Lavrijsen Campgrounds Ltd. v. Eileen Reville, Steven Reville and Douglas Reville, 2015 ONSC 103

COURT FILE NO.: C-800-07 - Kit

DATE: 2015-01-15

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Lavrijsen Campgrounds Ltd.

Plaintiff

– and –

Eileen Reville, Steven Reville and Douglas Reville

Anthony T. Keller, for the Plaintiff

Jason Herbert, for the Defendants

Defendants

HEARD: November 17 and 18, 2014

Justice J.C. KENT

REASONS FOR JUDGMENT

Introduction:

[1] The plaintiffs and the defendants are commercially unsophisticated parties who entered into a transaction for the purchase and sale of a campground property and operation. It appears that both the plaintiffs and the defendants may have received something less than full and complete guidance from their lawyers.

THE CONCERN OF THE PURCHASERS:

[2] Ultimately, the parties completed their transaction when they concluded a share purchase agreement dated 8 April 2004. See Exhibit 1, Tab 1. Before the share purchase agreement was entered into, the parties had been negotiating on the basis of the transaction being the purchase of the real estate where the campground was located together with all of the other assets of the business. That document contained provisions that would address the purchasers’ concerns. For example, at page 3 of the Schedule A to the document, the vendors agreed “to supply a rent roll and tenants’ rent agreement which are to coincide as of the closing date.” That document also provided at page 4 that “all prepaid deposits and rentals for the 2004 season plus the deposits on the gate cards shall be to the credit of the buyer on closing. The sellers shall supply a list on closing of all deposits and rent that are due for the 2004 season.”

[3] The concern of the purchasers was carried forward into the share purchase agreement that was ultimately concluded. Exhibit 1, Tab 1X, paragraph 10 provided as follows:

“10. That there are one hundred and sixty-five (165) prepaid camper rental deposits for allocated sites for this 2004 camping season and the amount and date of individual payments and name of each camper who has prepaid the deposit will be immediately given to or made available to purchasers. However, should the number of deposits be less than 165 as of June 1, 2004, the purchaser shall receive credit directly from the vender for the number below 165 at the rate of $275.00 per deposit.”

[4] That warranty by the vendors does not specifically address prepaid rentals in the same fashion as the proviso did in the earlier real estate offer. The vendors, however, were clearly concerned about prepaid rentals and through the parties respective agents requested information concerning deposits and prepaid rentals.

[5] The vendors purported to comply by providing a fax and 5 pages of handwritten notes which was, it is contended by the vendors, the information requested. The document is found at Exhibit 1, Tab 2. It has notations concerning many of the lots, but no amounts. As a stand-alone document, it is inadequate to enable a purchaser or the solicitor for the purchaser to know the total of deposits and rental payments already in the hands of the vendors before closing.

THE FACTS:

[6] The transaction closed. An adjustment was made upon closing for prepaid deposits. No adjustment was made for prepaid rentals. The court did not have the benefit of hearing from the solicitor who acted for the vendors in this transaction. The lawyer who acted as solicitor for the purchasers testified that he believed at closing that only the deposits that the purchasers received a credit for in the statement of adjustments were what was paid in advance.

[7] Clearly, the information provided concerning prepaid deposits and prepaid rentals was not adequate. It could not be ascertained from the hand-written statement provided by way of fax what amounts had been paid by way of deposits and prepaid rentals.

[8] It appears that neither solicitor directly discussed the matter of prepaid rentals with their respective client. The solicitor for the purchasers appears to have been significantly in error in his conclusion that only the deposits were paid in advance.

[9] After operating the campground for one year, the purchasers realized that the income was not what they had expected it to be. Upon viewing the computerized records of the corporation, Carine Lavrijsen calculated that the prepaid deposits and rentals as of closing totalled $119,231.00 rather than sum of $45,375.00 that had been credited to the purchasers on closing.

[10] Douglas Reville testified on behalf of the defendants. He explained that most communications between the parties prior to closing was through their agents. He recalled that in April 2004, there had been some discussion regarding prepaid deposits. He asked his brother to obtain information on what was prepaid and his brother prepared the handwritten document that was provided by fax to the purchasers. He testified that he had provided, on behalf of the vendors, what the purchasers were asking for. He conceded in cross-examination that he could have provided but did not provide any customer balance details to the purchasers. He agreed that he knew that he had the information and, if they had specifically asked for it, he would have provided it. He maintained, however, that he did not deliberately withhold information.

