price of $2,050,000 (3.76 x $545,212.77 = $2,050,000). [ 83 ] However, the property required subdivision if Woodsmere wanted rezoning by Hasco.

The subdivision required a dedication of land for road widening and a municipal reserve, leaving 3.02 net acres. In effect, this increased the price of Lot A to $678,807.95 per acre ($2,050,000/3.02 = $678,807.95). [ 84 ] When Mr. Jadresko understood this, in early January 2008, he did not like it, but decided Woodsmere could work with it. Mr. Jadresko tried to renegotiate the price but nothing came of it and he decided to proceed.

Woodsmere has not alleged any dishonesty or bad faith on the part of Hasco regarding the net acreage of Lot A. [ 85 ] Hasco’s unexecuted proposed contract regarding the Montrose North property indicated that the property was four acres of a five-acre parcel, at a price of $545,212.77 per acre, for a total price of $2,180,851 (4 x $545,212.77 = $2,180,851). Unlike the parties’ contract for Lot A, this proposed contract was based on estimated net acres. Mr. Hasan testified that he estimated that, after Hasco gave the Town a road, the Montrose North property would be a four-acre parcel.

The price per net acre in the proposed contract was the same as the price per gross acre in the parties’ contract for Lot A. [ 86 ] In his testimony, Mr. Hasan acknowledged that four acres was more than Woodsmere required for its purposes, but suggested that Woodsmere could subdivide the Montrose North property and do with it what they saw fit. He believed Hasco’s proposed contract was a generous attempt to help Woodsmere continue with its plans to build apartment buildings in Beaumont. [ 87 ] Woodsmere responded to Hasco’s proposed contract with an offer drafted by Mr. Jamieson. Mr.

Jadresko explained that Woodsmere was not satisfied with Hasco’s proposed contract because it did not deal with subdivision and some other matters. [ 88 ] Amendments for matters like subdivision would almost certainly have been acceptable to Hasco. However, because the bylaw relating to RM74 zoning limited the lot size to 3.09 acres, Woodsmere offered to purchase only 3.09 acres of the five-acre parcel, for a total price of $1,684,707.46 (3.09 x $545, 212.77 = $1,684.707.46). In other words, Woodsmere made an offer to purchase the 3.09 acres it required, rather than the 4 acres Hasco proposed to sell. [ 89 ] Mr.

Hasan was insulted by Woodsmere’s offer. The offer reduced the price from $2,180,851 to $1,684,707.46. It also required acceptance on the Monday following the Friday that it was sent to Mr. Baldwin, which was before Mr. Hasan had even seen it. Moreover, it specified the precise portion of the five-acre parcel that Woodsmere wished to purchase, and Mr. Hasan was unsure about whether that portion included land that would have to be provided to the Town for a road. Mr.

Hasan decided Woodsmere was not serious about purchasing the Montrose North property and Hasco did not respond to the offer. [ 90 ] It may have been a poor business decision for Hasco not to deal further with Woodsmere on the Montrose North property until after the closing date for the parties’ contract on Lot A had passed; however, it was not a breach of Hasco’s duty to perform its obligations under that contract in good faith. Hasco was not contractually obliged to make any effort to pursue a substitute agreement on an alternate property to Lot A.

Reasonable Steps to Rezone Lot A to RM74 [ 91 ] Regarding Woodsmere’s third claim, I am persuaded that Hasco met its duty to take all reasonable steps to obtain RM74 zoning for Lot A. [ 92 ] When analyzing this matter, it is important to be mindful of the dates and events, what each person knew at the time, the steps that were taken by each person, the knowledge those steps were taken with, and the rather tight time lines the parties were working within to complete the purchase and sale of Lot A. [ 93 ] As of December 27, 2007, when the parties finalized their contract for Lot A, all appeared well with respect to the rezoning of Lot A to RM74 to allow Woodsmere to build apartment buildings on the land. [ 94 ] It is clear from the evidence that Mr.

Hasan expected Mr. McCartney, who had supported Hasco’s rezoning application at the December public hearing, to present Hasco with a development agreement. Thereafter, once the terms of the development agreement were settled, the rezoning application would go before the Town Council for second and third readings, likely on January 22, 2008. [ 95 ] However, no development agreement came to Hasco. Rather, Mr. McCartney realized that the Town’s municipal development plan (revised in December 2006), showing the future use of Lot A as residential, was in error.

