Lorie Regehr - v. -, 2020 SKPC 50

IN THE PROVINCIAL COURT OF SASKATCHEWAN CIVIL DIVISION Citation: 2020 SKPC 50 Date: November 26, 2020 File: 612/17 Location: Regina _____________________________________________________________________________ Between: Lorie Regehr - and - Edna Keep and 3D Real Estate Investments Ltd. Lorie Regehr For the Plaintiff (Defendant by Counterclaim) Edna Keep For the Defendant (Plaintiff by Counterclaim) JUDGMENT DEMONG, J ______________________________________________________________________________ Context [ 1 ] As is often the case in small claims court, the parties to this dispute were self-represented.

As such, neither of them, in my view, fully understood the substantive laws which guide this claim and its defense. Neither of them, in my view, fully understood the evidentiary aspects of relevance and materiality. Neither of them provided concise pleadings, setting forth with clarity a brief

summary of

those essential facts, which, if proven, would set the factual foundation upon which a legal remedy would exist – or be successfully challenged. Rather, their pleadings read more as a chronological amalgam of evidence and allegation. As is often the case, it has been left to the Court to ascertain the true positions of the parties only after evidence has been led.

It has been left to the Court to guide them at trial by refusing to invalidate proceedings by reason of informality; to relax strict rules of evidence; and to ask questions to clarify ambiguity and to ensure that all relevant facts are fully before the Court. [ 2 ] This is not unusual in this court. The Small Claims Act , 2016 , SS 2016, c S-50.12 [ Act ] makes provision for this under sections 31 , 32 , and 52 of the Act .

Summary of the Positions of the Parties [ 3 ] The plaintiff (hereafter ‘Ms. Regehr’) brings this action against the defendants (hereafter ‘Ms. Keep’ and ‘3D’ respectively) on a joint and several basis. She alleges that she sustained significant losses when her financial advisor, Ms. Keep, suggested that she invest in a residential ‘rent-to-own’ investment scheme set up by 3D and a third party. Ms. Keep is a principal of 3D. [ 4 ] In its essence, the investment contemplated that Ms. Regehr would purchase a home in Regina which I will refer to throughout this judgment as the ‘Doiron home’.

She would then rent it to a tenant (who had been located by a third party) for a three-year term. At the expiry of the term, the tenant could exercise his option to purchase the property at a value well in excess of Ms. Regehr’s original purchase price. [ 5 ] The scheme anticipated that Ms. Regehr would derive profit in three different ways. First, and because the rent would be set at a price well in excess of the carrying costs of the home, Ms. Regehr would obtain a 36-month positive income stream equal to the difference between the monthly rent and her monthly carrying costs.

Second, at the expiry of the term, the tenant would exercise their option to purchase the home, and a portion of the steadily appreciating value of the home would be Ms. Regehr’s to keep. If the tenant did not purchase the home, then Ms. Regehr would still have a home that had appreciated in value. Third, because Ms. Regehr would be paying down the mortgage that she used to acquire the property - using the rental monies that were coming in - the principal due and owing on that mortgage would be less at the end of the three-year term.

As such, she would stand to make a further profit because, upon sale to the tenant, the principal owing on the mortgage that she would have to pay back to the bank would be less than at the start of the mortgage. [ 6 ] Ms. Regehr has alleged that the tenant vacated the home at the end of the lease and refused to pay the last two month’s rent. Ms. Regehr says she sustained a loss equivalent to $5,700.00 arising from that default. Second, Ms. Regehr alleges that the tenant made significant changes to the property - and that he left the home in a sad state of repair. In consequence, Ms.

Regehr had to incur costs to make the home rentable again. She alleges that she incurred costs for goods and labour in the approximate sum of $31,000.00 to make the home rentable, and that this took two months. In consequence she lost two more months’ rent, or approximately $5,200.00. She further alleges that notwithstanding the repair work done to the home, its fair market value at the expiry of the three-year term was significantly reduced – because the changes made to the home by the tenant had the effect of degrading the quality of the home.

In consequence, she alleges that its fair market value was reduced by approximately $100,000.00. Finally, she alleges that even if the house had not degraded in value because of the changes made by the tenant, the projections used by Ms. Keep/3D to show that the home would appreciate in value had no basis in reality. As such, the market value of the home at the end of the lease would have been no different than it was when she originally purchased it. In consequence, there was no reasonable expectation of a ‘back-end’ profit, but rather, a net loss. [ 7 ] Notwithstanding the rather significant losses alleged, Ms.

Regehr is prepared to abandon any damages in excess of $30,000.00, the monetary jurisdiction of this court, in order to obtain the benefits of proceeding in this court - namely a timely, efficient, and cost- effective resolution to this dispute. [ 8 ] While Ms. Regehr has identified the substantive foundation of her claim as breach of contract, her claim, broadly interpreted, can be cast not only in terms of contractual breach, but also negligent misrepresentation and breach of a financial advisor’s fiduciary duties. [ 9 ] The defendants filed a Reply which incorporated a very

summary form of counterclaim. The gist of the Reply can be summarized: Ms.

Regehr was a sophisticated investor and she was made aware of all aspects of this investment; she readily agreed to participate in this investment because she sought to obtain the rather significant return on investment that this scheme anticipated; she knew, or at least she ought to have known, that with the prospect of significant reward comes an element of risk; she either knew, or ought to have known, that the defendants were not contractually obligated to act as a hands-on property manager and that this aspect of the investment was undertaken by a third party with Ms.

Regehr’s express consent; therefore, any loss that arose in relation to damage to

the property is not the responsibility of the defendants; and, therefore, her claim should be dismissed. [ 10 ] The counterclaim alleges that Ms. Regehr has defamed each of Ms. Keep and 3D and that they have suffered a loss of reputation together with the expense and stress of defending this action. They collectively seek damages in the sum of $55,000.00 together with interest and costs. [ 11 ] At a pre-trial hearing the defendants were advised that defamation is a broad description of libel and slander, and that by virtue of

section 3 of the Ac t , this Court lacks jurisdiction to deal with libel or slander. They were also advised that the amount sought exceeded this Court’s monetary jurisdiction. The counterclaim was abandoned at trial. Issues [ 12 ] This Court is called upon to address several issues: 1. Was there a contract between Ms. Regehr and each of the defendants? 2. If so, what were the terms and conditions of that contract, either express or implied? 3. Did either of the defendants breach that contract? 4. If so, did Ms. Regehr suffer loss occasioned by that breach? 5.

If so, what is the measure of her damages arising therefrom? 6. Did either of the defendants make representations to Ms. Regehr that Ms. Regehr reasonably relied on, and which operated as an inducement to her to enter into the agreement? 7. If so, were the representations negligently made? 8. If so, did Ms. Regehr suffer any loss by relying on those negligent representations? 9. If so, what is the measure of her damages by relying on those negligent misrepresentations? 10. At all pertinent times, was Ms. Keep acting as Ms. Regehr’s financial advisor? 11. If so, did Ms.

Keep meet the standard of care of a prudent financial advisor when presenting this investment opportunity to Ms. Regehr? 12. If not, is Ms. Keep responsible for any loss Ms. Regehr is alleged to have incurred as a result of engaging in this investment scheme? 13. If so, what is the measure of that loss? Evidence, Analysis and Findings of Fact [ 13 ] Some of the evidence tendered at trial is undisputed. Some is not. Where the evidence conflicts, I will explain why I prefer the evidence of one person over the other. That stated, where the evidence of Ms.

Regehr and her husband Murray Bolton conflicts with the evidence of Ms. Keep – in so far as that evidence relates to certain conversations the three parties had prior to Ms. Regehr executing documentation that finalized this financial arrangement - I prefer the evidence of Ms. Regehr and Mr. Bolton. I say this for several reasons. First, each of them, in the waning years of their life have had to live with an investment which went terribly wrong.

I have no doubt that in the last nine years they have revisited all aspects of this arrangement on many occasions in order to understand what went wrong, and how it has affected their anticipated financial security. This, in my view, would have cemented their recollection of events. Comparatively speaking, Ms. Keep was heard to state in cross-examination by Ms. Regehr that she could not be expected to recall every conversation that she had with Ms. Regehr because she had “hundreds of clients”. In addition, while Ms.

