Ellen Creek Developments Inc. v. Charlottetown Area Development Corp. et al., (2008) 276 Nfld. & P.E.I.R. 348 (PEITD)

• Judge: Taylor, J.
• Case Date: February 14, 2008
• Jurisdiction: Prince Edward Island
• Citations: (2008), 276 Nfld. & P.E.I.R. 348 (PEITD);2008 PESCTD 14

Ellen Creek Dev. v. CADC (2008), 276 Nfld. & P.E.I.R. 348 (PEITD);

    846 A.P.R. 348

MLB headnote and full text

Temp. Cite: [2008] Nfld. & P.E.I.R. TBEd. FE.027

Ellen Creek Developments Inc. (plaintiff) v. The Charlottetown Area Development Corporation and The Charlottetown Waterfront Development Corporation (defendants)

(S1-GS-18745; 2008 PESCTD 14)

Indexed As: Ellen Creek Developments Inc. v. Charlottetown Area Development Corp. et al.

Prince Edward Island Supreme Court

Trial Division

Taylor, J.

February 14, 2008.

Summary:

The Charlottetown Area Development Corporation and its subsidiary (collectively CADC) granted an option to a developer respecting the acquisition of waterfront property for the purpose of development. The developer failed to meet the terms and conditions of the option before the date specified in the option. The CADC granted a new option to the developer. The CADC was not satisfied that the developer had satisfied the terms and conditions of the new option by the specified date. A third option was not granted. The developer sued the CADC in contract and tort, claiming specific performance of the options and damages.

The Prince Edward Island Supreme Court, Trial Division, dismissed the action and awarded CADC substantial indemnity costs, plus $5,000 to censure the developer's wrongful claim. The award represented substantial indemnity costs on a significant part of the action.

Contracts - Topic 1205

Formation of contract - Offer - What constitutes an offer - A developer entered into negotiations with the Charlottetown Area Development Corporation and its subsidiary (collectively CADC) to purchase land - CADC wrote to the developer on February 1, 2001, stating that they had agreed to grant the developer an option to purchase based on the conditions stated therein - An issue arose as to whether the February 1, 2001 letter constituted an enforceable agreement - The CADC referred to Delima v. Pardon (P.E.I.S.C.) (1971) which held that the English Statute of Frauds applied in Prince Edward Island - The Statute provided that certain contracts, including "a contract for the sale or other disposition of land or any interest in land", were not enforceable unless evidenced by a writing "signed by the party to be charged or by some person lawfully authorized by him to sign." - The Prince Edward Island Supreme Court, Trial Division, stated that the letter was not an option, but an offer to grant an option on certain terms and conditions - It was not signed by the developer - There was no written acceptance of the offer - Nevertheless both parties subsequently proceeded as though there had been acceptance by the developer and the CADC had granted the option - The letter met the minimum requirements for enforceability described in Delima: it was in writing and signed by the person to be charged (CADC) or by someone authorized by CADC to sign - CADC granted the option to the developer subject to specified terms and conditions - The developer paid $10,000 for the option - The parties' subsequent actions were consistent with the option having been granted - See paragraphs 50 and 51.

Contracts - Topic 8030

Statute of frauds - Memorandum - Generally - Memorandum or note signed by lawfully authorized person - [See Contracts - Topic 1205 ].

Damages - Topic 201

Entitlement - Requirement of loss - The Charlottetown Area Development Corporation and its subsidiary (collectively CADC) granted successive options to a developer (Ellen Creek) to purchase land for development - CADC took the position that the terms and conditions of the options were not satisfied - Ellen Creek sued the CADC in contract and tort, claiming specific performance of the options and damages - The Prince Edward Island Supreme Court, Trial Division, dismissed the action - The court refused to provisionally assess damages arising from a breach of contract or to determine whether specific performance was available because in Ellen Creek's submission to CADC to satisfy the financing and ownership conditions of the second option, it advised that N.R. Developments Inc. was to be the owner of the project and Ellen Creek was to have no interest - This left Ellen Creek without any claim to damages or relief of any kind - Even if CADC should have permitted the second option to be exercised, Ellen Creek's evidence was that it would not have been the purchaser - Instead, N.R. Developments, a company which was to be incorporated, was to be the purchaser and Ellen Creek was to be the guarantor - There was no way to assess and assign damages or award specific performance to Ellen Creek - See paragraph 65.

Evidence - Topic 3629

Documentary evidence - Private documents - Letters or documents written without prejudice - Admissibility - Portions of letters - The Charlottetown Area Development Corporation and its subsidiary (collectively CADC) granted a developer an option to purchase land - The CADC determined that the option had expired and instructed their lawyer (Boswell) to notify the developer's lawyer (Ledwell) and return the deposit - Ledwell and Boswell agreed on a new option - Ledwell sent Boswell a letter confirming that the developer was prepared to negotiate a new option agreement - At trial, the developer objected to admission of a sentence in the letter on the grounds that the letter was marked "without prejudiced" - The Prince Edward Island Supreme Court, Trial Division, dismissed the objection where the "without prejudice" negotiations had resulted in an agreement and therefore, the "without prejudice" condition no longer applied - See paragraphs 29 to 31.