It did not correspond with an earlier municipal development plan (revised in April 2005), or an outline plan approved in 2005, both of which showed the future use of Lot A as business park; and there was no resolution or other authorization from the Town to support the amendment of the future use of Lot A to residential. [ 96 ] Mr. McCartney took the matter up with other members of the Town administration, and they reached a decision that the Town

administration would not support the rezoning of Lot A to RM74. [ 97 ] Mr. McCartney broke the news to Mr. Hasan on January 18, 2008, and told him that Hasco’s rezoning application would fail without the support of the Town administration. He also advised Mr. Hasan that, if Hasco’s application failed, Hasco would have to start over, with a new application to rezone the land. [ 98 ] Mr. McCartney testified that Mr. Hasan wanted to attend the next Council meeting and asked him to put the matter on the agenda, but he refused that request. It is not exactly clear which Council meeting Mr.

McCartney was referring to, but I accept his evidence that Mr. Hasan made the request and that it was denied. [ 99 ] Then, on January 23, 2008, Mr. Hasan met with Town administrators Mr. Landry and Mr. Lavasseur at his office to lobby them to do something on Hasco’s behalf. From that meeting Mr. Hasan concluded that neither of these individuals would assist in providing any zoning other than commercial. [ 100 ] It was around this time that Hasco instructed Mr. Baldwin to provide Woodsmere with the addendum indicating that “the zoning could change to RM74 or commercial”.

This was a rather weak method of advising Woodsmere of the rezoning problem Hasco faced. However, I have found as a fact that Mr. Hasan disclosed the problem he was having with the Town at the February 6, 2008 meeting. So, Woodsmere was well-aware of the problem by that date. [ 101 ] By then, that is by February 6, 2008, Woodsmere only had nine days to remove its conditions precedent, unless the handwritten clause at the end of the contract automatically extended the condition removal date to a further date. [ 102 ] Mr.

Hasan, who was not prepared to accept the advice he received from the Town administrators, told Mr. Jadresko that he would continue to try to have Lot A rezoned to RM74. [ 103 ] Mr. Hasan testified that he had informal discussions with various councillors and the mayor to lobby them to help. Woodsmere suggested I should reject this evidence because it was uncorroborated: Hasco did not call anyone from the Town Council, and there are no documents supporting Mr. Hasan’s testimony. [ 104 ] It is not surprising that no documents exist to support Mr. Hasan’s informal lobbying efforts. I accept Mr. Hasan’s testimony.

He did what any reasonable person would expect him to do; that is, he met personally with the councillors and the mayor to lobby for his rezoning application. This is the way of small town, or even city, developments. A developer can make its case as well, if not better, by meeting individually with Council members than by making a formal presentation at a regular Council meeting. [ 105 ] From the evidence I cannot find as a fact over what period Mr. Hasan carried out this lobbying with the councillors and the mayor. For certain it would have commenced sometime after January 23, 2008.

It continued until he gave up, which would have been sometime before March 19, 2008, when Hasco followed the Town’s direction and changed its rezoning application to seek commercial zoning. [ 106 ] Although I cannot be certain when Mr. Hasan last lobbied the councillors or the mayor, or how many councillors he lobbied, I accept that he made sufficient inquiries of them until, as he testified, he gave up. [ 107 ] Woodsmere argues that Hasco did not take all reasonable steps to rezone Lot A to RM74 and suggests other steps it could have taken for the Court’s consideration.

Remembering that the Dynamic test is objective, I deal with them as follows. [ 108 ] Woodsmere suggested that Hasco ought to have tried to have the outline plan amended to accord with the municipal development plan (revised December 2006) that showed the future use of Lot A as residential. Unfortunately, the error lay in the municipal development plan, which was to reflect the outline plan.

The Town wanted Lot A zoned commercial, not residential of any density, so asking to change the outline plan had no more chance of success than continuing to try to rezone Lot A as RM74. [ 109 ] Woodsmere argues that Hasco should have requested a written explanation from the Town administrators and appeared before the Town Council to plead its case. Mr. McCartney clearly explained the Town administration’s position to Mr. Hasan and Mr. Hasan pled Hasco’s case with Town administrators Mr. McCartney, Ms. Matthews, Mr. Landry and Mr. Lavasseur. He also lobbied councillors and the mayor. Moreover, Mr.

McCartney told Mr. Hasan he would not place Hasco’s rezoning matter on a Council meeting agenda. Even if the matter had made the agenda, Hasco almost certainly faced a formal rejection confirming the off-the-record advice he had received from the Town administration, councillors and the mayor. [ 110 ] Mr. Hasan faced another problem with the Town administration. In January 2008, the Town hired a new chief administrative officer and one of that officer’s goals was to increase commercial lands in Beaumont. Faced with this direction from the new chief administrative officer, Mr.

Hasan stood very little chance of success with the Town administration, the councillors or with a formal appearance before the Town Council. [ 111 ] Woodsmere also submits that Hasco could have hired experts to explain the advantages of having Lot A rezoned to RM74. This would not have been a reasonable step for Hasco to take in the circumstances. It would have been costly for Hasco to retain experts, and the expense would not have been justified in light of the advice Mr.

