BUSINESS PURCHASE COULD NOT ACCOMPLISH IMMIGRATION TO CANADA

A very interesting and unusual case. The defendant mistakenly believed, after discussions with the plaintiff and seeing an advertisement, that her purchase of a business would result in her immigration to Canada.

Able Fabric Wholesale Inc. v. Li

Between Able Fabric Wholesale Inc., (Incorporation Number: BC0850248),
Plaintiff, and
Li Dong Li, and Louis K.C. Wong and Vick, McPhee & Liu
Immigration Law Corporation, Defendants

[2012] B.C.J. No. 1829

2012 BCSC 1295

Docket: S102327

Registry: Vancouver

 British Columbia Supreme Court
Vancouver, British Columbia

P.G. Voith J.

Heard: June 6, 2012.
Judgment: September 4, 2012.

(37 paras.)

---

Reasons for Judgment

1     P.G. VOITH J.:-- The defendant, Ms. Li Dong Li, has applied under Rule 9-7 for an order dismissing the plaintiff's, Able Fabric Wholesale Inc.'s, claim against her. That claim, in the main, seeks a declaration that a purchase agreement made between the parties dated January 13, 2008 (the "Purchase Agreement") is a valid and binding contract, as well as damages for breach of that contract.

2     The remaining defendants take no position on the application. The plaintiff does not argue that the application is unsuitable for disposition under Rule 9-7. My review of the application materials and consideration of the submissions made by the parties have also satisfied me that there is no impediment, on the evidence or as a matter of principle, which prevents the matter from being resolved by way of summary trial.

3     The central issue raised by the defendant pertains to the validity of the Purchase Agreement. That challenge, in turn, is based on the assertions: (i) that the underlying purpose of the Purchase Agreement was to support Ms. Li's immigration application to Canada; (ii) that the principal of the plaintiff, Mr. Lo, told Ms. Li that the Purchase Agreement would achieve that object; and (iii) that the Purchase Agreement was incapable of achieving Ms. Li's objective. The defendant argues that these factors, in combination, ground several legal theories, any one of which would cause the Purchase Agreement to be ineffective and/ or to be set aside.

Factual Background and Evidence

4     The facts which underlie this application are straightforward and not in dispute.

5     In 2007, Ms. Li wished to immigrate to Canada with her two children. Ms. Li has deposed:

 

·       In or around May 2007, I saw an advertisement in Sing Tao, a Richmond, BC-based Chinese newspaper, placed by Able Fabric (the "Advertisement") advertising itself for sale. Among other things, the Advertisement stated that buying the assets of Able Fabric could assist the purchaser's immigration to British Columbia. 

 

·       In or around May 2007, I telephoned Mr. Lo to further inquire about the Advertisement. Among other things, I asked him if purchasing fabric from Able Fabric could help me immigrate to Canada. He responded in the affirmative. 

 

·       In or around May 2007, I met Mr. Lo at Able Fabric's office in Vancouver. He reiterated that if I purchased fabric from Able Fabric that it would help my immigration application. I then decided on the understanding that it would support an application by me to immigrate to BC to enter into negotiations with Mr. Lo to purchase Able Fabric's assets. 

 

·       I was only interested in purchasing Able Fabric's assets as a means of immigrating to BC. 

6     The Purchase Agreement, which was prepared by Mr. Lo on behalf of the plaintiff, is a two-page document. It contains the following provisions:

 

·       I, Li Lidong am willing to pay 200,000 U.S. dollars (or Canadian dollars) as the amount for the purchase of Able Fabric Wholesale Inc.'s machinery, fabrics, furniture and business in equivalent value and as an actual investment in the existing inventory and business for establishing a business operation in the region outside the Greater Vancouver District of B.C. Within seven days of receiving the U.S. $3,000 remitted from me by telegraphic transfer into its bank account, Able Fabric Wholesale Inc. shall provide the customer contact data (telephone, address and contact person) in respect of those who are the current and potential customer contacts of Able Fabric Wholesale Inc. and deliver it to Vick, McPhee and Liu Immigration Law Corporation for the attention of lawyer K.C. Wong who is dealing with the case. It will form the document of information in respect of my application as an investment immigrant in the region outside the Greater Vancouver District of B.C., Canada.I, Li Lidong agree to use the method below to pay the amount for the purchase of the business of Able Fabric Wholesale Inc. 

