r v. Nolan, 2024 NLSC 5

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : O'Connor v. Nolan , 2024 NLSC 5 Date : January 15, 2024 Docket : 201401G7843 Between: Roxanne O'Connor First Plaintiff/ DEFENDANT BY COUNTERCLAIM And: Cynthia Manners Second Plaintiff/ DEFENDANT BY COUNTERCLAIM And: Lynn Calafiore Third Plaintiff/ DEFENDANT BY COUNTERCLAIM And: Martha O'Connor Fourth Plaintiff/ DEFENDANT BY COUNTERCLAIM And: Anne Harrison Fifth Plaintiff/ DEFENDANT BY COUNTERCLAIM

And: Louise Paquette-Neville Sixth Plaintiff/ DEFENDANT BY COUNTERCLAIM And: Kathryn Sinclair Seventh Plaintiff/ DEFENDANT BY COUNTERCLAIM And: Frank O'Connor Eighth Plaintiff/ DEFENDANT BY COUNTERCLAIM And: Kevin Nolan First Defendant/ PLAINTIFF BY COUNTERCLAIM And: Robert Hall Second Defendant/ PLAINTIFF BY COUNTERCLAIM And: Nolan Hall Real Estate Services Limited Third Defendant/ PLAINTIFF BY COUNTERCLAIM And: Denis Barry, trading as Denis G. Barry Professional Law Corporation Fourth Defendant/ PLAINTIFF BY COUNTERCLAIM (DISCONTINUED) AND:

ROY NOEL FIRST THIRD PARTY (DISCONTINUED) And: APPRAISAL ASSOCIATES LTD. SECOND THIRD PARTY (DISCONTINUED) CORRECTED JUDGMENT : t he text of the original judgment was corrected on January 18, 2024 and a description of the correction is appended. Before: Justice Garrett A. Handrigan Place of Hearing: St. John’s, Newfoundland and Labrador Dates of Hearing: October 10-13; 16-18, 2023

Summary: The Plaintiffs sued the Defendants for negligent misrepresentation in selling a property to them as a collection of stand-alone, fully equipped “residential condominiums” when the property could only be used as a lodging house or a B&B because of municipal zoning. The Plaintiffs claim that they relied on the Defendants’ representations and that they suffered losses because of that reliance.

The Court allowed the action and ordered the Defendants to pay damages of $1,847,381 less the global amount that the Plaintiffs recovered in a settlement with Denis Barry before trial and the net amount after the deduction will be allocated amongst the Plaintiffs in proportion to their interests in The Merchant’s House. The Defendants are jointly and severally liable to pay this amount.

The Defendants counterclaimed against the Plaintiffs, alleging that they wrongfully terminated a leaseback arrangement they had with the Plaintiffs, by which they say they suffered losses; and further that the Plaintiffs slandered the Defendants’ title to the Ryan Mansion, adjacent to The Merchant’s House property by filing a lis pendens against it. In each instance the Defendants offered no evidence to support their counterclaim and the Court dismissed both parts of it. The Court ordered that the individual Defendants pay the Plaintiffs their costs of the claim and counterclaim, to be taxed as stated herein.

The Court declined to find Nolan Hall Real Estate Services Limited liable to the Plaintiffs by default of its appearance for trial. It also dismissed the corporation’s counterclaim against the Plaintiffs and ordered Nolan Hall Real Estate Services Limited to pay the Plaintiffs’ costs of the counterclaim to be taxed as stated herein.

Appearances: Geoffrey Adair, KC Appearing on behalf of the First, Second and Third Plaintiffs Martha O'Connor Appearing on her own behalf Anne Harrison Appearing on her own behalf Louise Paquette-Neville Appearing on her own behalf John B. French Appearing on behalf of the Seventh Plaintiff Frank O'Connor Appearing on his own behalf Kevin Nolan Appearing on his own behalf Robert Hall Appearing on his own behalf Nolan Hall Real Estate No appearance Services Limited Daniel W. Simmons, KC Appearing on behalf of the Fourth Defendant Roy Noel No appearance Appraisal Associates Ltd.

No appearance Authorities Cited: CASES CONSIDERED: Redmond v. Densmore (1997), (NL CA), 153 Nfld. & P.E.I.R. 181, 73 A.C.W.S. (3d) 160(Nfld. C.A.); Queen v. Cognos Inc., (SCC), [1993] 1 S.C.R. 87; Doiron v. Haché, 2005 NBCA 75; Ratych v. Bloomer, (SCC), [1990] 1 S.C.R. 940; Bedard (Next Friend of) v. Martyn, 2010 ABCA 3; Almas v. Spenceley (1972), (ON CA), 25 D.L.R. (3d) 653, [1972] 2 O.R. 429 (Ont. C.A.); Monument Mining Ltd. v. Balendran Chong & Bodi, 2012BCSC 1769; O’Neill et al v. Edmanson, 2017 NBCA 33; Cabana v.

Newfoundland and Labrador, 2016 NLCA 75 STATUTES CONSIDERED: Condominium Act, 2009, S.N.L. 2009, c. C-29.1 RULES CONSIDERED: Rules of the Supreme Court, 1986 S.N.L. 1986, c. 42,

Schedule D TEXTS CONSIDERED: John Sopinka, Sidney N. Lederman & Alan W. Bryant, The Law of Evidence in Canada, 2nd ed. (Toronto:Butterworths, 1999) REASONS FOR JUDGMENT Handrigan, J.: INTRODUCTION

[ 1 ] 23 Rennies Mill Road is an historic property in St. John’s heritage district. It was reportedly built about 150 years ago and is said to have been designed by famed architect John Thomas Southcott for the Honourable Dan Ryan, a fabulously wealthy businessman of the time. Eventually, the First and Second Defendants, Kevin Nolan and Robert Hall, acquired the property.

They subdivided it into eight residential units in or about 2009, styled it “The Merchant’s House” then and in 2012 set out to sell the eight units as exclusive parts of a condominium development. [ 2 ] Ultimately the eight Plaintiffs acquired the eight units from the First and Second Defendants, not as one Plaintiff to each unit, but more randomly, as I will show later. The Defendants created the Merchant’s House Condominium Corporation to operate the development.

Then they sold the units to the Plaintiffs personally to be administered according to a Declaration and Plan that the Defendants filed for the Corporation at the Registry of Deeds for the province. [ 3 ] Seven of the eight Plaintiffs also entered into an agreement with the Defendants, by which the Plaintiffs leased their units back to the Defendants for three years, and for which the Defendants guaranteed the Plaintiffs that they would pay them monthly rentals.

The Plaintiff, who did not avail of the leaseback arrangement, followed a similar arrangement for her units, except that she directed the process herself with the help of a third party. [ 4 ] About a year and a half after the Plaintiffs bought the eight units, they learned that the City of St. John’s was concerned about how The Merchant’s House was being operated and the Plaintiffs soon learned that the rental operation contravened the St. John’s Development Regulations.

Before long the City advised the Plaintiffs and the Defendants to cease operations for all units and to vacate those located on the second and third floors of the property. [ 5 ] In effect, the City found that Plaintiffs and/or the Defendants operated the units as standalone residential properties, either offering or intending to provide full services to tenants who rented them, including kitchen services. The City had permitted the Defendants to operate the property generally as a B & B or a lodging house and not as self-sufficient residential units.

The Plaintiffs say they tried to get the Defendants to remediate the property to comply with the City’s Development Regulations but the Defendants declined or failed to act. The Plaintiffs filed their Statement of Claim in this Court on November 7, 2014, about six months after the City shut The Merchant’s House down. [ 6 ] Initially, the Plaintiffs sued Kevin Nolan, Robert Hall, Nolan Hall Real Estate Services Limited and Denis Barry, the lawyer who represented both the Plaintiffs and the Defendants when they acquired the units from the Defendants. However, matters between the Plaintiffs and Mr.

Barry were resolved before trial. When I refer to the “Defendants” collectively in these reasons, unless I note otherwise, I mean Mr. Nolan and Mr. Hall. I may refer to the corporate entity occasionally and when I do I will name it. As for the Plaintiffs, I will use the same collective designation as for the Defendants; but where appropriate I will name the Plaintiffs or Defendants individually. [ 7 ] The Plaintiffs claimed that the Defendants negligently misrepresented the properties to them.

They say that the Defendants presented the Merchant’s House as a collection of stand-alone, fully equipped “residential condominiums” when the City actually limited the use of the property to no more than a lodging house or a B&B.

The Plaintiffs claim that they relied on the Defendants’ representations and that they suffered losses because of that reliance. [ 8 ] The Plaintiffs also claimed initially that the Defendants were both negligent in the work they did on the property and that the Defendants terminated the leaseback arrangement between them by which they suffered losses; but because the Plaintiffs did not pursue either of these latter claims at trial, I will not consider them here. [ 9 ] The Defendants counterclaimed against the Plaintiffs, alleging that they wrongfully terminated the leaseback arrangement they had with the Plaintiffs, by which they say they suffered losses; and further that the Plaintiffs slandered the Defendants’ title to the Ryan Mansion, an adjacent property to The Merchant’s House by filing a lis pendens against it.

