DeSimone v. Johnson, 2022 BCPC 30

Citation: DeSimone v. Johnson 2022 BCPC 30 Date: 20220214 File No: 52151 Registry: Vernon IN THE PROVINCIAL COURT OF BRITISH COLUMBIA SMALL CLAIMS DIVISION BETWEEN: LENAE ELLEN DESIMONE and STEPHEN VICTOR JOHN MCMULLEN CLAIMANTS AND: BRIAN ROBERT JOHNSON DEFENDANT REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE J. GUILD Appearing on their own behalf: L. DeSimone and S. McMullen Appearing on his own behalf: B. Johnson Place of Hearing: Vernon , B.C. Dates of Hearing: July 12, October 21, 2021 Date of Judgment: February 14, 2022

INTRODUCTION [ 1 ] Lenae DeSimone and Stephen McMullen (the “Claimants”) filed a claim on June 21, 2019, alleging that Brian Johnson fraudulently failed to accurately disclose information in a property disclosure statement (“PDS”) for a property in Falkland, BC, that he sold to the Claimants. Mr. Johnson sold the property through a licensed realtor. The Claimants also used a licensed realtor. They bought the property in June 2017. Mr. Johnson filed his Reply on December 23, 2019. He said he made full disclosure. Liability is the main issue.

LEGAL PRINCIPLES FOR CLAIMS AND FACTS [ 2 ] The party that makes a claim has the onus of proving it on a balance of probabilities through admissible evidence in the hearing. To satisfy the onus of proving a claim on a balance of probabilities, evidence must be clear, convincing and cogent. [i] Hearsay is admissible in small claims trials, provided it is credible or trustworthy. [ii] That standard is simply a threshold. It does not affect the assessment of the weight to be given to evidence that is admitted.

ISSUES [ 3 ] The claim appears to be based on the contract of purchase and sale of the property (“CPS”) and the PDS that was incorporated in it. It may be that the Claimants were also making a claim in torts; that is, outside of the contract. There are two possible bases for that claim in torts. These reasons will first address the claim in contract and then any claim in torts. Contractual Claim [ 4 ] The claim in contract is based on the PDS being incorporated into the CPS. The Claimants say it was a term of the contract that the PDS be fully and accurately answered. They claim that Mr.

Johnson knowingly and fraudulently failed to disclose known encroachments of the septic system in the property disclosure statement. That failure led to them incurring costs to have the septic system comply with the applicable regulations. Was there an Undeclared Encroachment? [ 5 ] To determine whether there was a known encroachment that Mr. Johnson failed to disclose, I must first determine what an encroachment means in the PDS. Meaning of “Encroachments” in a Property Disclosure Statement [ 6 ] The Supreme Court of Canada has stated that

interpretation of contracts requires that I “read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.” [iii] [ 7 ] The PDS is a form used by realtors, apparently created by the British Columbia Real Estate Association. It is not required by the law. It is obviously used to set out information about the seller’s knowledge about the property. There are no

definitions of the words used in the PDS and there was no evidence that the words were defined. [ 8 ] Some words in the PDS have a specific legal meaning, such as those in

section 1.A, which includes the word “encroachments”. What then does the word “encroachment” mean in the PDS? [ 9 ] According to the online Merriam-Webster dictionary [iv] “encroach” means: 1 : to enter by gradual steps or by stealth into the possessions or rights of another 2 : to advance beyond the usual or proper limits [ 10 ] In the context of the CPS that definition accords with ordinary use and the purpose of the contract. The usual or proper limits are the property boundaries.

The intent of that word in the CPS is to tell a prospective buyer if the seller knew of any encroachment issues, that is, whether aspects of a neighbouring property encroached on the subject property, or anything in or on the subject property encroached on a neighbouring property. [ 11 ] Mr. Johnson was an owner/builder and testified that he and others built the house over two-to-three years. He needed to have toilets available during construction and to do so, they connected to an existing septic system that was part of a former railway station on a nearby lot.

