Sharbern Holding Inc. v. Vancouver Airport Centre Ltd. et al., (2011) 416 N.R. 1 (SCC)

• Judge: McLachlin, C.J.C., Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell, JJ.
• Court: Supreme Court (Canada)
• Case Date: October 06, 2010
• Jurisdiction: Canada (Federal)
• Citations: (2011), 416 N.R. 1 (SCC);2011 SCC 23;[2011] SCJ No 23 (QL);[2011] 2 SCR 175;18 BCLR (5th) 1;JE 2011-871;81 BLR (4th) 1;331 DLR (4th) 1;82 CCLT (3d) 1;EYB 2011-190358;5 RPR (5th) 1;306 BCAC 1;[2011] EXP 1577;[2011] 7 WWR 1;416 NR 1

Sharbern Holding v. Vancouver Airport (2011), 416 N.R. 1 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2011] N.R. TBEd. MY.004

Sharbern Holding Inc. (appellant) v. Vancouver Airport Centre Ltd., Larco Hospitality Management Inc., MM&R Valuation Services Inc. doing business as HVS International - Canada and HVS International - Canada (respondents)

(33280; 2011 SCC 23; 2011 CSC 23)

Indexed As: Sharbern Holding Inc. v. Vancouver Airport Centre Ltd. et al.

Supreme Court of Canada

McLachlin, C.J.C., Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell, JJ.

May 11, 2011.

Summary:

Vancouver Airport Centre Ltd. (VAC) was the developer of two hotels on the same site, the Hilton and the Marriott. The plaintiff was a strata unit purchaser in the Hilton. Neither of the hotels achieved their anticipated financial performances. The plaintiff brought an action, asserting common law and statutory claims. The action was certified as a class action on behalf of the Hilton investors (see [2005] B.C.T.C. 232, affd. (2006), 223 B.C.A.C. 80 (C.A.)). The trial proceeded on a number of common questions concerning liability only.

The British Columbia Supreme Court, in a decision reported at [2007] B.C.T.C. Uned. E79, determined the issues. VAC appealed and the plaintiff cross-appealed.

The British Columbia Court of Appeal, in a decision reported at (2009), 271 B.C.A.C. 116; 458 W.A.C. 116, allowed the appeal and dismissed the cross-appeal. The plaintiff appealed.

The Supreme Court of Canada dismissed the appeal.

Editor's note: There are a number of reported decisions relating to this action.

Equity - Topic 3606

Fiduciary or confidential relationships - General principles - What constitutes a fiduciary relationship - [See first Real Property - Topic 8830 ].

Equity - Topic 3649

Fiduciary or confidential relationships - Breach of fiduciary relationship - Conflict of interest - [See second and third Real Property - Topic 8830 ].

Equity - Topic 3714

Fiduciary or confidential relationships - Commercial relationships - Duty of disclosure - [See second and third Real Property - Topic 8830 ].

Fraud and Misrepresentation - Topic 2508

Misrepresentation - General principles - Negligent misrepresentation - Vancouver Airport Centre Ltd. (VAC) was the developer of two strata unit hotels on the same site, the Hilton and the Marriott - The strata lots were a combination of an interest in real estate and an interest in a rental pool, governed by the Securities Act and the Real Estate Act - VAC marketed them through a document that was a combination of a Securities Act prospectus and a Real Estate Act disclosure statement - The two hotels were marketed and developed at different times, resulting in differences in the financial arrangements with purchasers of the strata units (the compensation differences) - Neither hotel achieved its anticipated financial performance - The plaintiff, on behalf of Hilton strata unit owners, alleged that VAC had negligently misrepresented the compensation differences in the Hilton disclosure statement - The trial judge held that VAC was liable for negligent misrepresentation, but the Court of Appeal disagreed - The Supreme Court of Canada dismissed the plaintiff's appeal - The trial judge's findings could not stand because she failed to consider all of the elements necessary to establish the tort - The trial judge summarily concluded that VAC had negligently misrepresented the compensation differences without having addressed the standard of care - VAC had presented evidence to establish that it had not breached the standard of care - The plaintiff had adduced no evidence to counter that - Nor had the plaintiff adduced evidence of actual reliance, relying instead on the statutory deeming provision in the Real Estate Act - An approach that allowed a plaintiff to "dip into a statutory cause of action for a helpful element in order to establish 'actual reliance'" was problematic - VAC could not be held liable for negligent misrepresentation - See paragraphs 120 to 130.

