THE LAWYERS WEEKLY
July 1, 2011 | 13
LUIS MILLAN
aced with a flurry of
lawsuits over pre-sale
contracts in the past
few years, real estate
developers in B.C. have welcomed a recent ruling by the
nation’s highest court that provides a common law test for
materiality, confirms that companies are not required to provide unlimited disclosure to
investors or purchasers and
increases the burden on purchasers alleging disclosure
misrepresentation.
In a ruling that addresses
disclosure obligations, an issue
of key importance to the business world, the Supreme Court
of Canada (SCC) in Sharbern
Holding Inc. v. Vancouver Airport Centre, [2011] S.C.J. No.
23, held that “issuers are not
subject to an indeterminate
obligation, such that an
unhappy investor may seize on
any trivial or unimportant fact
that was not disclosed to render an issuer liable for the
investor’s losses,” a finding that
experts assert will leave its
mark in securities law regimes
as well as in real estate law.
“Certainly what we have
seen in the last few years in
some of the court decisions in
British Columbia is almost a
reflective position that any hint
of misrepresentation automatically results in purchaser’s
rights, including a rescission of
the contract,” said Mark Lewis,
a Vancouver real estate lawyer
with Borden Ladner Gervais
LLP. “This case says that the
test is not necessarily if there
has been a misrepresentation,
but rather you have to look
deeper and look at materiality.”
Indeed, the SCC adopted a
“reasonable investor” standard.
F
department at Lawson Lundell
LLP in Vancouver.
“The way the legislation has
been interpreted in B.C. allows
consumers to have buyer’s
remorse, seize upon a detail
and walk away from the contract,” remarked Peters. “What
I like about the SCC ruling is
that they make it clear that it
isn’t enough for a purchaser to
come in and say that there was
a material omission, and therefore I am not bound. The onus
is on the plaintiff who’s the
purchaser to prove materiality.”
The case centres around a
class action lawsuit launched
by investors who had purchased strata lots in a hotel
developed by Vancouver Airport Centre. The investors
alleged that the disclosure
statement contained a misrepresentation and that Vancouver Airport Centre was
therefore liable under the disclosure regime of the now
repealed B.C. Real Estate Act
(REA). Under s. 75 of the Act,
a developer could be liable to
investors for any resulting loss
they may have sustained if a
“material false statement” was
contained in a disclosure
statement.
Though the case was decided
under the now repealed REA,
the findings are nonetheless
“very important” to real estate
developers governed by B.C.’s
Real Estate Development Marketing Act (REDMA), says
Peter Borszcz, a real estate lawyer with Pihl Law Corporation
in Kelowna, B.C. Unlike the
REA which did not define
“material false statement,”
REDMA has a statutory definition of material fact.
“Although we have a statutory definition of materiality in
REDMA, the SCC has added a
SCC clarifies real estate
disclosure standards
See Disclosure Page 15
DREAMSTIME.COM
Holding that materiality is a
question of mixed law and fact
that must be determined on an
objective basis from the perspective of a reasonable
investor, the SCC outlined a
test that strikes a balance
between consumer protection
and business common sense, as
one lawyer put it.
In assessing materiality, a
court must look at the information that was disclosed to
investors at the time they made
their investment decision.
Then the court must consider
the omitted information
against the backdrop of what
was disclosed. In other words,
“What we have seen in
the last few years...is
almost a reflective
position that any hint
of misrepresentation
automatically results
in purchaser’s rights...
information is material if there
is a substantial likelihood that
it would have been, rather than
might have been, considered
important by a reasonable
investor in making his decision
to invest. That’s an important
distinction, notes Lewis, as it
raises the standard from a
“might test to a would test.”
The onus then lies with the
investor or purchaser to prove
materiality, and it has to be
proven to a reasonable person’s
standard. Judges in the future
will be cautious about drawing
“common sense inference” on
the effect of the undisclosed or
misrepresented fact on value,
price or use of the development
unit in the absence of positive
evidence, says Lisa Peters, the
head of research and opinions
Court defines scope of work for general contractors
Homeowner and local
contractor failed to sign
written contract
DONALEE MOULTON
The Supreme Court of New-
foundland and Labrador has
determined that project design
is not the responsibility of gen-
eral contractors. That finding
compelled the court to conclude
the plaintiff in this particular
case was, therefore, not respon-
sible for the overall project or
any deficiencies related to design
or other factors beyond the scope
of the firm’s engagement.
“This decision is a really good
case study in risk coming to fruition. It’s an example of how things
can go wrong,” Annibale said.
The journey down the wrong
path, he noted, began when the
parties failed to get a written
contract.
That error was highlighted
by Justice Alphonsus Faour in
his decision. “Both parties were
experienced in their respective
fields, but failed in the most
rudimentary cautions about
entering into contract for con-
struction and renovations to a
home,” he stated.