Eventually, he realized he would sell the property and had a new septic system installed. He testified that, like the Claimants, he had used the existing property pins and a measuring tape to mark out the property lines. [ 12 ] He knew that the newer septic field installed on the subject property encroached on the neighbouring property to the east, which he also owned at the time the newer septic system was installed; but where he marked the property line to the west was different from

where the Claimants marked it. From his understanding, the rest of the septic system, including the D-box, [v] was on the subject property and not encroaching on the neighbouring property to the west. With respect to the septic field extending partly onto the property to the east, he testified that when he sold that property, he asked the buyer, its current owner, if the buyer wanted Mr. Johnson to block off the encroaching part of the septic field. The buyer said he did not require that, so Mr. Johnson believed it was not an issue. Conclusion on Undeclared Encroachment [ 13 ] On the evidence, Mr.

Johnson knew the septic field encroached on the property to the east. He did not declare it as he should have. Impact of Undeclared Encroachment [ 14 ] There are several factors to consider under this heading, which includes examining whether the incomplete disclosure was fraudulently made. Intent behind Undeclared Encroachment [ 15 ] The Claimants argued that I should find that Mr.

Johnson knew the D-box was not on the subject property, as well as knowing that the septic field extended onto the property to the east; that he knowingly committed offences against various acts and associated regulations that govern septic systems, and intentionally withheld the encroachment information from them and their realtor. Mr.

Johnson argued he did not intentionally withhold any information. [ 16 ] In support of that, he testified that he had filled out the PDS as best as possible; that he had hired an authorised person, a plumber named Mel from Kamloops, to get whatever permits were required and properly install the newer septic system; that he relied on Mel; and that he had told his realtor about the encroachment. His realtor also testified and was asked about whether Mr. Johnson had told her about the encroachment. She could not recall if he had. That is not surprising.

As she testified, she had many clients and it was a long time ago. A failure to recall is not the same as denying Mr. Johnson had told her, as argued by the Claimants. [ 17 ] In cross-examination, Mr. Johnson was asked if he had written “no” in the PDS when declaring whether there were known encroachments. His answer was “Correct, thank you”. His answer appeared genuine. The second part of that answer is unusual. When saying “thank you”, it was apparent he felt that he had appropriately answered the questions in the PDS.

It seems he thought that because the buyer of the lot to the east did not object to the encroachment, it was not an issue and therefore not an encroachment to disclose. While he should have disclosed that fact, his testimony and his trial statement show he was not trying to hide the fact that he knew of the septic-field encroachment. I conclude he was not actively or fraudulently misrepresenting any issues with the property.

The Claimants’ State of Knowledge [ 18 ] The Claimants further argued that had they known of the encroachments, and in particular the D-box, they would have “been given the option to walk away from the deal” or to proceed and deal with the consequences. They had that option whether or not they knew of the encroachment before removing the subject clauses. It is likely that option would have been available even after the Claimants removed the subject clauses.

I say that because to alert prospective buyers, the property listing clearly stated in bold, several times, that the property was commercially zoned, which might impact financing. The CPS became unconditional and then the buyers determined they had problems with financing because it was commercial. A separate contract was signed, adjusting the price by $2,000 to the buyers’ credit – a more than reasonable accommodation for the Claimants’ failure to heed that warning. [ 19 ] The PDS was completed on February 21, 2017. The CPS was dated May 22, 2017, and appears to have been finalized on May 24.

The completion date was June 29 and possession was June 30, 2017. Removal of subject clauses was to be done by June 9. They were removed on June 8, at which point the CPS became unconditional. All those dates were chosen by the buyers, because the property listing said that quick possession was possible and there were no changes to any dates in the CPS – only in the price. Since the buyers present an offer to purchase, the Claimants would have chosen those dates. [ 20 ] The dates are significant in that the structure of the sale favoured the Claimants.

Almost all of the subject clauses were effectively for their benefit. They were allowed to obtain an inspection report and were given the specific opportunity to have the wastewater-treatment system inspected to ensure it was working properly and complied with the relevant regulations. Those terms were for the Claimants’ sole benefit. The Claimants also agreed that the size of the land was an estimate and the onus was on then to confirm the measurements. That would include locating the property markers. [ 21 ] The Claimants went to the property and inspected it on May 22. They also had a home inspection done.

According to Ms. DeSimone’s testimony, the home inspector could not find the D-Box, nor could the Claimants. The home inspector dealt with “surface issues”, which was clearly not limited to but included inspecting the visible parts of the septic system. Since it was underground, it was no surprise the D-box was not visible, but that was an obvious missing part of the septic system. [ 22 ] A home inspector, and a prudent purchaser of a property with a septic system, would want to know that all the system’s components were intact and working.