Keep stated that she kept records of her conversations with each of her clients, she kept them on her computer’s hard drive and that hard drive, she said, crashed in 2017 - the year that this action was commenced. As such she has had no opportunity to refresh her memory. Secondly, while Ms. Regehr’s evidence was somewhat disorganized and convoluted, it came across as heartfelt and credible as did Mr. Bolton’s. By comparison, Ms. Keep presented in an almost dismissive fashion, and, on cross-examination tended to use the often-heard phrase “I can’t recall”. Admittedly, sometimes people cannot recall.

However, this does not bode well when the evidence tendered by the other party on any given point is presented credibly. Finally, Ms. Keep had full opportunity to cross-examine Ms. Regehr and Mr. Bolton in an effort to impeach their recollection and their evidence generally. She did not ask a single question of Ms. Regehr on any aspect of her almost six

hours of direct evidence other than to ask three questions about her proposed financial expert: was he being called, is he being paid, and how much? Nor did she ask a single question of Mr. Bolton. As such their evidence went in completely unchallenged. [ 14 ] Ms. Regehr is 66 years old. At the age of 45 she left her job in broadcasting. At that time, she had a portfolio of mutual funds and had received a severance package which had been invested on her behalf. Since at least 2011 her income has been marginal. She owns a seasonal ice cream shop and derives $20,000.00 to $25,000.00 yearly income.

At all relevant times, she has resided in Yorkton. At all pertinent times hereto, she was married to Murray Bolton, who had been retired from his job as an automotive technician. [ 15 ] Prior to this investment, Ms. Regehr had participated in an apartment rental investment with others, and she had apparently had an interest in real property in Hawaii. The court was not provided with any details on the nature of these investments. I do not know if these were in the nature of a real estate trust, or a time share, or frankly anything about them. As such I cannot gauge Ms.

Regehr’s apparent expertise in the field of real estate investment. While Ms. Keep has suggested that the existence of these investments purports to make Ms. Regehr a sophisticated real estate investor I disagree. I accept Ms. Regehr’s evidence that, prior to this investment, she had no experience whatsoever with a residential rent-to-own type of investment. [ 16 ] Ms. Keep is 61 years old.

She is a self-professed successful business woman who, according to a book that she published in 2014: became a single mom at 16; worked as a receptionist at a clinic for eight years; became an accounting clerk in 1986; worked as an office manager from 1988 until 1996; obtained her financial planner designation in 1999; and, having grown tired of that job, took her first real estate investment course in 2007.

While she continued to provide financial advice and remained on the national register of investment dealers until at least 2015, she characterized herself (in her book) as “a full-time real estate investor since 2009, with other income streams as well’. Based on this biography I conclude that when the investment that is the subject of this lawsuit was brought to Ms. Regehr’s attention, Ms. Keep had, at most, only two years full time experience dealing with residential real estate. Based on this biography, I conclude that Ms.

Keep has never acted as a real estate appraiser, nor had she ever been a real estate agent. The action before the court contemplated a three-year investment scheme. There is no evidence before the court that, prior to presenting this investment to Ms. Regehr, Ms. Keep had ever personally seen a three-year investment of this type through to fruition. [ 17 ] Ms. Keep had acted as Ms. Regehr’s financial advisor since 1998. Ms. Keep says, and I accept her evidence, that in each year that she provided financial advice to Ms. Regehr, she considered the ‘Know Your Client’ principles of a financial advisor.

These principles demand that the advisor become familiar with a client’s financial situation and their risk tolerance. On that basis, I infer that, at all relevant times, she was aware that Ms. Regehr’s investments were more or less of a buy and hold type strategy; that Ms. Regehr was resident in Yorkton and not in Regina; that she owned a home in which she had about $200,000.00 in equity; and, that she had a marginal income not exceeding $25,000.00 - based on seasonal work. [ 18 ] I accept Ms. Regehr’s evidence that over the years of their association she treated Ms.

Keep as a confidante, and had, in the past, expressed significant anxiety about losses that she had sustained when investing in real estate investment trusts. I accept that it was at about the start of 2011 that Ms. Keep started to suggest investing in joint house ventures and rent-to-own investments. [ 19 ] Ms. Regehr has stated that several months prior to November of 2011, Ms. Keep had invited Ms. Regehr and her husband, Murray Bolton, to lunch to discuss rent-to-own investments. While Ms. Keep cannot remember this personal attendance on Ms. Regehr and her husband, I am satisfied that it occurred. [ 20 ] Ms.

Regehr stated that at this meeting, Ms. Keep described residential rent-to-own investments as ‘great’. She says that Ms. Keep advised her that tenants were pre-qualified, but by virtue of their personal financial circumstances were not quite close enough to qualify for mortgages at their own banks. She stated that Ms.

Keep represented that the arrangement is structured such that the investor/owner purchases a home using a down payment and a mortgage to be secured against the house, and that the rent is set at a rate which will comfortably offset the carrying costs of the home while leaving a positive cash flow to the investor. The investor/owner is protected to a large extent, said Ms. Keep, because the tenant makes a deposit of $35,000.00 which is held by the investor/owner and that if for any reason after a term of three years the tenant could not buy the property, then the investor ‘owns’ the deposit. Ms.

Regehr said that Ms. Keep further advised that the value of the prospective home would appreciate by 5% in the first year, 4% in the second year, and 3% in the third year because residential home prices were appreciating in value - so not only would an investor obtain the positive cash flow, they would derive the financial advantage of selling the home to the tenant at a value well in excess of what it originally cost the investor. Ms. Regehr stated that Ms. Keep advised her that she need not worry about having the money for the down payment readily on hand because Ms.

Regehr could leverage her personal home’s equity to finance this aspect of the purchase. [ 21 ] Ms. Regehr stated that Ms. Keep did not ask her any questions about her risk tolerance at that meeting, nor did she ask if Ms. Regehr had any previous experience in this type of investment. She stated that Ms. Keep never mentioned any prospect of any potential significant loss, nor did she discuss the potential for any negative consequences whatsoever. Rather, she says that Ms.

Keep reiterated rather explicitly that it would be most unreasonable for a tenant to walk away from the deal since the tenant would then lose the rather significant $35,000.00 deposit that was required. Ms. Regehr stated that she asked about Ms. Keep’s commission - and was advised “that doesn’t concern you”. She says that the commission was never explained to her until after the investment which is the subject of this dispute took place. [ 22 ] Mr. Bolton’s recollection of that luncheon meeting is similar to Ms. Regehr’s recollection. He described Ms.

Keep as upbeat and positive and that she mentioned that there was no down-side to the investment. He said that Ms. Keep explained that she had found a client with a sizable deposit which would, as part of the deal, “be set to the side” and “go to the investor if the deal fell through”. He says that he asked if the arrangement was ethical and whether Ms. Keep found it to be exploitive from the point of view of the tenant. He says that he was assured that it was both ethical and non-exploitive. He stated that Ms. Keep assured them that the projections on the home’s future increased value were done by her.

I infer that what Ms. Keep meant - when she said that it was not exploitive – was that if the investment was completed, the tenant would not only be able to apply the $35,000.00 that was to be set aside against the purchase price, but also obtain the home at its projected future full market value. Mr. Bolton also stated that Ms. Keep never mentioned that she had a partner in this endeavor.

[ 23 ] As I have said, each of Ms. Regehr and Mr. Bolton presented their evidence relating to this meeting credibly. Much of it is consistent with a subsequent financial analysis that was provided to them by Ms. Keep. As I have noted, neither of them was asked a single question by way of cross-examination to challenge their recollection. I accept that Ms. Keep made the representations set out in this testimony. I accept that she failed entirely to discuss the way in which she would be compensated, or the amount of that compensation.

I accept that she did not, at that time, nor at any relevant time prior to the actual investment occurring, discuss or analyze any potential risk that might arise in relation to the investment with one exception – that the tenant might choose not to purchase the property. [ 24 ] I have no evidence as to the precise date of this meeting, but it happened well prior to the time when Ms. Keep forwarded the proposed Doiron home rent-to own investment to Ms. Regehr. That investment opportunity was sent on November 19, 2011.

It featured what was described as a ‘fantastic house, great area’ and it included pictures of the exterior and the interior of the home. It provided a bare financial analysis which indicated that monthly positive cash flow would equate to $564.00 per month, ‘a 9% cash on cash return to you’. It represented that the prospective tenant-buyers had recently gone through a consumer proposal because of a ‘pile of unexpected debt’ but that they had recently sold their home to pay off that debt. It represented that the tenant-buyers had ‘a solid income grossing well over $100,000.00 combined’.

