Tai An Holding Company Ltd. v Boyal

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Tai An Holding Company Ltd. v. Boyal,

2022 BCSC 821

Date: 20220517

Docket: S1711855

Registry: Vancouver

Between:

And:

Tai An Holding Company Ltd.

Plaintiff

(Defendant by Counterclaim)

Hardev Boyal and Bhupinder Mandair

Defendants

(Plaintiff by Counterclaim)

And:

Ke Xiang Zhou, Wei Kang and Harpreet Purba

Defendants by Counterclaim

Before: The Honourable Mr. Justice Riley

Reasons for Judgment

Counsel for the Plaintiff and Defendants by

Counterclaim:

T.D. Boyd

R.S. Deol

Counsel for the Defendants:

Place and Dates of Hearing:

New Westminster, B.C.

June 3, 2021

November 12, 2021

December 2, 2021

Place and Date of Judgment:

Vancouver, B.C.

May 17, 2022

Tai An Holding Company Ltd. v. Boyal

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Introduction

[1]

This is a ruling on a summary trial application brought by the plaintiff Tai An

Holding Company Ltd. (“Tai An”) in an action for breach of contract against the

defendants Hardev Boyal and Bupinder Mandair. The plaintiff entered into a contract

to purchase the Sheraton Four Points Hotel in Surrey, British Columbia from the

defendants. The contract included a schedule for certain property improvements to

be completed by each party along a particular timeline. The hotel sale completed,

but the plaintiff says the defendants failed to perform much of the work assigned to

them under the property improvement schedule. The plaintiff later completed the

disputed improvements itself, and now seeks damages for breach of contract.

[2]

In addition to their primary argument that the case is not suitable for summary

trial for various reasons, the defendants dispute the plaintiff’s breach of contract

claim on a number of grounds. First, they say the plaintiff breached the contract and

is thus disentitled to sue on it. Second, the defendants say that on a proper

interpretation of the contract, their responsibility was limited to supplying materials

for the improvements rather than completing the work, and in any event was capped

by the amount specified in the property improvements holdback clause. Third, the

defendants say that many if not all of the specific costs incurred by the plaintiff

cannot be linked to items that were the responsibility of the defendants under the

property improvement schedule.

Facts

[3]

The property at the heart of the dispute between the parties is the Sheraton

Four Points Hotel on 158 Street in Surrey, British Columbia. Prior to the sale, the

defendants Mr. Boyal and Mr. Mandair owned all of the shares of the company that

held the title to the hotel property, the Guildford Hotel Ltd. The hotel sale was

effected by way of a share transfer arrangement, in which the defendants sold all of

the shares in Guildford Hotel Ltd. to the plaintiff for $12,450,000.

[4]

In contemplation of selling the property, the defendants had liaised with the

franchisor of the hotel, Sheraton. In order to obtain approval for the sale, the

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defendants committed to a Property Improvement Plan (“PIP”) following a site visit

by Sheraton representatives on 22 September 2015. The original PIP, developed by

Sheraton in consultation with the defendants, did not allocate responsibility for any of

the improvements as between the then-owners, the defendants Mr. Boyal and

Mr. Mandair, and the prospective purchaser, the plaintiff Tai An.

[5]

The negotiations between the defendants and the plaintiff with regard to the

purchase of the hotel included discussions about who would bear responsibility for

the PIP works. Ultimately, the parties agreed upon an arrangement in which

responsibility for the PIP works was divided between them, with a timetable for

completion of the works. All of this was written into a schedule (“PIP Schedule”)

attached to the share transfer agreement.

[6]

The share transfer agreement, dated 5 January 2016, was signed by

Mr. Zhou on behalf of the plaintiff Tai An, and by the defendants Mr. Boyal and

Mr. Mandair personally. The agreement’s key components can be summarized as

follows:

(a)

Clause 3.1 provided that the plaintiff was to pay the purchase price of

$12,450,000 to the defendants on the closing date, which was 6 January

2016. (By subsequent agreement in writing, the parties later changed the

closing date to 8 March 2016). The total purchase price was subject to an

inventory adjustment as provided for in Clause 3.5, and certain holdbacks to

be held in trust as set out in Clause 11.4.

