Joyful House of Prayer Congregation of Lethbridge v Lethbridge Northern Irrigation District, 2017 ABQB 141

Court of Queen’s Bench of Alberta Citation: Joyful House of Prayer Congregation of Lethbridge v Lethbridge Northern Irrigation District, 2017 ABQB 141 Date: 20170301 Docket: 1406 00467 Registry: Lethbridge Between: The Joyful House of Prayer Congregation of Lethbridge Plaintiff/Appellant - and - Lethbridge Northern Irrigation District Defendant/Respondent _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice J.H. Langston _______________________________________________________ Appeal from the Oral Decision by K. R.

Laycock, Master in Chambers Dated the 18 th day of June, 2015 Introduction [ 1 ] On May 31, 2013, the Plaintiff took possession of a two-storey office building which it purchased from the Defendant

pursuant to a Commercial Real Estate Purchase Contact (the “Purchase Contract”) which was finalized on April 23, 2013. The Defendant had used the building as its commercial office space for several years, and the Plaintiff intended to renovate and use the building for religious assembly. Once in possession, however, the Plaintiff encountered several problems. It then filed a Statement of Claim against the Defendant alleging several breaches of the Purchase Contract.

Most of the allegations claim non-compliance with applicable regulations, or claim that the Defendant was aware the building had several defects, of which it ought to have informed the Plaintiff. [ 2 ] The Defendant brought an application for

summary dismissal of the claim, and was successful. The Plaintiff, which had thus far been self-represented, then sought legal counsel. Plaintiff’s counsel has now filed an application to amend the Statement of Claim, and appealed the Master’s decision. Application to Amend the Statement of Claim [ 3 ] In oral argument both counsel took the position that the proposed amended Statement of Claim does not contain anything new. Plaintiff’s counsel stated that the information was just organized differently, and that the real issue was the correctness of the Master’s decision.

Defence counsel stated the new Statement of Claim contained nothing new, and was therefore just as hopeless, for the same reasons, as it had been before the Master. [ 4 ] In comparing the two Statements of Claim, the one significant difference is that the new claim now includes causes of action in tort, whereas the first was founded only in contract. However, the basis for the various tort claims is that the Defendant knew, or ought to have known, of dangerous or potentially dangerous latent defects and didn’t tell the buyer. This is already caught by clause 6.1(

j) of the Purchase Contract, wherein the Defendant warrants that it doesn’t know of any such defects other than those already disclosed. In the

summary dismissal application, the Master addressed many factual allegations which the Plaintiff alleged were non-disclosed latent defects. So the facts and principles behind the claims in contract and in tort are the same. [ 5 ] The Plaintiff and Defendant also both agree that amendments are to be allowed unless the Court finds one of four circumstances applies. Three of those four circumstances are that the amendments cause prejudice; that the amendments add a new cause of action not related to the conduct described in the original pleading after the limitation period is expired; or that there is bad faith.

I agree with the Plaintiff that none of those circumstances exist here. [ 6 ] The fourth circumstance is that the amendments are hopeless. It is precisely for this reason that the Defendant argues the amendments should not be allowed, and the Defendant relies on the correctness of the Master’s decision. Plaintiff’s counsel also agreed that this aspect of the test for the granting of the amendments crosses with the test for the appeal. [ 7 ] Given that both counsel agree that the proposed new Statement of Claim adds nothing new, I will consider the correctness of the Master’s decision.

For if it stands, the amendments will not be allowed. Appeal of the Master’s Decision [ 8 ] Both counsel are also in agreement with the law applicable to the appeal: the standard of review for the Master’s decision is correctness ( Bahcheli v Yorkton Securities Inc , 2012 ABCA 166 ); and that on a

summary dismissal application, this means the Master must have correctly determined whether there was a reasonable prospect that the claim would succeed ( Windsor v Canadian Pacific Railway , 2014 ABCA 108 ). [ 9 ] The focus in the original Statement of Claim was a breach of sections six and eight of the Purchase Contract.