It stated: $76,000.00 is required for this property. You qualify for the mortgage and provide the down payment . A true armchair investment as 3D will look after everything else. [emphasis added] [ 25 ] Ms. Regehr expressed interest in the investment. She was advised to move quickly because the investment offer would expire on November 29. Within a day or two Ms. Regehr attended at her bank to arrange financing.

She took the abbreviated financial analysis that had been sent to her for her loans officer to consider. [ 26 ] On November 22, 2011, and following discussions with her loans officer, she sent an e-mail to Ms. Keep advising Ms.

Keep that, among other things: she could be approved for a $285,000.00 mortgage on the Doiron home at a fixed rate of 3.2 % for a three year term; that she would be obliged to carry a $95,000.00 line of credit at a rate of 3.5% per annum which she would have to use as the down payment on the investment at a cost of $277.00 per month; that by her calculations if everything went according to plan she would be seeing a net monthly return of about $280.00 per month; and that her loans officer had suggested to her that she may be cutting things too thin because she “might be on the hook” because this was all borrowed money.

She asked Ms. Keep “what’s your take?” She specifically asked if “this is too small a margin for me to bother with at this point in my life” and “Let me know your thinking”. [ 27 ] I note in passing that the original projected purchase price of the home was $380,000.00. For reasons not explained at trial, by November 23, the purchase price was changed to $385,000.00 obligating Ms. Regehr to obtain a $100,000.00 line of credit to use as a down payment on the home, rather than $95.000.00. [ 28 ] Ms. Keep concedes that she did not respond to Ms. Regehr’s concerns in writing.

She has asserted however that she had at least an hour-long telephone conversation with Ms. Regehr on the following day, November 23. She says that during that telephone call she answered all of Ms. Regehr’s questions. I will come back to Ms. Keep’s evidence relating to this conversation shortly. I note, however, that by November 23, she must have been aware that the down payment on the home would be secured by a $100,000.00 line of credit at an interest rate of 3.5%. [ 29 ] On November 23, Ms. Keep sent Ms. Regehr several documents with instructions to sign them and return them back to her.

She also sent a revised financial analysis spreadsheet. [ 30 ] The first document was titled ‘Amendment to Residential Contract of Purchase and Sale’. This document identified the seller of the Doiron home as a person by the name of Spence Lee, and that on November 12, he had sold it to a buyer by the name of Shaking Prairie Properties Ltd. This document changed the name of the buyer from Shaking Prairie Properties Ltd. to Lorie Regehr. Ms. Regehr says that Ms. Keep did not explain this document to her and she stated that when she received it, the witness for Ms.

Regehr’s signature had had already signed the document. The document evidences that Ms. Regehr signed the document at 1 p.m. on November 23. [ 31 ] The second document was entitled ‘Assignment of Contract’. It evidenced that upon Ms. Regehr’s execution of the contract, Ms. Regehr was, in effect, paying Shaking Prairie Properties Ltd. the sum of $20,000.00 in exchange for acquiring all of that company’s rights to fulfill all of the same conditions, obligations, and terms of a contract for sale and purchase which was attached to the Assignment. This amount was to be paid in two installments of $10,000.00 each.

The first installment was to be paid upon receipt of the tenant’s $35,000.00 deposit and the second would be paid upon the tenant’s purchase of the Doiron home in November of 2014. It indicated that, as part of that contract, Shaking Prairie Properties Ltd. agreed to provide a move in inspection and semi-annual inspections of the home. It undertook to follow up with the tenant on the status of their credit and ability to purchase the property. [ 32 ] Ms. Regehr says that Ms. Keep did not go through this document with her prior to Ms. Regehr signing it.

She says, and I accept, that she had no idea who the principals of that company were and had never met them before. I have no evidence before me to suggest that Ms. Keep, either at that time, or at any relevant time thereafter, discussed the nature of that company to Ms. Regehr; nor the depth or breadth of its experience as a property manager; nor that the document’s intent - as suggested by Ms. Keep in her pleadings - was to transfer, absolutely, any personal skills or corporate responsibility that either Ms. Keep or 3D may have otherwise had under its agreement with Ms.

Regehr - which was that 3D would ‘look after everything’ as stated in the November 19 offering. [ 33 ] The third document was entitled ‘Tenant Lease Agreement’. It identified Ms. Regehr as the landlord of the Doiron home, and Dwayne and Crystal Hnatiw as the tenants. I accept Ms. Regehr’s evidence to the effect that she had never met these two people prior to the execution of this agreement and that the extent of her familiarity of their circumstances was as set forth in the November 19 offering. This Agreement constituted the leasing arrangement. It identified a rental rate of $2,650.00 per month.

It included certain boiler plate conditions which are not of concern to the court. It also included a ‘maintenance costs’ provision which obligated the tenant to advise the landlord of any damages that may occur to the premises. Notably, however, it did not preclude the tenants from making any changes to the property which might have the effect of diminishing the value of the property. I accept that Ms. Keep did not conduct a thorough

review of this document with Ms. Regehr. [ 34 ] The fourth document was a ‘Purchase Option Contract’. It granted Dwayne and Crystal Hnatiw the option of purchasing the Doiron home from Ms. Regehr on or before November 30, 2014 for the sum of $438,500.00. It confirmed that the optionees would make a deposit of $35,000.00 by December 5, 2011, and that this would be payable to Lorie Regehr. It indicated that if the optionee failed to exercise its option, then the deposit would default to Ms. Regehr as liquidated damages.

If the optionees sought to purchase, but could not obtain the requisite financing, then the optionees would be entitled to the return of one tenth of the deposit or $3,500.00. The balance would default to Ms. Regehr. [ 35 ] The Purchase Option Contract also stipulated that if the optionees exercised their purchase rights, then they would also be able to apply, by way of set-off, the sum of $250.00 for each month of the lease, against the purchase price - but only if the rent had been paid on time.

This would have the effect of allowing them to potentially set-off, as against the purchase price, the further sum of $9,000.00. [ 36 ] The Purchase Option Contract also indicated that the optionees would be responsible for all repairs, maintenance, costs, service charges, painting, improvements and additions to the property. It specifically noted that the optionees agreed that they required the written approval of Ms. Regehr before painting the home and before making any alterations or additions to the property.

Noticeably absent was any provision that identified the respective rights or obligations of the parties if the optionees failed to obtain that approval. [ 37 ] There was no evidence led at court indicating that Ms. Keep ever invited Ms. Regehr to obtain legal advice before she signed all these documents. [ 38 ] The final document that Ms. Keep provided to Ms. Regehr was sent by e-mail at about 2 p.m. that afternoon (after Ms. Regehr had signed the Amendment to Residential Contract Purchase and Sale). It was 3D’s modified financial analysis.

It identified gains from monthly cash flow of $771.00 over the term of the lease equal to $27,756.00 at the end of the term. In the monthly cash flow projection portion of that analysis it identified a rent of $2,650.00 per month. Against that rent would be offset certain carrying costs. First, the cost of carrying the mortgage in the sum of $1,229.00. Second, cost of insurance in the sum of $125.00 per month. Third, the home’s municipal taxes in the sum of $300.00 per month. Finally, the monthly cost of a personal line of credit with a value of $77,000.00 which was subject to a 3.5% interest charge.

The financial analysis identified monthly interest on that line of credit equal to $225.00 per month. However, by then Ms. Keep knew, or certainly should have known, that the line of credit would be $100,000.00. As such the carrying cost of that loan would be $3,500.00 per year, or $291.67 per month. This would have the effect of reducing Ms. Regehr’s monthly cash flow by $66.66. I heard no evidence from Ms. Keep indicating that she drew this to Ms.

Regehr’s attention, but in the result, the total projected profit on monthly cash flow would be reduced by $2,399.76 resulting in a gross profit of only $25,356.00 over the three-year term. [ 39 ] The financial analysis also identified a ‘gross profit analysis following sale’ equating to the sum of $38,368.00. There are problems with this portion of the analysis as well. First, the projected future sales price identified increases in the value of the home to be 5% in the first year, 4% in the second year, and 3% in the third year – for a future sales price of $438,500.00. However, the math does not add up.

