IN THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20140423

Docket: S053986

Registry:
Vancouver

Between:

Martyn Shaw and
Tammy Louise Shaw

Plaintiffs

And

Margret
Elaine Thody, Care Realty Ltd., John Alexander McKilligan, Crest Realty Ltd.,
carrying on business as Re/Max Crest Realty and Susan Gedge

Defendants

Before:
The Honourable Mr. Justice Sewell

Reasons for Judgment

[1]            
Many people are attracted to live in North Vancouver by its scenic
beauty and proximity to nature. However, in the past some properties there were
developed in a manner that did not adequately take the forces of nature into
account.

[2]            
This case involves one such property, 2217 Berkley Avenue, in the
District of North Vancouver. It is located on what is known either as the
Berkley Escarpment or the Berkley Riverside Escarpment (the “Escarpment”). 2217
Berkley is part of a subdivision developed in the 1950s or 1960s. In the course
of the development, fill was placed on the lots along Berkley Avenue to create
level building lots. Unfortunately the developer appears not to have taken adequate
measures to ensure the geotechnical stability of the lots.

[3]            
In December 1979, there was a landslide involving some of the lots on
Berkley Avenue, including 2217 Berkley. As a result the District commissioned
geotechnical reports from Golder and Associates and from Klohn Leonoff, both
geotechnical engineering firms. These reports disclosed a significant risk of
further landslides occurring on the Escarpment. The Klohn Leonoff Report
concluded that 2217 Berkley faced a moderate to high risk of major instability
unless remedial measures were taken.

[4]            
In December 2001, the plaintiff, Tammy Shaw, purchased 2217 Berkley. Early
in the morning of January 19, 2005, a heavy rainstorm saturated the fill that
had been placed on the slope of the Escarpment, triggering a landslide on
Berkley Avenue. The landslide did not occur directly on 2217 Berkley but on a
lot three lots down Berkley Avenue. One person was killed and another seriously
injured when debris from the landslide damaged a house on Chapman Way at the base
of the Escarpment. The plaintiffs and their children, along with many other
residents of homes on and below the Escarpment, were evacuated overnight but permitted
to return to their homes the next day.

[5]            
The plaintiffs commenced this action on September 22, 2008 against a
number of defendants including the District of North Vancouver, Linda and
Alfred Kersche, the persons from whom they purchased 2217 Berkley, the realtor
who acted on behalf of the Kersches and her employer. However, by the time this
case came to trial in December 2013, the only remaining defendants were Margret
Elaine Thody, a former owner of 2217 Berkley, the plaintiffs’ realtor John McKilligan,
and Care Realty Ltd., Mr. McKilligan’s Realty Company.

[6]            
The 2005 landslide did not cause any physical damage to 2217 Berkley.
The plaintiffs’ claim is for economic loss. They allege that the risk of a
future landslide on the Escarpment has adversely affected the value of 2217
Berkley as compared to similar properties in the area not located on the
Escarpment. Alternatively, they allege that the unstable geotechnical condition
identified in the Klohn Leonoff Report is a latent defect that must be
remedied.

[7]            
The plaintiffs say Ms. Thody knew the 1979 landslide had occurred on
2217 Berkley, and she was aware or ought to have been aware of the contents of
the Klohn Leonoff Report. Ms Thody occupied 2217 Berkley at the time of the
1979 landslide but did not do anything to contribute to the unstable slope
conditions on the Escarpment. The plaintiffs alleged that Ms. Thody owed a
duty not only to whomever she sold 2217 Berkley but also to subsequent
purchasers of the property to disclose the risk of instability and her knowledge
of the conclusions of the Klohn Leonoff Report. The theory of the plaintiffs’
case against Ms. Thody was that if Ms. Thody had disclosed these
risks to the Kersches, they in turn would have been able and under a duty to
disclose them to the plaintiffs.

[8]            
At the close of the plaintiffs case I granted Ms. Thody’s application
to dismiss the claim against her pursuant to Rule 12-5(4) of the Supreme
Court Civil Rules on the basis that there was not sufficient proximity
between the plaintiffs and Ms. Thody to give rise to a duty of care to them on
her part and that there were broader policy reasons for denying a duty on the
part of persons selling their homes to warn subsequent purchasers about defects
in the home not caused by them. In so doing I adopted the analysis of Joyce J.
in Carew v. Goose, 2005 BCSC 949 at paras. 98-106.

[9]            
These reasons therefore address only the claims against Mr. McKilligan
and Care Realty.