 

·       (1) 

The first sum of 3,000 U.S. dollars will be the deposit to pay Able Fabric Wholesale Inc. for providing the data in respect of client contacts outside the Greater Vancouver District. 

·       (2) 

The second sum of payment of 200,000 Canadian dollars will be made within seven days of Li Lidong receiving notification of approval in respect of her immigration application as the amount for the purchase of the business portion from Able Fabric Wholesale Inc. 

·       (3) 

Within seven days of receiving the 3,000 Canadian dollars as deposit for the purchase and sale of business, Able Fabric Wholesale Inc. shall, besides providing the client data to lawyer K.C. Wong, also authorize Mr. William Lo of Able Fabric Wholesale Inc. to maintain contact with lawyer K.C. Wong in order to inquire of news concerning the progress in respect of my immigration application. 

7     Ms. Li's Affidavit establishes the following additional facts:

 

·       a) 

The sum of $200,000 was the maximum amount she had to invest in British Columbia. She applied pursuant to the Regional Business Category of the British Columbia Provincial Nominee Program (the "BC PNP") largely because the minimum investment was $200,000, which is less than what is required for other BC PNP categories. In addition, Mr. Lo knew that Ms. Li did not have more than $200,000 to invest. 

·       b) 

The Purchase Agreement was never carried out or performed and was never submitted as part of her BC PNP application. 

·       c) 

She signed the Purchase Agreement on the advice of Mr. Lo that it met BC PNP requirements. 

·       d) 

At the time that she signed the Purchase Agreement, she was not aware that the outright purchase of a business or its shares was not an eligible investment structure for immigrating to British Columbia under the BC PNP program. 

8     It is clear, and it was not contested, that the Purchase Agreement could not form the basis of a successful application under the BC PNP. The Purchase Agreement required Ms. Li to pay $200,000 for the plaintiff's existing assets. It stipulated that it was an "actual investment in the existing inventory and business".

9     Various requirements or preconditions for immigration into British Columbia are established under the Regional Business Category of the BC PNP. The requirements for applicants pursuant to the Regional Business Category of the BC PNP include the following:

 

·       If you are buying the assets of an existing business no more than two thirds of the applicable personal investment can be applied to the purchase of these assets. 

 

·       In addition, at least one-third of the required applicable minimum investment for the category must be directed towards expansion and improvement of the existing business that you are purchasing." 

10     It is clear that no part of the Purchase Agreement was directed to the "expansion and/or improvement" of the plaintiff company.

11     Ms. Li also filed the expert report of Mr. Peter Larlee, a lawyer who specializes in immigration matters. No objection was taken to any aspect of Mr. Larlee's report. That report concludes with the following statements:

 

·       It is my conclusion that the Purchase Agreement could not form the basis of a successful application pursuant to the BC PNP, under the Region Business Category or otherwise. 

 

·       ... 

 

·       The Purchase Agreement does not meet these criteria and therefore could not form the basis of an application pursuant to the BC PNP. There is nothing exceptional about the Purchase Agreement that would except or exempt it from the policy requirements. 

12     Finally, the following admissions are contained in the Examination for Discovery of Mr. Lo:

 

·       a) 

Mr. Lo accepted that the advertisement he placed in the newspaper, and which Ms. Li saw, was targeting individuals who were visiting Canada and who were hoping to become residents; 

·       b) 

Ms. Li told Mr. Lo that her primary goal was to immigrate to Canada with her children; 

·       c) 

Mr. Lo understood from the outset that the purpose of the Purchase Agreement was to facilitate Ms. Li's immigration to Canada; 

·       d) 

Mr. Lo understood that Ms. Li's application for immigration was going to be based on the Purchase Agreement; 

·       e) 

Mr. Lo believed that the Purchase Agreement met the requirements for immigration to British Columbia under the BC PNP program; 

·       f) 

Mr. Lo told Ms. Li that the Purchase Agreement met these requirements; and 

·       g) 

Mr. Lo understood that Ms. Li had no more than $200,000 to invest in the plaintiff. 

