IN THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20140430

Docket: 11-0803

Registry:
Victoria

Between:

Anoop Dhami

Plaintiff

And

Tarlochan Singh Bath

Defendant

Before:
The Honourable Madam Justice Gerow

Reasons for Judgment

Introduction

[1]            
Anoop Dhami and Tarlochan Singh Bath entered into two agreements to
develop three lots located in White Rock, B.C. (the “Project”). They entered
into both an oral agreement and a written agreement in March 2008. The written
agreement dated March 31, 2008, was a share purchase agreement whereby Mr. Dhami
purchased Mr. Bath’s shares in Glass House Venture Inc. (the “Company”). The
Company owned two of the three lots on which the proposed mixed-use development
was to be constructed. The third lot was owned by Mr. Bath’s twenty-one year
old daughter.

[2]            
Mr. Dhami alleges he was induced to enter into both the oral and written
agreements as a result of deceit, and negligent and fraudulent misrepresentations
made by Mr. Bath regarding the Project. In the alternative, Mr. Dhami asserts
Mr. Bath breached warranties and collateral warranties. Mr. Dhami seeks
rescission of the agreements, and damages for the loss of the investment and
opportunity costs, and for the pain and suffering Mr. Bath’s deceit and
misrepresentations have caused him.

[3]            
Mr. Dhami also alleges Mr. Bath breached a verbal agreement entered into
between the parties in 2010, whereby Mr. Bath agreed to buy back his shares in
the Company (the “buy-back agreement”). In the alternative, Mr. Dhami seeks
damages for Mr. Bath’s failure to pay him the monies owed under the buy-back
agreement.

[4]            
Mr. Bath takes the position that the material facts pleaded do not
support breaches of the oral or written agreements entered into between the
parties in 2008, or any actionable misrepresentation. Mr. Bath asserts that the
causes of action based on breach of warranty, breach of collateral warranty and
breach of the buy-back agreement are also not properly pleaded, and are not
made out on the evidence. As well, the notice of civil claim does not properly
plead a cause of action in deceit, fraudulent misrepresentation or negligent
misrepresentation. Those causes of action are likewise not made out on the
evidence.

[5]            
In response to the allegation he breached the buy-back agreement, Mr. Bath
says that Mr. Dhami entered into an agreement to transfer his shares back to
Mr. Bath when the future of the Company looked bleak. The buy-back agreement
provided that Mr. Dhami would transfer his shares and Mr. Bath would take over
the obligations of the Company, which he did.

[6]            
Finally, Mr. Bath takes the position that a Release signed by Mr. Dhami
is a bar to this action.

Issues

[7]            
The issues are:

1.     Was Mr.
Dhami induced to enter into the 2008 agreements as a result of deceit or actionable
misrepresentations made by Mr. Bath?

2.     Was Mr.
Dhami contributorily negligent for any losses he sustained?

3.     In the alternative, did Mr. Bath breach any warranty or collateral
warranty?

4.     Did Mr.
Bath breach the buy-back agreement?

5.     What is
the effect of the Release executed by Mr. Dhami?

Background

[8]            
Mr. Dhami and Mr. Bath first met at an annual convention for Husky Gas
Station (“Husky”) operators in 2007. Mr. Bath was not a Husky operator but was
contemplating becoming one, and was at the convention as a guest. They met a
second time at the Husky convention in 2008.

[9]            
A third individual, Santokh Singh Sian was at the Husky conventions as
well. Mr. Sian had been a Husky operator for some time, and had met Mr. Dhami
at earlier Husky conventions starting in 2005.

[10]        
Prior to 2008, Mr. Dhami and Mr. Sian were both awarded at trip to St.
Lucia for being top performing Husky operators. During the trip, Mr. Sian spoke
to Mr. Dhami about the Project, which he was involved in with Mr. Bath.
Mr. Dhami and Mr. Sian apparently had a number of discussions about the
Project during the trip.

[11]        
At the March 2008 convention Mr. Sian and Mr. Bath discussed various business
opportunities in Mr. Dhami’s presence, including a condominium development in
Squamish and the Project. Mr. Dhami expressed an interest in purchasing a
condominium unit in the Squamish development as an investment, but was advised
there were no units available.

[12]        
According to Mr. Dhami, he and Mr. Bath then discussed the possibility
of Mr. Dhami investing in the Project, which consisted of a plan to
construct a mixed use building with commercial and residential units in White
Rock.

[13]        
There is a dispute between the parties regarding what Mr. Bath told Mr. Dhami
about the Project, and when Mr. Bath told Mr. Dhami about the mortgage
registered against the two lots owned by Company.

[14]        
Mr. Dhami testified he had a number of conversations with Mr. Bath about
the Project during the 2008 convention. At the end of the 2008 convention, Mr.
Bath advised Mr. Dhami that he and Mr. Sian had the land for the Project, and
that Mr. Dhami could purchase an interest in the Project. Mr. Bath offered Mr. Dhami
a third interest in the Project.

[15]        
Mr. Dhami’s evidence that he understood as a result of his discussions
with Mr. Bath, that Mr. Sian and Mr. Bath owned the land on which the Project
was to be constructed. According to Mr. Dhami, Mr. Bath did not provide him
with any information regarding the financing of the Project. Mr. Dhami’s evidence
is that he trusted Mr. Bath because he had become a Husky operator, and held
himself out to be an experienced businessman.

[16]        
Mr. Dhami’s evidence is that on March 24, 2008, Mr. Bath advised Mr. Dhami
that Mr. Sian did not agree with Mr. Dhami becoming an equal investor in the
Project, and as a result, Mr. Bath would sell 50% of his half of the Project
(equalling 25% of the Project) to Mr. Dhami. Mr. Dhami agreed to acquire a 25%
interest in the Project for $242,000.