I will deal with both aspects of the Defendants’ counterclaim in these reasons. [ 10 ] I note further, simply to provide context for this matter: When the Plaintiffs issued their statement of claim all eight were represented by one counsel. That changed as the matter progressed so that at trial four Plaintiffs had counsel and four represented themselves. To that end, Roxanne O’Connor, Cynthia Manners and Lynn Calafiore were represented by Geoffrey D.E. Adair, K.C. of Adair, Goldblatt Bieber LLP of Toronto, ON and John French of French & Associates of St.

John’s, NL represented Kathryn Sinclair. [ 11 ] The Fourth, Fifth, Sixth and Eighth Plaintiffs represented themselves. As to the Defendants, all three, like the Plaintiffs, were represented by counsel when the proceedings began but at trial the First and Second Defendants represented themselves. The corporate Defendant, Nolan Hall Real Estate Services Limited, did not have counsel at trial, so it did not appear for the proceedings and offered no defence. [ 12 ] Finally, I note that all Plaintiffs except for Frank O’Connor and Anne Harrison testified, but Martha O’Connor spoke for them.

Neither of the Defendants testified, despite several representations early in the trial from the First Defendant, Kevin Nolan that he intended to do. Counsel for the Plaintiffs submitted that I may, if appropriate, draw adverse inferences against the Defendants for not testifying and not presenting themselves to the Plaintiffs for cross-examination. I will come back to possible adverse inferences that I may draw later in these reasons. ISSUES [ 13 ] Let me summarize the issues the pleadings raise and those of them that the parties focused on at trial: 1.

Did the Defendants misrepresent to the Plaintiffs the character of the units that they acquired from the Defendants in The Merchant’s House? Did the Plaintiffs suffer damages, if so? 2. Did the Plaintiffs unlawfully terminate the leaseback arrangement with the Defendants? Did the Defendants suffer damages, if so?

3. Did the Plaintiffs slander the Defendants’ title to the Ryan Mansion by filing a lis pendens against it? Did the Defendant sufferdamages, if so? 4. May I draw adverse inferences against the Defendants for not testifying? If so, what may I infer? THE LAW Negligent Misrepresentation – Case Law [14] Our Court of Appeal gave close consideration to the legal framework for claims based on negligent misrepresentation inRedmond v. Densmore (1997), (NL CA), 153 Nfld. & P.E.I.R. 181, 73 A.C.W.S. (3d) 160 (Nfld. C.A.), the facts ofwhich are uncannily proximate to the background of this matter.

For that reason, I quote the facts from it at greater length than Iordinarily would do. This from Cameron, J.A., who wrote for the majority of the Court, pertains: 2 In February of 1990, Redmond [the buyer] contacted Densmore, a real estate agent, requesting information about property at 32Circular Road, St. John’s, Newfoundland. The property had been advertised for sale in a local newspaper. The listing described theproperty as having a bedsitting room on the second floor, which was rented at $500 per month, and a third floor, two-bedroom in-lawapartment, renting at $600 per month.

Densmore [the real estate agent] confirmed the 4900 sq. ft. house had, in addition to the mainliving quarters, two apartments. 3 Prior to offering to purchase the property, Redmond visited 32 Circular Road on two occasions. Densmore told him that the twoapartments were unregistered, meaning that the City of St. John’s was unaware of their existence, or at least, had not given approval forthe apartments.

When Redmond inquired if the apartments being unregistered created a problem, Densmore advised him that if the Citybecame aware of the apartments, to have them registered the owner might be required to pay a fee and, perhaps, carry out alternations.As examples of the type of alternations which were suggested to him by Densmore or subsequently by French [Redmond’s lawyer] asbeing typical of those demanded by the City, Redmond listed upgrading the plumbing, placing additional gyproc or constructing a fireescape.

Densmore also advised Redmond that some urea formaldehyde foam insulation remained in the premises. 4 Densmore testified that he knew the zoning in the area to be R1 and that R1 zoning permitted only one apartment. However, hedid not tell Redmond of the zoning nor the risk that Redmond might not be able to keep the two apartments because his experience withother properties led him to believe it was unlikely that would happen.

Redmond was not aware that zoning went beyond whetherresidential or commercial properties were permitted and did not, at the time of purchase, appreciate that there might be different types ofresidential zoning. 5 On the 14th of February 1990, Redmond entered into an Agreement of Purchase and Sale with the vendor. The purchase price was$235,000. However, prior to completion of the purchase, it was discovered that the rental generated by one of the apartments was not asstated in the listing and a reduction in purchase price was negotiated as a result.

Clause 18 of the Agreement provided that the tenantswere “to remain at current rents.” 6 Redmond retained the second respondent, French, to act as his solicitor in the purchase of the property. This also involved therefinancing of a second property owned by Redmond. The sale closed on April 4, 1990. Under the Agreement of Purchase and Sale,Redmond was to assume an existing mortgage with Canada Trust.

Canada Trust required that the urea formaldehyde foam insulation(UFFI) be removed, though Redmond was not given a time frame in which to complete this work. 7 What none of the parties knew was that the City had received complaints from neighbours of the vendor about the presence ofapartments at the Circular Road property and that, in January of 1990, the City had written to the then owner advising that it intended toinspect the premises for non-compliance with zoning requirements.

It was not established that the vendor received the letter. 8 Redmond did not become aware of the City’s interest in the apartments until June 1990, when he received a letter stating theCity’s intention to inspect the property.

After the inspection, the City, by a letter dated July 20, 1990, advised Redmond that he had 30days to restore the premises to a single-family dwelling. 9 Sometime in late July, after receipt of the letter of July 20, 1990, Redmond entered into a contract for the removal of the UFFI(valued at $35,000) and for the carrying out of certain improvements (valued at $10,000). 10 In addition, at the time of the purchase none of the parties was aware that on February 28, 1990 (two weeks after the signing ofthe Agreement of Purchase and Sale), the City had adopted Minutes of meetings seeking to amend the St.

John’s DevelopmentRegulations so as to change the zoning of the portion of Circular Road on which the premises are located from R1 to RA (which did notpermit apartments). This amendment did not become law until publication in the Newfoundland Gazette on September 21, 1990. So then,

at the date of closing the zoning permitted only one apartment and by September 21, 1990, no apartments were permitted. 11 In August of 1990, Redmond advised French of the City’s order that the apartments be removed. It was French’s evidence thatthis was when he first learned that the apartments were unregistered, though Redmond said he advised French of that fact before theclosing and again in July 1990. French had not checked the zoning prior to the closing as he had lived in the area and had extensiveknowledge of the area.

He believed the area to be zoned R1 and further he was aware of a number of houses in the area in which morethan one apartment was permitted, additional apartments having been “grandfathered”. (Apartments which do not comply with existingzoning, but which existed lawfully and were built in good faith prior to the enactment of the zoning provision which it now offends andare therefore permitted to continue to be used as apartments). French offered to assist Redmond in trying to have the apartments approvedby the City, but Redmond refused, stating he would handle it himself.

However, French did obtain from City Hall the forms to have theapartments approved and had them delivered to Redmond.

Redmond took no action until after the zoning change became effective bywhich time the City would not permit any apartments. [15] The trial judge, as Cameron, J.A. reported, held “…that Densmore had made a negligent misstatement to Redmond whenexplaining the consequences of having two unregistered apartments in the premises; that he should have explained Redmond could beforced to remove one of the apartments, and further, that Redmond had relied on these misrepresentations” (para. 13); but the trial judgedismissed the claim against French, the solicitor who represented Redmond, because “…[while] French may have been negligent infailing to confirm the zoning … no damage arose because of that negligence: that even if French had discovered the true nature of thezoning and the status of the apartments, Redmond had already signed the Agreement of Purchase and Sale and would have beenobligated to complete the transaction” (para. 14). [16] Ultimately, the Court of Appeal upheld the trial judge’s finding that Densmore was liable to Redmond, but it overturned thetrial judge about French, finding him liable, too: “At the time of the breach of duty by French, therefore, it was still within Redmond’sright to rescind the contract for negligent misrepresentation should he have wished to do so.

French’s negligence deprived Redmond ofthat opportunity” (para. 54). Marshall, J.A. agreed with the majority in finding both Densmore and French liable to Redmond fordamages but wrote separate reasons for his findings. [17] As interesting as the facts of Redmond v. Densmore are because of how they align with this case, the decision is even morerelevant for what it says about proving a claim based on negligent misrepresentation. Mr. Redmond hired Mr. Densmore who was a realestate agent to help him buy the property at 32 Circular Road, St.