[11] In what can only be described as an after the fact justification, Douglas Reville pointed out that with the closing delayed to the 19th of May, the vendors somehow became entitled to keep all prepaid rentals because the vendors had had expenses in opening the campground that spring.

[12] There is no suggestion that there was ever any discussion about the vendors’ costs to open the campground in the spring of 2004 let alone the parties entering into a separate agreement for compensation for the vendors so doing.

[13] The court is driven to the inescapable conclusion that, while the vendors did not initially set out to defraud the purchasers or intentionally misrepresent the facts to them, when the opportunity arose, they selectively disclosed partial information and actively withheld important information concerning prepaid rentals. This court so finds.

THE AGREEMENT CONCERNING WARRANTY CLAIMS:

[14] The agreement the parties entered into provided that the representations and warranties made by the vendors would survive the closing of the transaction for the purchase of the shares of their company. Specifically the agreements stated:

“Except as provided in (b) and (c) of this section, no Warranty Claim may be made or brought by the Purchaser after the date which is twelve months following the closing date. Any Warranty Claim which is based upon or relates to the title to the Purchased Shares or which is based upon intentional misrepresentation or fraud by the Vendor may be made or brought by the Purchaser at any time.”

[15] Counsel for the defendants suggests that this is not a case of intentional misrepresentation or fraud and the claim is barred because it was not brought within the 12 month period following the closing date. I disagree. Active non-disclosure constitutes intentional misrepresentation and the defendants are not entitled to the protection provided by the agreement as set out above.

ANALYSIS:

[16] Any hesitation this court may have had concerning a distinction to be drawn between active non-disclosure and intentional misrepresentation is eliminated by the decision of the Supreme Court of Canada released recently, Bhasin v. Hrynew, 20014 SCC 71. The judgment of the court is clear at paragraphs 73, 80 and 93:

“In my view, we should. I would hold that there is a general duty of honesty in contractual performance. This means simply that parties musts not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance. Recognizing a duty of honest performance flowing directly from the common law organizing principle of good faith is a modest, incremental step. The requirement to act honestly is one of the most widely recognized aspects of the organizing principle of good faith: see Swan and Adamski, at 8.135; O’Byrne, “Good Faith in Contractual Performance”, at p. 78; Belobaba; Greenberg v. Meffert (1985), 1985 1975 (ON CA), 50 O.R. (2d) 755 (C.A.), at p. 764; Gateway Realty, at para. 38, per Kelly, J.; Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 52151 (ON CA), 64 O.R. (3d) 533 (C.A.), at para. 69. For example, the duty of honesty was a key component of the good faith requirements which have been recognized in relation to termination of employment contracts: Wallace, at para. 98; Honda Canada, at para. 58.”

“Recognizing a duty of honesty in contact performance poses no risk to commercial certainty in the law of contract. A reasonable commercial person would expect, at least, that the other party to a contract would not be dishonest about his or her performance. The duty is also clear and easy to apply. Moreover, one commentator points out that given the uncertainty that has prevailed in this area, cautious solicitors have long advised clients to take account of the requirements of good faith: W. Grover, “A Solicitor Looks at Good Faith in Commercial Transactions”, in Special Lectures of the Law Society of Upper Canada 1985 – Commercial Law: Recent Developments and Emerging Trends (1985), 93, at pp. 106-7. A rule of honest performance in my view will promote, not detract from, certainty in commercial dealings.”

“A summary of the principles is in order:

(1) There is a general organizing principle of good faith that underlies many facets of contract law.

(2) In general, the particular implications of the broad principle for particular cases are determined by resorting to the body of doctrine that has developed which gives effect to aspects of that principle in particular types of situations and relationships.

(3) It is appropriate to recognize a new common law duty that applies to all contracts as a manifestation of the general organizing principle of good faith: a duty of honest performance, which requires the parties to be honest with each other in relation to the performance of their contractual obligations.”

RESULT:

[17] For all of the above reasons, the plaintiff Corporation should have judgment against the defendants in the amount of $73,856.00.

[18] In the event the parties are unable to agree on the matters of interest and costs, written submissions may be made to me; with the submissions of the plaintiffs to be delivered in writing within 30 days from the date of this judgment and those on behalf of the defendants, 21 days thereafter; with reply, if any, 14 days after that date. Submissions are limited to 4 pages together with a costs outline.

J. C. Kent, SCJ

Released: January 15, 2015