[17]        
Following this discussion, Mr. Dhami provided Mr. Bath with two cheques,
one in the amount of $100,000 on March 25, 2008 and one in the amount of $75,000
on March 31, 2008.

[18]        
At some point in March, Mr. Bath advised Mr. Dhami that he and Mr. Sian
had incorporated the Company in February 2008. By the end of March 2008, Mr. Dhami’s
understanding was the Project was to be constructed on three lots, two owned by
the Company and one owned by Mr. Bath’s daughter.

[19]        
At the beginning of April, Mr. Bath offered Mr. Dhami a one-third
ownership in the Project, by transferring his shares in the Company to Mr. Dhami
for $425,000, and Mr. Dhami accepted. Mr. Dhami testified that Mr. Bath advised
him the estimated value of the Project upon completion was $9,000,000, and the
expected profit for the three investors would be approximately $1,000,000 each.

[20]        
Mr. Bath arranged for Mr. Dhami to borrow the additional funds from one
of Mr. Bath’s business associates, Mr. Sidhu. The shares in the Company were
transferred to Mr. Dhami in May 2008, by which time he had invested the
$425,000. At the time, Mr. Dhami’s understanding was that he would be a one-third
partner in the Project and had, in effect, purchased one of the lots.

[21]        
Mr. Dhami’s evidence is that Mr. Bath did not inform him of any mortgage
or financing that was in place prior to him investing in the Project. Mr. Dhami
testified that he relied on Mr. Bath for all the detailed information about the
Project, and decided to invest in the Project based on what Mr. Bath told him;
i.e. that the Company and Mr. Bath’s daughter owned the lots on which the
Project would be constructed, and after the Project was completed each of the
investors would earn approximately $1,000,000 in profit.

[22]        
Mr. Dhami testified it was not until August 2008 that he became aware
the two lots owned by the Company were purchased for $970,000 and had a mortgage
in the amount of $1,075,000 registered against them.

[23]        
Mr. Dhami’s evidence is that in August 2008, he attended at the lots
with Mr. Bath and Mr. Sian and discussed the possibility of selling the
Project because of the softening real estate market. At the meeting, Mr. Bath
told him about the mortgage. According to Mr. Dhami, he and Mr. Bath got into
an argument in which he accused Mr. Bath of misleading him. Mr. Dhami testified
that when he asked Mr. Bath why he hadn’t told him the lots owned by the
Company had been financed, Mr. Bath responded “you’re not a baby, you’re a
businessman… it’s your job to look into this stuff”.

[24]        
Mr. Dhami’s evidence is that when he became aware Mr. Bath had deceived
him about the mortgage, he asked Mr. Bath to return his money for the shares in
Company, in exchange for him transferring back the shares.

[25]        
Mr. Bath’s evidence is that he did not have many discussions about the
Project with Mr. Dhami while at the 2008 convention. However, his evidence is
that he told Mr. Dhami about the ownership of the lots and the mortgage
registered against the lots at the convention in 2008, and in a telephone
conversation prior to Mr. Dhami investing any monies in the Project.

[26]        
Mr. Bath’s evidence at trial is that at the end of the 2008 convention,
Mr. Dhami approached him to purchase 25% of the shares of Company. He
advised Mr. Dhami he would check with Mr. Sian. His evidence is that he
told Mr. Dhami at that time the Company owned two of the lots. Mr. Bath
testified that he also told Mr. Dhami that there was a loan against the
Company and if Mr. Dhami bought the shares he would be responsible for the
loan, and that they would to obtain another loan for construction.

[27]        
Mr. Bath’s evidence is that he contacted Mr. Sian after the convention
and Mr. Sian was not agreeable with Mr. Bath selling 25% of the shares to
Mr. Dhami. Mr. Bath advised Mr. Dhami that as a result of Mr. Sian’s
position, Mr. Dhami would have to purchase all of Mr. Bath’s shares, and that
he would get out of the Company, but remain an investor in the Project as his
daughter owned one of the lots. Mr. Bath testified that Mr. Dhami was extremely
excited and said he was willing to purchase Mr. Bath’s 50% of the shares, and
be responsible for 50% of Company’s liabilities.

[28]        
Mr. Bath’s evidence is that he told Mr. Dhami that the Company owed
approximately $1,000,000, and that Mr. Dhami would be responsible for half that
amount if he purchased the shares. Mr. Bath’s evidence is that the telephone
conversation occurred prior to Mr. Dhami investing any monies into the Project.

[29]        
To resolve the dispute that arose in August 2008 between Mr. Dhami
and Mr. Bath, they together with Mr. Sian decided to try and sell the
lots. There were offers received of $1.65 million and $1.85 million for all of
the lots. Mr. Sian would not agree to the offers because of the position Mr.
Bath was taking about how the mortgage would be paid. Mr. Bath was taking the
position that the monies would have to be divided equally between the three
lots, and that the mortgage would have to be paid off from the monies allocated
to the two lots owned by Company, as it was the Company’s debt.

[30]        
If the higher offer was accepted, each lot would be allocated $616,667.
After the mortgage was paid off, the Company would be left with a net amount of
$158,334, or $79,167 for each shareholder. As a result neither Mr. Dhami nor
Mr. Sian would receive back their investment in the Project. (At the time
the proposed sale was being discussed, Mr. Dhami had invested $425,000 and Mr. Sian
had invested $235,000.) Mr. Bath’s daughter would receive $616,667 for her lot
because it was clear title.