John’s so Densmore was on that account, a “professional” as toRedmond. [18] However, Cameron, J.A. found that Densmore’s “professional” status vis-à-vis Redmond was not necessary to find him liableto Redmond for negligent misrepresentation: Initially in the development of the tort [of negligent misrepresentation], there was, indeed, some question as to whom the duty of carewould apply.

Some have thought that the duty was limited to professional people and those in the business of giving advice to anyindividual who gives information and advice to others, expecting it will be relied upon … However, it cannot now be said, as a matter ofprinciple, that the tort only applies to statements made by professionals who are in the business of giving advice” (para. 20). [19] And, in fact, Cameron, J.A. held Densmore liable simply because “… the evidence here is that the information provided wasuntrue, inaccurate and misleading when Densmore knew the difference” (para. 30); so, it was immaterial what “… was reasonablyexpected of a real estate agent …” in the same circumstances. [20] Overall, Cameron, J.A. relied on Queen v.

Cognos Inc., (SCC), [1993] 1 S.C.R. 87, released just two monthsbefore the trial judge’s decision, for “… the elements which must be present to succeed in cases of negligent misstatement”: (1) there must be a duty of care based on a “special relationship” between representor and the representee; (2) the representation in question must be untrue, inaccurate, or misleading; (3) the representor must have acted negligently in making said representation; (4) the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense that damages resulted. [21] As for when a “special relationship” exists, Cameron, J.A. adopted these words from Iacobucci, J. in Queen v.

Cognos Inc.: “a‘special relationship’ exists wherever ‘(

a) the defendant ought reasonably to foresee that the plaintiff will rely on his or herrepresentation; and (

b) reliance by the plaintiff would, in the particular circumstances of the case, be reasonable’” (para. 23). Case Law – Adverse Inferences [22] John Sopinka, Sidney N. Lederman & Alan W. Bryant stated the general rule of evidence for drawing adverse inferences incivil proceedings in The Law of Evidence in Canada, 2nd ed. (Toronto: Butterworths, 1999) at paragraph 6.321. (I pulled this quotationfrom Doiron v.

Haché, 2005 NBCA 75, paragraph 106, quoted by Richard, J.A., as he was then): In civil cases, an unfavourable inference can be drawn when, in the absence of an explanation, a party litigant does not testify, or fails toprovide affidavit evidence on an application, or fails to call a witness who would have knowledge of the facts and would be assumed tobe willing to assist that party. In the same vein, an adverse inference may be drawn against a party who does not call a material witnessover whom he or she has exclusive control and does not explain it away.

Such failure amounts to an implied admission that the evidenceof the absent witness would be contrary to the party's case, or at least would not support it.

[23] In Doiron v. Haché, Richard, J.A. also noted that drawing adverse inferences is a “discretionary” matter; and as he explained: The power to draw an adverse inference when a party fails to call a witness who would have given material evidence is discretionary, butthe discretion can only be exercised upon the satisfaction of a precondition. As explained by the Ontario Court of Appeal in Lambert v.Quinn (1994), (ON CA), 68 O.A.C. 352 (Ont. C.A.), Levesque v.

Comeau, [1970 SCC 4] only stands for theproposition that an adverse inference "may be drawn against a party for failure to call a witness who may give material evidence wherethat party alone could bring the witness before the court." [Emphasis in original.] (para. 108) [24] This is the law I will apply to the issues that I stated earlier in these reasons, arising from the Plaintiffs’ claim: 1. Did Defendants misrepresent to the Plaintiffs the character of the units that they acquired from the Defendants in The Merchant’sHouse? Did the Plaintiffs suffer damages, if so? 2.

May I draw adverse inferences against the Defendants for not testifying? If so, what may I infer? [25] I turn now to analyze those issues, starting with the background to them. ANALYSIS Background [26] In or about 2008 the Defendants retained Philip Pratt of the PHB Group to renovate 23 Rennies Mill Road, St. John’sconverting it from a 3-apartment building into 8 units. Mr. Pratt is a registered architect and has practiced that discipline for about 50years. Mr. Pratt drew the plans to present to the City of St.

John’s for converting the property and described in his evidence what thework involved: In this particular case, it was, basically, the application, the discretionary use application, as I recall, to work with the three apartmentsinto eight separate units and joining the two buildings and the heritage issues related to that and discussions with the City in regard tothose items (Volume VI, page 11, lines 8-12 of transcript). [27] From that process, the City issued a Building Permit on July 30, 2009 which was effective for six months until January 29,2010.

The Permit cited the description of the work as “FOR CHNG OF OCC/RENOVTNS OF LODGING HOUSE” and added thefollowing “Remarks or Conditions”: CONVER 23A [Rennies Mill Road], B & C INTO 16 PERSON – BEDROOM SUITES – B & BRENOVATE” (Consent #6). [28] Mr. Pratt described the process that ensued: A.

The City issued the Building Permit, construction was carried out, the City makes periodic inspections, at a certain point in timeconstruction work is completed, the City makes a final inspection and if everything is in order, as they see it, they will issue anOccupancy Permit, basically the process (Volume VI, page 19, lines 2-6 of transcript). [29] The City did issue an Occupancy Permit to the Defendants for 23 Rennies Mill Road, on February 11, 2010.

It described the“Approved Use: Lodging House” and stated “#Units/Suites: 1” in “Zone: RA” as a “Residential Special”, and added these “Conditions orRemarks”: “MAXIMUM OCCUPANCY OF 16 PERSONS (8-ROOMS).

THERE IS NO COOKING OR FOOD PREPARATIONAREAS AT THIS PROPERTY AND THERE IS TO BE NO COOKING OR SERVING OF FOOD FROM THE ADJOININGPROPERTY (21 RENNIES MILL ROAD) FOR THE GUESTS OF THIS LODGING HOUSE” (Consent # 28). [30] Meanwhile the City also issued a “Lodging House License” on February 11, 2009 for 23 Rennies Mill Road, in which itdescribed the “Permitted Occupancy” as “16 persons/guest/caretaker” and included the same condition prohibiting food preparation onsite and brought in from next door.

The License was effective until December 31, 2010 and was “…to be affixed in a visible area of theLodging House…” (Consent #2). The City renewed the Lodging House License on April 28, 2011 and stated it was effective untilDecember 31, 2011 (Consent #14). [31] In 2012 the Defendants decided to market 23 Rennies Mill Road as “The Merchant’s House”. They produced a brochure intheir names, offering the property through “THE MERCHANT’S HOUSE Condominium Corporation”.

After providing some of thehistoric background of the property, the Defendants included this promotional pitch: More recently, The Merchant’s House, had been redeveloped to 8 luxury condominiums which are now being offered for sale to the keeninvestor. This is in response to the surge in oil and gas activity resulting in a huge demand for downtown accommodations. These pied-à-terre style units have been created with the busy executive in mind.

Fully furnished and all inclusive, The Merchant’s House customcondominiums provide hassle free living in a luxurious downtown setting (R.O’C. # 1). [32] Roxanne O’Connor, the First Plaintiff found out about The Merchant’s House and was interested in it. She knew Kevin Nolan,the First Defendant, whom she met when she visited St. John’s in 2007. Andrew Anderson, a friend of Ms. O’Connor, accompanied heron that trip, and they were in St. John’s looking for investment opportunities. From that trip Ms. O’Connor bought a house at 31 GowerStreet in St.

John’s from the Defendants and a condominium in a 16-unit building on Flavin Street that the Defendants also owned. Ms.O’Connor also bought other investment properties in St. John’s from the Defendants in 2008 and 2009. [33] Ms. O’Connor said she was in St. John’s again around May 2012 and on meeting Mr. Nolan he told her “… I want to show yousomething” (Volume I, page 37, line 15 of transcript), by which Mr. Nolan meant The Merchant’s House, which he saw as another

investment property in which Ms. O’Connor might be interested. Mr. Anderson accompanied Ms. O’Connor again on this trip and he joined her when Mr. Nolan invited Ms. O’Connor to view The Merchant’s House. [ 34 ] Ms. O’Connor said Mr. Nolan suggested the property as a possible investment opportunity for her: Ms. O’Connor: And he was saying that you know there was a demand you know for this type of apartment or condos in St. John’s due to the boom that was going on and he was going to… Adair, K.C.: What kind of boom? Ms.

O’Connor: There was a boom going on with oil and gas in Newfoundland and he said there was a big demand for this [kind] of units. He was converting these to condominiums and providing the opportunity to me ah to invest in these units, and I was interested in that. (Volume I, pages 39-40, lines 18-20, lines 1-5 of transcript) [ 35 ] More particularly, Ms. O’Connor said that Mr. Nolan provided her with details of how he proposed to market the units, how they would be used and also how they would be equipped: Ms.

O’Connor: He said they would be condominiums and that he would be providing me with ah brochure detailing everything and that he would be sending that to me. And um that they would be used for residents, but that they would be condominiums. When we were in the king unit he pointed to the fireplace and said the kitchen will be located here on either side, it would be custom kitchens … the kitchen will go into the suite. (Volume I, page 41, lines 3-8 of transcript) [ 36 ] Ms. O’Connor said Mr.