At the least, the home inspector would have noted he did not find the D-box. The Claimants knew that and they had not found it. In other words, they were put on notice that there might be an issue with the septic system. They made the choices to not investigate further or exercise the option of obtaining a septic-system report. A prudent buyer would have made further inquiries. Caveat Emptor [ 23 ] The Claimants argued that Mr. Johnson did not do any due diligence when having the septic system installed. While that may be

true, that does not give the Claimants a right to compensation. A seller does not have to make any inquiries, hire any experts, or take any steps whatsoever when selling their property, unless required by the contract. With respect to a PDS: [48] . . . A vendor is not required to warrant a certain state of affairs but only to put prospective purchasers on notice of any current known problems. The purpose of a disclosure statement is to identify any problems or concerns with the property, not to give detailed comments in answer to the questions posed. . . [vi] [ 24 ] Mr.

Johnson argued the Claimants’ failure to do any due diligence before buying the property, and their failure to take various steps expressly contemplated in the CPS, meant he should not be held liable for any of his failures. I agree. [ 25 ] The doctrine of caveat emptor , or “let the buyer beware”, applies to real estate. A seller of real estate does not have to do anything to inform themselves about the state of the property or the existence of any defects. That onus is on the buyer, at least with respect to patent defects. [48] . . .

A purchaser who does not see defects that are obvious, visible, and readily observable, or does not understand the implications of what he or she sees, cannot impose the responsibility – and liability – on the vendor to bring those things to his or her attention. [vii] Patent Defects [ 26 ] A defect that might not be seen on a casual inspection may be patent if it would have been discoverable with a reasonable inspection by a qualified person. There is a fairly high onus on a buyer to adequately inspect and discover patent defects. The Claimants looked for but did not find a D-box.

They obviously thought one was required. They chose to not make further inquiries or have a specific inspection done by a qualified person – a reasonable step in all the circumstances [viii] – before they decided to go ahead and buy the property. The Claimants eventually hired such a qualified inspector and the septic-system issues were readily identified. The defects with the septic system were patent, that is, readily apparent and discoverable by reasonable inspection and inquiry. Accordingly, the Claimants would be unsuccessful in holding Mr.

Johnson liable for their failure to make reasonable inquiries about the patent defects with the septic system, subject to any exceptions to caveat emptor . [ 27 ] There are exceptions to the principle of caveat emptor . One is where the seller fraudulently misrepresents or conceals the defect, which is what the Claimants argued. The other exceptions do not apply in this case. As noted, I have found Mr. Johnson did not fraudulently hide the septic-system issues, so the Claimants cannot succeed in holding Mr.

Johnson liable on that basis. [ 28 ] Furthermore, each of the parties had a licensed realtor acting for them. Mr. Johnson’s realtor testified that her fiduciary duty was to her client and that the CPS term with respect to the septic system was well written. The Claimants’ realtor would have had the same fiduciary obligation and wrote that term for the Claimants’ benefit. As a licensed realtor, he would have had knowledge specific to real- estate transactions, including the principle of caveat emptor . He would have prepared the septic and other subject removals upon instructions from the Claimants.

They signed that document. Since the Claimants removed that septic-system term, they were satisfied at the time that they need not make any further inquiries. They cannot hold Mr. Johnson liable for their choice to not be prudent purchasers. I add that nothing I have written should be taken to suggest that the Claimants’ realtor did not act in accordance with his obligations. [ 29 ] But even if the defect was not patent, that does not mean that the seller can be held liable.

Caveat emptor applies unless the defect makes the property dangerous or unfit for habitation. [ix] The expert evidence entered at trial by the Claimants did not show it was unfit for habitation. The septic system worked fine. It just did not comply with the regulations in effect at the time of inspection and for the Claimants’ intended use. That is insufficient to hold Mr. Johnson liable even if the defect was latent. Conclusion on Contractual Liability [ 30 ] There is no basis for the Claimants to succeed on the basis of the contract.

Liability in Torts [ 31 ] Since they are not lawyers, the Claimants may have intended but failed to set out precisely the basis for their claim. There are two potential bases in torts for a claim based on misrepresentation. Fraudulent Misrepresentation [ 32 ] It may be that they could claim against Mr. Johnson on the basis of a fraudulent misrepresentation. T he test to determine whether a representation was fraudulent was set out by Mr. Justice Romilly in Van Beek v.