Fraud and Misrepresentation - Topic 2535

Misrepresentation - Elements - Reliance - [See Fraud and Misrepresentation - Topic 2508 ].

Real Property - Topic 8830

Condominiums - Developers - Fiduciary duties - Vancouver Airport Centre Ltd. (VAC) was the developer of two strata unit hotels on the same site, the Hilton and the Marriott - The strata lots were a combination of an interest in real estate and an interest in a rental pool, governed by the Securities Act and the Real Estate Act - VAC marketed them through a document that was a combination of a Securities Act prospectus and a Real Estate Act disclosure statement - The two hotels were marketed and developed at different times, resulting in differences in the financial arrangements with purchasers of the strata units - Neither hotel achieved its anticipated financial performance - The plaintiff, on behalf of Hilton strata unit owners, alleged that VAC had breached its fiduciary duty to them - The Supreme Court of Canada agreed with the trial judge that a fiduciary relationship existed - VAC was given discretion as a manager, it had the ability to unilaterally affect the strata owners' legal or practical interests and the owners were particularly vulnerable in that regard - However, the nature of the relationship had to be assessed in the context of the contract giving rise to those duties - The strata owners knew that there would be common management of the Hilton and the Marriott and that VAC would be balancing fiduciary obligations owed to them and to the owners of the Marriott, a competitor - See paragraphs 138 to 143.

Real Property - Topic 8830

Condominiums - Developers - Fiduciary duties - Vancouver Airport Centre Ltd. (VAC) was the developer of two strata unit hotels on the same site, the Hilton and the Marriott - The strata lots were a combination of an interest in real estate and an interest in a rental pool, governed by the Securities Act and the Real Estate Act - VAC marketed them through a document that was a combination of a Securities Act prospectus and a Real Estate Act disclosure statement - The two hotels were marketed and developed at different times, resulting in differences in the financial arrangements with purchasers of the strata units (the compensation differences) - Neither hotel achieved its anticipated financial performance - The plaintiff, on behalf of Hilton strata unit owners, alleged that VAC had breached its fiduciary duty by failing to disclose an alleged conflict of interest created by the compensation differences in its Hilton disclosure statement - The Court of Appeal found that there was no breach of fiduciary duty - The Supreme Court of Canada dismissed the plaintiff's appeal - VAC had disclosed its common management of the Hilton and Marriott hotels - The Hilton owners had consented - That conflict of interest was not a breach of VAC's fiduciary duty - VAC was only obligated to disclose the compensation differences if they constituted material facts or information beyond what had already been disclosed - The plaintiff had not adduced evidence to establish the materiality of the compensation differences - Further, the trial judge had erred by reversing the onus of proof of materiality and by not considering all of the evidence adduced by VAC relevant to that issue - See paragraphs 147 to 160.

Real Property - Topic 8830

Condominiums - Developers - Fiduciary duties - Vancouver Airport Centre Ltd. (VAC) was the developer of two strata unit hotels on the same site, the Hilton and the Marriott - The strata lots were a combination of an interest in real estate and an interest in a rental pool, governed by the Securities Act and the Real Estate Act - VAC marketed them through a document that was a combination of a Securities Act prospectus and a Real Estate Act disclosure statement - The two hotels were marketed and developed at different times, resulting in differences in the financial arrangements with purchasers of the strata units - Neither hotel achieved its anticipated financial performance - The plaintiff, on behalf of Hilton strata unit owners, alleged that VAC had breached its fiduciary duty when it implemented a non-competition policy between the Hilton and the Marriott - The trial judge held that it was a breach of fiduciary duty for VAC to commit the Hilton owners to a non-competition agreement with the Marriott without the Hilton owners' consent - The Court of Appeal found that there was no breach of fiduciary duty - The Supreme Court of Canada dismissed the plaintiff's appeal - The Hilton disclosure statement provided that VAC had the right to enter into such agreements - Further, the trial judge had erred by failing to consider evidence that was relevant to the materiality of the non-competition agreement and by failing to determine whether the agreement was part of an overall practice of cooperation that was to the ultimate benefit of the hotels - In the absence of proof that the non-competition agreement constituted a material fact or information beyond what had already been disclosed, it could not be found to constitute a breach of fiduciary duty - See paragraphs 161 to 167.