Facts

[10]        
In 2001, the plaintiffs decided to purchase a larger home for their
family. They began by putting the home they owned at that time on the market. Because
their regular realtor was out of the country for an extended period they chose
Mr. McKilligan to act as their realtor. They listed their home with Mr. McKilligan
and Ms. Shaw and Mr. McKilligan began to look for a suitable new home. The
plaintiffs had two school aged children and wanted to find a home in the same
school catchment area as their former home. In December 2001, Ms. Shaw noticed
a listing for 2217 Berkley on the internet and at about the same time Mr. McKilligan
also brought it to her attention. At that time the Vancouver area real-estate
market was going through a period of rapid price increases and short supply of
available homes.

[11]        
Ms. Shaw and Mr. McKilligan viewed the home twice. Mr. Shaw was out of
town at that time and only returned in time to quickly inspect the home at the
end of the second viewing. Ms. Shaw testified that she fell in love with the
home because of its park like setting and because it fit the family’s desire
for larger accommodation in the Hamilton School catchment area. Ms. Shaw made
an offer and, after some negotiation, executed an agreement to purchase the
property for $395,000 on December 14, 2001. For reasons not related to these
proceedings, Ms. Shaw purchased the property in her name alone.

[12]        
The purchase agreement contained a standard clause making it subject to
a satisfactory building inspection. Ms. Shaw did order and receive an
inspection report for the property but was unable to locate it when this
litigation commenced. Her evidence is that the only thing the inspector brought
to her attention with respect to slope stability was that a shed at the rear of
the property appeared to be sloped slightly. She stated that the inspector told
her this was nothing to be concerned about.

[13]        
The purchase agreement incorporated a property disclosure statement
dated December 10, 2001 in the standard form then used by the Real Estate Board
of Greater Vancouver. The property disclosure statement made no reference to
any geotechnical problems relating to the property but did disclose that the shed
at the rear of the property sloped.

[14]        
Based on the information she had available, Ms. Shaw removed the subject
clauses from the purchase agreement and completed the purchase of 2217 Berkley
on February 25, 2002.

[15]        
Mr. McKilligan did not mention any problems about the property to Ms.
Shaw before she purchased it and in particular did not advise her about any
geotechnical issues that might affect the property.

[16]        
In 2004 Mr. Shaw contracted for the construction of a garage on the
property. In connection with that construction Ms. Shaw, as the sole registered
owner, was required to obtain building permits. However, Mr. Shaw dealt with
the District of North Vancouver with respect to obtaining the necessary
permits. He testified that he went to the District offices to enquire about 2217
Berkley and was told that the District had nothing on file concerning it. In
connection with the construction, the District sent a letter to Ms. Shaw requiring
that perimeter drains be installed and connected to the District’s storm sewer
system. However in 2004 there was no storm sewer on Berkley Avenue, so the
perimeter drains were connected to a sump on the property and ultimately
drained to the slope at the rear.

[17]        
After the 2005 landslide, the plaintiffs made inquiries about the
geotechnical history of the Escarpment. As a result of those inquiries they
became aware of the 1979 landslide and learned that a small portion of the fill
at the back of 2217 Berkley had slid down the Escarpment in that landslide. They
also learned that the Klohn Leonoff Report identified 2217 Berkley as having a
moderate to high risk of instability and recommended fill be removed to address
that risk.

[18]        
The District turned its attention to geotechnical issues on the Escarpment
in the wake of the 2005 landslide. It arranged for geotechnical reports to
address those issues.

[19]        
On January 13, 2006, BGC Engineering Inc. delivered a report to the
District entitled Phase 1 Risk Assessment with Respect to Berkley Landslide
Risk Management. A Phase 2 risk assessment report, issued May 11, 2006,
assessed various options to reduce the risk of future landslides on a cost
benefit analysis basis.

[20]        
The District also undertook remedial measures to reduce the risk of
further landslides. These included the installation of a storm sewer along
Berkley Avenue, the acquisition of the four lots immediately to the southwest
of 2217 Berkley and the demolition of the homes on those lots, removal of fill
on six designated properties and the installation of monitoring devices along
the top of the Escarpment.

[21]        
On January 15, 2007, BGC Engineering issued a final report entitled Updated
Landslide Risk Assessment Following Stage 1 Mitigation. The report
concluded that at that time no potential landslide sources posed an
unacceptable societal or individual risk to occupants of homes along the Escarpment.
The report defined an acceptable risk as a risk of anyone living on the
Escarpment dying in a landslide being less than 1 in 100,000 in any year.