Using those numbers, the future sales price would be $433,032.60. ($385,000.00 x 1.05 in year one = $404,250.00; $404.250.0 x 1.04 = $420,420.00 in year two; $420,420.00 x 1.03 = $433,032.60). I heard no evidence from Ms. Keep to the effect that she advised Ms. Regehr of 3D’s math error but I am satisfied that the higher number would have provided Ms. Regehr with some comfort. [ 40 ] The gross profit analysis made a more fundamental error. The analysis assumed that the tenant would purchase the home for $438,500.00 ($35,000 of which would be paid as an upfront deposit).

The analysis also identified that certain sums would have to be set- off from that price. First, the analysis showed that the tenant’s deposit in the amount of $35,000.00 would be applied to the purchase price, leaving a balance of $403,500.00. (What the analysis did not show, was that this $35,000.00 would already have been used by 3D to pay itself, to pay Shaking Prairie Properties Ltd., and all legal fees to purchase the home.) Second, the monthly rent credits paid in advance by the tenant in the sum of $9,000.00, leaving a balance of $394,500.

Third, the second payment to Andrea Kerr/Shaking Prairie Properties Ltd. pursuant to the Assignment of Lease in the amount of the $10,000.00 for a balance of $384,500.00. Fourth, the principal balance due and owing on the mortgage that had been taken out to secure the purchase of the property in the sum of $267,632.00, leaving a balance of $116,868.00. Fifth, the legal cost to Ms. Regehr to discharge her mortgage in the sum of $1,500.00, leaving a balance of $115,368.00. Sixth, the principal sum owing on Ms. Regehr’s personal line of credit. However, this was, yet again, set at $77,000.00 rather than what Ms.

Keep knew to be true: the line of credit was $100,000.00. Using the $77,000.00 sum, Ms. Keep projected Ms. Regehr’s ‘back-end’ profit to be $38,368.00 ($115,368.00 - $77,000 = $38,368.00). Had she used the true value of the line of credit, the gross profit would be $15,368.00. ($115,368.00 - $100,000.00 = $15,368.00). This is $23,000.00 less than the gross profit projected from sale. Taken together, the financial analysis’ projection of a net profit (if everything went perfectly) had been identified as $66,049.00.

The more realistic number using the correct inputs, would be $40,724.00. 3D’s profit analysis was inflated by 38%. I heard no evidence at trial from Ms. Keep indicating that she brought this discrepancy to Ms. Regehr’s attention. This meant that 3D and its partner Shaking Prairie Properties Ltd. would stand to gain $39,300.00 under the arrangement, and Ms. Regehr would obtain $40,724.00. The investment contemplated an almost 50% commission for 3D and its partner. [ 41 ] Nevertheless, Ms. Regehr went ahead and finalized the deal. Within a few days Ms.

Regehr received an authorization form from one of the law firms employed for the real estate transfer with instructions that she was to sign it and return it. That authorization form directed transfer of $35,000.00 (the deposit) from the Hnatiws' lawyer to another lawyer. She took no heed of this because, she says, she knew that lawyers often have trust accounts and she assumed that this was simply a step taken to place her deposit into a trust account for safekeeping - or as Mr. Bolton said “to be set aside”. [ 42 ] However, the money was not ‘set aside’. Shortly thereafter, and at the direction of Ms.

Keep, and without the express consent, or even to Ms. Regehr’s knowledge, Ms. Keep directed the lawyer to distribute it three ways. The lawyer was paid the sum of $5,775.00 for land transfer costs and legal fees. Ms. Keep directed the lawyer to pay 3D $19,300.00 as its commission fees as the ‘investor/locator’ and she directed the lawyer to pay Ms. Kerr of Shaking Prairie Properties Ltd. the sum of $10,000.00 as her commission for being the ‘tenant/locator’. This left $125.00 unaccounted for.

[ 43 ] At trial, Ms. Regehr spent considerable time expressing confusion as to where this $35,000.00 ultimately ended up. I understand her confusion. Ms. Keep had previously told both her and her husband that this money was to be set to the side. The purchase option contract indicated that it would be sent to her as a certified cheque, ultimately to be used as liquidated damages in the event the deal did not go through. Although Ms. Keep has suggested that she clearly explained where this money would go when she had discussed the investment with Ms. Regehr over the phone on November 23, I do not accept Ms.

Keep’s evidence. While Ms. Regehr presented her evidence in court in a convoluted fashion, I do not think that her confusion over this aspect of the investment could be made up. If Ms. Keep had a discussion with Ms. Regehr about this, I do not believe that it was ‘clearly’ explained to Ms. Regehr. I accept Ms. Regehr’s evidence to the effect that she was kept in the dark in relation to the distribution of the $35,000.00 deposit at the front end of this investment. That stated, the financial analysis that was provided to Ms.

Regehr on November 23 clearly indicated that a fee of $19,300.00 would be paid to the ‘investor/locator’; a $10,000.00 fee would be paid to the ‘tenant/locator’; and, that land transfer and legal fees would total $5,775.00. I conclude that while these costs were explained to Ms. Regehr, it was not clearly explained to her that the tenant’s $35,000.00 deposit would be used to pay these fees at the front end of the deal. [ 44 ] In any event, once all the documents were signed, Ms. Regehr sent them back to Ms. Keep and the deal was finalized shortly thereafter.

Except for the occasional lapse in timely payment of rent, things were presumably going smoothly. [ 45 ] Unfortunately, they did not conclude smoothly. Towards the end of the lease Ms. Regehr had attended at the home (the precise date was not made known to the court). She noted that the Hnatiws had made significant changes to the home without her knowledge. He had installed a free standing, three-foot-tall pool in the back yard. To do so, he had covered the backyard in gravel and in so doing had razed to the ground what had been described at trial as a beautifully manicured backyard with a stream.

In addition, he had decided to paint over the kitchen cabinets and most of the abundant honey oak floors - all with black wall paint. When the tenant was challenged on this, he simply asserted that “it was his house, and he would do with it as he wanted”. Ms. Regehr contacted Ms. Keep who attended at the premises. She advised Ms. Regehr that in her opinion the new look was “trendy”. [ 46 ] In the summer of 2014, Ms. Regehr contacted Ms. Keep to discuss converting the lease to a purchase in accordance with the investment as envisioned. She says, and I accept, that Ms.

Keep informed her that the tenant was having difficulties getting financing and suggested, therefore, that the lease be extended for a further year. Ms. Keep then provided Ms. Regehr with an updated financial analysis to speak to that extension. That financial analysis was similar to the November 23, 2011 analysis excepting only that the projected gains from monthly cash flow increased to reflect the additional year of rent payments, and the future market value of the home was increased by a projected 2% suggesting that if and when the tenant purchased it, it would have a value of $447,240.00. Ms.

Regehr’s projected profit would, ostensibly, increase to $56,803.00 relating to the profit upon sale of the home, and $33,792.00 on monthly cash flow for a total of $90,595.00. There was no evidence led as to whether this increased projected value of the home was based on a formal appraisal, or simply assumed by 3D. I infer the latter. This new analysis contained the same flaws regarding the improper calculation of the yearly appreciated value of the home and the value of the line of credit that was being used. [ 47 ] An amended Offer to Purchase was sent to Ms. Regehr which had been filled in by Ms.

Keep saving only Ms. Regehr’s endorsement. In that agreement the Hnatiws offered to purchase the home for $447,200.00, at the end of this one-year term. Payment was broken down as a deposit of $45,000.00 to be held in trust with a law firm and a balance payment of $402,200.00 to be financed by mortgage. Ms.

Regehr entered into this agreement, and I am satisfied that she did so based on the representation that the house would continue to increase in value; on the assumption that a further $45,000.00 was going to be deposited with the lawyers to be credited on account of the purchase; and, in the fervent hope that if the sale went through she would not be stuck with the Doiron home in what she considered to be its diminished state. [ 48 ] For reasons that were not clearly explained to the court there was not, in fact, a further $45,000.00 paid as contemplated by the new offer to purchase.

The Hnatiws continued to stay in the home and continued to pay rent, but then left the home two months prior to the end of the one-year extension agreement. They refused to pay the last two months’ rent, and when challenged for payment, took the view that since they could not obtain financing, then, pursuant to the original agreement, they were entitled to have remitted back to them $3,500.00 of the $35,000.00 deposit. They suggested that this could be used by Ms. Regehr in lieu of rent. [ 49 ] When the tenants left the home, Ms.