Analysis

13     The defendant relies on several legal bases in support of her application to dismiss the plaintiff's claim. The defendant variously pleads that the contract should not be enforced against her because: (a) it was a condition precedent of the contract that Ms. Li's immigration application had to be approved before the payment of $200,000 was to be made; (b) the contract was frustrated; or, (c) the contract was based on a mutual mistake. The defendant's main argument in her further amended response to civil claim, however, is that she entered into the Purchase Agreement as a result of the plaintiff's "misrepresentations". Many of the authorities that were provided to me on behalf of Ms. Li also deal with misrepresentation.

14     The defendant also raised various alternative arguments in the event that the contract was found to be binding. By virtue of the conclusions I have come to, I have not considered these alternative arguments.

15     While the defendant raised and relied on these various legal theories and the plaintiff responded to them it cannot be said that either did so in any focussed or analytical manner. The defendant conceded that the circumstances of this case and their relationship to the legal doctrines that she relied on constituted something of a "square peg in a round hole". Again, however, there was very limited discussion by either party of what specific principles either undermined or supported the applicability of any given legal theory advanced by the defendant.

(a) Mistake/Misrepresentation

16     In several ways, the facts of this case appear to fit within the doctrine of mistake. The problem with this analysis, however, is that this is not a case where the mistake arose organically, but rather one where it was induced by one party giving incorrect information to the other. To my mind, the facts are therefore more appropriately dealt with as a case of misrepresentation. In S-244 Holdings Ltd. v. Seymour Building Systems Ltd. (1994), 93 B.C.L.R. (2d) 34, 41 B.C.A.C. 272 at para. 13, Mr. Justice Cumming, for the court, wrote:

 

·       [13] The trial judge found that this dispute between the parties resulted from a unilateral mistake induced by the conduct of the appellant. I view this matter as a case of innocent misrepresentation because there was a material misrepresentation of fact, relied upon by the respondent, which induced the respondent to enter into the contract in question, and the respondent did not know that the representation was false. (Redgrave v. Hurd (1881), 20 Ch. D. 1 (CA.)). 

 

·       [Emphasis added.] 

The underlined passage equally describes the facts of this case and indicates the framework to be adopted in such situations. Accordingly, I have not considered the doctrine of mistake below.

17     A misrepresentation is a misstatement of some fact which is material to the making or inducement of a contract: G.H.L. Fridman, The Law of Contract, 5th ed. (Toronto: Thomson Carswell, 2006) at 285. Misrepresentations can be fraudulent, negligent, or innocent.

18     As there is no allegation that Mr. Lo's representations were fraudulent, I have not considered that possibility. I have also not addressed negligent misrepresentation. There is no plea of negligent misrepresentation and such misrepresentations give rise to damages, which the defendant does not seek.

19     Since the recognition of negligent misrepresentation in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., [1964] A.C. 465, "innocent misrepresentation" has mostly commonly been used to refer to situations where the representor has reasonable grounds for believing that the representation is true. Strictly speaking, however, under the law of contract an innocent misrepresentation is any misrepresentation that is not fraudulent: Fridman, at 296. It is this latter understanding that likely applies in this case. A review of Mr. Lo's discovery transcript suggests that his various representations to Ms. Li were negligent, as his explanation for them was that they had resulted from casual conversations with individuals whose names he could not recall. This was not, however, argued by the defendant and I make no finding on this point.

20     The traditional remedy for innocent misrepresentation is rescission. Remedial flexibility is permitted, however, where rescission would not do justice between the parties: S-244 Holdings, at paras. 24-25.

21     The test that must be met for rescission was laid out by McLachlin J.A., as she then was, in Kingu v. Walmar Ventures Ltd. (1986), 10 B.C.L.R. (2d) 15 (C.A.) at 20-21:

 

·       ... Rescission ... may be obtained for innocent (non-fraudulent) misrepresentation only in cases where the plaintiff establishes the following requirements. 

 

·       (a) 

A positive misrepresentation must have been made by the defendant. 

 

·       (Where the defendant owes a fiduciary duty to the plaintiff, as it may be contended Chmilar did to the plaintiffs in this case, failure to disclose material facts may suffice: Laskin & Bache & Co. Inc. (1972), 23 D.L.R. 385 (Ont. C.A.); Waddams, The Law of Contract, 2nd ed., p. 262. 