Dodd. [x] [42] . . . 1. the defendant made a representation of fact to the plaintiff(s); 2. the representation was false in fact; 3. the defendant knew that the representation was false when it was made, or made the false representation recklessly, not knowing if it was true or false; 4. the defendant intended for the plaintiffs to act on the representation; and 5. the plaintiffs were induced to enter into the contract in reliance upon the false representation and thereby suffered a detriment.

[ 33 ] An allegation of a fraudulent misrepresentation is very serious. It carries a stigma and requires a high standard of proof. It requires clear and convincing proof, on a balance of probabilities, of the elements of fraud . [ 34 ] I would not find the third part of the test has been met given Mr. Johnson’s position, even at trial, that he had filled out the PDS correctly, despite admitting he knew there was an encroachment of the septic field onto the property to the east. Even more problematic are the fourth and fifth parts. There was no evidence Mr.

Johnson intended the Claimants to act on the PDS, and specifically, what he wrote about the septic system. The clause permitting the Claimants to have an inspection of the system to ensure compliance with regulations indicated the parties did not so intend; and there is no evidence the Claimants were induced to enter the contract because of the misstatement. [ 35 ] The Claimants would not succeed on a claim for fraudulent misrepresentation . Negligent Misrepresentation [ 36 ] The test for negligent misrepresentation is: [xi] [58] . . .

(1) A false statement negligently made;

(2) A duty of care on the person making the statement to the recipient. A duty of care does not arise unless: (

a) the person making the statement is possessed of special skill or knowledge on the matter in question, and (

b) the circumstances establish that a reasonable person making that statement would know that the recipient is relying on his skill or judgment;

(3) Reasonable reliance on the statement by its recipient;

(4) Loss suffered as a consequence of the reliance. [ 37 ] There is insufficient evidence to find that the inaccurate disclosure was negligently made. Mr. Johnson did not have special skill or knowledge, except perhaps with respect to the encroachment to the east. I find that Mr. Johnson knew the Claimants were relying on his statement in the PDS. But that encroachment was not the major aspect of the claim. Given my previous analysis, it was unreasonable for the Claimants to rely on that statement in the PDS with respect to the septic system.

There was no loss suffered as a consequence of unreasonable reliance on the PDS. [ 38 ] I also dismiss any claim based on negligent misrepresentation. Limitation Act Issue [ 39 ] Although not referred to or argued, I also have real concerns that the claim would be statute barred under the Limitation Act . [xii] A claim must not be started more than two years after the day on which the claimant knew or reasonably ought to have known that they should make the claim. Here, the Claimants should have known of the problem when they decided to remove the subject clauses, June 8, 2017.

They were at least alerted to the prospect of a problem by then. They did not file their claim until more than two years later, June 21, 2019. However, since this issue was not raised at trial, I make no decision on it. CONCLUSION ON CLAIM [ 40 ] I dismiss the claim against Mr. Johnson in its entirety. [ 41 ] Pursuant to Rule 20(2), Mr. Johnson is entitled to costs for filing fees of $50. He has not yet applied for any other fees or expenses. __________________________ The Honourable Judge J. Guild Provincial Court of British Columbia [i] F.H. v. McDougall , 2008 SCC 53 , at para 46

[ii]

Section 16, Small Claims Act [iii] Sattva Capital Corp. v. Creston Moly Corp ., 2014 SCC 53 at para. 47 [iv] https://www.merriam-webster.com/dictionary/encroachment accessed November 24, 2021 [v] I understood this term to refer to a distribution box, where effluent from the septic tank was distributed to various lines in the septic field [vi] Nixon v. MacIver , 2016 BCCA 8 at para. 48 [vii] Cardwell v. Perthen , 2007 BCCA 313 at para. 48 [viii] Cardwell v. Perthen , 2007 BCCA 313 [ix] Lavigne v. Ellis , 2014 BCSC 1557 [x] 2010 BCSC 1639 , as cited in Kleineniggenkemper v Spieker , 2021 BCSC 533 [xi] ICRV Holdings Ltd v Tri-Par Holdings Ltd , [1996] BCJ No 1721 [xii] SBC 2012, c 13