[22]        
The District also significantly improved its ability to access
historical information about the properties on or below the Escarpment and make
that information available to the public by setting up a website that allowed
access to geotechnical information in its possession, including the Golder and
Klohn Leonoff reports.

[23]        
After the 2005 landslide, the plaintiffs decided they no longer wished
to live at 2217 Berkley. Ms. Shaw listed the property for sale initially at a
price of $739,000 from May 2005 to May 2006. This price was arrived at by
comparing the prices of other homes listed in the same general area. They
received only one offer, at $111,000 below their asking price. They did not
accept the offer. Having received no other offers, they took 2217 Berkley off
the market on May 31, 2006.

[24]        
After taking the property off the market the plaintiffs made inquiries
about the cost of remediating the property to reduce the risk of a landslide
occurring on it. However the costs quoted to them for such remediation exceeded
their resources. The plaintiffs have recently made further efforts to sell
their home but have been unable to obtain any offers at a price equivalent to
the price of similar homes in the area that are not on the Escarpment.

[25]        
In this action the plaintiffs seek damages against Mr. McKilligan and
Care Realty. Although the actions of Mr. McKilligan form the basis of their
claim against both of these defendants, they acknowledge that any claim against
him personally has been discharged as a result of Mr. McKilligan having
filed an assignment in bankruptcy and being discharged from that bankruptcy.

[26]        
It is however agreed that Care Realty is vicariously liable for any fault
on the part of Mr. McKilligan. It is also agreed that there was an agency
relationship between Ms. Shaw and Care Realty that imposed a duty of care
directly on Care Realty.

Issues

[27]        
The plaintiffs’ allegations against Mr. McKilligan and Care Realty are:

(a) 
McKilligan owed a duty of care as a fiduciary and agent.

(b) 
McKilligan failed to make reasonable efforts to investigate the geotechnical
stability of the slope.

(c) 
McKilligan failed to exercise reasonable care and skill in providing
information and opinion to the plaintiffs.

(d) 
McKilligan failed to make reasonable investigations as to the accuracy
and completeness of information provided by the vendors.

[28]        
The plaintiffs did not advance any claim for breach of fiduciary duty at
trial.  There is no dispute that Care Realty owed a duty of care to the
plaintiffs as well as a contractual duty as Ms. Shaw’s agent. Therefore the
sole issue is whether Care Realty failed to discharge its duty to Ms. Shaw.
Care Realty also submits that Ms. Shaw has not proven she suffered any damages
as a result of any failure on its part to discharge its duty of care to her.

[29]        
The parties are in basic agreement as to the elements necessary to
establish a claim either in contract or in negligence in the circumstances of
this case. The plaintiffs must establish that a duty of care was owed, the
standard of care necessary to discharge that duty and that the defendant failed
to meet that standard of care. In Summit Staging Ltd. v. 596373 BC Ltd.,
2008 BCSC 198, Rice J. succinctly stated the principle as follows:

[42] To prove negligence, Summit must
establish what standard of care was owed and that Mr. Burmy failed to meet this
standard. The authorities show that the price, if it was accepted in reliance
upon the advice of the agent, must be adequate and the transaction must be a
righteous one: Re Crackle and/or Greyfriars Realty Ltd. (1983), 47
B.C.L.R. 256 (C.A.); Kingpin Investments Ltd. v. Melton Real Estate Ltd., (1977),
7 A.R. 567, 3 Alta. L.R. (2d) 324 (S.C. (T.D.)).

[30]        
The plaintiffs’ position is that as a realtor whose principal area of
operation was the North Shore, Mr. McKilligan should have been aware that there
had been geotechnical issues relating to the Escarpment in the past and that he
was in fact made aware of such concerns before acting on behalf of Ms. Shaw. In
or about 2000 Mr. McKilligan represented purchasers of a property on Riverside
Drive located at the foot of the Escarpment. At that time, the purchasers
expressed concern about the steep slope above the property and Mr. McKilligan
advised them to go to the District of North Vancouver and make inquiries about
whether there were any concerns about the area. His evidence, which I accept,
is that his client reported back to him that she had been told by the
engineering department of the District that there was nothing to worry about.

[31]        
I found Mr. McKilligan to be a credible witness and I accept his
evidence about his knowledge of landslide risk. He did acknowledge that he had
some recollection about a slide or slides that had occurred in that area around
1979 or 1980. I find that he had a vague recollection of an earlier landslide
that occurred about 1980 but had no specific knowledge about that event. I
accept that he did not know that the earlier slide had occurred on 2217
Berkley. I also find that nothing that occurred with respect to the transaction
involving the property on Riverside Drive would reasonably have alerted him
about a landslide risk with respect to 2217 Berkley.

