Victoria: Mr. Morton sells his leaky rotten condo to Mr. Cope without full disclosure; court awards Mr. Cope $54,200 because he bought a wet condo instead of a dry condo

 

 

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Cope v. Morton,

 

2004 BCSC 1412

Date: 20041101
Docket: 02/4766
Registry: Victoria

Between:

Richard Sydney Cope

Plaintiff

And:

Barry Allan Morton

Defendant


Before: The Honourable Mr. Justice R. D. Wilson

Reasons for Judgment

Counsel for the Plaintiff:

D. L. Armstrong

Counsel for the Defendant:

M. M. Johnson

Dates and Place of Trial/Hearing:

14 and 15 September 2004

 

Victoria, B.C.

I.

[1]                On 31 October 2001, Mr. Morton sold a condominium unit to Mr. Cope.

[2]                On 9 June 2004, a special assessment, of $52,200, was levied against Mr. Cope.  The special assessment had been authorized by the strata corporation, to pay for remediation of a moisture problem in the condominium building.  Mr. Cope sues Mr. Morton for recovery of that amount, because, he claims, Mr. Morton did not disclose the magnitude of the moisture problem, prior to the sale.

[3]                Both of these gentlemen say they relied on the same information, to come to the conclusion that whatever moisture problem the building had, was adequately addressed by an ongoing maintenance program, instituted by the strata corporation.

[4]                If either of them had looked further, they would have learned that the maintenance program was not commensurate with the magnitude of the moisture problem in the building.

[5]                The question raised on this trial is, upon which of these two gentlemen does the law impose the duty of looking further?

II.

[6]                The unit is one of 140 units contained in two, eight‑storey buildings.  The complex was constructed in 1977, and available for occupancy in 1978.

[7]                In a report dated 16 August 1991, a consulting engineer wrote, "... that the buildings have leaked since they were constructed".

[8]                Throughout the 1980's, the strata corporation obtained a number of consultants' reports on remediation of the leaking phenomenon.  There is no evidence of any measures taken by the strata corporation, until the early 1990's, to address this problem, in response to the reports received from those consultants.

[9]                In the summer of 1991, the strata corporation retained the services of Hardy BBT Limited ("Hardy"), a consulting engineering and professional services provider.  Hardy conducted an investigation, and reported to the corporation, by letter dated 16 August 1991, with its findings and recommendations.  Hardy's findings and recommendations were entirely consistent with those of all of the consultants who had preceded Hardy, namely, "the installation of a new cladding over the existing building walls, such that a rainscreen wall system is produced".  The corporation was concerned about the cost of such an enterprise, and requested of Hardy that it provide optional, less expensive, remedial measures.  Hardy complied.  In a report dated 15 November 1991, three options were presented:


OPTION


COMMENTS


APPROXIMATE COST
($)

1.  Overcladding - Installation of new rain-screen wall cladding and replacement of all windows

- best short and long term technical solution

       2,000,000

2.  Surface

Treatments - application of a penetrating sealer to the masonry, a coating to the stucco and caulking

- will reduce the potential for water penetration but will not eliminate it.

- most economical short term solution (but not permanent)

         270,000

3.  Surface Treatments - as for 2. above except that the work will be performed in phases over approximately four years.

- as for 2. above.

year 1----57,000

year 2----50,000

year 3----50,000

year 4----70,000

year 5----70,000

 

[10]            Mr. Morton purchased, and took possession of the unit, in July 1991.

[11]            On a date not defined in the evidence, there was a special meeting of the owners of the corporation, precipitated by the Hardy report.

[12]            In his testimony at the trial, Mr. Morton said he did not recall being at the meeting.  He said he never read the Hardy reports, although, he had "heard them referred to".  At his examination for discovery, the following questions and answers appear:

135  Q      I'm suggesting to you that if you were an owner at the time this report became public or became available to the council, that you certainly would have been aware of it?  You would certainly remember it -- finding out you had a $2 million assessment right after you bought the property?

     A      Actually, my first involvement with council as a spectator -- whatever you want to call it -- was when this report was totally rejected actually --

136  Q      Yes.

     A      -- by council.