[31]        
In July 2007, Mr. Dhami transferred his shares in Company back to Mr. Bath.
There is a dispute between the parties regarding the buy-back agreement that
led up to Mr. Dhami transferring his shares in Company back to Mr. Bath.

[32]        
Mr. Dhami’s evidence is that in July 2009, Mr. Bath proposed to Mr.
Dhami that he buy Mr. Dhami’s shares in the Company back for $325,000. Mr. Bath
told Mr. Dhami that would place him in a stronger bargaining position with
Mr. Sian, in order to get him to accept one of the offers made on the lots.
If Mr. Dhami transferred the shares back to Mr. Bath, Mr. Bath would
effectively control two of the three lots, on through the Company and one
through his daughter. In order to facilitate the sale, and resolve the dispute
between them, Mr. Dhami agreed to sell back his shares to Mr. Bath and
lose $100,000 on his investment. Mr. Bath subsequently sold his shares in Company
to Mr. Sian, but has not paid Mr. Dhami any money.

[33]        
Mr. Bath’s evidence is that in July 2009, the prospects for the Company and
the Project were bleak. No construction financing could be obtained. The real
estate market was softening, and the anticipated profit was not likely to be at
the same level. There had been construction delays because of unanticipated
difficulties. The mortgage was coming due and there was risk that the lots
might be lost in foreclosure. The three participants could not come to an
agreement to accept any offer to purchase the lots. The Company was in a
deadlock because of the divergent views of Mr. Dhami and Mr. Sian.

[34]        
Mr. Bath says the 2008 agreement obligated Mr. Dhami to be liable for
50% of the Company’s liabilities and to indemnify Mr. Bath in that regard. It
was under these circumstances that Mr. Dhami agreed to transfer his shares in Company
back to Mr. Bath. In exchange for Mr. Dhami transferring his shares in Company,
Mr. Bath agreed to take over the responsibility for 50% of Company’s
liabilities, and indemnify Mr. Dhami in that regard.

[35]        
Mr. Bath concedes that he was continuing to attempt to market the three
lots, and told Mr. Dhami that if a sale could be concluded, Mr. Bath would see
to it some money would be paid to Mr. Dhami. But Mr. Bath denies any agreement
to pay Mr. Dhami the sum of $325,000 for his shares, and further denies
any agreement to pay Mr. Dhami any money at all, unless the lots could be sold.

[36]        
In September 2009, Mr. Dhami signed the Release, releasing Mr. Bath and Company
from any claims he had arising out of his ownership of Company and the 2008 share
purchase agreement entered into between Mr. Bath and Mr. Dhami.

[37]        
There is a dispute regarding whether or not the Release was conditional.
Mr. Dhami’s evidence is that Mr. Bath asked him to sign the Release because
a potential purchaser, Hardy Bains, had requested a release in order to
purchase the shares from Mr. Bath. Mr. Dhami says that both he and Mr. Bath
understood the purpose of the Release was in respect of the potential purchase
of the shares by Mr. Bains. Mr. Dhami asserts he signed the Release on the
condition that he would receive $325,000 once the lots were sold.

[38]        
Mr. Bath says that at the time Mr. Dhami signed the Release, he had
transferred his shares back to Mr. Bath and resigned as a director so had no involvement
in Company. Mr. Bath agrees with Mr. Dhami’s evidence that he requested Mr.
Dhami sign the Release because Mr. Bains wanted the Release before he would
make an offer. Mr. Bath says the Release was executed by Mr. Dhami so that
an offer would be made by Mr. Bains.

[39]        
After the Release was signed, an offer was made by Mr. Bains. Mr. Bath
says Mr. Dhami received the benefit of his bargain in that the offer was in
fact made by Mr. Bains. Mr. Dhami knew, as a result of his historical knowledge
of Company’s shareholdings, that if Mr. Sian refused to accept the offer would
not be accepted. Mr. Dhami also knew that Mr. Sian had refused to accept
offers in the past.

[40]        
In October 2009, the lots owned by Company were foreclosed on. Mr. Bath
subsequently transferred his shares in Company to Mr. Sian. Mr. Sian also
purchased the third lot that was registered in the name of Mr. Bath’s daughter.

[41]        
Mr. Sian testified that he purchased the shares and the third lot
because he thought he could obtain financing to complete the Project if he
owned all three lots. However, he was unable to obtain financing and eventually
sold the lots at a loss.

Mr. Dhami’s Position

[42]        
Mr. Dhami takes the position that Mr. Bath misrepresented material facts
to him which induced him to enter into the oral and written agreements in 2008.

[43]        
Mr. Bath represented to Mr. Dhami that the assets of Company were the
two lots it owned without disclosing that the lots had a mortgage registered
against title in excess of their value.

[44]        
Mr. Bath also advised Mr. Dhami that upon completion, the Project would
be worth $9,000,000, when there was an appraisal valuing the completed Project
at $4,000,000. Mr. Bath advised Mr. Dhami that the three investors would each
net $1,000,000 which was impossible given the indebtedness of Company, and the
appraisal.

[45]        
Mr. Dhami asserts that Mr. Bath made the misrepresentations with the
intention to deceive him, and it was reasonable for Mr. Dhami to believe and
rely on them. Mr. Dhami says as a result of the misrepresentations he was
induced to enter into both the oral and written agreements in 2008.

[46]        
 Mr. Dhami argues that Mr. Bath was proximate to Mr. Dhami and was in
the position of a fiduciary. Accordingly, non-disclosure even if it was
innocent, amounts to equitable fraud relying on Canson Enterprises Ltd. v.
Boughton & Co., [1991] 3 S.C.R. 534.

