Style of Cause: Wang v. Shao, 2018 BCSC 377

 

Procedural History: Case before the Supreme Court of BC involving the collapsed sale of a Shaughnessy luxury home in Vancouver having at its core the dispute on whether the vendor’s failure to disclose the unsolved murder of an occupant of the property by the front gate almost 2 years prior to the sale entitled the buyer (“the Defendant”) to refuse completion and to recover the deposit paid. The vendor, herein plaintiff, sold the property to another buyer for approximate $ 600,000 less and brought this action against the defendant alleging breach of contract and seeking to keep the deposit of $ 300,000 plus additional damages in the amount of $ 338,000.

 Background Facts:

 

1. The plaintiff was an 84-year-old resident of the People’s Republic of China who immigrated to Canada in 2004. One year prior to her arrival, one of her daughters purchased the property on her behalf and lived in the property till the plaintiff and her husband joined them in 2004. In 2006 the daughter transferred the property to the plaintiff and the mother granted the daughter with her power of attorney. As per evidence, the origin of the funds to purchase the property was never challenged.

2. The property consisted of a luxury Shaughnessy house with over 9,000 Sf, 6 bedrooms, 10 bathrooms, an indoor pool, wine cellar as well as extensive gardens.

3. The plaintiff and her husband returned to China in 2007 while the other members of her family consisting of the plaintiff’s daughter Ms. Yuan, her husband, 2 daughters and her older sister continued to live in the property.

4. Ms. Yuan was 55 years old at the time her husband Raymond Huang was killed just outside the front gate of the property on November of 2007.

5. Ms. Yuan testified her husband was a businessman whose enterprises included a trucking company and a restaurant and denied he was a leader or member of a criminal organization called Big Circle Boys, despite all speculations surrounding his death.

6. The property disclosure statement signed by the plaintiff included that she wasn’t aware of any material defect as defined in Rule 5-13 in respect of the property or premises. Both the plaintiff, as seller, and the defendant, as buyer, executed the property disclosure statement.

7. On her examination for discovery the plaintiff acknowledged that after the violent death of her son-in-law, she was concerned about the safety of her daughter and grandchildren who continued to reside in the property. However, when re-examined at trial concerning her discovery evidence, the plaintiff asserted that her concern for her family was unrelated to the property.

8. On September 4, 2009, Ms. Yuan, on behalf of the plaintiff accepted the defendant’s offer to purchase the house for $6,138,000, after the defendant viewed the house 2 times with her husband and daughters, which included a private showing. Defendant specifically asked the plaintiff’s realtor the reason why the house was being sold and she was informed that the daughter had moved to a school in West Vancouver and the family needed to reside closer to the school. The subject of Mr. Huang’s death never came up nor any other reason for the sale was never discussed.

9. By the end of September and shortly after the defendant had removed all of the conditions and paid the full amount of the deposit, she learned through a friend about a death at the front entrance of the property. She immediately inquired the realtors about the facts which were finally confirmed by the plaintiff’s realtor. Defendant immediately instructed her realtor that she would not complete the purchase of the property and sought legal advice. Her solicitor later confirmed to the plaintiff’s solicitor that she would not be completing the contract since after learning about the unsolved murder in front of the property, the defendant feared for her own safety and the safety of her family.

10. In January of 2010 the property was finally sold to another buyer for $ 5,500,000 and through an assignment of contract.

11. Plaintiff brought this claim for breach of contract alleging the deposit should be forfeited and seeking additional damages against the defendant.

 

Issues:

 

1. Did the plaintiff owe a duty to disclose to the defendant the murder of her son-in-law who lived in the house, which occurred at the front entrance, but not in the property?

1.1.    Was his death a material latent defect rendering the property dangerous, or potentially dangerous to the occupants, or unfit for habitation?

 

2. Did the plaintiff make a material fraudulent or negligent misrepresentation by failing to disclose the death as a reason for selling the property?

2.1 Was the defendant entitled to rescission of the contact, the return of her deposit and damages for breach of contract?

 

2.2 Did the defendant breach the contract?

 

2.3 If so, what are the remedies available to the plaintiff?

3. Credibility was also an issue in relation to the plaintiff’s and her daughter’s reasons for the sale of the property and their instructions to their realtors.

 

 

Decision:

 

Court found that the defendant had established she was induced to enter into a contract for the purchase of the property by a fraudulent representation and, as the innocent party, she was entitled to rescission of the agreement and had the right to elect the contract as voidable. It was also taken into consideration that the defendant acted promptly to repudiate the contract after learning of the misrepresentation. On this issue court found she was entitled to rescission and to an order for the return of the deposit, together with accrued interest.

Defendant was also entitled to an award of damages against the plaintiff of $ 4,040.44 and the plaintiff’s action against the defendant was dismissed.

 

Ratio:

 

In British Columbia the Doctrine of caveat Emptor  applies  to real estate transactions subject only to specific exceptions, including fraud or failure to disclose a latent defect the vendor is aware . The leading decision on the maxim is in Fraser-Reid v. Droumtsekas from the S.C.R in which the Justice recognized the continuing application of the doctrine of caveat emptor to the sale of land. As a rule, a vendor has the obligation to disclose a material latent defect to prospective buyers if the defect renders a property dangerous or unfit for habitation and that is not discoverable by a purchaser through reasonable inspection inquiries.

Furthermore, Canadian Courts have found latent defects rendering a property dangerous or unfit for habitation based on objectively verifiable physical defects affecting the property. Courts have avoided the application of a more subjective test since allowing defects to be determined by individual preferences would open the floodgates of litigation.

However, the doctrine of caveat emptor will not operate to deny the plaintiff’s recovery in situations where the vendor fraudulently misrepresents or conceals, where the vendor knows of a latent defect rendering the house unfit for human habitation, where the vendor is reckless as to the truth or falsity of statements relating to the fitness of the house for habitation and where the vendor has breached the duty to disclose a latent defect which renders the premises dangerous.

 

Reasons:

 

  1. 1.       On the issue of material latent defect, court found that the death of Raymond Huang was not a latent defect rendering the property dangerous or uninhabitable. His death was not a defect related to the physical or intrinsic qualities of the property. Further, the property disclosure statement required disclosure of any material latent defect as defined in Council Rule 5-13 which defines a latent defect as a material defect that cannot be discerned through reasonable inspections of the property. In this case, court concluded that Mr. Huang’s death was not a defect or imperfection in respect of the property itself, or any measurable condition or quality of the property. And even if the death was a defect, it would be patent, rather than a latent defect, which the vendor was not obligated to disclose to the buyer. Defendant has failed to establish that the plaintiff was obliged to disclose the death of Mr. Huang as a latent defect.

 

  1. 2.       In relation to the claim of fraudulent misrepresentation, the defendant must establish that the vendor made the representation of fact to the purchaser, that the representation was false in fact, that the vendor knew the representation was false when it was made, or made the false representation recklessly, not knowing if it was true or false, that the vendor intended the purchaser to act on the representation and finally that the purchaser was induced to enter into a contract in reliance upon the false representation and therefore suffered a detriment. In this case, the seller’s representation, while true on its face, was incomplete and an incomplete representation of material facts may amount to an actionable falsehood. The defendant also established that the plaintiff’s false representation induced her to enter into the contract and the test of materiality of the representation and reliance on it is a subjective one, and not a matter of asking whether a reasonable person would have relied on the representation, but whether the specific defendant relied upon it in the circumstances of the case. Here, the plaintiff’s fraudulent representation vitiated the contract of purchase and sale and precluded her from relying upon the no representations clauses in that contract.