137  Q      When was that?

     A      I honestly couldn't tell you.

138  Q      In '91, '92, that time period?

     A      I would say -- I'm guessing '92, but I don't know -- '91, '92.

139  Q      Tell me about the -- about rejecting it.  This report recommended as a best short- and long-term technical solution spending $2 million to repair and re and re the over cladding.  What happened then?  Did you go to a meeting where this report was discussed?

     A      I think I was at one meeting.  That's 12 years ago.  I honestly can't remember.

140  Q      Tell me everything you do remember about these Hardy BBT reports.

     A      The reports themselves, nothing.

141  Q      And the $2 million?

     A      It was actually -- the number that was mentioned was $3 million.

142  Q      You know that that was rejected?

     A      That was rejected because council decided to go to a totally different plan, which, as far as I know, was working.

143  Q      Tell me about that.

     A      The plan was to basically budget for waterproofing repairs each year.  It was included in the budget, and the waterproofing report was done.  Council accepted that as the approach to be taken, and they were showing results.

[13]            The meeting was contentious.  The owners were divided over the course to be pursued.  In result, however, the corporation rejected Hardy's "best" solution and decided to proceed on Option 3 above, that is to say, the application of a seal, in phases.  A committee to oversee the program was created, with a budget of $50,000 per year.  It was called the "Water-Proofing Committee".  It referred to itself as such in the regular reports it made to the corporation following its inception.  The waterproofing committee budget was renewed annually at the annual general meetings.

[14]            Mr. Morton was never a member of the waterproofing committee.  He was the chairman of the strata council, for nine months, in 1993, and again, he served part of a two-year term in 2000-2001.  He saw the reports of the waterproofing committee at every meeting to which it reported, and annually at the annual general meeting.  Those reports contain an ongoing history of the waterproofing program, its successes and failures.  Mr. Morton said that he concluded from the committee's activities, as evidenced in the reports, that the moisture problem was in hand and being addressed appropriately.

[15]            In July 2001, Mr. Morton decided to sell the unit, in anticipation of his retirement, and relocation out of the area.  He listed the unit for sale with Mr. Chilton, of Pemberton Homes Realty.  In the course of the listing arrangement, Mr. Morton completed a "Property Disclosure Statement".  This is a standard form document, copyrighted by the British Columbia Real Estate Association.  Mr. Morton dated his form 11 July 2001.

[16]            Among other things, Mr. Morton provided the following responses:

10.   Strata Council Chair's Name - Barry Morton

B.    STRUCTURAL: (Respecting the unit and common property including limited common property)

24.   Are you aware of any damage due to wind, fire or water?   Answer "No"

26.   Are you aware of any leakage or unrepaired damage?   * See below

C.    ADDITIONAL COMMENTS AND/OR EXPLANATIONS: (Use additional pages if necessary).  Describe any repairs to the common property or the unit in the last 2 years.

*     Isolated, please see strata minutes.

[17]            Mr. Cope was also anticipating retirement.  Accordingly, he was seeking a condominium residence in Victoria county.  Mr. Cope had heard of the "leaky condominium" phenomenon in the county.  He wished to avoid acquiring a unit in such a structure.

[18]            In the course of Mr. Cope's surveying the market, Mr. Morton's unit came to his attention.  Mr. Cope contacted Mr. Chilton at Pemberton Homes.  He told Mr. Chilton he was concerned about the leaky condominium phenomenon.

[19]            Mr. Cope viewed Mr. Morton's property with Mr. Chilton on 1 August 2001.  He made an offer to Mr. Morton to purchase the unit on 9 August 2001.  Among other things, Mr. Cope's offer contained the following:

1.    The Seller agrees to provide, through the Seller's Agent, at the Seller's expense, on or before Aug. 17, 2001 copies of the following documentation:

(d)    A copy of the minutes of the last two Annual General Meetings, any Special General Meetings, and all meetings of the Strata Council of the last 24 months.

...

(h)    A copy of the Building Envelope Inspection Report, or any Remediation Reports, and all related documents.