Regehr managed to gain entrance. (She had not, contrary to the terms of the lease, ever been given a set of keys for the home.) In addition to the damage that I have already referred to, there were other problems. There had been a water leak in the upstairs bathroom which had extended down to the two other bathrooms causing damage to the floors. The stove elements were not working nor did the microwave. The door switch for the dishwasher was inoperative. The washing machine had been broken and the tenant had attempted a crude fix. The thermostat on the electric fireplace was broken.

Counters in the kitchen had been chipped, part of the kitchen’s backsplash had been removed, and a portion, but not all, of the exterior trim of the home had been painted but only to arm level. A backyard shed had been removed and a portion of the fence had been knocked over. The air conditioning did not work, and the backyard had an accumulation of trash. [ 50 ] Ms. Regehr contacted a real estate agent, Ms. Gaudette, to view the home to see if it could immediately be sold or re-rented. Ms. Gaudette had viewed the home prior to the Hnatiws moving in. Ms.

Gaudette advised her that it could not be rented in its current condition, and that she was not even sure if it could be re-sold - even if Ms. Regehr reduced the price by somewhere in the range of $50,000.00 to $70,000.00. While Ms. Regehr attempted to locate contractors to step in to immediately repair the damage and to make it tenantable, she advised the court that no one could attend on short notice. In consequence, both Ms. Regehr, and Mr. Bolton, who described himself as handy, took it upon themselves to make repairs with the help of a workman and a floor renovator. [ 51 ] Each of Ms. Regehr and Mr.

Bolton testified as to the work that they did. Over the course of approximately four weeks, working 14- to 16-hour days, Mr. Bolton brought the home up to a condition where they felt they could re-rent the property. In order to do so, he estimated that he put in approximately 420 hours of work. Because he did the work of what a contractor would do and because contractors would bill out at approximately $100.00 on average, he estimated his time was worth $50.00 per hour – this to offset any profit margin that a contractor’s employer may seek. Total labour costs for Mr.

Bolton would therefore be 420 x $50.00 = $21,000.00. His additional costs for parts and replacement equipment and a day labourer, together with a contractor to refinish the floors, totaled $10,406.31.

[ 52 ] The plaintiffs have submitted invoices to substantiate these costs and I accept them. Ms. Keep did not cross-examine on any aspect of this loss nor did she lead any evidence to rebut these costs. In the result, these losses were never challenged. [ 53 ] Notwithstanding Ms. Keep’s lack of rebuttal evidence on damages, I am not prepared to equate Mr. Bolton’s labour as being equal in value to a qualified tradesman. I would reduce Mr. Bolton’s $50.00 hourly rate by 30% to $35.00 per hour.

While this is somewhat arbitrary, I have no doubt that a qualified tradesperson brings additional expertise and economies of scale which would make those efforts more efficient. I therefore calculate the direct costs to repair the damage and to make the property rentable equated to the sum of $14,700.00 for the 420 hours of Mr. Bolton’s labour and $10,406.31 in additional out of pocket expenses - for a total of $25,106.31. [ 54 ] Within two months, Ms. Regehr was able to locate a tenant for the home at a rent of $2,600.00 per month.

Because the Hnatiws refused to pay for the last two months of rent, at a rate of $2,650.00 and because the home could not thereafter be rented for two more months at, arguably, $2,600.00 per month, Ms. Regehr lost the further sum of $10,500.00. [ 55 ] As one would expect, Ms. Regehr was somewhat off put by this sequence of events. She urged Ms. Keep to make some type of financial accommodation with her but those negotiations ultimately failed. Thereafter, Ms. Regehr brought this claim. [ 56 ] Ms. Regehr called three other witnesses at trial. I will go through the evidence of each. The first witness was Ms.

Gaudette. She was called to give evidence as to her observations of the home both before and after the tenancy, and to express an opinion on several real estate related matters. Notwithstanding that no expert notice was served, I accepted her opinions pursuant to

section 32 of the Ac t which allows this Court to accept into evidence any oral or written evidence that it finds to be credible and trustworthy. I found her evidence to be very credible and very trustworthy. [ 57 ] Ms. Gaudette is, and has been, a real estate agent in Regina since 1984. She had viewed the property as a real estate agent in the months prior to the Hnatiws’ tenancy. She described it as ‘magnificent’ with recently redone hardwood throughout. She estimated its worth, as at November 2011, to be approximately $380,000.00.

She testified that after having viewed the property following the tenancy its market value was closer to $280,000.00 plus or minus 3%, and she maintains that it has not, since that time, increased in value. She was quick to point out that, contrary to Ms. Keep’s characterization of the black painted oak as ‘trendy’, it was horrible and that it significantly reduced the value of the home. She opined that had the tenant left the home in the same condition that they obtained it, the value of that home, as at December of 2015, would have been about $380,000.00.

She says that it would not have increased in value for several reasons. First, she said that the re-sale residential market in Regina had been soft since before 2011 and had remained so. In addition, she stated that there are several new builds in the area which are competitively priced – and that people generally will prefer to buy a newer home. [ 58 ] Ms. Gaudette was asked specifically about the projected valuations that Ms. Keep had set forth in her financial analysis in November of 2011.

Her evidence is that these number do not, and would not have, correlated with the direction that the residential market in Regina was moving at that time or thereafter. She stated, based on her then 27 years of experience that in 2011 most realtors in Regina knew that homes of this nature were not appreciating in value but were, rather, remaining static. She further stated that if, in 2011, she had been called upon to project a future value for a home in Regina, she would not have done so, since it would be ‘way too speculative’.

She further indicated that a typical commission on a residential real estate deal in Regina is about 5% of the purchase price and that this cost is borne by the seller. [ 59 ] None of the evidence that I have just referred to was challenged in any significant way by Ms. Keep in cross-examination. Nor did Ms. Keep call any witness, other than herself, to challenge Ms. Gaudette’s evidence. [ 60 ] Ms. Regehr also called Jason Diewold, who has been a property manager since 2004. He is the principal of Kodiak Property Management Ltd. He was originally contacted by Ms.

Regehr when she was attempting to re-rent the property after the Hnatiws vacated the property. It was his opinion that the property could not be re-rented until significant work was undertaken. He indicated that a typical property management agreement undertaken by a professional company contemplates a charge of $155.00 per month for doing the type of work that Shaking Prairie Properties Ltd. had undertaken to do.

He found it surprising that someone would charge $10,000.00 up front for this service, and I note that the difference between his company’s professional charges and Shaking Prairie Properties Ltd.’s is about $122.00 per month. In short, its charges were 78% higher than what Mr. Diewold’s company would charge, and I accept that his company’s charges would be commensurate with what the market demands. He also stated that while he personally has made 140 rent- to-own investments, all of them relate to property that he owns directly.

In that capacity, he stated that it is his practice to do periodic walkthroughs of those properties to ensure that they are kept in good condition - in addition to the semi-annual inspections that his company would do under contract. He estimated that approximately 15% of these investments fall through (i.e. do not end up with the tenant purchasing the property). He has never acted as a third-party advisor in a rent-to-own investment. None of this evidence was challenged in cross-examination. [ 61 ] Ms. Regehr also called Andrea Kerr, one of the principals of Shaking Prairie Properties Ltd. [ 62 ] Ms.

Kerr had never met Ms. Regehr prior to the investment. She said that she had an agreement with Ms. Keep with respect to this property. She stated that her understanding of the agreement with Ms. Keep was that she would find the property and a tenant and advise Ms. Keep - who would then look for an investor. She understood that Ms. Keep would pay Ms. Kerr $10,000.00 at the front end of the arrangement, and that Ms. Kerr would manage the property. If the investment panned out, and the property sold at the suggested price, then 50% of that ‘back-end profit’ would be kept by Ms.

Regehr, and the remaining 50% would be split between Ms. Keep and herself. Under this scenario, I conclude that Ms. Kerr, at least, was of the view that Ms. Keep/3D’s commission would be deducted at the back end of the investment arrangement. [ 63 ] Ms. Kerr indicated that it was her responsibility to credit check potential tenants like the Hnatiws and that while she had pre- qualified the Hnatiws and so advised Ms. Keep, she could not remember the precise details of that credit check. She said that she has tried to find, but cannot locate, the file that she would have prepared in relation to them.