Securities Regulation - Topic 5405

Prospectuses - False or misleading information - Under s. 75 of the Real Estate Act, a developer of real estate securities could be held liable to investors for "material false statements" contained in a prospectus (under s. 66(2), a disclosure statement was deemed to be a prospectus) - The Supreme Court of Canada discussed the test for materiality - Materiality was a question of mixed law and fact, determined objectively, from the reasonable investor's perspective - An omitted fact was material if there was a substantial likelihood that it would have been considered important, rather than if it "merely might have been considered important" - There had to be a "substantial likelihood" that disclosure of the omitted fact would have been viewed as significantly altering the total mix of information - The proof required was that the omitted fact "would have assumed actual significance in a reasonable investor's deliberations" - This was a fact specific inquiry - Materiality had to be proven by the party alleging materiality, except where common sense inferences were sufficient - The court had to look at the information disclosed to investors at the time when they made their investment decision, considering contextual evidence as well as evidence of concurrent or subsequent conduct or events that would shed light on potential or actual behaviour of persons in the same or similar situations - The predominant focus was on a contextual consideration of what information was disclosed and what facts or information were omitted from the disclosure documents provided by the developer/issuer - See paragraphs 40 to 61.

Securities Regulation - Topic 5405

Prospectuses - False or misleading information - [See fourth Securities Regulation - Topic 5415 ].

Securities Regulation - Topic 5415

Prospectuses - Disclosure of material facts and changes - [See first Securities Regulation - Topic 5405 ].

Securities Regulation - Topic 5415

Prospectuses - Disclosure of material facts and changes - Vancouver Airport Centre Ltd. (VAC) was the developer of two strata unit hotels on the same site, the Hilton and the Marriott - The strata lots were a combination of an interest in real estate and an interest in a rental pool, governed by the Securities Act and the Real Estate Act - VAC marketed them through a document that was a combination of a Securities Act prospectus and a Real Estate Act disclosure statement - The two hotels were marketed and developed at different times, resulting in differences in the financial arrangements with purchasers of the strata units (the compensation differences) - Neither hotel achieved its anticipated financial performance - The plaintiff, on behalf of Hilton strata unit owners, alleged that VAC was liable under s. 75 of the Real Estate Act for misrepresentations in its Hilton disclosure statement in that they resulted in the non-disclosure of a material conflict of interest - The trial judge held that VAC was liable, but the Court of Appeal disagreed - The Supreme Court of Canada dismissed the plaintiff's appeal, concluding that there was no substantial likelihood that disclosure of the compensation differences would had assumed actual significance in a reasonable investor's investment decision - The trial judge made errors of law in her treatment of the materiality of VAC's alleged conflict of interest stemming from the compensation differences - She equated the existence of a potential or actual conflict of interest with materiality, essentially treating a conflict of interest as inherently material and failed to consider all of the evidence available on the materiality issue - There was evidence that supported an inference that the compensation differences were not material in the context of what had already been disclosed to investors - Factors such as the general economic climate when the strata lots were sold, the arrangements offered to the Hilton owners, VAC's disclosure of common management and risk factors and the limited extent of VAC's ability to act on the compensation differences in its own interests were all relevant to the issue of whether reasonable investors would have considered the omitted information important to their investment decision - See paragraphs 62 to 85.