3.    PROPERTY INSPECTION:

Subject to the Buyer obtaining and approving an inspection report of the Property on or before Aug. 24, 2001.

[20]            Mr. Morton accepted Mr. Cope's officer on 10 August 2001.  The representations in the property disclosure statement were incorporated as terms of the concluded contract.

[21]            Mr. Chilton had received copies of some of the minutes of the meetings of council from Mr. Morton.  He inquired of the property manager, Cornerstone Properties Ltd., for documentation in its possession.  The documentation Mr. Chilton did receive he forwarded on to Mr. Cope.  Mr. Chilton did not receive from Cornerstone, a copy of the minutes of the special general meeting, held in 1991, to consider the recommendations of Hardy.  Mr. Chilton did not obtain, or forward to Mr. Cope, a copy of the building envelope inspection report, or the remediation reports prepared by Hardy.

[22]            Mr. Chilton testified that when he did not receive documentation from Cornerstone, he assumed that it did not exist.  He was wrong.

[23]            Mr. Cope commissioned a building inspection by Homeguard Building Inspections Inc.

[24]            On the topic of moisture, Homeguard reported, in part:

The exterior wall surface is stucco and brick.  The building has a number of flashing details where various building features intersect adjacent wall surfaces.  A representative sampling of exterior building details such as flashings, wall intersections, door and window penetrations and the various materials in place to prevent moisture penetration were examined.  Special care should be taken with respect to these details.  It is important that flashing intersections and details are kept well sealed with a good polyurethane caulking to protect against damp and weather penetration.  No indications of deterioration to these details were observed at the time of inspection.  It is impossible to detect the degree of damp deterioration or if structural deterioration has occurred in a framing assembly without removing the interior or exterior finishes.  Further examination for damp penetration is referred to a building envelope specialist.

[25]            Mr. Chilton sent to Mr. Cope copies of the minutes of the corporation's meetings from August 1999 to June 2001.

[26]            Mr. Cope read those minutes, which included reports from the waterproofing committee, and concluded that the moisture problems in the structure were not significant.  He calculated that the $50,000 annual budget, for the waterproofing committee was nominal, considering that it was divided among 141 owners.  He calculated that his contribution would be $354 per annum, and concluded that this was a nominal amount to pay for the maintenance of a 24-year-old building.

[27]            In result, Mr. Cope removed the conditions from the purchase and sale agreement, completed the transaction, and took occupancy on 1 November 2001.

[28]            The owners of the corporation elected a new council in October 2001.  Rectification of the moisture problem was revisited by that new council.  Among other things, the new council commissioned reports from consulting engineers, Read Jones Christoffersen Ltd. and Levelton Engineering Ltd.  Those reports essentially repeated the preferred recommendation by Hardy in 1991.  However, the probable cost to correct had now risen to $4,500,000.

[29]            On 7 June 2004, the owners of the corporation, at a special general meeting, adopted the following resolution:

RESOLVED, as a THREE QUARTER (3/4) VOTE, of The Owners, Strata Plan No. 609, that the Strata Corporation raise a Special Levy in the amount of FOUR MILLION FIVE HUNDRED THOUSAND ($4,500,000) DOLLARS.  The purpose of the special levy is to repair the building envelope of the strata corporation buildings and to make any other necessary ancillary repairs as may be required to prevent further water leakage into the buildings.

[30]            On 9 June 2004, the property manager billed Mr. Cope for his proportionate share of the special assessment, namely $52,200.

III.

[31]            Mr. Cope claims against Mr. Morton on three grounds:

1.    fraudulent misrepresentation;

2.    negligent misrepresentation; and

3.    breach of contract.

[32]            To succeed in his claim based on fraudulent misrepresentation, Mr. Cope must prove four elements.

[33]            First, Mr. Cope must prove that Mr. Morton made a representation to Mr. Cope.  This element is not contentious.  Mr. Morton represented to Mr. Cope that he, Mr. Morton, was aware that the unit and common property had isolated leakage or unrepaired damage, as seen in undefined strata minutes.

[34]            Second, Mr. Cope must prove that the representation was false in fact.