Nolan sent “six or eight” brochures to her home in Toronto “in early June [2012]” and she had some friends that knew of her investments in Newfoundland, who wanted to learn more about them. I referred to the brochure that Ms. O’Connor received from Mr. Nolan earlier in these reasons and noted that it is Exhibit R.O’C. #1.

The brochure is an all-inclusive document that includes pictures from inside the property, floor plans for each of the eight “suites”, and a “common area” budget for the Condominium Corporation. [ 37 ] The brochure also included “Unit Specifications and Sales Information” for each of the 8 units and their purchase prices; and this additionally: “…the purchaser is also GUARANTEED A 3 YEAR LEASE starting the date of possession.

Pricing and guaranteed lease rates are as follows (bold in original):” A table below that heading lists the unit numbers; the floor space of each unit; its price; included amenities such as parking and furniture; the guaranteed lease amount for each unit; projected condo fees; and the net lease value. The lease proposal that the Defendants offered in that package became known as the “leaseback arrangement” that I also referred to earlier in these reasons. [ 38 ] Ms.

O’Connor said a group friends who were interested in investment opportunities in Newfoundland visited her home in Toronto in June 2012 and she told them about The Merchant’s House; and she also provided them with copies of the brochures that Mr. Nolan sent to her. Her counsel asked Ms. O’Connor “…what did you understand that you were getting?”: Ms. O’Connor: I understood that I was getting, was purchasing a property ah that I would be the sole owner of, that I could live in and use. That I could lease the property if I chose to lease it, and that I could sell the property if I wanted to sell it.

And that I would have with… [clear title]. That the property would be identified as a condominium, that it would contain a bathroom, a living room, a bedroom, and a kitchen. (Volume I, page 49, lines 10-15 of transcript) [ 39 ] Ms. O’Connor bought two units in The Merchant’s House, Unit 101 that she described as “the larger king suite” and Unit 103. She signed an Agreement of Purchase and Sale for each unit (Exhibit R.O’C. #’s 2 &3) on July 30, 2012, agreeing to pay $423,750 for the larger unit and $254,250 for the smaller one.

The transactions were set to close “on or before the 17 Day of September, A.D. 2012” and Ms. O’Connor had until August 31, 2012, to get financing to complete the transactions. In fact, the transactions did not close until November 10, 2012. [ 40 ] As it turned out, Ms. O’Connor did not enter into a leaseback arrangement with the Defendants, opting instead to deal with Premier Executive Suites/Atlantic Limited, represented by Matthew Girard. In an email that Ms. O’Connor sent to Mr. Nolan on October 21, 2012, Ms. O’Connor noted that “They [Premier Executive Suites] lease my Flavin condo.

They approached me on MH [Merchant’s House]” (Exhibit R.O’C. # 6). In the same email string, Mr. Nolan asked Ms. O’Connor for more details about her arrangement with Premier Executive Suites: “Roxanne will they be renting nightly or by the month? What type of deal will they give that allows you to occupy? How long will they lease for?” [ 41 ] In response, Ms. O’Connor, offered the following: 1 year lease, could be longer – 70/30 split on revenue, they do all the marketing, them may rent out min 3 night but likely monthly/longer term on smaller unit & shorter term on larger unit.

Anytime I need the unit I can block and book. If both units r in use long term they w put me up in another property – no charge. I m negotiating 75/25. PS [Premier Suites] is unloading less desirable

properties and increasing higher end. They are desperate for 1 b/r furnished units. No kids, no pets, no smoking in/on property. (Exhibit R.O’C. # 6) [ 42 ] Ms. O’Connor was back in St. John’s in September 2012. The units were still under construction then and the kitchens that the Defendants promised would be installed in them were not in place. She was not back in St. John’s again until March 2013 and said during the latter visit, “I found in the units kitchen cabinetry, ah um small dishwasher, a full fridge, and a half fridge in 103 and a sink.

There was no cooktop” (Volume I, page 54, lines 18-19 of transcript). [ 43 ] Ms. O’Connor’s leasing arrangement with Premier Executive Suites ended eventually when, according to her, Premier shifted its focus so that it would no longer work with her units in The Merchant’s House. Ms. O’Connor then retained Royal LePage to list her units for lease and Royal LePage placed a sign on the lawn outside The Merchant’s House to that effect. Ms. O’Connor estimated that “…would have been in the spring or thereabouts of 2014” (Volume I, page 57, line 1 of transcript). [ 44 ] Soon after Royal LePage advertised Ms.

O’Connor’s units for lease she received a call from the agent who was handling the property: Ms. O’Connor: So, she was leasing the units, she put them on the market and there was a high level of interest of my units. Practically the larger unit [101] was entertaining an offer actually at the time to lease it for a year, as well as 103. I got a call from an agent, and she said I just received a call from someone at the city saying that, sent the listing and they got back to me and said there are no kitchens allowed in the units. No cooktops.

That this is not zone for condominiums, it is a lodging house and that they wanted to come inspect the unit. (Volume I, page 57, lines 3-9 of transcript) [ 45 ] Ms. O’Connor said the City inspected the units as they said and then shut the operation of The Merchant House down. Ms. O’Connor said she told the city “‘Oh, I was not aware of that’, ah that’s a problem” (Volume I, page 58, line 1 of transcript) and she also contacted Mr. Nolan to advise him of the development: Ms. O’Connor: Well, when they inspected the units as I recall, the cooktops had been removed from the units.

Kevin Nolan removed the cooktops and replaced them with cutting boards, and I was unaware that’s what he did. The city came and inspected the units and noticed in fact that they met their usage I assume of a boarding house or B&B or lodging house but that they also then needed to inspect other areas of the building for fire safety. Oh, and as I recall they visited and shut our property down later in the spring. (Volume I, page 58, lines 6-12 of transcript) [ 46 ] The City got actively involved very quickly in the fate of The Merchant’s House.

On March 18, 2014, Dennis Easton, Senior Building Inspector with the City wrote to the Defendants advising that “Inspection staff will be at the subject property [The Merchant’s House] on Thursday, April 3, 2014 at 1:00 pm ” and “…is requesting permission to carry out an inspection of the above captioned property in response to a complaint received”. [ 47 ] On April 14, 2014, Dwayne Keats, an Electrical Inspector with the City wrote to the Defendants to advise amongst other things, that “[b]efore a certificate of approval can be issued access must be provided and approval given for sheet up to the following area(s). (kitchenette’s in 8 rooms, boiler in basement, stairwells, all areas no complying with plans that this department has from last submissions)”. [ 48 ] Finally, on April 15, 2014, Dennis Easton wrote again to the Defendants, advising: 3.

As a result of the changes to the building floor plans, the installation of new kitchens, this is also a violation of the terms and conditions of the Development Agreement as outlined under Sections 5.1.1 and 5.4.2 of the St. John’s Development Regulations . Furthermore, this constitutes a change of occupancy with respect to the original approved use as a Bed and Breakfast. Therefore, in accordance with

Section 5.4.6 of the St. John’s Development Regulations, and sections 38 and 43 of the St.

John’s Building By- Law , the City may take further action on this matter. [ 49 ] He also advised the Defendants that they should “… immediately vacate the second and third floors of the above noted property…” because of “life safety issues” (All quotations for the letters the City sent to the Defendants on March 18, 2014, April 14, 2014, and April 15, 2014, come from the correspondence presented to the Court as Consent Exhibit #3). [ 50 ] The City’s intervention ended rentals at The Merchant’s House through the leaseback arrangement.

Eventually, the Plaintiffs regrouped and made the changes that the City required for them to operate as a B&B. That use of The Merchant’s House continues presently, and it is now and has been since 2014 operating as “Bannerman Park Suites”. Roxanne O’Connor and Cynthia Manners, the First and Second Plaintiffs, operate the B&B on behalf of all Plaintiffs. Ms. Manners, who does the accounting, reported on the profits and losses they experienced since they took over the operation themselves in 2014. [ 51 ] Cynthia Manners bought one unit in The Merchant’s House, # 203, on the second floor. Ms.

Manners, like Roxanne O’Connor was neither a stranger to Newfoundland real estate nor to the Defendants. She met them on a trip to St. John’s some time in 2008 or 2009 when she and Ms. O’Connor were in St. John’s looking for investment opportunities. She recalled that they stayed in Ryan Mansion at 21 Rennies Mill Road on that trip and “…Mr. Nolan took us out during the day ah, showing us a few of his properties” (Volume II, page

16, line 15 of transcript). [ 52 ] Ms. Manners said she invested in a property that the Defendants owned in Topsail from that trip but “…I didn’t step foot in 23 Rennie’s Mill” (Volume II, page 16, line 20 of transcript). She acknowledged that she met Mr. Hall on the same trip but she and Ms. O’Connor dealt primarily with Mr. Nolan. [ 53 ] Ms. Manners said she found out from Ms. O’Connor about the investment opportunity at 23 Rennies Mill Road: Adair, K.C.: Ok. And tell me how you got introduced, tell me about how you got introduced to 23 Rennies Mill Road? Ms. Manners: Ah, through Roxanne.

