Woo v. Onni: B.C. Court of Appeal Rejects Post-Closing Rescission
April 17, 2014
In Woo v. Onni (Woo), released on March 4, 20141, the B.C. Court of Appeal rejected the argument that a developer’s failure to deliver an amendment to a disclosure statement entitled purchasers to rescind their purchase contracts almost 1.5 years after they closed on their strata lots. This closely-watched case involved the first attempt by a purchaser to rely on s. 21(3) of the Real Estate Development Marketing Act (REDMA) and rescind a contract post-closing2. Although s. 21(3) allows a purchaser to rescind a contract due to non-delivery of a disclosure statement (or an amendment) even after closing, until Woo, no claim to rescind post-closing had gone to court since REDMA came into force in January 2005.
The plaintiffs in Woo were 10 purchasers in a residential strata development in Port Moody known as "Aria 2". In March 2007, the developer filed an amendment disclosing that a building permit had been issued and that construction had commenced (and was projected to be completed) on the dates set out in the original disclosure statement.
Policy Statement 5 issued by the Superintendent of Real Estate under REDMA provides that, where a project is marketed on a pre-sale basis, the developer must file and deliver to purchasers an amendment confirming the issuance and particulars of the building permit within nine months after the filing of the disclosure statement. In March 2007, the developer filed an amendment that disclosed the issuance of the building permit and that construction had commenced (and was projected to be completed) on the dates set out in the original disclosure statement. Although the building permit was filed with the Superintendent, inadvertently it was not delivered to the plaintiffs. The plaintiffs closed on their strata lots in December 2008. In September 2009, they became aware that they never received the March 2007 building permit amendment, but it was not until April 2010 that, in reliance on this oversight, they gave notice that they were rescinding their contracts and would require repayment of the purchase prices paid for their strata lots.
The Trial Decision
In a decision released in May 20123, the summary trial judge concluded that the developer filed the amendment with the Superintendent to comply with its obligation to disclose all material facts in relation to the development and that the failure to deliver it to the plaintiffs entitled them to rescind their contracts.
Although the amendment disclosed nothing unforeseen (it simply confirmed that the building permit was issued and that the construction commencement date anticipated in the original disclosure statement had in fact been achieved), the trial judge found that the failure to provide the amendment to the plaintiffs constituted "an omission to state a material fact" within the meaning of REDMA, as the facts that "the subdivision approval had been obtained, that a building permit had been issued and that construction had commenced and was proceeding on schedule would affect the ‘value, price or use’ of the development units by reducing the risk of the developer failing to complete the project". The judge also noted that Policy Statement 1 (which dictates the form and content of disclosure statements) issued by the Superintendent under REDMA states that "if a change occurs ... that brings into being a fact or proposal which should have been disclosed if the fact or proposal had existed at the time of filing", the filing and delivery of an amendment is required. The judge therefore concluded that the failure to provide the amendment to the plaintiffs entitled them to rescind their contracts pursuant to the "clear, unambiguous and mandatory" language of s. 21(3).
The judge rejected the developer’s argument that, if the plaintiffs were allowed to rescind their contracts, they should have to pay the developer rent for the use and enjoyment of their strata lots post-closing, as well as compensation for wear and tear and diminution in value. The judge held that, because REDMA contains no provision expressly sanctioning an accounting of benefits and losses between a purchaser and a developer following the purchaser’s exercise of the right to rescind, the Legislature must not have intended that there be any such accounting.
The Judgment on Appeal
On appeal, the Court of Appeal reversed the findings of the trial judge, concluding that the amendment contained no "material facts", within the meaning of REDMA, to the purchasers. The Court framed the issue as "whether s. 21(3) entitles a purchaser to rescind the agreement at any time if the purchaser does not receive an amendment to a disclosure statement that contains information that is to the benefit of the purchaser by confirming that events have occurred as predicted in the disclosure statement?"
Answering the question in the negative, the Court held that only facts that adversely affect the value, price or use of a unit are material and, therefore, must be disclosed in an amendment. Because the amendment simply confirmed events predicted in the original disclosure statement (information that was to the purchasers’ benefit), the failure to deliver the amendment did not give rise to a right to rescind. As REDMA provides that a purchaser who receives an amendment (even one that discloses information that negatively affects the purchaser’s interests) is not entitled to rescind a purchase contract4, the Court concluded that it made no sense for the purchasers to be able to rescind due to the failure to deliver an amendment which contained only information of benefit to them.
The Court rejected the trial judge’s conclusion that disclosure of the fact that construction was on schedule was "material" (because it reduced the risk of the developer failing to complete the project) as there was no indication that completion of the project was ever in doubt or any evidence that a reasonable person would perceive the information as material. The Court stated that the concept of materiality "imports some threshold component of the objective significance or the objective degree of the effect on their interests before a purchaser is entitled to disclosure". Since the plaintiffs provided no evidence that the information in the amendment could have an effect on "value, price or use" (the trigger under REDMA for what constitutes a "material fact" that must be disclosed), delivery of the amendment was not required.
The Court also made important comments about the purpose of REDMA, stating that although it is consumer protection legislation, it involves "a balancing of the interests of developers and purchasers" and is not intended to create a "windfall that allows purchasers to rescind purchase agreements that delivered to them precisely what they contracted for". In so doing, the Court fell in line with recent decisions under REDMA which have endeavoured to "right the balance" after the initial wave of REDMA decisions that, after the 2008 market correction, allowed purchasers to avoid their contractual obligations based purely on technical deficiencies in the disclosure made by developers. The Court made it clear that, in order to ground a claim for rescission, objective evidence of an impact on value, price or use arising from information that a developer failed to disclose would be required. The Court also effectively directed that the definition of "material fact" in REDMA be read as meaning only facts that adversely affect, or could reasonably be expected to adversely affect, the value, price or use of a strata lot.
Notwithstanding these significant statements of general principle, the Woo decision ultimately turned on the specific information in the amendment that had not been delivered. It remains open to purchasers to rescind under s. 21(3) of REDMA, even after closing, as long as they can convince the Court that the information which the developer failed to disclose was "material" (within the meaning established in Woo). It will therefore continue to be important for developers to be vigilant about disclosing information affecting their projects, and to deliver amendments whenever they become aware of new information that could be considered adverse to purchasers’ economic interests.
1 2012 BCCA 412.
2 Section 21(3) of REDMA states that a purchaser who is entitled to a disclosure statement (which includes an amendment to a disclosure statement) but who does not receive it is entitled to rescind the purchase contract "regardless of whether title, or the other interest for which a purchaser has contracted, to a development unit has been transferred."
3 2012 BCSC 764.
4 s. 21(1)(b).
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