Friday, June 25, 2004

The Madison (Coquitlam): This is another Polygon leaky condo case; court orders Winchester Investments Ltd. added as a defendant

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

The Owners, Strata Plan LMS 1212 v. Coquitlam (City of) et al.,

 

2004 BCSC 852

Date: 20040625
Docket: L013696
Registry: Vancouver

Between:

The Owners, Strata Plan LMS 1212

Plaintiff

And

City of Coquitlam, Polygon Town Centre
Development Limited (previously known as
Polygon Development VII Limited),
Polygon Construction Ltd., Graham F. Crockart,
Graham F. Crockart, Architect Inc. and
John Doe One through John Doe Nine

Defendants


Before: The Honourable Madam Justice Dillon

Reasons for Judgment

Counsel for the Plaintiff

V.P. Franco

Counsel for the Defendants

R. Basham, Q.C.

Date and Place of Trial/Hearing:

June 17, 2004

 

Vancouver, B.C.

Introduction

[1]            The plaintiff seeks to add two parties to this action, John Doe Ten, and Winchester Investments Ltd., formerly known as Polygon Group Limited.  The application to add John Doe Ten is allowed as there was an error in the numbering on the writ of summons.

[2]            The application to add Winchester Investments Ltd. (hereafter “Winchester”) is based on Rule 15(5)(a)(iii) of the Rules of Court.  The plaintiff seeks to add Winchester to plead that Winchester acted as developer and general contractor of “The Madison”, a 71 residential unit condominium owned by the plaintiff and located at 2990 Princess Crescent, Coquitlam, B.C.  The plaintiff also seeks to plead that Winchester, as one of the “Polygon defendants”, “was at all material times a partner together with the other Polygon Defendants in a partnership and their businesses were inextricably interwoven together as a partnership, in that each of the Polygon Defendants carried on the business of real estate development and construction, including, without limitation, the design, development and construction of The Madison, in common with each other with a view to a profit, under the name of “Polygon” and maintained for that purpose a common office at 1800 Spyglass Place, Vancouver, British Columbia, V5Z 4K8.”

[3]            The plaintiff claims against all Polygon Defendants for breach of contract, negligence, breach of duty of care, negligent misrepresentation, breach of warranty and breach of duty to warn.

[4]            Winchester opposes the application and says that there is only a bald assertion of a partnership between Winchester and the Polygon Defendants, so that the plaintiff has failed to establish a cause of action against Winchester.  Winchester further says that if there exists a real issue or question to be tried, it is not just and convenient in all of the circumstances for Winchester to be joined.

Background Facts

[5]            The plaintiff is a Strata Corporation commonly known as Harbour House and located at 2990 Princess Crescent, Coquitlam, British Columbia (the “Madison”).  The Madison consists of 71 residential units and was constructed between July 1993 and March 1994.  Complaints of leaks were noted as early as April 26, 1994.  Throughout 1994, 1995, 1996, and early 1997, the Strata Corporation relied upon the Polygon Weather Shield Warranty to deal with the water leaks that had appeared.  Because the efforts of the developer and general contractor failed to adequately address the water leakage problems that were occurring at the Madison, the Strata Corporation retained Morrison Hershfield (“MH”) in the spring of 1998 to review the condition of the building envelope.  On September 14, 1998, MH provided its Building Envelope Report, which suggested significant problems with water ingress and associated deterioration.  MH suggested further investigations and widespread repairs.  The results of MH’s further investigations were noted in their report dated December 30, 1998 and entitled “Further Assessment of the Balconies:  The Madison”.  This report confirmed MH’s advice that the face sealed stucco cladding on all of the balconies required replacement with a rainscreen or drained cavity system.

[6]            Polygon Town Centre Development Limited (“Polygon Development”) and Polygon Construction Ltd. (“Polygon Construction”) were given copies of the MH Building Envelope Report and invited to address the water ingress problems.  They offered to conduct their own alternate building envelope remediation which was contrary to MH’s recommendations.  The Strata Corporation did not take them up on their offer.  The Strata Corporation retained MH to prepare specifications to remediate the building envelope as per their specifications.  Phase I of the repairs were undertaken between October 1999 and August 2000.  Phase II of the repairs were undertaken between March 2001 and January 2002.  The total cost of the remediation to the building envelope was approximately $900,000.

[7]            The plaintiff argued that the earliest the Strata Corporation could have discovered that there was a cause of action with respect to construction deficiencies and resultant damage was with the receipt of the September 14, 1998 MH Building Envelope Report, which revealed the systemic failure of the Madison building envelope.  The defendant says that the deficiencies were first apparent in April 1994.