(b)

The inventory adjustment was dealt with in Clause 3.5, under which

the defendants were to arrange for hotel staff to take an inventory of the

current supplies on hand, including alcohol and food supplies in the guest

rooms, restaurants, and bars. This inventory was to be reflected in a closing

statement, which would then be used to adjust the purchase price to account

for inventory on hand on the closing date.

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(c) Clause 6.1 provided that on or before the closing date, the defendants

were required to deliver to the plaintiff all books, records, and accounts in its

possession.

(d)

Clause 6.5 stated that the parties were responsible for the PIP work

required by the franchisor as set out in Schedule 7 to the share transfer

agreement. This clause in the agreement included an express provision that if

the plaintiff had to pay more than $20,000 USD for new light fixtures on the

second and third floor, the additional cost would be deducted from the PIP

Funds holdback, defined later in the agreement.

(e)

Schedule 7, the terms of which are at the heart of the current legal

dispute between the parties, consisted of a table that included the following

columns:

Work # [Untitled,

but clearly

intended to

provide

Responsible Time Line Total

Party for Holdback if any

completing by the

Exemption Result

the

Purchaser

description

of work]

unfinished

Items

$100,000

What followed after the table headings were sections dealing with different

categories of rooms or areas of the hotel. For example, the first section of the

table dealt with “Standard Guestrooms” on the first and second floor. The

second section dealt with “Standard Guestrooms” on the third floor. The third

section dealt with “Guest Bathrooms”. The fourth section dealt with “Guest

Suites” on the first and second floors; this section simply stated, “Renovate

suites following scope previously defined for guestrooms, with the addition of

the items listed below”, but no additional items were listed. The fifth section

dealt with “Guest Suites” on the third floor, and repeated the catch-all

language set out in the preceding sentence.

(f)

The holdbacks were dealt with in Clause 11.4. There are two holdback

terms that are relevant to the current action, as follows:

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(i) Clauses 11.4(b) through (d) provided for a $200,000 “due

diligence holdback”, to be taken from the purchase price and held in

trust by the plaintiff’s solicitors, for satisfaction of any outstanding third

party claims for matters such as unpaid taxes or employee

remittances.

(ii)

Clause 11.4(f) provided that $100,000 of the purchase price

would be held in trust by the solicitor of the defendants to satisfy “any

PIP works that the [defendants] are responsible to complete” (“PIP

Funds holdback”). Upon receipt of invoices for completed work, the

solicitors were authorized to release funds equal to the invoiced

amounts to the defendants. The final $10,000 of the PIP Funds

holdback would only be released when the franchisor confirmed that

the PIP works for which the defendants were responsible had been

completed.

(g)

Under Clauses 11.3 and 11.6, each party agreed to indemnify the

other for “any loss, damage, liability, cost and expense arising directly or

indirectly out of any breach of representation, warranty, covenant, or

agreement” of the indemnifying party.

(h)

Under Clause 11.10, each party was obliged, before and after the

closing date, to “execute and deliver such further documents and instruments

and do such acts and things” as may be “reasonably required by another

party to carry out the intent and meaning” of the share transfer agreement.

(i)

Clause 11.12 provided that the share transfer agreement was to

represent the entire agreement between the parties pertaining to the subject

matter, and was to supersede all prior agreements, understandings,

representations, negotiations and discussions between the parties.

[7]

The defendant Mr. Mandair gave affidavit evidence describing some of the

negotiations preceding the signing of the share transfer agreement. There is a

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dispute between the parties as to the relevance and permitted uses of this evidence.

The plaintiff appears to concede admissibility, but maintains that this evidence can

only be considered as part of the factual matrix for interpretation of the terms of the

written contract. The defendants say Mr. Mandair’s affidavit is a permissible source

of evidence in resolving the ambiguity in the terms of the contract itself. I will return

to this issue in my legal analysis below. Putting the evidentiary dispute aside for the

moment, the relevant parts of Mr. Mandair’s affidavit can be summarized as follows.