She mentioned that she was interested in purchasing a unit ah, at 23 Rennies Mill Road and, um, wanted to just tell myself and others about it to see if there was any interest, of it. (Volume II, page 19, lines 2-6 of transcript) [ 54 ] Ms. Manners also attended the meeting at Ms. O’Connor’s house in Toronto in June 2012 when the investment opportunity was discussed by some, if not all the final investors: Adair, K.C.: And I want you to tell us to the best of your recollection about that meeting, what was said and who was there, all about the meeting. Ms.

Manners: Yes, I believe all of the eventual investors were there, save for ah, I don’t know if Martha [O’Connor] and Frank [O’Connor] were all there, one of them, those three [Martha O’Connor, Frank O’Connor & Anne Harrison] purchased one unit, but certainly one of the three was there. I think Martha definitely was there. Um, we were presented with a brochure that Kevin [Nolan] had provided Roxanne. And we all just talked about the possibilities, um, what the investment environment was in St. John’s. Roxanne liked the idea, and we just had a discussion about, and left it at that.

There were no decisions made at that time, is my understand - as I recall. (Volume II, pages 19 & 20, lines 17-20 & 1-6 of transcript) [ 55 ] Ms. Manners eventually decided to buy a unit in 23 Rennies Mill Road and signed an Agreement of Purchase and Sale on August 8, 2012, for Unit 203 at $254,250. Her counsel asked her “…what did you understand you were purchasing” when she agreed to buy the property: Ms.

Manners: I understood that I was purchasing a property that one could reside in, ah solely, like, ownership and that would be suitable for long term residential living, which would include everything that one would expect to do so, a bedroom, a kitchen, a bathroom, a living room. (Volume II, page 23, lines 7-11 of transcript) [ 56 ] Ms. Manners visited the property around the end of September 2012 as did most, if not all of the eventual purchasers. She recounted the visit during her testimony, noting that Mr. Nolan accompanied them and what she observed: Ms.

Manners: Um, my recollection is, concerning 23 Rennies Mill Road, we, ah, I was shown throughout 23 and in particular, my unit, by Kevin [Nolan] and went through my unit, he, you know, I looked at all the furniture, I was impressed with the quality, and he showed me where the kitchen was going. At the time there was a sink, um, I believe a mini fridge, but he described how the cupboards would be upgraded, integrated, which is you know, hidden behind a cupboard, that all the cupboards are, sort of, look the same and your dishwasher is behind them.

And that the cook top would be going in, um, and besides, he showed me where that would be. And he said the work still had to be done, there was some painting touch ups that had to be done and, um, that’s what we talked about. He said the access would be, um, between the two houses at that point, 21 and 23 was still open, so he said that would be closed off. And, um, that was, you know, what I saw at, what I was expecting to receive on closing. (Volume II, page 26, lines 5-18 of transcript) [ 57 ] When Ms.

Manners returned to Toronto she followed up on her visit with a lengthy email to the Defendants with questions about her unit and “the building in general”. As to the former she noted: Hello, Kevin, I understand closing of the units at 23 Rennies Mill Road is scheduled for Tuesday, October 9, 2012. Would you kindly respond to the following questions pertaining to the building and operation. Personally, I would like to know whether a new kitchen was installed in my unit, Suite 203. My understanding was that a new kitchen was going in. Would you please confirm this.

Also, there are several places that require a paint touch up. Please confirm that this was

done as well. [ 58 ] The balance of Ms. Manners’ email is about “the building in general” and not especially relevant to this matter other than it shows how deeply Ms. Manners was involved in the project. I note as well that she concluded the email, “Cindy Manners, On behalf of the purchasers of Rennies Mill Road”. (Consent Exhibit # 8) Ultimately, Ms. Manners’ purchase of Unit 203 did not close until November 7, 2012, well beyond her expectation when she signed the Agreement of Purchase and Sale on August 8, 2012. [ 59 ] Ms.

Manners opted into the leaseback arrangement with the Defendants under the terms and conditions they offered in the promotional brochure she got from Roxanne O’Connor. She explained why and how the arrangement operated: Ms. Manners: What, well, because it came with an offer of three year leaseback for the first three years, I, and because I was fully employed, I really didn’t have intention to occupy it myself, but I did intend to lease it full time, ah, long term, to somebody, or that’s, if I had been managing it myself, that would have be the type of tenant I would be looking for.

Having the lease with Kevin, it, we were told that the, that he would be marketing the oil company executives in that needed long term stays in St. John’s and that’s who he would be marketing to. But I had no control, and I was happy to accept the leaseback eventually. (Volume II, pages 23 & 24, lines 16-20 & 1-3 of transcript) [ 60 ] Ms. Manners confirmed that “I relied on the brochure” (Volume II, page 25, line 13 of transcript) when she decided to buy Unit 203. [ 61 ] Ms.

Manners did not visit the property from September 2012 until the spring of 2014 when she received notice from the City that it did not comply with its zoning regulations. Ms. Manners described her reaction when she found out about the zoning problem: Adair, K.C.: Alright. So, once you found this out, ah, what, what happened. What did you do? Ms.

Manners: Well, I was devastated because I’m learning that I didn’t purchase what I thought I did and we just followed the instruction that the group, what the City required from us, ah, in order to bring the property into compliance or we could function and generate income as a lodging house, which is what we are, so… (Volume II, page 31, lines 11-16 of transcript) [ 62 ] Elsewhere, Ms. Manners expressed her frustration at being limited to a B&B or lodging house operation at 23 Rennies Mill Road: Adair, K.C.: Alright.

And tell me, when all is said and done, if you’d known the situation with respect to the, ah, lack of cooking and the, being forced to participate in running a B&B with whomever had made this investment in the first place. Ms. Manners: Absolutely not. I was not in the market for a B&B or a Lodging House. (Volume II, page 32, lines 145-18) [ 63 ] Kathryn Sinclair, like Roxanne O’Connor and Cynthia Manners met the Defendants some time in 2008 or 2009. She invested in the same “Topsail property” in Newfoundland as Ms. O’Connor and Ms.

Manners did, and she also learned about The Merchant’s House from Roxanne O’Connor. Ms. Sinclair recalled that her introduction to The Merchant’s House occurred “… a bit before June 2012 um and basically it started off with a brochure and then we sat down in a meeting, can’t remember exactly who was there but was a meeting with other people interested in learning about this investment” (Volume II, page 47, lines 10-13 of transcript). [ 64 ] Ms. Sinclair visited The Merchant’s House sometime in June 2012 and again in September of the same year. Eventually, Ms.

Sinclair bought two units, # 102, the smaller one, on the first floor and # 201, the larger one, on the second floor. She paid $242,950 for Unit # 102 and $423,750 for Unit # 203. Ms. Sinclair closed the transactions on November 16, 2012. [ 65 ] During her direct examination, Ms. Sinclair’s counsel asked her about whether she would have bought the units if she had known The Merchant’s House did not comply with the City’s zoning regulations and cooking could not be done on site: Mr. French: Would you have proceeded with the purchases of units 102 and 201 if Mr.

Nolan and I understand your visits you did not meet with Mr. Hall, is that correct? Ms. Sinclair: To talk to him, but don’t think we had any notable discussions.

Mr. French: Okay. So would you have proceeded with the purchase of your units if Mr. Nolan had informed you either during your visit in or about June 2012 or September 2012 or prior to closing for that matter, that cooking in the units was not permitted and that the property was designated as a lodging house or bed and breakfast. Ms. Sinclair: No, would I would not purchase the units. (Volume III, page 74, lines 1-10 of transcript) [ 66 ] Lynn Calafiore was also involved in the Topsail investment that Roxanne O’Connor, Kathryn Sinclair and Cynthia Manners undertook with the Defendants in St. John’s. Ms.

Calafiore recalled that she met Mr. Nolan through that process when he visited Toronto and she attended a meeting at Roxanne O’Connor’s house when Mr. Nolan gave a presentation on that project. (Note: The meeting referred to here is not the meeting that the investors attended at Roxanne O’Connor’s home when the brochure about The Merchant’s House was circulated.) [ 67 ] She also found out about The Merchant’s House from Roxanne O’Connor and then attended the meeting at Ms. O’Connor’s home in Toronto, as did several of the other ultimate purchasers: Ms.

Calafiore: I attended a meeting and I received some information about mid-June [2012] and then I attended a meeting in June at Roxanne’s place and there was a few other people there. Adair, K.C.: Alright and what was the purpose of that meeting? Ms. Calafiore: There was a brochure that I received and had details on these condo units – they were going to become available and yeah, I was interested. Adair, K.C.: Alright so the group chatted about it did they? Ms.