[35]            This element has been proved.  "Isolated" means, "untypical"; "exceptional".[1]

[36]            At 11 July 2001, there was leakage, and there was unrepaired damage, the magnitude of which was not defined in the minutes provided, or any of them.  The minutes provided did not present a complete history of the leakage or unrepaired damage.  Significantly missing were the minutes of the special meeting on the Hardy report.  Accordingly, it was a false statement to say that the leakage and unrepaired damage was "isolated" as seen in "strata minutes".

[37]            Third, Mr. Cope must prove that Mr. Morton knew that the representation was false when it was made.  Or, that Mr. Morton made the representation recklessly, not knowing if it was true or false.

[38]            There is a subjective element in the tort of fraud or deceit.  Professor Fridman makes the following observation:[2]

... Liability for deceit or fraud is based upon the idea that to lie or deceive are morally wrong acts which merit legal sanction, when they result in harm suffered by the victim.  Actual fraud and not just misrepresentation must be proved.

Falsehood therefore entails a deliberate, wilful, conscious distortion of the truth.  It will not suffice that the maker of the deceptive statement is inaccurate unless he is also aware of the inaccuracy (or is so reckless that he does not care whether or not he is speaking the truth).  He must lack honest belief in the truth of what he is stating.

[39]            Mr. Cope has not met that test.  He has not proved that Mr. Morton knew the magnitude of the problem as defined in the Hardy reports.  Or, that Mr Morton was recklessly blind to the systemic nature of the problem at the time he completed the disclosure statement in July 2001.

[40]            In result, Mr. Cope's claim in fraudulent misrepresentation fails.

[41]            To succeed on the second ground, of negligent misrepresentation, Mr. Cope must prove five elements.

 

 

[42]            First, that there was a duty of care owed by Mr. Morton to Mr. Cope, based on a special relationship.  This element is proved.  There was a special relationship between these two gentlemen of prospective vendor and prospective purchaser.

[43]            The second element Mr. Cope must prove is that the representation in question was untrue, inaccurate or misleading.  This element is proved for the reasons given above.  There was leakage at July 2001.  There was unrepaired damage to the structure in July 2001.  Neither of those phenomena were isolated; they were systemic.

[44]            The third element Mr. Cope must prove is that Mr. Morton must have acted negligently in making the misrepresentation to Mr. Cope.  This element is proved.

[45]            On 11 July 2001, there existed a systemic structural problem with the condominium building in which Mr. Morton's unit was located.  That problem was defined in the Hardy reports of 1991.

[46]            The temporary solution of surface treatment, did not repair the damage.  Mr. Morton was aware of a report which had precipitated the special meeting of 1991, which resulted in the adoption of the waterproofing committee solution.  Mr. Morton knew the history of the building from the time he took occupancy.  He was in a position to get his facts right before he made the representation.  He was negligent in not doing so.

[47]            However, Mr. Morton argued that referencing the minutes was sufficient compliance with his duty to Mr. Cope.  He says the onus was on Mr. Cope to make the further inquiries indicated by the minutes provided.  Sask v. Brooke[3] is the authority cited in support of this proposition.

[48]            Sask was a case with remarkably similar facts to this case.  There, a disclosure statement and minutes of meetings of the strata council were held to be sufficient to alert the purchaser to the need for further inquiries.  This information provided the prospective purchaser with the history of the leakage problems in the complex in question.  In result, the purchaser's claim, based on negligent misrepresentation, was dismissed.

[49]            Put another way, Mr. Morton is arguing that the systemic problem was a patent defect.  It is up to the purchaser, Mr. Cope, goes the argument, to ascertain the extent of that defect, either by inspection or inquiry.  It is an example of the application of the doctrine of caveat emptor.

[50]            The doctrine does not apply in this case.  And Sask is distinguishable on the facts.  Mr. Cope and Mr. Morton, by their agreement, allocated the burden of inquiry to Mr. Morton.  There was an obligation assumed by Mr. Morton to "provide ... at [his] expense ...", among other things, "A copy of the Building Envelope Inspection Report, or any Remediation Reports, and all related documents".  At 10 August 2001, that documentation was available.

 

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