[47]        
Alternatively, Mr. Dhami asserts that Mr. Bath’s omission of material
facts amounts to a misrepresentation even in the absence of a fiduciary
relationship. Mr. Bath only told Mr. Dhami about the favourable aspects of
the Project without disclosing to Mr. Dhami the substantial liability of the
Company, and the fact it had no equity in the lots. Mr. Dhami says the failure
to disclose that information was fraudulent on the part of Mr. Bath.

[48]        
Mr. Dhami argues Mr. Bath’s statements regarding the value of the
Project were also fraudulent and/or negligent misrepresentations. Mr. Bath
knowingly made the statements without belief of their truth, or recklessly or
carelessly as to whether they were true or not.

[49]        
In the alternative, Mr. Bath made the representations negligently, and
the representations were untrue, inaccurate or misleading. Mr. Dhami’s reliance
on them was reasonable and foreseeable, and resulted in damages to him. Nothing
in the 2008 written agreement precludes a claim in tort arising out of the parties’
dealings.

[50]        
In the further alternative, Mr. Dhami argues there was an explicit
and/or implied term of the agreements that the lots did not have any charges
against them, upon completion the project would be worth $9,000,000, and each
of the investors would make a net profit of $1,000,000.

[51]        
As well, Mr. Dhami takes the position that the written agreement is not
valid and enforceable against him because he was not provided with an
opportunity to review it prior to signing the signature page.

[52]        
In the further alternative, Mr. Dhami asserts Mr. Bath has breached the
terms of the buy-back agreement entered into between the parties. Mr. Bath has
failed to pay Mr. Dhami $325,000 he agreed to pay in exchange for Mr. Dhami
transferring the shares in Company back to him, despite Mr. Bath subsequently selling
the shares to Mr. Sian.

[53]        
Mr. Dhami takes the position that the Release signed by him is not valid
and enforceable against him. He says there was no meeting of the minds between him
and Mr. Bath regarding the purpose or content of the Release. Mr. Bath informed
Mr. Dhami that the Release was to provide comfort to a potential purchaser
of the shares in Company to go ahead with the purchase and Mr. Dhami believed
that was the sole purpose of the release. In the alternative, Mr. Dhami says
there was no consideration provided to him by Mr. Bath in exchange for him
signing the Release.

Mr. Bath’s Position

[54]        
Mr. Bath takes the position that there is no evidence to suggest the
warranty or covenants pleaded in the amended notice of civil claim were
breached. As well, his position is that the amended notice of civil claim does
not properly plead the causes of action of deceit, fraudulent misrepresentation
or negligent misrepresentation. In any event, he says the causes of action
argued by Mr. Dhami are not made out on the evidence.

[55]        
Mr. Bath points to the fact that Mr. Dhami’s evidence is that he did not
know or make any inquiries about the cost of the lots, the anticipated cost of
construction or any financial details regarding the Project. The discussions
between the parties were always of a general and consistent nature, i.e. the
Project will be a good project to invest in and everyone will make money. At
the time the discussions were taking place, Mr. Bath believed the statements he
was making regarding the Project were correct. Mr. Bath points to the fact that
Mr. Sian did some independent investigation and the numbers being discussed
seemed reasonable at the time.

[56]        
Mr. Dhami’s evidence that he was relying on Mr. Bath and that he trusted
him because he was at the convention and was a Husky operator as an explanation
for why he did not contact a lawyer to get advice before he invested in the
Project is not reasonable. Further, Mr. Dhami’s evidence that Mr. Bath offered
to sell him shares in the Company makes it obvious that Mr. Dhami could not
have reasonably believed the transaction would result in him receiving title to
a lot, in the absence of real property transfer documentation.

[57]        
As well, Mr. Bath submits the evidence suggests Mr. Dhami spoke to Mr. Sian
about the Project and relied on his assurances in making the investment in
Glass House. Mr. Bath asserts that Mr. Dhami relied on Mr. Sian’s advice about
the Project, not his, in deciding to invest in it.

[58]        
Mr. Bath says it is clear from Mr. Dhami’s evidence that he realized the
value of the investment came from the development potential of the property. He
submits that if Mr. Dhami had known of the existence of the mortgage he would
likely have made the same decision and made the investment in order to be
involved in a good project where he stood the chance to make a lot of money
when the Project was completed.

[59]        
Mr. Bath says Mr. Dhami’s evidence that he did not review the written share
purchase agreement before signing it in 2008 should not be accepted. Mr. Bath
testified that he spoke to Mr. Dhami before travelling to Swartz Bay with the
documents. He asked Mr. Dhami if he wanted to come to the office of Mr. Bath’s
lawyer to sign the documents or if he wanted to take the documents to his own
lawyer in Victoria. There was no evidence that any urgency existed to having
the documents signed. Mr. Dhami never indicated he felt rushed or hurried
during their discussions when the documents were signed.

[60]        
Mr. Bath says the evidence shows that he had an honest belief in the
accuracy of what he was saying regarding both the construction timeline and the
value of the completed Project.

[61]        
Mr. Bath further says that the evidence strongly supports the conclusion
that the Project faced significant challenges as 2008 progressed, none of which
could have been anticipated by any of the investors. The real estate market was
softening and construction financing became impossible to obtain.

[62]        
Mr. Bath submits his evidence that he told Mr. Dhami about the mortgage
financing prior to Mr. Dhami investing in the Project should be accepted.