Section six, entitled “Representations and Warranties”, sets out the seller’s warranties, which essentially are that the current use and physical location of the building comply with applicable by-laws and regulations, and do not encroach. [ 10 ]

Section eight is entitled “Conditions”, and particularly at issue is clause 8.1, “buyer’s conditions.” Sub clause (

a) enables the buyer to include a financing condition; (b)(

i) enables the buyer to require the seller to disclose documents related to the property; (b)(ii) enables the buyer to arrange access for third party inspections; and (

d) is entirely blank, but is included in the form to enable the buyer to impose additional conditions. [ 11 ] In 1971 the Defendant erected a radio mast on the building.

In the original Statement of Claim and before the Master, much of the focus was on the alleged non-compliance of this radio mast with various regulations, and the effect of its existence on the structural integrity of the building. [ 12 ] The Master went through each specific allegation in the original Statement of Claim and generally found there was no evidence to support the allegations of non-compliance, or that even if the alleged non-compliance did exist, the Plaintiff had not adduced any evidence of damage suffered as a result.

The perfect example of this is the Plaintiff’s claim that the tower was not registered with the city and did not comply with municipal rules. Even if this was the case, said the learned Master, there was no evidence the city had fined the Plaintiff, or pursued the Plaintiff to rectify the situation. And as the Plaintiff had now removed the tower, there was no possibility of such action by the city in the future. Therefore, there was no evidence of damage. [ 13 ] I find no error in the Master’s reasoning on these issues.

He looked at the evidence, and his analysis showed the Plaintiff’s evidence was lacking and the claims therefore had no reasonable prospect of success. Therefore, I dismiss the Plaintiff’s appeal in respect of the claims regarding non-compliance. [ 14 ] This leaves the issue of non-disclosure of defects. [ 15 ] In this Court, the Plaintiff’s counsel did not focus on the radio mast but on allegations of non-disclosure against the Defendant. After this litigation was commenced, the Plaintiff learned that years before the sale the Defendant had commissioned a report

by MPE Engineering Ltd. The MPE Report, dated July 2009, was a “visual condition review” reporting on the structural, mechanical and electrical systems in the building. The Plaintiff now claims that had it known the contents of the MPE report it would have never purchased the building. [ 16 ] In clause 6.1(

j) in the “Representations and Warranties” section, the seller warrants that, except as disclosed, it “is not aware of any defects that are not visible and that may render the Property dangerous or potentially dangerous to occupants or unfit for habitation.” If a seller does not disclose such defects, or conceals them, then not only has it breached the contract, it has also committed the tort of fraudulent misstatement or fraudulent misrepresentation, claims now proposed to be added by the new Statement of Claim. [ 17 ] The portion of the MPE Report dealing with structural matters found the “structural components appear to be in fairly good condition” and there were not “any visual indications of excessive strain.” Similarly, the interior “is not showing any signs of excessive strain of the structural elements.” Overall, the “structural condition” was “considered to be good.” [ 18 ] The Plaintiff makes much of its assertion that the second floor is inadequate to accept the load.

The only comment in the MPE Report regarding the second storey is that a “cursory review” of the second floor joists indicated an “allowable floor loading.” [ 19 ] Lastly, the MPE Report refers to no prior issues of non-compliance with respect to obtaining permits for erection of the tower, renovations, etc.

The only issue of current non-compliance with code that it identifies is the emergency lighting system. [ 20 ] Even if it were the test, which it is not, I am not satisfied that had the Plaintiff been given the MPE Report it would have refused to purchase the building. [ 21 ] More importantly, however, I am not satisfied that the MPE report made the Defendant aware of latent, potentially dangerous defects which the Defendant had the duty to disclose pursuant to the terms of clause 6.1(

j) of the Purchase Contract, or in tort. There are several reasons for this: -As noted in the quotations above, the MPE Report concluded that structurally, the building was in “good” or “fairly good” condition. - In the proposed new Statement of Claim, some of the latent defects which the Plaintiff alleges the Defendant was aware of include cracking; wall rotations; a roofing system past its useful life; a stairwell that was too narrow; inadequate ventilation; and inadequate emergency lighting. These are defects mentioned in the MPE Report.

Yet the MPE Report was prepared based on a visual inspection; that leads to the immediate conclusion that the defects noted were patent, not latent. The Plaintiff has adduced no evidence that these defects were not able to be discovered by conducting a reasonable inspection of the building. -I am also satisfied that most of the alleged defects do not qualify as dangerous or potentially dangerous.