Calafiore: Yes, we chatted about it and – yeah just talked about the lease back program which I was quite interested in – they were lovely condos they were very – pretty suites and of course I had dealt with Kevin [Nolan] before and I was very happy with the Topsail investments so I thought this might be something to look at. (Volume III, pages 142 & 143, lines 10-18 & lines 1-2 of transcript) [ 68 ] Ms. Calafiore bought Unit 302 for $265,500. She signed the Agreement of Purchase and Sale on August 9, 2012, and expected that the transaction would close on September 27, 2012. In fact, Ms.

Calafiore had already seen The Merchant’s House a year before when she accompanied Roxanne O’Connor and Andrew Anderson to St. John’s and they stayed at Ryan Mansion, 21 Rennies Mill Road, the adjoining property to The Merchant’s’ House. She saw that 23 Rennies Mill Road was “under construction” at the time and she could not say if the Defendants had designated 23, “The Merchant’s House” by then. [ 69 ] Ms. Calafiore explained what she expected to get when she signed the Agreement of Purchase and Sale, in this exchange with her counsel: Ms.

Calafiore: Well, I thought I was buying a residential high-end condominium that I could live in or maybe rent out, loan to friends eventually. I liked the lease back agreement which worked out well for me I thought it was as a great opportunity. Adair, K.C.: Ok and what did when you say high-end residential condominium, what did that include in your mind at the time? Ms.

Calafiore: Well, it was going to have nice little setting area and it had a fireplace and the unit in particular that I was looking at and a nice bathroom and bedroom area and kind of a small area for stove top, small fridge you know just small cooking area. Adair, K.C.: Ok and what gave you the understanding as to what was that you expected to be purchasing? Ms.

Calafiore: Well, it was listed in the brochure that I saw it was called a nice condo, it was high-end – my mortgage I was going for a mortgage for a condo, and I thought it was something I could rent it would be nice and I could sell eventually and that I owned on my own.

(Volume III, pages 145 & 146, lines 9-19 & 1-4 of transcript) [ 70 ] Ms. Calafiore’s transaction, like the others, closed in November 2012, again well beyond her expectation that it would close on September 27, 2012. She was back in St. John’s from March 22-25, 2013, when she accompanied Roxanne O’Connor to the city. Ms.

Calafiore saw her unit at the time and she “…remembered that but it was finished it had a little countertop stove or whatever you want to call that, and a little fridge and the sink was there that’s what I remember” (Volume III, pages 148 & 149, lines 19 & 1-2 of transcript). [ 71 ] She also recalled the letter that Ms. Manners received from the City advising them “…they had to close second and third floor and that’s when we found out that it was zoned as a B&B and not as we thought as individual condominium units”.

This, of course, was in March 2014: Adair, K.C.: Alright and what was your reaction when you found this out? Ms. Calafiore: Well I was stumped. I was – you know I thought I had total confidence that what I bought was a condo and instead what I had was an eighth of a B&B that wasn't worth anything, not worth what I thought it was that’s for sure. (Volume III, pages 149 & 150, lines 18 & 1-7 of transcript) [ 72 ] Ms.

Calafiore also reflected on the condition of her unit in March 2014, compared to a year earlier: Adair, K.C.: And tell me the was – you mentioned this cook top what happened to the cook top in the unit? Ms. Calafiore: They got removed before the inspection. It was supposed to be an inspection happening and from what I remember Kevin [Nolan] removed the cooktops before the inspection. Adair, K.C.: And were they replaced with anything? Ms.

Calafiore: I think if I remember correctly, they were just replaced with a piece of solid wood you know to look like a butcher’s block that’s what I remember. (Volume 11, page 150, lines 8-15) [ 73 ] Martha O’Connor, Frank O’Connor, and Anne Harrison bought Unit 202 in The Merchant’s House for $242,950. None of the three knew the Defendants previously. Ms. O’Connor attended the meeting at Roxanne O’Connor’s home in Toronto but neither Mr. O’Connor, her husband nor Ms. Harrison, their co-purchaser did.

Martha O’Connor received information from Roxanne O’Connor about the investment opportunity that The Merchant’s House presented, and she reviewed the brochure that Ms. O’Connor made available to her. [ 74 ] Latterly Martha O’Connor advised her husband and Ms. Harrison about her findings and then she and Ms. Harrison visited the property in September 2012. They found the leaseback arrangement particularly attractive since they were looking to the property as an investment. [ 75 ] Ms. O’Connor said they expressed an interest in purchasing Unit 202 before she and Ms.

Harrison visited the property in September but did not feel committed to buying it. She noted that the meeting at Roxanne O’Connor’s house in Toronto and the brochure that she received at that meeting, coupled with what she and Ms. Harrison saw when they visited the property, satisfied them it was a good investment opportunity: So, based on all of that and – we made a decision that, yes, we would purchase. Prior to going [to St. John’s] in September, although we had indicated an intention to purchase, we had in no way felt we were committing to purchase.

We were wanting to see the properties and get – and do, you know, better research on the property, on the opportunity. In any case, we purchased, closed in November and then a year and a half later we got a note that the St. John’s that, that we did not purchase what we had thought. It was, it was not a legal residential condo. It was zoned for a lodging house and, and even if that it was not compliant at that point as a lodging house. (Volume IV, Page 26, lines 12-20) [ 76 ] Nor did Louise Paquette-Neville have any prior knowledge of the Defendants.

She attended the meeting at Roxanne O’Connor’s house in Toronto. She thought the meeting actually happened on July 3, 2012, and not in June 2012 as several others reported and said she referred to her notes from the meeting to confirm the date. Ms. Paquette-Neville knew Cynthia Manners, who was also there, from some earlier contact the two had “on a weekend at the cottage” but none of the other attendees. In fact, she did not even really know Roxanne O’Connor, who invited her to the meeting, and described Ms. O’Connor as “…the acquaintance of my (inaudible) spouse Ray Michael” (Volume IV, page 50, lines 7-8).

[ 77 ] Ms. Paquette-Neville bought Unit 301 for $446,350. She noted the following factors in her decision to buy: • Information she received at the meeting from Roxanne O’Connor. • Knowledge that others present had dealt with the Defendants before to buy investment properties in St. John’s. • The brochure that Ms. O’Connor provided from the Defendants. • She attended the property in St. John’s in September 2012, accompanied by her husband and daughter and they stayed in Unit 301 for two nights. • The leaseback arrangement was attractive. [ 78 ] Ms.

Paquette-Neville stated her reaction when she learned along with the others who purchased units in The Merchant’s House that the property did not comply with the City’s zoning regulations and could only be operated as a B&B or a lodging house: Ms. Paquette-Neville: Again, at no time did I ever know that I was buying a suite within a lodging house. I would never have purchased anything that I couldn’t cook in, that I couldn’t live in, that I couldn’t rent, couldn’t sell.

I really believed that I was purchasing a residential condominium… . (Volume IV, page 55, lines 17-20 of transcript) [ 79 ] Denis Barry is a lawyer, who was called to the Bar of Newfoundland and Labrador in 1972 and practiced for 50 years; he is recently retired. Mr. Barry said he joined with others in practice early in his career but operated as a sole practitioner for the last decade and a half when he focused exclusively on real estate law. [ 80 ] Mr. Barry represented both the Plaintiffs and Defendants on the transactions between them for The Merchant’s House.

He also incorporated The Merchant’s House Condominium Corporation, registered the property as a condominium under the Condominium Act, 2009 , S.N.L. 2009, c. C-29.1 and drafted the Declaration and By-laws that related to it; all at the direction of Mr. Nolan. [ 81 ] Adair, K.C., counsel for three of the Plaintiffs, drew several articles of the Condominium Declaration to Mr. Barry’s attention when he cross-examined him. As to

Article 3.06, Adair, K.C. asked: “3.06 (

a) will you tell the Court, according to that declaration, what the use is permitted?”; to which Mr. Barry responded: Mr. Barry: Single family housing, no other purpose, only adults over age of 19. No person under the age of 19 shall own or permanently reside therein. Adair, K.C.: Right. So, actually only as a residence for single family housing, correct? Mr. Barry: Um-hm. Adair, K.C.: Sorry, you have to say yes or no for the record. Mr. Barry: Oh, sorry, yes. (Volume V, page 75, lines 9-14 of transcript) [ 82 ] And similarly, as to

Article XII, which Adair, K.C. described as “provisions governing use of common elements”: Adair, K.C.: And it says, “In addition to the provisions of the Declaration, the use and occupation shall be in accordance with the following restrictions and stipulation”. And then (r) “no owner shall lease or otherwise allow the occupation of his/her unit by others for a term less than one month in duration and without immediately advising the Board of the name and telephone number of the tenant or tenants”. Mr. Barry: Um-hm. Yes. Adair, K.C.: You drew those documents on Mr. Nolan’s instructions, correct? Mr. Barry: I drew them.