[63]        
Mr. Bath also takes the position that he has complied with the terms of
the buy-back agreement the parties entered into. The 2008 share purchase
agreement obligated Mr. Dhami to be liable for 50% of the Company’s liabilities
and to indemnify Mr. Bath in that regard. It was clear to the parties Mr. Dhami
would be responsible for any corporate liabilities not covered by the proceeds
from the sale of the lots. It was in those factual circumstances that Mr. Dhami
agreed to transfer his shares back to Mr. Bath, in exchange for Mr. Bath taking
over responsibility for 50% of the Company’s liabilities and indemnifying Mr.
Dhami in that regard.

[64]        
Mr. Bath agrees that at the time the Release was signed he was still
attempting to market the three lots, and he told Mr. Dhami that if the sale
could be concluded he would see to it that some money would go to Mr. Dhami.
However, he says he never promised to pay Mr. Dhami a specified amount. Mr.
Bath submits that Mr. Dhami testified in a superficial manner that Mr. Bath
promised to pay $325,000 for the transfer of the shares, but then stated he only
expected to receive the money after the lots were sold. The lots could not be
sold because Mr. Sian would not agree to any of the offers.

[65]        
Mr. Bath denies any agreement to pay Mr. Dhami $325,000 for his shares,
and denies any agreement to pay Mr. Dhami any monies unless the lots were sold.

[66]        
Mr. Bath points to the fact that at the time Mr. Dhami signed the Release
of all claims, he did not own any shares in Company and had resigned as a
director, and for all intents and purposes had no involvement in the Company.

[67]        
Mr. Bath submits the Release is plain on the face of it. Mr. Dhami
testified he read and understood it before signing it. Mr. Dhami testified he
signed the Release because he wanted an offer to be made a purchaser, Mr.
Bains, and he believed that signing the Release would lead to that offer being
presented.

[68]        
The Release was executed, and the offer was presented by Mr. Bains. Mr. Bath
submits that Mr. Dhami got what he bargained for as a result. At all times, Mr. Dhami
was aware that without the consent of Mr. Sian no offer would be accepted by the
Company. Mr. Sian did not accept the offer, but Mr. Dhami got exactly what he
had bargained for, i.e. an offer was made by Mr. Bains.

Analysis

Did Mr. Bath deceive or make any actionable misrepresentations to Mr. Dhami?

Applicable Law

[69]        
Mr. Dhami advances claims in the tort of deceit,
and fraudulent and/or negligent misrepresentation, and in the alternative, for
breach of contract.

[70]        
A party may sue in
both contract and tort when a wrong supports an action in both, subject to any
limitations in the contract: BG Checo International Ltd. v. British Columbia
Hydro and Power Authority, [1993] 1 S.C.R. 12 at paras. 26-30.

[71]        
The tort of deceit
is based on a defendant making a fraudulent misrepresentation of fact to the
plaintiff, when he or she knows the statement to be false or is reckless as to
whether it is false, and with the intention that the plaintiff should act on
the statement. There must be a direct causal link between the statement and the
actions of the plaintiff. The action taken by the plaintiff as a result of
reliance on the statement must be detrimental in that the plaintiff suffers
damages. Once the plaintiff establishes the elements of deceit, i.e. a false statement,
knowledge the statement is false, an intent to deceive, and damage caused by
the reliance, the onus shifts to the defendant to prove a lack of reliance: Catalyst
Pulp and Paper Sales Inc. v. Universal Paper Export Company Ltd., 2009 BCCA 307
at paras. 55-60; Sidhu Estate v. Bains (1996), 25 B.C.L.R. (3d) 41 (C.A.), at para. 42.

[72]        
As a general rule, mere
silence cannot form the basis for a misrepresentation; however, active
concealment or non-disclosure which distorts a positive assertion or tacitly
confirms a false one may found a cause of action in deceit: Sidhu Estate,
at paras. 30-32; G.H.L. Fridman, The Law of Contract in Canada, 6^th
ed. (Toronto: Carswell, 2011) at 299-302; John D. McCamus, The Law of
Contracts (Toronto: Irwin Law, 2005) at 331-334.

[73]        
The case law tends to
treat the tort of deceit and an action for fraudulent misrepresentation
similarly, if not the same. In Catalyst Pulp and Paper Sales Inc., at
para. 55, the Court adopted the elements of fraudulent misrepresentation
described by G.H.L. Fridman, in Law of Contract in Canada, 4th ed.
(Scarborough: Carswell, 1999) at 309-310, namely:

                      
(a)         
the wrongdoer must make a representation of fact to the victim;

                      
(b)         
the representation must be false in fact;

                      
(c)         
the party making the representation must have either known it was false
or made it recklessly without knowing whether it was true or false; and

                      
(d)         
the victim must have been induced by the representation to enter into
the contract.

[74]        
In Islip v. Coldmatic Refrigeration of Canada Ltd., 2002 BCCA 255
at para. 11, the Court referred to the four elements of fraudulent misrepresentation
described by Fridman, and added that the person making the statement must have intended
that the other person act on the representation.

[75]        
It is no answer to an action for fraudulent misrepresentation that the
claimant failed to exercise due diligence: Performance Industries Ltd. v.
Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19 at paras. 67-71.

[76]        
The elements of negligent misrepresentation are discussed in Queen v.
Cognos Inc., [1993] 1 S.C.R. 87 and Hercules Managements Ltd. v. Ernst
& Young, [1997] 2 S.C.R. 165. The five general requirements a claimant
must establish in order to be successful in a claim for negligent
misrepresentation are articulated in Queen v. Cognos Inc. at 110:

…The decisions of this Court
cited above suggest five general requirements: (1) there must be a duty of care
based on a "special relationship" between the representor and the
representee; (2) the representation in question must be untrue, inaccurate, or
misleading; (3) the representor must have acted negligently in making said
misrepresentation; (4) the representee must have relied, in a reasonable
manner, on said negligent misrepresentation; and (5) the reliance must have
been detrimental to the representee in the sense that damages resulted.