She acknowledged that one of her obligations was to ‘follow up with the tenant on the status of their credit and ability to purchase the property’, and she conceded that she did not do

this follow up. She had been unaware that after the first year of the tenancy, Mr. Hnatiw had lost his job and had tried to supplement the family income by selling different types of goods online. [ 64 ] Ms. Kerr stated that her understanding of her agreement with Ms. Keep was that she was acting as a subcontractor for Ms. Keep. She stated that she had no personal contract with Ms. Regehr, and that Ms. Keep had not, at any time, offered her any explanation or expectation as to what would be demanded of her as a property manager. [ 65 ] Ms. Kerr candidly conceded that her efforts as property manager were abysmal.

She never conducted an original walk through. She never made semi-annual inspections. In fact, she never made a single inspection. She also stated that, to her knowledge, once the investment documentation was finalized, Ms. Keep performed no oversight whatsoever. [ 66 ] Ms. Kerr acknowledged that she suggested the rate of appreciation for the home (i.e. 5%, 4%, 3%) to Ms. Keep. She did not advise the court of how she came to that number, nor her experience in projecting the future appreciation of homes in Regina. Ms.

Kerr also indicated that, while she used to actively engage in rent-to-own investments, she does not any longer because the residential market had been soft for some time and in consequence, the ‘back-end’ profit can rarely materialize. She stated that of the twenty-five rent-to- owns that she has participated in, only about 55% of them have proven successful in the sense that the tenant follows through with the purchase. [ 67 ] Ms. Regehr also called a financial expert to give opinion evidence on the standard of care of a financial advisor. He was duly qualified to do so.

He has testified to the fact, and I accept, that as a person selling exempt market securities, Ms. Keep was, at the time that she presented this investment opportunity to Ms. Regehr, a financial advisor. He noted that because the investment that was being presented to Ms. Regehr was an investment contract, it should be characterized as a security transaction. As such, he said, Ms. Keep would be bound by a Code of Ethics. Its principles were articulated at trial and are set forth in Exhibit P-29. I paraphrase some of them: 1. There is a duty of loyalty.

One must place the client’s interests first, disclose conflicts of interest, mitigate conflicts in the client’s favour, and act with the care skill and diligence of a prudent professional. 2. There is a duty of integrity. This compels rigorous adherence to moral rules imposed by honesty and justice. 3. There is a duty of objectivity. This requires intellectual honesty, impartiality, and the exercise of sound judgment, regardless of the service delivered. 4. There is a duty of competence.

This compels the advisor to develop and maintain the abilities, skills and knowledge necessary to competently provide advice and services. It demands that one acquire and maintain a high level of knowledge and skill to apply that knowledge effectively. 5. There is a duty of fairness. This requires an advisor to honestly disclose all relevant facts including conflicts of interest. 6. There is a duty of diligence.

This requires fulfilling professional commitments in a timely and thorough manner and in taking care to guide, inform, plan, supervise, and deliver financial advice to one’s client. [ 68 ] The expert indicated that most risk factors (which should be provided to a client) are generally set forth in a prospectus and that this was not done in the instant case. He opined that any investment presented to a client should be proportionate to the investor’s ability to adequately finance the investment having due regard to the client’s financial means.

He opined that the standard of care to which a financial advisor is held, all other things being equal, rises in proportion to how highly leveraged the investment is. If an investment is highly leveraged (i.e. if one has to borrow money to finance the investment), such that a potential loss may expose an investor to potential financial ruin, then the standard of care to which the advisor is held increases. The expert was not challenged in any meaningful way on cross-examination.

I believe the expert’s characterization to this standard of care is consistent with the law of financial advisors generally, and common law notions of standards of care. Simply put, the standard of care rises not only in proportion to the likelihood of risk ensuing, but also the magnitude of that risk to the individual. Put in layman’s terms, if you let children play with pointy sticks, there is always a chance that one of them may be poked in the eye and partially blinded – so take care.

If you let a one-eyed child play with pointy sticks, they too may be poked in the eye, entirely blinding them – so take greater care. [ 69 ] Ms. Keep did not call a rebuttal witness in reply to this witness. [ 70 ] The defendants called no witnesses other than Ms. Keep. She stated that she always abided by the ‘Know Your Client’ protocols with Ms. Regehr and had done so each year that she acted as a financial advisor to Ms. Keep - through until 2015 when she advised Ms. Regehr that she was resigning from that role. She stated that she felt that Ms. Regehr was knowledgeable in real estate matters because Ms.

Regehr had previously advised her that she had a rental property in Hawaii and that she had invested in at least one real estate investment trust. She gave no more explanation than that. [ 71 ] She stated that 3D’s representation that this was a true armchair investment as 3D “would look after everything else” meant to her

that the “investor does no work” and that all the investor had to do was to “invest the funds and wait for passive income”. This is entirely consistent with what Ms. Regehr understood the arrangement to be. [ 72 ] Ms. Keep asserted that she advised Ms. Regehr of the potential risks - to the effect that the investor might not eventually qualify for a mortgage at the end of the term or may leave the tenancy early and that there was a risk that the projected valuation of the home may not come to fruition.

Unfortunately, she did not explain whether that conversation was fulsome and detailed, or simply presented as a short laundry list of potential concerns. There was, for instance, no evidence that she provided any statistical likelihood of these adverse events occurring, nor arguably, could she. I say this because in 2011, she would only have been engaged in this type of work for two years. As such, she would not likely have had any personal knowledge of how frequently a three-year investment might fall through. She asserted that the rate at which the home would appreciate (i.e. 5%, 4%, 3%) was given to her by Ms.

Kerr, and that this seemed reasonable to her based on her experience in the market. She did not elaborate on that experience. On that point, I again note that her experience was not that of an appraiser, nor a real estate agent, and was predicated on knowing nothing about real estate before 2007 - and only then based on her two full years of experience doing rent-to-owns since that time. There was no suggestion that she sought advice from anyone else about these projections. There was no suggestion that she explained this apparent lack of prior knowledge to Ms. Regehr. [ 73 ] Ms.

Keep presented no evidence in relation to whether she explained the implications of the several documents that she had directed Ms. Regehr to sign, other than to say that she was constantly on the phone having discussions with Ms. Regehr. This really does not assist the court. It does not describe what the parties actually talked about. On this point, I again take note of Ms. Keep’s answers in cross-examination to the effect that she could not recall every conversation with Ms. Regehr because she had hundreds of clients.

She did not explain how, when the property was first offered for sale at $380,000.00 that number changed to $385,000.00. She gave no evidence relating to having any discussions with Ms. Regehr in relation to the highly levered nature of this investment and Ms. Regehr’s rather marginal income - having due regard to the potential risk involved. [ 74 ] Ms. Keep advised the court that when the tenancy was renewed for a further period of one year, she projected a further appreciation of the home at 2%, and that this lesser rate of appreciation was set lower because she felt that the market had slowed.

She confirmed that while the lease extension agreement indicated a further deposit of $45,000.00, no such deposit was made. She conceded that she had taken it upon herself to direct the lawyers on how to distribute the proceeds of the original $35,000.00 deposit to herself, to Ms. Kerr, and to the lawyer, and that she did not seek approval from Ms. Regehr before doing so. Finally, she advised the court that “we (3D) have had many tenants that cause damage”. There is no evidence that Ms. Keep ever advised Ms.

Regehr of this additional risk or the statistical likelihood of it occurring, nor is there any evidence that Ms. Keep offered advice or direction on how to mitigate this potential problem. [ 75 ] Finally, there is no evidence before the court that Ms. Keep provided any cautionary advice as to the combined negative factors associated with the investment. That is to say, while she explained that the purchase might not go through, I heard no evidence to suggest that Ms.

Keep explained the potential aggregation of negative factors associated with the investment – followed by a rational comparison of the positive and negative aspects of the investment in light of the highly leveraged nature of the investment, Ms. Regehr’s marginal income, and Ms. Regehr’s November 22 e-mail wondering if it was worth taking the risk at this point in her life because the margin in this investment might be too small.

Legal Analysis Breach of Contract and Negligent Misrepresentation [ 76 ] There was no written contract between the parties which identified, with any degree of precision, all of the respective obligations of the parties. This makes things difficult.

In the absence of a comprehensive written agreement, the Court is obligated to look to the factual matrix surrounding the agreement in order to ascertain the true intentions of the parties. [ 77 ] In addition, this Court is once again presented with litigants who have, in the Court’s view, failed to distinguish between individuals (who may well have an ownership interest in a corporate entity) and the corporation itself, which has, in law, a distinct legal personality. In the instant case, it is made the more complicated because Ms.