Hasan continually received from the Town administration and Council. [ 112 ] Woodsmere suggests that Hasco should have hired a lawyer to threaten or take legal action against the Town. During oral argument, Woodsmere’s counsel suggested that Hasco could have used legal action to “massage” the Town. He added, “You say, look -- there’s other things we can do here that maybe you as a town don’t want to have come out.” [ 113 ] When this suggestion was put to Mr. Hasan during cross-examination, Mr. Hasan answered in words which I understand to mean that hiring a lawyer in these situations only makes things worse.

[ 114 ] I do not see hiring a lawyer as a reasonable step for Hasco to have taken. Mr. Hasan faced a deadline of February 15, 2008 to complete the rezoning of Lot A to RM74 so that Woodsmere could remove its conditions precedent. The condition removal date may have been extended for a month or more, but not past the contract’s closing date of April 15, 2008. [ 115 ] A lawyer might threaten a negligence lawsuit for the error on the municipal development plan, but to what end? Such a lawsuit might take nine years, as has this one, to work its way through the courts.

And, any threat to take action regarding the Town’s discretion on rezoning would have had little chance of success. More important, however, is the fact that bringing, or even threatening, litigation would have put Hasco at risk of poisoning its relationship with the Town. For Hasco to succeed as a developer in Beaumont, it needed the cooperation of the Town administration. Legal action or the threat of legal action would almost certainly badly damage the relationship.

No reasonable observer would expect Hasco to take such steps when they had little chance of success with respect to the rezoning and would likely harm Hasco’s long-term interest. [ 116 ] Woodsmere argues that Hasco could have sought its assistance in persuading the Town to rezone Lot A to RM74. That, however, cuts two ways. If Hasco were to involve Woodsmere, then it might face the risk of an allegation that it did not make its best efforts but left Woodsmere to carry the ball. In any event, Woodsmere presented no evidence that it would have acted differently than Hasco. Mr.

Jadresko did not testify that Woodsmere was prepared to bear the expense of hiring an expert. As for Woodsmere hiring a lawyer, I have already pointed out the possibly negative consequences for Hasco. For Woodsmere, this project was to be its twenty- second, and it would have made little difference to Woodsmere if it hired a lawyer which in the long run damaged Hasco’s relationship with the Town. Woodsmere could move on to another project if its lawyer failed to obtain the rezoning and leave Hasco to suffer the long-term consequences.

Leaving Woodsmere out of the rezoning process did not amount to a failure to take a reasonable step by Hasco. [ 117 ] From the evidence, I cannot decide whether Woodsmere’s February 15, 2008 offer on the Montrose North property, which Mr. Hasan considered insulting, caused Mr. Hasan to relent or redouble his efforts to obtain the RM74 zoning for Lot A. Nor can I be certain of the effect the February 29, 2008 demand letter from Woodsmere’s counsel had on Mr. Hasan’s efforts. [ 118 ] Mr. Hasan testified that he tried to complete the rezoning for two months.

Counting back from mid-March 2008, when he relented and amended Hasco’s application to seek commercial zoning, takes us to mid-January, around the time that Mr. McCartney told him that the Town administration would not support his application to rezone Lot A to RM74. [ 119 ] I am satisfied that Mr. Hasan, on behalf of Hasco, made all the efforts he could to persuade the Town administration and Council to proceed with his application to rezone Lot A to RM74. Mr. Hasan had an $850,000 gross profit riding on the deal with Woodsmere.

This was a good reason to make his best efforts and he did. [ 120 ] For the reasons set out, I am persuaded that Hasco met its duty to take all reasonable steps to obtain RM74 zoning for Lot A. Notwithstanding Hasco’s efforts, the required rezoning was not obtained; that is, the rezoning condition precedent was left unsatisfied. Consequentially, the parties’ contract was rendered void. Conclusion [ 121 ] In the result, Woodsmere’s claim is dismissed.

Outstanding Issues [ 122 ] It is unclear from the parties’ pleadings whether Hasco returned the deposit Woodsmere paid for Lot A, and neither party provided any evidence as to the disposition of the deposit. In the circumstances, that is, because Hasco was unable to satisfy the rezoning condition precedent, Woodsmere should be entitled to the return of the deposit.

However, as the parties have not argued this matter fully, instead of directing the return of the deposit, I will grant the parties leave to make submissions on the issue if they cannot resolve it themselves. [ 123 ] If the parties cannot reach an agreement on costs, they may arrange with my assistant to make submissions on the issue of costs. Heard on the 19 th through the 28 th days of September and the 28 th day of October, 2016. Dated at the City of Edmonton, Alberta, this 20 th day of December, 2016 . E.J. Simpson J.C.Q.B.A.

Appearances: Gary B. Romanchuk Ogilvie LLP for the Plaintiff Ben A. Guido and Amie W. Heil Odishaw & Guido for the Defendant