[8]            The action was commenced by a Writ of Summons filed on December 21, 2001 naming the City of Coquitlam, Polygon Town Centre Development Limited and Polygon Construction Ltd., among others.  The Writ of Summons was served on the Defendants on or about March 6, 2002.  On March 7, 2002, an Amended Writ of Summons was filed.  Polygon Development and Polygon Construction filed their appearances on or about March 18, 2002.  No other steps were taken before June 17, 2003 when the B.C. Supreme Court issued a Judgment in the case of the The Owners, Strata Plan LMS 888 (the “Jefferson”) v. The City of Port Coquitlam and others (2003), 15 B.C.L.R. (4th) 154, 2003 B.C.S.C. 941.  That case concluded that the lawsuit was a nullity because the strata corporation had not passed 3/4 vote resolutions authorizing the commencement of the proceedings prior to filing a Writ of Summons in accordance with the Strata Property Act.  The Madison was in a similar situation in that a 3/4 vote resolution had not been passed, but the Writ of Summons had been filed.  As a result of the Jefferson decision, counsel for the plaintiff decided to hold these proceedings in abeyance pending the appeal of the Jefferson decision.  To date, the Jefferson appeal has not been heard.  In August 2003, the plaintiff held a special general meeting to obtain 3/4 vote approval for the action.  In or about December 2003, new legislation that remedied the problem arising from the fact the 3/4 vote resolution was not approved prior to the commencement of proceedings was enacted.

[9]            In March 2003, plaintiff’s counsel had attended the registered and records office of Winchester, Polygon Homes Ltd., Polygon Construction and Polygon Development.  From the affidavit of Cam McTavish, I infer that this search was ongoing to April 2004.  The plaintiff delivered its Notice of Motion to join Winchester and John Doe Ten to the within proceedings on May 3, 2004.

[10]        The corporate searches in March 2003 revealed the following.  The sole shareholder of Polygon Construction at the time the Madison was constructed was Winchester Investments Ltd. formerly Polygon Group Limited.  The sole shareholder of Polygon Development is also Winchester Investments Ltd. formerly Polygon Group Limited.  Winchester, Polygon Development, and Polygon Construction all share or have shared certain individuals in common as directors of those companies.

[11]        The Polygon companies, including Winchester, shared the same registered and record offices and the same place of business.  All the companies are involved in the business of real estate development and construction.  Polygon Development was the registered owner of the Madison.  Polygon Construction provided construction management services during the development and construction of the Madison.  Winchester was not a party to any of the contracts of purchase and sale and was not the developer or involved in construction.

[12]        The sales brochure for the Madison, under the Polygon logo, told “The Polygon Story” and said:

The Madison is built by Polygon Madison Project Limited, part of the Polygon Group of Companies which, since 1977, has created several thousand homes of distinction throughout Greater Vancouver.  In collaboration with leading West Coast architects, Polygon specializes in building communities that offer the best in quality and value.

Polygon is a recipient of the Master Builder Award from the New Home Warranty Program of British Columbia with whom all Polygon homes are registered.

[13]        Winchester was formerly known as Polygon Group Limited.  The affidavit of a director of Polygon Development said that there was no agreement with Winchester to share any profits received from the Madison.  If any profit was received by Polygon Development, Winchester would not have been entitled to it directly but only as a shareholder through dividends if so decided by the directors.  It is not in evidence as to whether Winchester actually received such dividends.

Discussion

[14]        There is evidence before me through affidavits as to the existence, or not, of an issue between the parties.  As a result, I do not find it necessary to delve into the legal debate as to whether evidence is required on an application under Rule 15(5)(a)(iii).  I am satisfied that the plaintiff has put forth some evidence to take this matter beyond a bare assertion contained in the pleadings, as alleged by Winchester.

[15]        For Rule 15(5)(a)(iii) to apply, the plaintiff must show that an issue or question may exist between the person to be added and the party applying to add that person, relating to a matter at issue in the existing proceeding (Lawrence Construction v. Fong, 2001 B.C.S.C. 813 at para. 29).  To put it another way, the plaintiff need only establish that there is a possible cause of action between it and Winchester (MacMillan Bloedel Ltd. v. Morgan, [1981] B.C.J. No. 1611; Robson Bulldozing Ltd. v. Royal Bank of Canada (1985), 62 B.C.L.R. 267; Lawrence Construction v. Fong, supra; The Owners, Strata Plan VR 2603 v. PK Property Management Inc., et al., 2003 B.C.S.C. 561 at para. 8).  It is not necessary to demonstrate that the plaintiff would be able to prove the allegations to any other degree beyond showing that there may exist such a question or issue (MacMillan Bloedel v. Binstead (1981), 58 B.C.L.R. 173; Lawrence Construction v. Fong, supra at para. 21).  This is a low threshold.  The court should be satisfied that the claim is not entirely frivolous (The Owners, Strata Plan LMS 989 v. Port Coquitlam (City of) et al., 2003 B.C.S.C. 1398 at para. 10).