Keep acted as the principal representative of 3D while she acted as financial advisor to Ms. Regehr. Having worn ‘two hats’ throughout the course of this arrangement, it is somewhat difficult to identify when she was acting in each capacity – they tended to intermingle. [ 78 ] I am satisfied that the allegations of breach of contract and negligent misrepresentation can exist only against the corporate entity 3D. It was that company which Ms. Regehr contracted with. It was not with Ms. Keep in her personal capacity even though she was, to the knowledge of the Court, the directing mind of 3D.

The allegation of breach of a financial advisor’s duty exists only as against Ms. Keep. I cannot find that 3D was acting as Mr. Regehr’s financial advisor. [ 79 ] Having regard to the factual matrix surrounding this endeavor, I conclude that the essential terms of the contract can be determined by reference to the original representations Ms. Keep made to Ms.

Regehr at the lunch meeting they had some months prior to November of 2011; the representations made in the November 19, 2011 investment offering, and then modified by the financial analyses presented on November 23, 2011 and then again prior to the one year extension of the lease; and the documentation that 3D sent to Ms. Regehr to be executed and returned back to 3D. [ 80 ] I am satisfied that the contract contemplated that: 1.

In exchange for the sum of $29,300.00 (or $39,300.00 if the investment as envisaged succeeded) 3D would locate a rent to-own- property and a prospective tenant to put into that home – a tenant that was capable - not guaranteed - of seeing the tenancy and subsequent purchase through to fruition. 2. 3D would exercise reasonable care to ensure that the home to be purchased was, at the time of the purchase, priced fairly. 3. 3D would utilize its investment acumen to ensure that its financial analysis, together with the assumptions made therein, were

reasonably accurate - not guaranteed - but reasonably accurate. I say this because, while 3D was not obligated to make these representations, it did so.

I find that these representations were made in the hope that the profits identified in that analysis would induce a potential investor to enter into an agreement with it in expectation of obtaining their expectation interest under the agreement. 4. 3D would arrange for the preparation and execution of those documents necessary to give effect to the agreement. 5. 3D would give directions to the lawyers engaged in the endeavor to facilitate the rent-to-own arrangement; and, over the course of the agreement, do what it asserted it would do, which was to “look after everything else”.

This, in my view would impose upon it the further obligation to ensure that the home was properly managed for the duration of the lease. 6. In exchange, Ms. Regehr’s obligation was to come up with sufficient financing to pay 3D the fees it sought under the agreement and the cost of acquiring the home – what 3D described as ‘a true armchair investment’. [ 81 ] I am satisfied that the several representations that 3D made to Ms. Regehr about projected profit were reasonably relied on by Ms. Regehr, and that they induced her to enter into the agreement to her ultimate detriment.

I am satisfied that some of them were negligently made. [ 82 ] I have already discussed the first negligent misrepresentation. Ms. Keep, on behalf of 3D, knew, during the formation of the agreement, that Ms. Regehr would be securing a line of credit for $100,000.00 and not $77,000.00. In consequence, the monthly profit flow should have reflected this difference.

It should have identified a prospective profit of $25,356.00 rather than the higher sum of $27,756.00. [ 83 ] Second, I am satisfied that the representation that the Doiron home would appreciate in value in each of the four ensuing years of the lease - at a rate of 5%, then 4%, then 3%, and then 2% - had no basis in fact.

I am satisfied that it was mere speculation, and that on the evidence, reasonable investigation would have revealed that in 2011, home prices in Regina were static, in a soft market, and that this situation could be expected to stay that way for the foreseeable future. 3D’s decision to project an inflated future value of the home constituted a negligent misrepresentation. It most certainly induced Ms. Regehr to enter into the agreement, and most certainly to her detriment, causing loss. [ 84 ] On that basis, the ‘back-end’ profit provisions of the financial analysis presented to Ms.

Regehr should not have projected a future sales price of $438,500.00. It should have identified, rather, a future sales price of $385,000.00. In that event, it should have identified a net loss to Ms. Regehr. I say this because at the end of the three-year term, if the selling price was only $385,000.00 ($35,000.00 of which would have been paid upfront by the tenants), then the principal then owing on Ms. Regehr’s mortgage would have to be set-off from that amount leaving a balance of $117,368.00. ($385,000.00 - $267,632.00 = $117,368.00).

Thereafter the fees to lawyers, investor/locator, and tenant/locator would have to be deducted leaving a balance of $82,493.00 ($117,368.00 - $34,875 = $82,493.00). Thereafter, the tenant would be entitled to a $9,000.00 credit for their accumulated pre-payments of $250.00 per month, leaving a balance of $73,493.00 ($82,493.00 - $9,000.00 = $73,493.00). That sum would still have to be reduced by the second payment of $10,000.00 to be paid to Shaking Prairie Properties Ltd. leaving a balance of $63,493.00 ($73,493.00 - $10,000.00 = $63,493.00).

That sum would have to be reduced by the further sum of $1,500.00 to reflect the legal fees that Ms. Regehr would have to incur upon sale of the home, leaving a balance of $61,993.00. Finally, that sum would have to be reduced to offset repayment of Ms. Regehr’s $100,000.00 line of credit leaving a debit of $38,007.00. [ 85 ] That net debit exceeds Ms. Regehr’s three-year monthly cash flow profit under the first three- year lease ($38,007.00 - $25,356.00 = negative $12,651.00).

Simply put, by misrepresenting the projected future value of the home, the financial analysis purported to reflect a $66,049.00 net gain on investment. Had 3D inputted the proper data in relation to the line of credit, and if it had not negligently misrepresented the future value of the home, the financial analysis would have shown a three-year net loss of $12,651.00. I am reasonably certain that Ms. Regehr would not, on that basis, have entered into the agreement. Since the investment was presented to her as time being of the essence, I am satisfied that Ms.

Regehr simply accepted the numbers presented to her rather than examining them in greater detail. I find her decision to rely on 3D’s analysis to be reasonable, coming as it was from Ms. Keep acting in her dual capacity of financial advisor and principal of 3D. What I mean by this is simply that 3D was using Ms. Keep to pitch its analysis to Ms. Regehr when it knew, or certainly ought to have known, of Ms. Keep’s dual capacity and the likelihood that Ms.

Regehr would defer to her advisor. [ 86 ] I am of the further view that 3D breached its central obligation under the contract to “look after everything else”. 3D knew that Ms. Regehr was a resident in Yorkton, a city that is 180 kilometers away from Regina, where the home was located. As such, 3D was aware that this distance would likely preclude Ms. Regehr from regularly attending the property.

When 3D subcontracted Shaking Prairie Properties Ltd. to act as property manager for the Doiron home, it was, in my view, obligated to take reasonable steps to ensure that the property manager would perform the function of a property manager, and at least ensure that it conducted twice yearly inspections. Had it done so, it would have, more likely than not, been made aware of the significant changes that were being made to the property and duly advise Ms.

Regehr so that she could take whatever preventative action that she could to stop those changes from occurring. [ 87 ] I recognize that 3D’s argument in response to this was that, by having Ms. Regehr enter into an Assignment of Contract arrangement with Shaking Prairie Properties Ltd. it had, effectively, abrogated any responsibility to oversee any property management oversight function with the express knowledge and acceptance of Ms. Regehr.

I disagree. [ 88 ] First, while the obligation that 3D accepted under the contract is undeniably large, that ‘3D will look after everything else’ it is consistent with the preceding phrase ‘a true armchair investment’, which suggests that Ms. Regehr’s only obligation was to invest funds and then sit back in her ‘armchair’ having complied with her responsibility to invest funds. As Geoff Hall notes, in his text Canadian Contractual

Interpretation Law , 2nd Ed. LexisNexis Canada 2012 at page 10, “Effect must first be given to the intention of the parties to be gathered from the words they have used. A court should give effect to the intentions of the parties as expressed in their written document. It is a cardinal presumption that the parties have intended what they have said in a contract”. If, as contended by 3D, that what was really meant by that clause was that 3D was only required to locate a property manager and introduce that property manager to Ms. Regehr, that should have been made abundantly clear. I say this because it conflicts with 3D’s original and overarching obligation under

the contract. [ 89 ] In the event of ambiguity in the

interpretation of a contractual term, courts regularly employ a contractual principle known as contra proferentem . This rule simply means that if the court is unable to resolve a contradiction or ambiguity in the terms of a contract, the language of the contract will be construed against its author. On that basis, I conclude that while Ms. Regehr had, by entering into the assignment of contract with Shaking Prairie Properties Ltd., acknowledged that that company would provide onsite services, this did not, in my view, abrogate the oversight function that 3D undertook to do. I find comfort in this

interpretation of the agreement because, in law, personal obligations owing under a contract are not generally capable of being assigned without the express agreement of the affected party. [See, generally, S.M. Waddams, The Law of Contracts sixth ed. Canada law Book Inc. 2010 at pp 195-196]. It would not have been open to 3D to assign this core responsibility under the contract that it had with Ms. Regehr to Shaking Prairie Properties Ltd. without the express agreement of Ms.