[77]        
In Hercules Managements Ltd., the Court discussed the scope of
the duty at para. 41, stating that a prima facie duty of care arises when a
defendant ought reasonably to have foreseen the plaintiff would rely on the
representation and that the reliance by the plaintiff was reasonable. When
indeterminate liability is not an issue in the circumstances of the case, a
duty of care will be found to exist.

Application to the Facts

[78]        
Mr. Dhami’s claims in deceit and fraudulent and/or
negligent misrepresentation are based on the allegations that:

·       Mr. Bath told Mr. Dhami the Company owned two of the lots without
disclosing there was no equity in the lots, or that the Company had significant
liabilities; and

·       Mr.
Bath told Mr. Dhami that when the Project was completed it would have a value
of $9,000,000, and each of the three investors would make a profit of
$1,000,000.

[79]        
As set out earlier, there is a dispute between the parties regarding
when Mr. Bath told Mr. Dhami about the mortgage registered against the lots
owned by the Company, and that the Company had no assets.

[80]        
I accept Mr. Dhami’s evidence that Mr. Bath did not inform him of any
mortgage or financing that was in place or any liabilities of the Company prior
to him investing in the Project. I accept Mr. Dhami’s evidence that it was not
until August 2008 that he became aware the two lots owned by the Company were
purchased for $970,000 and had a mortgage registered against them in the amount
of $1,075,000.

[81]        
I do not accept Mr. Bath’s evidence that he told Mr. Dhami about the
ownership of the lots and the mortgage at the convention in 2008, or over the
telephone prior to Mr. Dhami investing in the Project.

[82]        
I did not find Mr. Bath to be at all credible. He gave his evidence in
an evasive manner. Mr. Bath’s evidence at his examination for discovery contradicted
his evidence at trial in many respects.

[83]        
For example, Mr. Bath’s evidence at his examination for discovery was
that he did not discuss the Project with Mr. Dhami at the convention. His
evidence at his discovery was that Mr. Dhami called him after the convention
because he had spoken to Mr. Sian about the Project and wanted to invest in it.
Mr. Bath’s evidence at his examination for discovery was that the first time he
spoke to Mr. Dhami about the Project was on the telephone after the convention.

[84]        
That evidence contradicts the evidence Mr. Bath gave at trial. At the
trial, Mr. Bath testified that he told Mr. Dhami the Company owned two
lots, and that there was a loan against the Company. Mr. Bath testified he told
Mr. Dhami if he purchased 25% of the shares he would be responsible for 25% of
the Company’s loan, and that a construction loan would have to be obtained.

[85]        
Another example is that at his examination for discovery, Mr. Bath’s
evidence was that Mr. Dhami asked him first for 25 % of the shares and then
said he wanted 50% of the shares of the Company during a telephone
conversation, and Mr. Bath told him that was fine. Whereas at trial, Mr. Bath
testified that he was the one who told Mr. Dhami he would have to purchase all
of Mr. Bath’s shares in the Company because Mr. Sian did not want too many people
included in the investment. Mr. Bath’s evidence in that regard makes no sense.
If Mr. Sian did not want other investors involved, selling Mr. Dhami his shares
in the Company would not resolve the problem.

[86]        
During his examination for discovery, Mr. Bath had a great deal of trouble
remembering any of his prior real estate transactions or his business
experience, and stated that he had never been involved in the construction of
any real estate projects. However, at trial his evidence was he had extensive business
experience, including owning several fast food restaurants, and a motel, and that
he had purchased and renovated many residences.

[87]        
As well, in his examination for discovery, Mr. Bath’s evidence was that
Mr. Dhami only signed the share purchase agreement at the Schwartz Bay
ferry terminal. At trial, Mr. Bath testified that he brought not only the share
purchase agreement but he also brought a number of other documents, and watched
Mr. Dhami read all of the documents before he signed them.

[88]        
Not only was Mr. Bath’s examination for discovery evidence contrary to
the evidence he gave at trial, but his evidence at trial was internally
inconsistent and did not accord with common sense. At one point Mr. Bath
attempted to explain away a contradictory statement in an affidavit he signed
because it was in English. However, the affidavit had an endorsement of an
interpreter indicating the affidavit had been interpreted for him.

[89]        
As stated above, I did not find Mr. Bath to be a credible witness, and
where his evidence is contradicted by the evidence of Mr. Dhami, I accept Mr.
Dhami’s evidence.

[90]        
I accept Mr. Dhami’s evidence that Mr. Bath told him the Company owned
two of the three lots that formed part of the Project. I further accept Mr.
Dhami’s evidence that Mr. Bath did not tell him there was no equity in those
lots, and no other assets in the Company until August 2008.

[91]        
In my view, the statements by Mr. Bath that he and Mr. Sian had the land
for the Project, and that Company “owned” two of the lots, without any
indication that Company did not have any equity in the lots or any other
assets, was active concealment. The statement that Company owned the property
without any indication of the liabilities provided a distorted view, and made
it sound as though the Company had assets. In my view, the reasonable inference
from the statement is that Company owned the lots free from any charges, or at
least had significant equity in the lots.

[92]        
Mr. Bath knew that without saying more that Mr. Dhami would have the
false impression that the Company had equity in the lots. It was clear that Mr.
Bath intended for Mr. Dhami to rely on that statement. The information was
being given to him in the context of a sale of shares in the Company. I accept
Mr. Dhami’s evidence that Mr. Bath represented that Company owned the lots, and
did not advise him of the mortgage until August 2008.