[32]        
In my view, therefore, the critical issue in this case is the extent to
which Mr. McKilligan was required to make inquiries with respect to the
risks associated with properties on the Escarpment.

[33]        
There can be little doubt that if Mr. McKilligan had knowledge of the
Golder or Klohn Leonoff reports he would have had a duty to disclose them to
Ms. Shaw and advise her to obtain advice with respect to the geotechnical risks
to the properties on Berkley Avenue. However, as he was not aware of them in 2001
and 2002, the issue is whether he failed to meet the required standard of care in
failing to make inquiries about the landslide risks of the Escarpment and, if
he had, whether those inquiries would have disclosed the risk.

[34]        
The onus is on the plaintiffs to establish the standard of care required
of Mr. McKilligan and Care Realty. Except in cases in which the court can
readily determine that a standard of care has not been met expert evidence is
required to establish the accepted standard of care.

[35]        
The above principle is found in numerous cases in this court. Recently
it was summarized by Kloegman J. in Perrault v. North Vancouver (District),
2010 BCSC 382 at paras. 15-19 as follows:

[15]      Specifically, the defendants say evidence is
required to establish the standard practice of realtors in the relevant time
period, by attesting to such things as:

(a) The investigation that a
reasonably prudent listing realtor would carry out in listing a property for
sale;

(b) The extent if any to which
those investigations would involve inquiry into the history of the property;

(c) The extent if any which those
investigations would involve inquiries of the District of North Vancouver, and
the nature of any such inquiries;

(d) Information regarding the
training and licensing of realtors;

(e) Relevant passages from practice
manuals, guidelines, codes of ethics, business practices, and other
publications existing in the profession at the relevant time;

(f) The standard practice of a
reasonably prudent realtor relating to the completion by a vendor of a
disclosure statement;

(g) The extent, if any, of
discussions between a reasonably prudent listing agent and the vendor about the
information provided by the vendor on the Disclosure Statement.

[16] Similar comments apply to the type of evidence that
would be required to establish the standard practice of the purchaser’s agent.

[17]      The plaintiffs submit that expert evidence is not
required to establish what in their view is a clear case of negligence. The
plaintiffs’ counsel submits that the law governing realtors’ negligence has set
the standard of care of a reasonable and prudent realtor. He points out a
quotation taken from William Foster, Real Estate Agency Law, (Toronto:
Carswell, 1984) at p. 245 as cited in Sedgemore v. Block Bros. Realty Ltd.
(1985), 39 R.P.R. 38, at p. 49 (B.C.S.C.), as well as Brown v. Fritz,
[1993] B.C.J. No. 2182 (S.C.) and Bolton v. Salaga, [1989] B.C.J. No.
1565 (S.C.).

[18]      The relevant portion of the quotation from Real
Estate Agency Law is as follows:

A broker must at least check the completeness and accuracy,
both of all information which is usual or customary for brokers to verify, and
of all other information as to the completeness and accuracy of which he [or
she] is in doubt.

[19]      The difficulty with
this submission of the plaintiffs is that there is no evidence before me as to
what information is usual or customary for brokers to verify. Put another way,
is searching the Municipal Planning Department or the Public Library for
notices or claims issued by a public body over two decades earlier a usual or
customary step taken by a reasonable and prudent realtor? The same question
could be asked about searching for geotechnical reports that were issued over
twenty years ago.

[36]        
Perrault arose out the same landslide that gave rise to this
action. The allegations made in that case against the realtor were similar to
those made in this case. In my view, the comments made in paragraph 19 of Perrault
apply equally to this case.

[37]        
The only expert evidence led by the plaintiffs on the issue of standard
of care was from Mr. Mark Lester. Counsel for the defendants objected to the
admission of Mr. Lester’s opinion letter. However I admitted it into evidence
even though it did not comply with the requirements of Rule 11-6 of the Supreme
Court Civil Rules. I did so in part because of the necessity for expert
evidence in this case on the critical issue of standard of care. I did however
rule that that portion of his opinion that referred to the Realtor Code of
Conduct was not relevant because the Code referred to was not in force in 2002.

[38]        
Mr. Lester’s opinion was that once a realtor becomes aware of a material
defect such as a geotechnical hazard the realtor has an obligation to disclose
that defect to the parties involved in the transaction.

[39]        
The defendants take no issue with that statement. However they submit
that in this case is Mr. McKilligan was not aware of any such hazard.