Regehr, and there is no evidence before me to suggest that by signing the Assignment of Contract, she was expressly releasing 3D from that oversight obligation. In this regard, I take note of Ms. Kerr’s evidence at trial. As a principal of Shaking Prairie Properties Ltd., it was her evidence that not only had she never met Ms. Regehr, she thought that at all relevant times she was acting as a subcontractor for Ms. Keep as a principal of 3D, and she was of the view that she did not even have a contract with Ms. Regehr.

As such, and as in all subcontracting arrangements, it would be the responsibility of the general contractor to ensure that the subcontractor performs its duties under the subcontract, not the client. To summarize, 3D’s original and overarching obligation to ‘take care of everything else’ could have been qualified if Ms. Regehr had expressly agreed with 3D to waive that overarching obligation. The Assignment of Contract does not expressly waive that obligation.

It simply affirms that a corporation, selected by 3D, would assist in the property management function. [ 90 ] For all these reasons, I find that 3D was in breach of contract when it failed to provide necessary oversight of the property management component of this arrangement. Had it not failed to provide this necessary oversight, it is reasonable to assume that Ms. Regehr would have been alerted to the tenant’s unilateral decision to make changes to the home over the course of the term of the lease, and thereafter, take steps to rectify this state of affairs.

Fiduciary Duties [ 91 ] There is no question in my mind that when this investment opportunity was presented to Ms. Regehr, Ms. Keep was her financial advisor and had been for more than ten years. She had overseen a bundle of mutual funds for Ms. Regehr in the past, and she had directed her attention to certain exempt market securities. The evidence is clear that at all pertinent times, Ms. Keep was registered to market those securities. If there was any doubt that Ms. Keep acted as Ms. Regehr’s financial advisor, it was swept aside when, following an increasingly acrimonious relationship, Ms. Keep sent Ms.

Regehr an e-mail on November 28, 2015 which stated in part “I am resigning as your financial advisor”. If there is any doubt as to whether or not Ms. Keep was acting as a fiduciary, it was swept away when Ms. Keep conceded at trial that she had taken it upon herself to instruct certain lawyers on when, and in what manner, to distribute certain monies which had been deposited by the tenant to be held in trust for Ms. Regehr. [ 92 ] Ms.

Keep was obligated to comply with the Code of Ethics referred to earlier in this judgment – duties of loyalty, integrity, objectivity, competence, fairness and diligence. [ 93 ] The Code of Ethics aside, the law imposes several obligations on a financial advisor. As noted by Mr. Justice Tholl, (then Justice of The Court of Queen’s Bench for Saskatchewan, now of The Court of Appeal for Saskatchewan) defined the appropriate standard of care of an investment advisor in Hignell v Leeb , 2018 SKQB 330 at para 161 [ Leeb ].

Citing Cunningham v Wiltzen, 2017 ABCA 185 , [2017] 11 WWR 22 [ Cunningham ] which in turn referred to Northey-Taylor v Casey , 2007 ABQB 113 at para 40 aff’d 2008 ABCA 149 . While these decisions speak to stockbrokers specifically, I am satisfied that the principles referred to relate to financial advisors generally: Generally speaking, stockbrokers (registered representatives) must consider first and foremost the client’s interests in all business dealings. Recommendation must be given to the client which are based on careful analysis.

Cautionary advice appropriate to the circumstances must also be given to the client. Stockbrokers/registered representatives must follow the “Know Your Client” rule — fundamental to the industry — which requires them to use due diligence to learn the essential facts relative to the client and to the contemplated investment.

The client must be made aware of any material negative factors involved in the investment. [Emphasis added] . . . [25] The standard of care of an advisor is elevated when the client is inexperienced, as is the advisor’s duty to warn of the risks associated with an investment. … “the obligations of the broker have to be inversely proportional to the experience and skills of the client and the degree of independence the latter asserts in decisions regarding investments.” A lack of prior experience or knowledge on the part of the client, with a particular type of investment vehicle, represents a “risk associated with these [i]nvestments.” [ 94 ] In Leeb , at para. 195 , Mr.

Justice Tholl found, on the evidence presented to him, that the financial advisor had breached his standard of care in several ways including: (

a) A failure to properly consider the “Know Your Client” factors regarding sophistication, investment purposes and risk tolerance.

(

b) a failure to provide a meaningful explanation of all the important aspects of the investment; (

c) a failure to adequately explain the risks of the investment; (

d) a failure to ascertain that the investor understood the risks associated with the investment; and (

e) facilitating the sale of an investment product that did not match the investor’s risk tolerance and investor profile. [ 95 ] As I have stated, throughout this investment Ms. Keep was wearing two hats: pitchperson for 3D and personal financial advisor. This makes analyzing Ms. Keep’s fiduciary obligations to Ms. Regehr more difficult. It can best be considered by compartmentalizing these two roles. [ 96 ] By acting as Ms. Regehr’s financial advisor, Ms. Keep was subject to a much more onerous task.

She had a duty, among other things: to be competent in the sense that she had to acquire the requisite skill and knowledge necessary to competently provide meaningful advice to Ms. Regehr on all aspects of a residential rent-to-own investment; to honestly disclose all relevant factors in relation to the investment; to be intellectually honest; and, to act impartially. This latter factor is important. In order to fully understand Ms. Keep’s obligations to Ms. Regehr, one should look to her actions, her nonfeasance, and arguably her misfeasance, from an arm’s length perspective. [ 97 ] I have concluded that Ms.

Regehr was not a sophisticated investor. She had no experience whatsoever with this type of investment. As such, Ms. Keep’s obligation to explain each of the component parts of the investment became more demanding. The standard of care that she was obligated to bring to her role as financial advisor was, as confirmed by Tholl J. in Leeb , “inversely proportional to the experience and skills of the client”. That standard of care would increase by virtue of the fact that this was a highly leveraged investment. Ms.

Regehr was compelled to borrow the money to make this investment and to secure her line of credit by using the equity in her home. The standard of care would increase again by virtue of the fact that Ms. Keep was aware that: Ms. Regehr was concerned that this investment’s profit margin was too small for her to bother with at this point in her life; Ms. Regehr had a relatively nominal annual income of between $20,000.00 and $25,000.00 which, prorated over the course of the year is at or about minimum wage; and that Ms.

Regehr would be investing in a property that was almost 200 kilometers away from her home – effectively precluding her from monitoring the property and its use or abuse. [ 98 ] Ms. Keep should have advised Ms. Regehr of her fee for the provision of financial advice either on a flat fee basis or as a percentage of the $19,300.00 that 3D stood to gain in this endeavor. I am satisfied that she did not. [ 99 ] Ms. Keep should have advised Ms. Regehr when this fee was to be paid, and she should have alerted her to the fact that it would be paid at the front end of this investment. This, at least, to reconcile Ms.

Regehr’s confusion about whether or not the tenant’s deposit would be available to her in the event that the purchase did not go through. I am satisfied that she did not. It would have provided Ms. Regehr with the knowledge that the commission to be paid would occur regardless of the success of the venture. [ 100 ] Ms. Keep should have, as the evidence at trial confirmed, alerted Ms. Regehr to the fact that between 15% and 50% of rent-to- own arrangements do not lead to an ultimate purchase of the property in question. I am satisfied that she did not. [ 101 ] Ms. Keep should have alerted Ms.

Regehr, as the evidence confirmed at trial, that it is not unusual for tenants to cause damage to the property and then leave it without purchasing it. In that vein, she should have further advised Ms. Regehr that were this to happen, she would be left to her own devices to sue the tenant in order to seek redress. In that further vein, she should have advised Ms. Regehr that obtaining

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