 

·       (b) 

The representation must have been of an existing fact: Anderson v. Pacific Fire and Marine Insurance Co. (1872), L.R. 7 C.P. 65; see also Bisset v. Wilkinson, [1927] A.C. 177 (H.L.) 

·       (c) 

The representation must have been made with the intention that the plaintiff should act on it: Peake v. Gurney (1873), L.R. 6 H.L. 377. 

·       (d) 

The representation must have induced the plaintiff to enter into the contract: Shortt v. MacLennan [1959] S.C.R. 3. 

·       (e) 

The plaintiff must have acted promptly after learning of the misrepresentation to disaffirm the contract: Clough v. L.N.W. Ry. (1871), L.R. 7 Ex, 26; Wallbrige v. W.H. Moore & Co. Ltd. (1964), 48 W.W.R. 321 (B.C.S.C.); Dodds v. Millman (1964), 45 D.L.R. (2d) 472 (B.C.S.C.); Bango v. HoIt [1971] 5 W.W.R. 522 (B.C.S.C.); Timmins v. Kuzyk (1962), 32 D.L.R. (2d) 207 (B.C.S.C.) 

·       (f) 

No innocent third parties must have acquired rights for value with respect to the contract property: Babcock v. Lawson (1880), 5 Q.B.D. 284. 

·       (g) 

It must be possible to restore the parties substantially to their pre-contract position: Redgrave v. Hurd (1881), 20 Ch. D. 1; Schlote v. Richardson, [1951] OR. 58 (H.C.J.); McLaughlin v. Colvin, [1941] 4 D.L.R. 568, affd. [1942] 3 D.L.R. 292 (Ont. CA.); Friesen v. Berta (1979), 100 D.L.R. (3d) 91 (B.C.S.C.); Andronyk v. Williams, [1986] 1 W.W.R. 225 (Man. CA.). 

·       (h) 

An executed contract for the sale of an interest in land will not be rescinded unless fraud is shown: Redican v. Nesbitt, [1924] S.C.R. 135; Shortt v. MacLennan, supra; Kragh-Hansen v. Kin-Corn Construction & Developments Ltd. (1979), 13 R.P.R. 22 (B.C.S.C.) 

It is worth observing that McLachlin J.A. was here also using the broader, non-fraudulent, definition of innocent representation.

22     Ms. Li is able to satisfy the requirements for rescission that are established in Kingu. A positive misrepresentation was made by Mr. Lo. The representation was made with the intention that Ms. Li would act on it. The representation induced Ms. Li to enter into the contract. It is possible to restore the parties substantially to their pre-contract position. The record suggests Ms. Li moved with dispatch. No innocent third party acquired any rights for value under the Purchase Agreement. No interest in land is engaged.

23     Though the misrepresentation was not of a purely factual nature, it was a statement of mixed fact and law, and is thus actionable.

24     The plaintiff argued that the defendant's reliance on Mr. Lo's misrepresentation was not reasonable. Reasonable reliance is certainly a factor in the determination of whether a misrepresentation was negligent: R. v. Cognos Inc., [1993] 1 S.C.R. 87 at 110. It is not, however, one of the factors listed in Kingu in relation to innocent misrepresentation, and the plaintiff provided no authorities supporting such a requirement. The Ontario Court of Appeal has also stated that "[u]nlike an action for negligent misrepresentation, it seems that a party induced to enter a contract by a misrepresentation, even an innocent misrepresentation, need not show that the reliance on the misrepresentation was reasonable [in order to rescind the contract]": Samson v. Lockwood (1998), 40 O.R. (3d) 161, 110 O.A.C. 301 at para. 45.

25     Accordingly, I am satisfied that Ms. Li has established her entitlement to rescission of the Purchase Agreement.

(b) Condition Precedent

26     A condition precedent defines the "state of affairs that must exist before one or more of the promises set out in the agreement become enforceable": John McCamus, The Law of Contracts (Toronto: Irwin Law, 2005) at 673.

27     By its language, s. (2) of the Purchase Agreement does appear to contain a condition precedent, not for the performance of the whole of the Purchase Agreement, but for the obligation to make the second payment of $200,000.