Fraud and Misrepresentation - Topic 6

Fraudulent misrepresentation (deceit) - General principles - What constitutes deceit or fraudulent misrepresentation - Charlottetown Area Development Corporation and its subsidiary (collectively CADC) granted a developer successive options to purchase the land - CADC took the position that the terms and conditions of the options had not been satisfied by their respective deadlines - The developer sued CADC, claiming, inter alia, deceit and alleging bad faith - The Prince Edward Island Supreme Court, Trial Division, stated that the onus was on the developer to prove deceit - There was no evidence that supported an assertion that CADC, through its management, committed the tort of deceit by deciding in advance to reject the developer's attempt to exercise the option even if the developer met the terms - On the contrary, CADC acted in good faith in renewing the option, albeit on stricter terms, after the developer had clearly failed to meet the requirements of the first deadline - The second deadline was more than seven weeks after the first, the requirements were more specific, but not dissimilar - The developer was represented by counsel, negotiated the precise wording of the contract, and then failed to meet its terms - In its post-trial brief, the developer asserted that it provided undeniable proof to CADC of financing as required by the second agreement and seemingly attempted to both reverse the onus of proof and claim proof of deceit by stating that CADC had 10 business days to assess and verify financing but conducted no research or analysis - CADC had the right to assess and verify the financing, but had no duty to do so - There was no basis for the claim of deceit and bad faith - See paragraphs 63 and 64.

Land Regulation - Topic 3200

Land use control - Building or development permits - General - What constitutes - The Charlottetown Area Development Corporation and its subsidiary granted a developer an option to purchase land - The option required the developer to "... have secured the necessary building permits and approvals to construct your project ... " (the condition) - The developer provided a re-zoning of the property and an application for a building permit - The corner of the permit stated "APPROVED BY" and provided spaces for the signatures of the development officer, who had signed, and the fire inspector and building inspector, who had not - The City of Charlottetown considered the application to be a valid building permit - The application permitted construction, but only after it was approved on its face (i.e., when the necessary people had signed off) - The option expired - A second option was negotiated - The developer again submitted the development application to satisfy a similar condition in the option - The Prince Edward Island Supreme Court, Trial Division, held that the developer had not met the condition in the initial option - A permit that permitted no building was not a building permit, according to the ordinary meaning - Barring specific adoption of the City's definition, it was the ordinary meaning that counted - The permit was, at best, the first step towards construction permission and approval - The use of the permit application was even more obviously contrary to the second option, since it specified that the building inspector and fire inspector had to sign - The developer also had additional clarification of what was required - Further, a new building permit application might have been required since the developer had proposed a new owner - See paragraphs 23 to 26 and 39.

Practice - Topic 7470

Costs - Solicitor and client costs - Entitlement to - Unproved allegation of fraud - The Charlottetown Area Development Corporation and its subsidiary (collectively CADC) granted successive options to a developer (Ellen Creek) to purchase land for development - CADC took the position that the terms and conditions of the options were not satisfied - Ellen Creek sued CADC in contract and for the tort of deceit, claiming specific performance of the options and damages - The Prince Edward Island Supreme Court, Trial Division, dismissed the action - The court noted that the developer asserted deceit in its statement of claim and continued its assertion through to closing submission, adding bad faith as part of the claim - The claims were unfounded and deserved censure - However, not much of the case was spent on the assertions - Substantial indemnity costs on the entire action would be a very large sum, much larger than partial indemnity costs - Accordingly, the court awarded partial indemnity costs to CADC on the entire action plus $5,000 to censure the wrongful claim - The award represented substantial indemnity costs on a significant part of the action - See paragraphs 66 and 67.

Real Property - Topic 1747

Equitable estates and interests - Equitable interests - Option to purchase land - [See Contracts - Topic 1205 ].

Sale of Land - Topic 1325

The contract - Necessity for writing - General - Statute of Frauds - Circumstances within statute - [See Contracts - Topic 1205 ].

Sale of Land - Topic 1722

The contract - Offer and acceptance - Options - What constitutes an option - [See Contracts - Topic 1205 ].

Sale of Land - Topic 1739

The contract - Offer and acceptance - Options - Terms - [See Land Regulation - Topic 3200 and Contracts - Topic 1205 ].

Sale of Land - Topic 1739

The contract - Offer and acceptance - Options - Terms - The Charlottetown Area Development Corporation and its subsidiary (collectively CADC) granted a developer an option to purchase land - The option required the developer to "... have secured the necessary financing for the project ..." - The developer's lawyer sent CADC a letter which enclosed a letter to the developer from Colonial Realty indicating that it confirmed financing - The Prince Edward Island Supreme Court, Trial Division, held that the letter did not constitute confirmation of necessary financing - It was not addressed to CADC and gave no assurance to CADC - It did not say how much financing the company was prepared to advance and did not say when or under what terms - It would have been difficult for third parties, like CADC, to seek damages from the company if, to their detriment, they relied on the letter as an assurance of 100% financing - See paragraphs 20 to 22.