[16]        I am satisfied on this threshold issue that there exists a possible issue to be tried between the plaintiff and Winchester which relates to the same subject matter.  In Strata Plan LMS 1816 v. North Fraser Holdings et al., 2004 BCSC 765, evidence that the proposed party had the same shareholders, registered offices, and places of business was sufficient to add a party alleged to be a partner or joint venturer.  In Strata Plan VR2603 v. PK Property Management Inc. et al, supra, there were two letters written by the property manager addressed in care of the party to be added, the general contractor was the sole officer and direction of the party to be added, and the party to be added had been incorporated during construction of the development.

[17]        In this case, the fact that the defendants, Polygon Development and Polygon Construction, are wholly owned and operated by Winchester, that they share the same records and registered offices and the same place of business, that they share many of the same directors and officers and that they are all involved in the business of real estate development and construction, goes to the reality of a partnership or joint venture issue.  These facts plus the sales brochure linking the Madison project as “part of the Polygon Group” suggests a sufficient interrelationship to satisfy the threshold requirement.

[18]        This finding is made keeping in mind that Winchester denied that a partnership exists and said that it was only a sole shareholder who may or may not have received a share of the profits from Madison through dividends.  I appreciate that in Noel Developments Ltd. v. Metro-Can Construction (HS) Ltd., [1999] B.C.J. No. 2974, the plaintiff could not pierce the corporate veil to argue that the contract was actually with the parent company so that the parent could not be made a party to the subsidiary’s contract on the facts of that case.  That, however, was an application for judgment under Rule 18A where the court must weigh the evidence.  The conclusions reached were specific to the facts of that case.  The same can be said for Hayes v. British Columbia Television Broadcasting System Ltd., [1992] B.C.J. No. 2784 and Embrace-Air Inc. (c.o.b. Thiessen Group, an operating division of Embrace-Air Inc.) v. Western Star Trucks Holding Ltd., [2000] B.C.J. No. 386.  While these cases suggest that the plaintiff’s chance for success against Winchester at trial may be low, they do not establish that the plaintiff should be barred from adding Winchester as a defendant on the facts of this case.  I am satisfied that the plaintiff has met the minimal evidential standard required by Rule 15(5)(a)(iii) to link Winchester to it and the claims raised in the action.

[19]        Is it just and convenient in all of the circumstances to join Winchester as a party?  Winchester has argued that there has been a lengthy delay for which the plaintiff has failed to provide sufficient explanation and that Winchester will suffer prejudice through loss of a limitation defence.

[20]        Winchester has submitted that the limitation expired within 6 years of the first discovery of water leaks in 1994.  The plaintiff has argued that the limitation period did not begin to run at least until the building envelope report was received on September 14, 1998.

[21]        In The Owners, Strata Plan VR2603 v. PK Property Management Inc. et al., supra at paras. 17-19, Madam Justice Sinclair Prowse considered a very similar situation and decided not to exercise her discretion under the Rule so that she was not satisfied that it would be just and convenient to dismiss the plaintiff’s application on the basis that it would be statute barred.  An application for leave to appeal this decision was dismissed (The Owners, Strata Plan VR2603 v. Bardi et al., 2003 B.C.C.A. 414).

[22]        I, similarly, would not exercise my discretion on the basis of a limitation period in the circumstances here.  No steps were taken between 1994 to 1998 because the claims were under the Polygon warranty.  It was not until the reports in September and December 1998 that a systemic problem was realized.

[23]        Nor will I exercise my discretion because the plaintiff allegedly did nothing further in the action between March 7, 2002 to March 2003.  This delay was adequately explained in waiting for correction of the effect of the Jefferson decision.  The second delay, from March 2003 to May 2004, was due to the continued corporate searches to determine the relationship between Winchester and the corporate defendants.  Although Winchester says that this relationship should have been known sooner through due diligence, it was not.  The delay is approximately fourteen months from the initial corporate search to the filing of the application.  There are no specific reasons given for this delay.  However, this is not fatal (The Owners, Strata Plan LMS 989 v. Port Coquitlam (City of) et al., 2003 B.C.S.C. 1398 at para. 23).  Considering all of the circumstances, I do not find that Winchester has been prejudiced by the delay.

[24]        The plaintiff is at liberty to add Winchester Investments Ltd. and John Doe Ten as defendants to this proceeding and be granted leave to amend the Writ of Summons as set out in the materials.  Costs of this application as against Winchester shall be in the cause against Winchester.

“J.R. Dillon, J.”
The Honourable Madam Justice J.R. Dillon