Securities Regulation - Topic 5415

Prospectuses - Disclosure of material facts and changes - Vancouver Airport Centre Ltd. (VAC) was the developer of two strata unit hotels on the same site, the Hilton and the Marriott - The strata lots were a combination of an interest in real estate and an interest in a rental pool, governed by the Securities Act and the Real Estate Act - VAC marketed them through a document that was a combination of a Securities Act prospectus and a Real Estate Act disclosure statement - The two hotels were marketed and developed at different times, resulting in differences in the financial arrangements with purchasers of the strata units (the compensation differences) - Neither hotel achieved its anticipated financial performance - The plaintiff, on behalf of Hilton strata unit owners, alleged that VAC was liable under s. 75 of the Real Estate Act for misrepresentations in its Hilton disclosure statement in that they resulted in the non-disclosure of a material conflict of interest - The trial judge held that VAC was liable, but the Court of Appeal disagreed - The Supreme Court of Canada dismissed the plaintiff's appeal, concluding that there was no substantial likelihood that disclosure of the compensation differences would had assumed actual significance in a reasonable investor's investment decision - The trial judge made errors of law in her treatment of the materiality of VAC's alleged conflict of interest stemming from the compensation differences, including reversing the onus on the plaintiff to prove materiality and placing it instead on VAC to disprove materiality - The plaintiff was not required to prove that investors would not have purchased the Hilton strata lots had they known about the compensation differences - However, the plaintiff did have the burden of proving, on a balance of probabilities, the substantial likelihood that disclosure of the omitted information would have significantly altered the total mix of information made available to reasonable investors in the Hilton strata lots - Discharging that burden could have involved evidence that potential investors who knew of the compensation differences declined to invest or, having invested, became concerned and expressed those concerns to VAC, and that VAC's marketing efforts and management were not carried out in good faith or that VAC had acted on the conflict of interest to the detriment of the Hilton owners - The plaintiff had adduced no such evidence - See paragraphs 86 to 90.

Securities Regulation - Topic 5415

Prospectuses - Disclosure of material facts and changes - Vancouver Airport Centre Ltd. (VAC) was the developer of two strata unit hotels on the same site, the Hilton and the Marriott - The strata lots were a combination of an interest in real estate and an interest in a rental pool, governed by the Securities Act and the Real Estate Act - VAC marketed them through a document that was a combination of a Securities Act prospectus and a Real Estate Act disclosure statement - The two hotels were marketed and developed at different times, resulting in differences in the financial arrangements with purchasers of the strata units (the compensation differences) - Neither hotel achieved its anticipated financial performance - The plaintiff, on behalf of Hilton strata unit owners, alleged that VAC was liable under s. 75 of the Real Estate Act for misrepresentations in its Hilton disclosure statement in that they resulted in the non-disclosure of a material conflict of interest - The trial judge held that VAC was liable, but the Court of Appeal disagreed - The Supreme Court of Canada dismissed the plaintiff's appeal, concluding that there was no substantial likelihood that disclosure of the compensation differences would had assumed actual significance in a reasonable investor's investment decision - Even if VAC had been found to have made a "material false statement", s. 75(2)(b)(viii) provided VAC with a defence where it was proven that VAC had reasonable grounds to believe and did believe up to the time of the sale that the statement was true - The trial judge failed to consider the statutory defence - It was practical and in the interests of justice to do so here - The question was whether VAC subjectively believed its representations and whether that belief had an objective basis in the sense that there were reasonable grounds for the belief - The evidence establishing the subjective and objective components of the test here included evidence of common industry practices and VAC's limited practical means and incentives to prefer the Marriot - This evidence established that VAC subjectively believed and had reasonable grounds for believing that the compensation differences would not have materially affected a purchaser's investment decision, that its agreements with the Marriott owners were similar to its agreements with the Hilton owners and that the representations made in the Hilton disclosure statement were true - See paragraphs 92 to 111.

Cases Noticed:

Kerr et al. v. Danier Leather Inc. et al., [2007] 3 S.C.R. 331; 368 N.R. 204; 231 O.A.C. 348; 2007 SCC 44, refd to. [para. 40].

TSC Industries Inc. v. Northway Inc. (1976), 426 U.S. 438 (Sup. Ct.), consd. [para. 41].

Sparling v. Royal Trustco Ltd. et al. (1984), 1 O.A.C. 279; 6 D.L.R.(4th) 682 (C.A.), affd. [1986] 2 S.C.R. 537; 70 N.R. 203; 18 O.A.C. 156, refd to. [para. 46].

Universal Explorations Ltd. and Petrol Oil & Gas Co., Re (1982), 37 A.R. 35; 17 B.L.R. 135 (C.A.), refd to. [para. 46].

Harris v. Universal Explorations Ltd. - see Universal Explorations Ltd. and Petrol Oil & Gas Co., Re.