(Volume 5, pages 76 & 77, lines 16-19 & lines 1-3) [ 83 ] Matthew Girard has been the General Manager of Premier Executive Suites for 12 years. Roxanne O’Connor engaged Premier Executive Suites to lease her units in The Merchant’s House, when she declined the leaseback arrangement which the Defendants offered. Mr. Girard was familiar with Units 101 and 103 of The Merchant’s House which Ms. O’Connor owned and leased through his firm. [ 84 ] Adair, K.C. asked Mr. Girard about the presence of cooktops in Ms. O’Connor’s units when Ms. O’Connor engaged Premier Executive Suites in November 2012 and Mr.

Girard inspected her two units in the lead-up to leasing: Adair, K.C.: Mr. Girard, you have talked about your inspection I think it was, in or about November 2012? Mr. Girard: It would have been about that time, yeah. Adair, K.C.: Yeah, and at that time did you ask Roxanne O’Connor where the cook tops were? Mr. Girard: I would have, yeah. I would have asked her about ovens, yeah. Adair, K.C.: Yeah, what did she tell you? Mr. Girard: That there weren't any ovens in the units. Adair, K.C.: All right. Mr. Girard: Yeah. Adair, K.C.: Did she indicate there would be? Mr. Girard: I believe they were looking into it.

Adair, K.C.: All right, and were you aware, sir, that in March of 2013, Kevin Nolan purchased cook tops and convection ovens for all the units? Mr. Girard: Convection ovens? Adair, K.C.: Yeah, microwave/convection ovens: Mr. Girard: Yes. Adair, K.C.: And cook tops? Mr. Girard: Yes. Adair, K.C.: You were aware of that and were you aware that Mr. Nolan installed them in the units, in or about late March 2013?

Mr. Girard: I do recall that being done, yes. Adair, K.C.: Yes, and were you also aware, sir, that in April, after receiving notice of a pending inspection from the City, Mr. Nolan got a chap by the name of Craig Lewis to take all the cook tops out? Mr. Girard: Yes. Adair, K.C.: And were you aware that Mr. Nolan had Craig Lewis cover the cook top space up with a cutting board, so it looked like there had never been cook tops there? Mr. Girard: Yes, I remember the cutting boards.

Adair, K.C.: And, of course, you were aware, or quickly became aware that the zoning for that area, did not permit cooking or food preparation, correct? Mr. Girard: Yes, I found that out after. Adair, K.C.: All right, so that accounted for the disappearing cook tops? Mr. Girard: Yes. (Volume V, pages 163 & 164, lines 11-20 & 1-13 of transcript) [ 85 ] That is the background to the issues I stated earlier. While Mr. Nolan called several witnesses, Mr. Hall did not and neither defendant testified on his own behalf.

I turn now to discuss the issues against this background, using the framework from Cameron, J.A.’s reasons in Redmond v. Densmore . DISCUSSION Negligent Misrepresentation [ 86 ] To succeed against the Defendants, in their claim of negligent misrepresentation, the Plaintiffs must prove on a balance of probabilities: 1. that the Defendants owed them a duty of care based on a “special relationship” between them.

To prove that a “special relationship” existed, the Plaintiffs must show: a. the Defendants ought reasonably to have foreseen that they would rely on their representations; and b. it would be reasonable for them to rely on the Defendants’ representations in the circumstances of this case. 2. the Defendants’ representations are either untrue, inaccurate, or misleading or all of these; 3. the Defendants acted negligently when they made the representations; 4. they relied, in a reasonable manner, on the Defendants’ representations; and 5. they suffered damages because they relied on the Defendants’ representations. 1.

Negligent Misrepresentation – Duty of Care [ 87 ] The Defendants were prominent in the St. John’s real estate market in the early 2000’s and actively promoted their enterprises by word-of-mouth, promotional materials and other forms of advertising. For at least five years leading up to 2012 they were in contact with Roxanne O’Connor and some of her friends, selling investment properties to them and extending their network through those

contacts. [ 88 ] So, for example, Roxanne O’Connor came to St. John’s in 2007, where she met Mr. Nolan and eventually bought “a large beautiful historical home, three stories with a rental unit in the basement” (Volume I, page 35, line 17 of transcript) at 31 Gower Street, St. John’s from the Defendants. Ms. O’Connor owned that property for “approximately four years” and said it “worked out very well” (Volume I, page 36, lines 6-8 of transcript) for her. [ 89 ] Ms. O’Connor also bought a condominium unit from the Defendants, at 22 Flavin Street, St. John’s.

She described it in her testimony as “…a four-storey building with approximately four units per floor with an elevator and mine was on the main floor approximately 1400 square feet luxury, all furnished two bedroom with a den, kitchen, two bathroom, one en suite in there”; and a “full kitchen” as well as “washer, dryer, dishwasher” (Volume I, page 37, lines 3-8 of transcript). [ 90 ] She also explained how she met Mr. Nolan on that trip: Adair, K.C.: Okay. And when and how did you first come to meet Mr. Nolan. Ms. O’Connor: I met Mr. Nolan around 2007 ah when we were visiting St. John’s.

He was at this thing, I met at the breakfast room of B&B we were staying at. Adair, K.C.: I see, and was that an arranged meeting or a casual meeting? Ms. O’Connor: It was not an arranged meeting, introduced himself to me at the table. (Volume I, page 33, line 14-18 of transcript) [ 91 ] On the same trip, Ms. O’Connor said she saw a postcard in the hallway of the B&B she was staying at, promoting oceanfront properties for sale in Portugal Cove, just outside St. John’s. She called the phone number on it and eventually Mr. Nolan called back when he found out she was interested in the properties.

And this was how the investment relationship developed between the Defendants and Ms. O’Connor: they had properties to sell and they knew that Ms. O’Connor was interested in investing in real estate in the St. John’s area. [ 92 ] The Defendants’ connection with Ms. O’Connor also gave them access to some of her associates. I note, for example, that Cynthia Manners accompanied Ms. O’Connor on a trip to St. John’s some time in 2008 or 2009 and they met with Mr. Nolan who took the two of them “out during the day ah, showing us a few of his properties”. From that trip, Ms.

Manners invested in a property the Defendants owned in Topsail as did Ms. O’Connor, Kathryn Sinclair and Lynn Calafiore. Ms. Manners noted that she had a “14/15%” return on the Topsail property over two years and she was “happy with that” (Volume II, page 68, line 5 of transcript). [ 93 ] By 2012, the Defendants had established a working relationship with the core of the Plaintiffs, Roxanne O’Connor, Cynthia Manners, Kathryn Sinclair and Lynn Calafiore. Together those Plaintiffs bought six of the eight units that were available in The Merchant’s House, excepting only Ms.

Paquette-Neville and the O’Connor/O’Connor & Harrison threesome who bought the remaining two. The Defendants knew that the Plaintiffs were looking for properties to buy and they welcomed the chance to sell to them. [ 94 ] For all their interest in investing in Newfoundland real estate the Plaintiffs were relatively new to the local market and looked to the Defendants for their guidance and direction, as well as opportunities to buy from them. The Merchant’s House presented a more intricate and complex proposition than the parties had considered between them previously.

In the first place, it involved eight units, which the Defendants were selling for a total of $2,599,000, inclusive of HST. [ 95 ] Additionally, the Defendants insisted that all units had to be sold together, preferably to a cohesive body. To that end, the Defendants say they offered a 7.5% “designer credit” to all buyers, contingent on all units being sold.

They also offered a guaranteed 3- year leaseback arrangement by which the Defendants would lease the properties back from the buyers, they would pay the buyers monthly rentals for their units and then the Defendants would market the properties themselves to generate the revenue to support the arrangement. The marketability of the units lay at the root of the operation and it was fundamental to its success. [ 96 ] All of these contingencies were largely outside the knowledge and control of the Plaintiffs.

As events would eventually reveal, municipal zoning was critical to the marketability of the units and ultimately to the success of the financing exercise in which the parties were engaged. [ 97 ] The Defendants were better placed and more capable of discerning the zoning environment in St. John’s and to understand how it would affect marketing the properties. By 2012 the Defendants had been working for about 3-4 years to redevelop The Merchant’s House, converting it from a 3-apartment residential property to an 8-unit structure.

They engaged architect Philip Pratt to envision and redesign the property and to steer the historic structure through City’s zoning web. [ 98 ] To a trusting observer the Defendants achieved all of that and some - to such an extent, that they were confident enough in their success to claim in their promotional brochure that the “8 luxury executive condominiums” would “provide hassle free living in a luxurious downtown setting”. The Plaintiffs were trusting observers and the Defendants owed them a duty to ensure that they could deliver on their promises.

[ 99 ] Mr. Hall cross-examined a number of the Plaintiffs. He suggested to them that they could have done more to protect themselves; and he suggested that they could not simply count on the Defendants to make sure that the enterprise succeeded. This exchange between Mr. Hall and Cynthia Manners underscores Ms. Manners’ justification for buying two units in The Merchant’s House and for relying on the Defendants to ensure that all was in order: Mr. Hall: No. So, and would you recommend, actually I think earlier you said you purchased the property sight unseen, correct? Ms.