28     The contractual language itself is somewhat poorly drafted. It simply states that Ms. Li will make the payment "within seven days of ... receiving notification of approval in respect of her immigration application". Notably, the language does not expressly state whether the successful application has to have anything to do with Ms. Li's investment in Able Fabrics. On its face, any successful application by her could trigger the obligation. Thus, in order for Ms. Li to succeed on the basis of a condition precedent, a term linking her successful immigration application to her investment in Able Fabrics would have to be implied.

29     Terms can be implied in a contract on one of three bases: (1) custom or usage; (2) as legal incidents of the particular class or kind of contract; or (3) the presumed intention of the parties: Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711 at 774-776. The third category is the most relevant in this instance.

30     As the implication of a term under this category is based on the presumed intention of the parties, the analysis must be a factual determination based on the evidence: Venture Capital USA Inc. v. Yorkton Securities Inc. (2005), 75 OR. (3d) 325 (C.A.) at para. 31. The test is whether the implied term is necessary "to give business efficacy to a contract or as otherwise meeting the 'officious bystander' test as a term which the parties would say, if questioned, that they had obviously assumed": Canadian Pacific Hotels, at 775.

31     Though the court's power to imply terms in a contract is fairly broad, it is a power to be used cautiously, and should not be used to contradict the express wording of the contract or to rewrite the contract: CanPacific Engineering Inc. v. Alican Enterprise Inc., 2011 BCSC 269 at para. 130.

32     I return to the admissions made by Mr. Lo on his discovery. He has confirmed that he knew Ms. Li's primary goal was to immigrate to Canada with her children. He also knew that her application for immigration was going to be based on the Purchase Agreement. Finally, he told Ms. Li that the Purchase Agreement would meet the necessary requirements of the BC PNP. This is to be combined with Ms. Li's evidence that she was only interested in purchasing Able Fabric as a means of immigrating to British Columbia. Under such circumstances, I consider that both Ms. Li and Mr. Lo, if asked, would have responded that Ms. Li's successful immigration application would have to be directly tied to her having acquired Able Fabric. There was no other purpose or object for her acquisition of the plaintiff.

33     Courts will "readily imply" an obligation on each party to do all that is necessary to fulfill the contract: Dynamic Transport Ltd. v. O.K. Detailing Ltd., [1978] 2 S.C.R. 1072 at 1084. Similarly, parties are enjoined from engaging in conduct that will defeat fulfillment of the condition precedent: Multi-Malls Inc. v. Tex-Mall Properties Ltd. (1980), 108 D.L.R. (3d) 399 (Ont. H.C.J.), aff'd (1981), 128 D.L.R. (3d) 192 (Ont. C.A.).

34     These obligations would ordinarily weigh against granting Ms. Li the relief she seeks, as she did not actually pursue an immigration application based on the Purchase Agreement. However, there appears to be no dispute that her investment in Able Fabrics under the terms of the Purchase Agreement would not have met the requirements of the BC PNP. Thus, any efforts made by Ms. Li would have been to no avail.

35     Accordingly, I am also satisfied that a successful immigration application by Ms. Li that was linked to her investment in Able Fabrics was a condition precedent to her obligation under the Purchase Agreement to make the second payment of $200,000. Thus, in the event that I am mistaken on the applicability of the doctrine of misrepresentation, Ms. Li is still relieved from further performance.

(c) Frustration

36     Frustration cannot apply in the present case. Frustration occurs when a "supervening event" occurs for which the parties made no provision in the contract and performance of the contract becomes "a thing radically different from that which was undertaken by the contract": Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58, [2001] 2 S.C.R. 943 at para. 53; Peter Kiewit Sons' Co. v. Eakins Construction Ltd., [1960] S.C.R. 361 at 368. Here, there has been no such supervening event. The situation now is the same as when the Purchase Agreement was signed.

Summary

37     The plaintiff's claim is dismissed. The Purchase Agreement is rescinded. Mr. Lo is to return the initial deposit and monies he received. Absent there being some reason the parties would wish to address the issue of costs directly, Ms. Li is to receive the costs of this application and of the action itself.

P.G. VOITH J.