Inmet Mining Corp. v. Homestake Canada Inc. (2003), 189 B.C.A.C. 251; 309 W.A.C. 251; 24 B.C.L.R.(4th) 1; 2003 BCCA 610, refd to. [para. 46].

Gerstle v. Gamble-Skogmo Inc. (1973), 478 F.2d 1281 (U.S.C.A., 2nd Cir.), refd to. [para. 49].

Mills v. Electric Auto-Lite Co. (1970), 396 U.S. 375 (Sup. Ct.), refd to. [para. 50].

Basic Inc. v. Levinson (1988), 485 U.S. 224 (Sup. Ct.), refd to. [para. 52].

Pente Investment Management Ltd. et al. v. Schneider Corp. et al. (1998), 113 O.A.C. 253; 42 O.R.(3d) 177 (C.A.), refd to. [para. 55].

Maple Leaf Foods Inc. v. Schneider Corp. - see Pente Investment Management Ltd. et al. v. Schneider Corp. et al.

Northway Inc. v. TSC Industries Inc. (1975), 512 F.2d 324 (Ct. App.), revd. (1976), 426 U.S. 438 (Sup. Ct.), refd to. [para. 66].

K.V.P. v. T.E., [2001] 2 S.C.R. 1014; 275 N.R. 52; 156 B.C.A.C. 161; 255 W.A.C. 161; 2001 SCC 60, refd to. [para. 71].

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 211 D.L.R.(4th) 577; 2002 SCC 33, refd to. [para. 71].

Hollis v. Dow Corning Corp. et al., [1995] 4 S.C.R. 634; 190 N.R. 241; 67 B.C.A.C. 1; 111 W.A.C. 1, refd to. [para. 94].

St. Peter's Evangelical Lutheran Church, Ottawa (Trustees) v. Ottawa (City), [1982] 2 S.C.R. 616; 45 N.R. 271, refd to. [para. 114].

R. v. Loxdale (1758), 1 Burr. 445; 97 E.R. 394, refd to. [para. 117].

Nova v. Amoco Canada Petroleum Co. et al., [1981] 2 S.C.R. 437; 38 N.R. 381; 32 A.R. 613; 128 D.L.R.(3d) 1, refd to. [para. 117].

Queen (D.J.) v. Cognos Inc., [1993] 1 S.C.R. 87; 147 N.R. 169; 60 O.A.C. 1, refd to. [para. 121].

Frame v. Smith and Smith, [1987] 2 S.C.R. 99; 78 N.R. 40; 23 O.A.C. 84, refd to. [para. 139].

Perez v. Galambos et al., [2009] 3 S.C.R. 247; 394 N.R. 209; 276 B.C.A.C. 272; 468 W.A.C. 272; 2009 SCC 48, refd to. [para. 141].

McGuire v. Graham (1908), 11 O.W.R. 999 (C.A.), refd to. [para. 149].

R. v. Neil (D.L.), [2002] 3 S.C.R. 631; 294 N.R. 201; 317 A.R. 73; 284 W.A.C. 73; 2002 SCC 70, refd to. [para. 151].

Authors and Works Noticed:

Bowstead and Reynolds on Agency (17th Ed. 2001), para. 6-057 [para. 150].

Ng, Michael, Fiduciary Duties: Obligations of Loyalty and Faithfulness (2003) (2007 Looseleaf Update), p. 2-10 [para. 148].

Waters, Donovan W.M., The Law of Trusts in Canada (3rd Ed. 2005), p. 914 [paras. 148, 150].

Counsel:

Stephen R. Schachter, Q.C., and Geoffrey B. Gomery, for the appellant;

Peter A. Gall, Q.C., Donald R. Munroe, Q.C., M. Ali Lakhani and Edward Iacobucci, for the respondents.

Solicitors of Record:

Nathanson, Schachter & Thompson, Vancouver, B.C., for the appellant;

Heenan Blaikie, Vancouver, B.C., for the respondents.

This appeal was heard on October 6, 2010, by McLachlin, C.J.C., Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell, JJ., of the Supreme Court of Canada. On May 11, 2011, Rothstein, J., delivered the following judgment in both official languages for the court.