[40]        
The core of Mr. Lester’s opinion is found in the following paragraph:

In this situation, it would
appear to me that any Realtors working within this marketplace should have been
aware that this part of North Vancouver was known to have geotechnical Issues
that might affect property values. Presumably, the historic sale prices of some
of the homes near or on the District Escarpment would have been affected by
local knowledge of these issues. If a Realtor was not aware of the potential
for a slide in this area, however, a simple Inquiry to the District of North
Vancouver would have revealed that the potential hazard had been documented. In
such case a prudent Realtor should have made the effort to obtain any
documentation related to the geotechnical analyses that had been undertaken.
Once the Realtor is aware of a material defect such as a geotechnical hazard or
environmental contamination, that Realtor has an obligation to, at least,
disclose such defects to all parties involved in a transaction.

[41]        
Mr. Lester does not expressly state what facts constitute the “situation”
referred to at the beginning of the above quoted paragraph. As I read his
opinion, it appears that he assumed that the situation included two factors: historical
sale prices of homes at or near the top of the Escarpment had been affected by
local knowledge of a slide risk; and a simple enquiry at the District of North
Vancouver would have disclosed that the hazard had been documented. However
neither of these assumed factors has been established in evidence.

[42]        
The defendant’s expert, Mr. Kitsul, prepared an appraisal survey comparing
pre landslide historical prices of homes on the Escarpment to other similar
homes in the area that were not on the Escarpment. He concluded there was no
compelling evidence that sale prices of homes in the vicinity of the Escarpment
differed from other comparable homes. I accept his evidence in this regard.

[43]        
In addition, there is simply no evidence that it was local knowledge in
2001 that there was a landslide hazard on the Escarpment. Similarly, I conclude
from the evidence that the Golder and Klohn Leonoff reports were not readily
available to members of the public who would have made inquiries about 2217
Berkley in 2001. The purchasers of the Riverside Drive property that Mr. McKilligan
was involved in were not informed of any landslide risk associated with the
Escarpment in general. Mr. Shaw was told there was nothing on file concerning 2217
Berkley when he made inquiries in connection with permits for the garage
constructed in 2004. The evidence established that the Golder and Klohn Leonoff
reports were kept in the library of the engineering department of the District.
However, it appears that by 2001 they had been largely forgotten.

[44]        
In addition, Mr. Lester did not assert that a prudent realtor ought
to make inquiries about geotechnical risks in every case but only when there
were facts that he or she ought to have been aware of that would suggest such
inquiries should be made. Ms. Shaw has not established that Mr. McKilligan
ought to have been aware of any such facts.

[45]        
Mr. Lester’s report does not address what inquiries a real estate agent
without knowledge of geotechnical defects should make. His report therefore
does not provide any evidence of the standard of care required of a real estate
agent in the circumstances of this case. It therefore does not assist the
plaintiffs in establishing that Mr. McKilligan failed to meet the required
standard.

[46]        
In the absence of any such evidence I am unable to find that Mr. McKilligan
failed to meet the standard of care required of him by failing to make
enquiries about the property at the offices of the District of North Vancouver.

[47]        
I am also not satisfied that any enquiries would have disclosed the
existence of the Golder and Klohn Leonoff reports. While those reports were in
the library of the engineering department they do not appear to have been
posted publicly. By 2002 the reports were over 20 years old and there is no
evidence their existence was widely known. I am satisfied on the evidence
presented in this case that the reports only became generally known after the
2005 landslide.

[48]        
Accordingly I conclude that the plaintiffs have failed to establish
negligence or breach of contract and the action against Care Realty Ltd. must
be dismissed.

[49]        
I considered assessing the plaintiffs’ damages in the event I am wrong
in concluding that they have not established liability. However I decline to do
so. The plaintiffs tendered evidence of a quotation from a contractor for
removing the fill from 2217 Berkley. However I ruled that evidence to be
inadmissible because it was opinion evidence and the plaintiffs had not met the
requirements for the admission of the opinion. In addition they led evidence
about their own efforts to sell their home and being unable to obtain what they
considered to be a price equivalent to other homes that were not on the
Escarpment but did not lead any appraisal evidence to support the alleged price
differential.

[50]        
If I had decided that Ms. Shaw had established liability I would have
invited submissions as to whether I should permit the plaintiffs to reopen
their case to lead further evidence on damages. However, in view of my decision
on liability I do not think it is appropriate to do so.

[51]        
The action against Care Realty Ltd. is dismissed.

[52]        
Care Realty Ltd. and Margret Thody are entitled to their costs on Scale
B.

“The
Honourable Mr. Justice Sewell”