[93]        
Mr. Bath asserts that Mr. Dhami relied on Mr. Sian, not him, in making
the decision to invest in the Project. However, I accept Mr. Dhami’s evidence
that he relied on the information provided by Mr. Bath, including Mr. Bath’s
statement that Company owned the lots. I also accept Mr. Dhami’s evidence that
Mr. Bath told him Mr. Sian was not happy about him being involved in the
Project, and that Mr. Bath urged him not to call Mr. Sian after Mr. Bath
offered to sell him the shares.

[94]        
Mr. Bath argues that Mr. Dhami did not plead sufficient particulars to
support a claim for fraudulent  misrepresentation, and therefore the claim
should fail relying on Neidermayer v. Gillies, 2012 BCSC 143. However,
the pleadings clearly set out the representations in issue, i.e. that Mr. Bath
told Mr. Dhami that he and Mr. Sian owned the land for the Project and that he
could purchase some shares in the Project from him, and would have a one-third
interest in the Project. The amended notice of civil claim also pleads that Mr.
Bath represented to Mr. Dhami that the Company owned two of the lots, and that
Mr. Bath did not inform Mr. Dhami of any outstanding liabilities of the
company.

[95]        
In my view, Mr. Bath has not established the pleadings do not plead the
material facts necessary to support a cause of action in deceit and fraudulent
misrepresentation.

[96]        
It is also apparent from the evidence that Mr. Dhami acted on the
information to his detriment by investing $425,000, signing the written
agreement accepting responsibility for half of the Company’s mortgage liability
or approximately $500,000, and agreeing to indemnify Mr. Bath for any and all
liabilities of the Company. Neither the $425,000 invested by Mr. Dhami nor the
$235,000 invested by Mr. Sian were used to pay off any of the mortgage debt of
the Company, nor does the money appear in the Company’s bank accounts. Mr.
Bath’s evidence is that he does not keep copies of his bank statements, and did
not produce any for the period in issue.

[97]        
I conclude that in the circumstances, the statement that Company owned
the lots without disclosure of the liabilities was a fraudulent
misrepresentation.

[98]        
However, it is my opinion that the statement regarding the expected profitability
of the Project is not an actionable misrepresentation. At the time he made the
statement, Mr. Bath could well have believed it. Mr. Dhami testified he became
aware there was an appraisal of the Project at the statement was made,
indicating the completion value of the Project was $4,000,000. However, that
statement is based on hearsay evidence from Mr. Sian. Mr. Sian testified that
he never saw an appraisal, he just heard about it.

[99]        
Mr. Sian also testified that he did his own investigation regarding the
profitability of the Project. Mr. Sian’s evidence is that if he assumed the
units could be sold for a price near the top end of the market, Mr. Bath’s
estimate of $9,000,000 for the completed Project seemed reasonable. Mr. Bath
testified that he was of the view in March 2008 that the Project would be worth
$9,000,000 upon completion.

[100]      In my
view, Mr. Dhami has not established that Mr. Bath either knew or was reckless
as to whether or not the statements regarding the profitability of the Project
were false at the time he made them. Accordingly, I conclude there is no cause
of action based on Mr. Bath’s statements regarding the profitability of the
Project.

Was Mr. Dhami contributorily negligent for any losses he sustained?

[101]     Contributory
negligence is an available defence to negligent misrepresentations, not
fraudulent misrepresentations: Chapsekie v. Canadian Imperial Bank of
Commerce, 2004 BCCA 154. In this case, I have found that the misrepresentation
made by Mr. Bath was fraudulent, not negligent. Therefore, the defence of contributory
negligence has no application in the circumstances of this case.

In the alternative, did Mr. Bath breach any warranty or
collateral warranty?

[102]     The issue
of whether or not Mr. Bath breached a warranty or collateral warranty was
argued in the alternative. Having found that Mr. Bath made a fraudulent misrepresentation
to Mr. Dhami, I need not consider this alternative argument.

Did Mr. Bath breach the buy-back agreement?

[103]     Following
the discovery of the mortgage, Mr. Dhami and Mr. Bath entered into an agreement
whereby Mr. Dhami agreed to transfer his shares back to Mr. Bath. There is a
dispute as to the terms of the agreement entered into between the parties in
2009.

[104]     For the
reasons stated above, I accept Mr. Dhami’s evidence that Mr. Bath agreed
to pay him $325,000 for his shares after the properties were sold, as well as
take over the liabilities for the Company. Mr. Dhami’s evidence in that regard
makes sense. Mr. Dhami had rejected an earlier offer to purchase his shares for
$300,000.

[105]     At the
time the buy-back agreement was entered into, Mr. Bath was actively marketing
all three lots and had a proposed purchaser. Mr. Sian was not agreeing to any
sale because of the position Mr. Bath was taking that the monies would be
divided equally between the lots, and the two lots owned by Company would be
responsible for paying off the mortgage. I accept Mr. Dhami’s evidence that Mr. Bath
told him the best way to be able get Mr. Sian to agree to a sale of all three
lots was for Mr. Bath to Mr. Dhami’s shares back, thereby giving him effective
control over two of the lots.

[106]     I do not
accept Mr. Bath’s evidence that he told Mr. Dhami he might pay him some money after
the lots were sold, but did not specify an amount.

[107]     The
evidence is that Mr. Dhami transferred the shares to Mr. Bath, and that Mr.
Bath eventually sold his shares in the Company to Mr. Sian and Mr. Sian also
acquired the lot in Mr. Bath’s daughter’s name. However, Mr. Bath has not paid
Mr. Dhami any money.

[108]     As a
result, I find that Mr. Bath has breached the terms of the buy-back agreement
with Mr. Dhami that he would pay him $325,000 for his shares after the lots
were sold.

