Where a project manager misrepresents or obscures the true status of planning approvals, even through half-truths and omissions, courts may find fraudulent misrepresentation. In this case, those misrepresentations defeated the offending party’s breach of contract claim, justified termination of the contract, and resulted in its discharge and loss of construction lien rights. Transparency about development permits and approvals is critical in development projects to avoid resulting liability.
2B Developments provided project management and development design related services. Astute Capital was the developer. The principals of the respective companies had a pre-existing relationship and decided to pursue development opportunities together.
2B and Astute entered into separate planning and project management agreements. Astute purchased three lots for the development of two buildings to contain 13 units. 2B was responsible for obtaining planning approval and a planning by-law amendment for the development from the municipality. At some point during the discussions between 2B and the municipality, the number of units changed from 13 to 10.
A permit was later obtained to only build a duplex on the site. Foundation excavation was commenced and completed under the duplex permit.
2B sent various invoices to Astute until Astute informed 2B it would not continue with the project. Astute attempted to sell and market the project based on it having 13 units.
Astute argued that it believed, based on 2B’s representations, that 13 units had been approved. 2B argued that Astute was aware throughout the process that this was not the case. 2B registered a construction lien for its unpaid invoices, and sued for breach of contract. Astute counterclaimed for breach of contract and fraudulent misrepresentation.
The trial judge dismissed 2B’s action, discharged its lien, and allowed Astute’s counterclaim. 2B appealed this decision.
What the Court said
Fraudulent Misrepresentation
The Court upheld the finding of fraudulent misrepresentation. The Court noted numerous instances where 2B’s principal demonstrated a lack of credibility, which supported the misrepresentation findings:
She lost her chartered accountant designation for client fund misappropriation;
She had previously been convicted of three counts of uttering a forged document and one count of perjury; and
She had falsely testified about the material issue of whether the building permit was for a multi-unit development during cross-examination on affidavits.
The Court concluded that 2B’s principal continued to disclose what she knew to be misleading partial, half-truths to Astute with the intention they be acted upon to further her financial motive in collecting ongoing fees under the contracts. This supported a finding of fraudulent misrepresentation, even though the representations were not outright false.
Breach of Contract + Lien Damages
Similarly, the Court upheld the trial judge’s findings that Astute had not breached the contract.
The original contract between 2B and Astute was for a multi-unit dwelling. However, the building permit and excavation was only started for a duplex. 2B convinced Astute to continue with the project under this false impression. Given that factual matrix, 2B did not have a valid claim for breach of contract for its unpaid invoices, as its conduct amounted to a repudiation.
By extension, 2B also did not have a valid construction lien. It has committed significant breaches of contract, and was not owed anything despite its claimed invoices. Since no funds were owing, 2B did not have a valid lien.
Takeaways
Although factually complex, this case demonstrates that misrepresentations in the development phase of a project can lead to severe consequences. Misrepresentations about approvals can amount to fraud, even where they take the form of partial disclosure rather than outright false statements. The court confirmed that half-truths, misleading omissions, and selective updates about zoning and permit status can ground a finding of fraudulent misrepresentation where they are intended to keep the other party committed to the project and continuing to pay fees. Optimism or strategic ambiguity about approvals will not protect a party where the overall impression conveyed is false.
Misrepresentations that strike at the core of the contractual bargain can justify termination and defeat breach of contract claims. Where a contract is premised on a particular development outcome, such as a multi-unit project, and one party advances the project under a materially different approval regime, the court may find that the contract has been repudiated.
Construction and development disputes can become complex very quickly, so it is advisable to consult a lawyer without delay. Contact Anthony Burden in Calgary, Ryan Krushelnitzky in Edmonton, or any member of Field Law's Construction Group for advice.