Manners: Well, it wasn’t unseen to me, I did stay at 21 Rennies Mill, I had met the both of you, I had done investments with both of you that was successful, there was trust that I had. I thought it was a good opportunity with people that I trusted. Mr. Hall: Based on a brochure? Ms. Manners: Based on a meeting with you, based on other investments with you. Mr. Hall: The one investment. Ms. Manners: Yes. And working with you in the sale in Toronto. Mr. Hall: Mhmm. So, I am not sure how the two relate? How do they relate? Ms. Manners: It was a relationship of trust. Mr.

Hall: So, then you are telling me you would buy a property based solely on a brochure and a relationship? Ms. Manners: Yes. Mr. Hall: Mhmm and it’s interesting cause would you then agree that you’re buying a property based on a brand, is that correct? Ms. Manners: I don’t know if I would call it that. I was basing it on a relationship that I had with you that I was comfortable with. Mr. Hall: So, what was our relationship? Ms. Manners: I just mentioned. Mr. Hall: I want you to describe, how many years did you know us? Ms. Manners: Three, four. Mr. Hall: And did you meet us via Roxanne O’Connor? Ms.

Manners: Did I meet you through Roxanne O’Connor? Yes that is how I was introduced to you. Mr. Hall: So, did you just say and the brand is Nolan Hall, had nothing, did not factor into your decision to purchase the property at Rennies Mill Road?

Ms. Manners: I purchased it because I knew who you were. And I trusted you. Mr. Hall: And you trusted us for what reason? Ms. Manners: For having done business with you in the past. Mr. Hall: Business with us in the past was what exactly? Ms. Manners: An investment and sale, selling your condominiums in Toronto, visiting your home at 21 Rennies Mill. (Volume II, pages 79 & 80, lines 1-20 & 1-13 of transcript) [ 100 ] It is evident from this exchange between Mr. Hall and Ms. Manners that a “special relationship” existed between the Plaintiffs and Defendants.

The core of the Plaintiffs – Roxanne O’Connor; Cynthia Manners; Kathryn Sinclair; and Lynn Calafiore – had dealt with the Defendants to good effect previously and trusted them. [ 101 ] Their trust should have been self-evident to the Defendants who should have foreseen that they had to deal openly and fairly with the Plaintiffs. It is also inherent in that trust that the Plaintiffs would rely on the Defendants and the Defendants would know it.

Finally, it is just as self-evident that it is reasonable for the Plaintiffs to rely on any representations the Defendants made to them about The Merchant’s House. [ 102 ] These are the components of the association between the Plaintiffs and the Defendants that give rise to the “special relationship” between them and impose a duty of care on the Defendants towards the Plaintiffs: • They were associated in property investment approximately 4 years. • Four of the Plaintiffs looked to the Defendants for investment properties in the St.

John’s area during that time. • The Defendants courted those four Plaintiffs and sold properties to them. • Those Plaintiffs did well with the properties they bought from the Defendants. • The Defendants pitched The Merchant’s House to those Plaintiffs and relied on them to recruit sufficient numbers to sell all units in the property. • Those Plaintiffs delivered on the Defendants’ expectations and the Defendants had a duty to all Plaintiffs to ensure that The Merchant’s House would meet the Plaintiffs’ expectations for it. 2.

Representations - Untrue, Inaccurate, or Misleading [ 103 ] That the Defendants misrepresented The Merchant’s House to the Defendants is not in doubt. And this is the misrepresentation: The Merchant’s House was an 8-unit fully equipped condominium development; the units accommodated full service living, including on site food preparation; the units were freely alienable; and the development complied with the City’s zoning bylaws. It is equally clear that most aspects of that misrepresentation were untrue, inaccurate or misleading; and just maybe, all of these adjectives can be applied to them.

Let me explain. [ 104 ] The Defendants hired Philip Pratt to convert The Merchant’s House from a 3-apartment residential structure to an 8-unit development. Mr. Pratt did as the Defendants asked him and from his work the City issued a Building Permit so Mr. Pratt could proceed and then an Occupancy Permit when he finished the conversion. [ 105 ] Consent Exhibit #6 is a copy of the Building Permit which the City issued on July 30, 2009.

I referred to it earlier in these reason and noted then that it authorized the Defendants to “CONVER 23A [Rennies Mill Road], B & C INTO 16 PERSON – BEDROOM SUITES – B & B RENOVATE”; which Mr. Pratt did. Consent Exhibit # 28 is a copy of the Occupancy Permit the City issued when Mr. Pratt finished his work. [ 106 ] The Occupancy Permit was dated February 11, 2010 and authorized the Defendants to operate 23 Rennies Mill Road as a “Lodging House”, subject to these “Conditions or Remarks”: “MAXIMUM OCCUPANCY OF 16 PERSONS (8-ROOMS).

THERE IS NO COOKING OR FOOD PREPARATION AREAS AT THIS PROPERTY AND THERE IS TO BE NO COOKING OR SERVING OF FOOD FROM THE ADJOINING PROPERTY (21 RENNIES MILL ROAD) FOR THE GUESTS OF THIS LODGING HOUSE”. [ 107 ] Eventually, the City issued a succession of Lodging House Licenses for the property, which permitted “16 persons/guest/caretaker” to occupy the premises but carried the same prohibition on cooking or preparing food in the units and on bringing it into them from next door at 21 Rennies Mill Road. And so, it continues until now.

[ 108 ] Yet, when the Defendants produced their promotional brochure for The Merchant’s House they represented the property as “… redeveloped to 8 luxury condominiums which are now being offered for sale to the keen investor” (Exhibit R.O’C. #1). In particular, the Defendants did not say the property could only operate as lodging house, that it could not accommodate more than 16 people on site (including caretaking staff) and that no food could be prepared in the units. [ 109 ] As well, when the Plaintiffs agreed to buy all 8 units as “condominiums”, the Defendants instructed Mr.

Barry, their lawyer to incorporate The Merchant’s House Condominium Corporation and to register it under the Condominium Act, 2009 . They also instructed Mr. Barry to draft the Declaration, including

Article 3.06 which covered “Occupation and Use” . It provided: The occupation and use of the Units shall be in accordance with the following restrictions and stipulations and those provided in the By- Laws: (

a) each residential Unit shall be occupied and used only as a residence for single family housing and no other purpose… [ 110 ]

Article XII of the By-Laws also provided for “ The Use and Occupation of Units ”. By-Law XII (

r) reads: (

r) no Owner shall lease or otherwise allow the occupation of his/her unit by others for a term less than one month in duration and without immediately advising the Board of the name and telephone number of the tenant or tenants. [ 111 ] Otherwise, from a general review of the Condominium Declaration and By-Laws it is evident that the Plaintiffs were informed by them that they could expect to engage in full condominium living, subject, of course, to the usual limitations and restrictions of that lifestyle, but certainly not limited to a B&B or a lodging house occupancy. 3.

Defendants were Negligent with Representation [ 112 ] The Defendants presented The Merchant’s House as a fully equipped, 8-unit, permitted and authorized condominium development when they knew its operation was limited to a lodging house/B&B; and there is compelling evidence that their malfeasance extended beyond mere negligence. [ 113 ] In documenting the extent of the Defendants’ misrepresentation just then, I showed clearly that the Defendants were not authorized to use The Merchant’s House for any purpose than a lodging house and that they knew it.

Yet while they passed it off to the Plaintiffs as a condominium development, the Defendants were able to misrepresent The Merchant’s house as such and sustain that perception only because of how they marketed the development and sold it to the Plaintiffs. [ 114 ] The Defendants sold The Merchant’s House development to the Plaintiffs as a “complete package”, of which these were the 5 key elements: i. All units had to be sold and a 7.5% designer credit was given for each of the units as an incentive if all units were sold, but not otherwise. ii.

Roxanne O’Connor received a 3% commission on all sales for relaying sales information to potential buyers and sharing her investment background with the Defendants to them. iii. Denis Barry represented both buyers and sellers, drafting and witnessing the execution of deeds of conveyance, setting up the condominium corporation, receiving funds from the Plaintiffs and disbursing them to the Defendants and otherwise overseeing all aspects of the transactions. iv. The Defendants designated Nolan Hall Real Estate Services as the Vendor’s Agent for selling the units; and v.

The Defendants offered the Plaintiffs a guaranteed leaseback arrangement which assured the Plaintiffs rental income for three years. i. Designer Credits [ 115 ] For all of the talk about them in the evidence, I actually know little about the designer credits. For example, I am unclear about when the buyers were informed of them, who conceived of them and the rationale for them.

The Plaintiffs understood that the Defendants extended the credits to them as an incentive to buy all of the units so that The Merchant’s House was fully formed and operational immediately as they closed the transactions. [ 116 ] While the Defendants may have stated that as their intention for the credit

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