What is the effect of the Release executed by Mr. Dhami?

[109]     Mr. Dhami
signed the Release dated September 9, 2009, after he had transferred his shares
to Mr. Bath.

[110]    
The release provides as follows:

KNOW ALL MEN BY THESE PRESENTS that ANUP DHAMI (“Dhami”), in
consideration of the sum of $1.00 for good and valuable consideration, does for
himself, his heirs, executors, administrators and assigns hereby release
TARLOCHAN SINGH BATH and GLASS HOUSE VENTURES INC. (the “Releasees”), their
heirs, executors, administrators and assigns, of and from any and all actions,
causes of action, claims demands and damages howsoever arising which he now has
or which hereafter he may have against the Releasees by reason of any cause,
act, deed, matter, thing or omission existing up to the execution of these presents
and in particular, but without limiting the generality of foregoing he hereby
releases the Releasees, their heirs, executors, administrators and assigns of
and from any and all actions, causes of action, claims, debts, demands and
damages howsoever arising which now has or which hereafter he may have against
the Releasees by reason of any matters, cause or thing, directly or indirectly
relating to or arising out of Dhami’s association with or ownership in GLASS
HOUSE VENTURES INC. including as a shareholder or director of GLASS HOUSE
VENTURES INC. and the Share Purchase Agreement entered into between Anup Dhami
and Tarlochan Singh Bath dated March 31, 2008.

AND IT IS HEREBY AGREED that I have read this document and
fully understand the terms of this settlement and that I voluntarily accept
this sum for the purpose of making a full and final compromise and settlement
of all claims against his heirs, executors, administrators and assigns, which I
now have or which hereafter I may have arising out of the above-mentioned
matters.

AND IT IS AGREED that nothing
herein contained shall be deemed to be an admission on the part of Dhami.

[111]     Mr.
Dhami’s evidence is that Mr. Bath told him that he had a purchaser for the
lots, but the purchaser had put a condition on the sale that he wanted a
release of all claims from Mr. Dhami. Mr. Dhami’s evidence is that he signed
the Release on the understanding that Mr. Bath would pay him the funds owed
pursuant to the buy-back agreement after the sale went through.

[112]     I accept
Mr. Dhami’s evidence in that regard. Mr. Bath concedes that he told Mr. Dhami
that the Release was required for the purchaser as a condition for the sale.
The purchaser made the offer, but Mr. Sian would not accept the offer. Mr. Bath
asserts that Mr. Dhami received consideration in that the purchaser made an
offer on the property.

[113]     Mr. Bath’s
evidence at trial about the circumstances surrounding the Release is not credible
and contradicted the evidence he gave at his examination for discovery. At the
trial, Mr. Bath stated that Mr. Dhami had the Release prepared and gave it to
Mr. Bath, and told Mr. Bath that after he transferred his shares he would not
sue Mr. Bath for any kind of damages. At his examination for discovery, Mr. Bath
stated that he had the Release prepared by his lawyer in order to alleviate the
concerns of a purchaser that Mr. Dhami might make a claim against them, which
is consistent with Mr. Dhami’s evidence.

[114]     I accept
Mr. Dhami’s evidence that the Release was signed on the condition that Mr. Bath
would pay Mr. Dhami $325,000 once the lots had been sold. The fact that this
sum was not stated in the Release does not in my view relieve Mr. Bath from the
obligation to pay Mr. Dhami the funds agreed to, i.e. the $325,000 for the
purchase of his shares.

[115]     I am of
the view, however, that the Release releases Mr. Bath in terms of any claims
Mr. Dhami has against him around the original purchase of the shares of the
Company in 2008. At the time he executed the Release, Mr. Dhami was aware that
Mr. Bath had not disclosed the existence of the mortgage at the time he
purchased the shares, and that he potentially had a claim against him. That
claim was resolved between the parties on the basis that Mr. Dhami would
transfer the shares in the Company back to Mr. Bath in exchange for Mr. Bath
paying him $325,000 and assuming the Company’s liabilities.

[116]     Having
considered all of the evidence, I conclude that Mr. Dhami signed the Release,
fully understanding he was settling his claim arising from the
misrepresentations made by Mr. Bath at the time he made his investment in the
Project and purchased the shares in the Company. This conclusion is consistent
with Mr. Dhami’s evidence about the buy-back agreement, i.e. that he was
willing to take a $100,000 loss, and transfer his shares in the Company back to
Mr. Bath, in exchange for $325,000 plus Mr. Bath assuming the liabilities of
the Company.

Conclusion

[117]     I conclude
that Mr. Bath is in breach of the oral buy-back agreement entered into in or
around July 27, 2009, whereby Mr. Dhami agreed to transfer his shares in the
Company back to Mr. Bath in exchange for $325,000 and Mr. Bath assuming the liabilities
of the Company.

[118]     I further
conclude that the Release executed by Mr. Dhami on September 9, 2009, releases
Mr. Bath and the Company from any claim Mr. Dhami arising out of the purchase
of the shares of Company in 2008. I find that one of the conditions of the
Release was that Mr. Bath would pay to Mr. Dhami $325,000 after he sold his
interest in the lots. The evidence is that Mr. Bath sold his interest in the
lots in 2010, but that Mr. Dhami has not received any monies.

[119]     Accordingly,
I am making an order that Mr. Bath pay to Mr. Dhami $325,000 plus court ordered
interest from March 8, 2010, when Mr. Bath sold the shares in the Company to
Mr. Sian.

[120]    
Finally, Mr. Dhami is entitled to his costs at scale B.

“Gerow
J.”