Sale of Land - Topic 1739

The contract - Offer and acceptance - Options - Terms - The Charlottetown Area Development Corporation and its subsidiary (collectively CADC) granted a developer an option to purchase land - The option required the developer to "... have secured the necessary financing for the project ..." - The option was not exercised by the deadline - CADC granted a second option which required the developer to provide proof from a recognized financial institution addressed to CADC of adequate and total financing for the construction and development of the project - The Prince Edward Island Supreme Court, Trial Division, held that, under either of the two options, the developer had to demonstrate that it could pay for the project in its entirety, whether through its own assets, private loans, a first mortgage, a second mortgage or any combination thereof - The developer could not rely on guarantors where they did not provide financing, but guaranteed the indebtedness of others - "Necessary financing" and "total financing" both meant that the total of all financing, secured and committed had to equal the total costs for construction and development - The developer had not explained how he would have paid for the project - Even with financing, he would have been required to come up with equity and he had little to invest - Further the developer intended to be the general contractor on the project and would have had no income for over a year - Whatever the shortfall, the developer had not demonstrated financing - Since CADC was interested in developing the property in an appropriate way, proving the finances to build the project was an essential condition of the options - See paragraphs 52 to 59.

Sale of Land - Topic 1730

The contract - Offer and acceptance - Options - Successive options - The Charlottetown Area Development Corporation and its subsidiary (collectively CADC) granted a developer an option to purchase land - The option expired - CADC granted the developer a second option - CADC asserted that the second option extinguished the first option - The Prince Edward Island Supreme Court, Trial Division, stated that the time to exercise the first option had clearly passed, but the question remained as to whether the developer actually had exercised the option in time - The second option, between the same parties, was for exactly the same land at exactly the same price, with the same deposit - It would not have been possible to exercise both contracts - Clearly, the parties intended the second option to replace, not amend, the first option - In a letter to CADC's lawyer, the developer's lawyer stated: "it is our expectation that those rights [i.e. rights under the first option] would be extinguished by a new agreement" - This settled the issue beyond dispute - The second option extinguished all rights for either party under the first agreement, if there were any surviving rights to extinguish - See paragraphs 60 to 62.

Sale of Land - Topic 8551

Remedies of purchaser - Specific performance - When available - [See Damages - Topic 201 ].

Words and Phrases

Building permit - The Prince Edward Island Supreme Court, Trial Division, discussed what constituted a "building permit" - See paragraph 25 and 26.

Words and Phrases

Financing - The Prince Edward Island Supreme Court, Trial Division, discussed the meaning of "financing" - See paragraphs 53.

Words and Phrases

Necessary financing - The Prince Edward Island Supreme Court, Trial Division, discussed the meaning of "necessary financing" as used in an option to purchase land - See paragraphs 52 to 55.

Words and Phrases

Total financing - The Prince Edward Island Supreme Court, Trial Division, discussed the meaning of "total financing" as used in an option to purchase land - See paragraphs 52 to 55.

Cases Noticed:

Pierce v. Empey, [1939] S.C.R. 247, refd to. [para. 49].

Delima v. Paton (1971), 1 Nfld. & P.E.I.R. 317 (P.E.I.S.C.), appld. [para. 51].

Greswolde- Williams v. Barneby (1901), 83 LT 708 (Q.B.), dist. [para. 60].

Dream Weavers Wedding Consultants & Co-ordinators Inc. v. Astley (2000), 191 Nfld. & P.E.I.R. 61; 577 A.P.R. 61 (P.E.I.T.D.), refd to. [para. 60].

MRSB Chartered Accountants v. Cardinal Packaging Ltd. et al. (2006), 256 Nfld. & P.E.I.R. 61; 773 A.P.R. 61 (P.E.I.T.D., Small Claims Sect.), refd to. [para. 66].

Authors and Works Noticed:

Chitty on Contracts (28th Ed. 1999), vol. 1, para. 23-028 [para. 61].

Fridman, Gerald Henry Louis, The Law of Contract in Canada (4th Ed. 1999), p. 586 [para. 60].

Klar, Lewis N., Linden, Allan M., Cherniak, Earl A., and Kryworuk, Peter W., Remedies in Tort (2007) (Looseleaf Supp.) vol. 1, pp. 5 to 14 [para. 63].

Counsel:

Shane Dugas, Kevin Kiley and Michael Drake, for the plaintiff;

Keith M. Boswell, Q.C., for the defendants.

This action was heard at Charlottetown, Prince Edward Island, on June 4-8 and 11-14, 2007, by Taylor, J., of the Prince Edward Island Supreme Court, Trial Division, who delivered the following decision on February 14, 2008.