Even accepting the Plaintiff’s definition of an actionable defect as one that causes, “any loss of use, occupation and enjoyment of any meaningful or material portion of the premises”, (paragraph 47, Gibb v Sprague , 2008 ABQB 298 ), I find the Plaintiff has failed to show a reasonable successful prospect of proving the majority of the alleged defects fall into this category. -Even though I find little prospect of success to the allegation that the defects are dangerous or potentially dangerous, I agree that awareness of structural issues could constitute knowledge of a dangerous or potentially dangerous defect.

But, in oral argument, Plaintiff’s counsel conceded the Defendant may not have been aware of any such issue. And I find there is no evidence that the Defendant was aware or ought to have been aware of any such structural issues. The Plaintiff’s allegations that the Defendant failed to have inspections while it erected the radio mast and performed renovations are just assertions made by the Plaintiff’s deponent, who is not an expert. Further, whether those inspections would have identified the now-complained of defects is also conjecture.

Therefore, the claim about non-disclosure of structural defects has no reasonable prospect of success. [ 22 ] Given my finding that the Defendant did not have the duty to disclose the MPE Report on the basis that it disclosed actionable defects, the only question remaining is whether the Defendant had a contractual duty to disclose the MPE Report under clause 8.1(b)(i). In this regard I also find the Master’s decision was correct. [ 23 ] Sub clause 8.1(b)(

i) states that within three days of final signing, the seller will produce documents relating to the property, including but not limited to engineering reports. It contains a blank so that the buyer may specify further information to be disclosed. Sub clause 8.1(b)(ii) states that the seller will make the property available to the buyer for inspection. After these sub clauses, the contract then states, “it is a condition precedent of this offer that the information be satisfactory to the buyer”, and there is a blank for insertion of a date by which condition 8.1(

b) is to be fulfilled. All the blanks in clause 8.1(

b) were left unfilled, but the Plaintiff still asserts the clause was in effect and bound the Defendant to produce documentation. [ 24 ] Other sub clauses in clause 8.1 contain blanks so that the condition may be tailored. For example, sub clause 8.1(

a) enables the buyer to insert a date by which it will obtain financing. This sub clause was not crossed out; like sub clause 8.1(b), it was simply left blank. But the Plaintiff makes no argument that sub clause 8.1(

a) was still in effect. Similarly, sub clause (

d) is a blank that simply says, “Additional buyer’s conditions __________ before 5pm on __ (the “Condition Day).” The Plaintiff not only inserted an additional buyer’s condition in (d), but also filled in the date of the Condition Day. While that condition is not relevant to this application, it shows that the Plaintiff, or its realtor or solicitor, understood how to utilize clause 8.1 to the Plaintiff’s benefit. [ 25 ] Thus, the Plaintiff’s argument that sub clause 8.1(b)(

i) continued to apply because it was not struck out is entirely inconsistent with the Plaintiff’s completion and utilization of other sub clauses of clause 8.1 of the Purchase Contract. I therefore find the Master was correct in ruling it did not apply. Conclusion [ 26 ] The fact of the matter is that the Plaintiff was purchasing a 60 year-old building and intended to change its use under the

municipal by-law. The Plaintiff knew, or ought to have known, that this would be a major undertaking. It had the right to insert conditions to enable it to conduct more thorough investigations prior to purchase. It didn’t. The Defendant does not now bear responsibility because the project turned out to be more onerous than the Plaintiff anticipated. [ 27 ] The application to amend the Statement of Claim is dismissed on the basis that the amendments are hopeless, and the appeal of the Master’s decision is dismissed. The Plaintiff’s claim remains dismissed, with costs to the Defendant.

Heard on the 5 th day of December, 2016. Dated at the City of Lethbridge, Alberta this 28 th day of February, 2017. J.H. Langston J.C.Q.B.A. Appearances: Scott C. Stenbeck, Stenbeck Law Office for the Plaintiff/Appellant Thomas MacLachlan, Maclachlan McNab Hembroff LLP for the Defendant/Respondent