[8]

Mr. Mandair avers that in the course of the negotiations, he and the other

defendant Mr. Boyal were represented by Mr. Bal, and the plaintiff Tai An was

represented by two real estate agents, Mr. Kaintura and Mr. Purba. Thus, much of

what Mr. Mandair says in his affidavit about the actual negotiations between the

parties is second hand information, although Mr. Mandair is able to give direct

evidence about his instructions to Mr. Bal as the agent of the defendants.

[9]

Mr. Mandair avers that Mr. Bal informed the plaintiff’s representative of the

obligation to complete the PIP works in order to retain the Sheraton franchise, and

that in response to this, the plaintiff’s representatives prepared a spreadsheet

summarizing the PIP work to be done, the party who would be responsible for

particular aspects of the work, the timetable for completion of the work, and the

amount that would be held back “to secure performance of the works” to be

competed by the defendants.

[10] Mr. Mandair avers that in the negotiations with regard to the PIP works, he

was “not prepared to accept responsibility” for improvements with an “unascertained”

cost. As a result, the parties “estimated the cost of the works to be undertaken by

[the defendants] and decided that $100,000 represented a fair amount to fully secure

the defendants’ obligations for the conduct of the PIP [works]”. Mr. Mandair says this

was the reasoning behind the drafting of Clause 11.4(f) of the share transfer

agreement, providing for a PIP Funds holdback of $100,000.

[11] Mr. Mandair goes on to describe his understanding of how the PIP works

would be done under the terms of the share transfer agreement. Among other

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things, Mr. Mandair avers that since the defendants and the plaintiff were

responsible for completing various aspects of the PIP works at more or less the

same time, the defendants would be responsible for ordering the material (and, upon

providing invoices, would be entitled to release of the holdback funds), and the

plaintiff would then be responsible for “installing and placing those materials”.

[12] Much of the plaintiff’s evidence came from Ms. Zhang, who assumed the role

of assistant general manager of Guildford Hotel Ltd. on 8 March 2016, on or about

the date that Tai An took over operations of the hotel. Ms. Zhang avers in her

affidavit that when the plaintiff took over the hotel, she determined that many of the

PIP works for which the defendants were responsible either “had not been

addressed”, or the work was “not sufficient”. In or around March 2016, Ms. Zhang

created a “checklist” documenting the “state of the rooms” when the plaintiff took

possession, and the remaining PIP works which had to be completed “in order to

meet Sheraton brand requirements”.

[13] Between 20 September 2016 and 4 October 2016, the solicitors for the

parties corresponded with regard to the status of the due diligence holdback. The

plaintiff’s solicitor initially refused to release the due diligence holdback funds on the

basis that the defendants had not completed their portion of the PIP work. The

solicitor for the defendants replied that the plaintiff was “mixing the issues”, and that

the PIP works were secured by a separate PIP holdback of $100,000. The plaintiff’s

solicitor replied that all but the final $10,000 of the PIP holdback funds had already

been released. The defendants then threatened legal action to obtain release of the

due diligence holdback. All of this led up to a written agreement dated 19 October

2016, signed by both solicitors, in which the plaintiff agreed to release the balance of

the due diligence holdback funds, subject to certain conditions, including an

acknowledgment by the defendants that within 14 days of the release of the net

funds, the defendants would “commence work” on the PIP on the terms set out in

the share transfer agreement.

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[14] It appears that no further PIP works were undertaken throughout the balance

of 2016. The plaintiff later tasked Ms. Zhang with overseeing the completion of the

PIP works. Ms. Zhang assumed responsibility for “engaging all of the suppliers and

contractors who performed the works”. The work itself was conducted in two phases.

The first was from February 2017 to June 2017, and the second was from October

2017 to May 2018.

[15] Ms. Zhang avers that the total cost of the PIP works she oversaw was

$747,762.04. On Ms. Zhang’s interpretation of the PIP Schedule, some of the works

were the responsibility of the defendants, and others were the responsibility of the

plaintiff. In her affidavits, Ms. Zhang has broken down the PIP costs into a number of

categories, specifically: (i) wallpaper, (ii) furniture, (iii) casegoods, (iv) patio, (v)

architecture and permit, (vi) construction and project management fees, (vii) waste

disposal, and (viii) door replacement.

[16] In its summary trial application, the plaintiff takes the position that the PIP

works that were the responsibility of the defendants cost a total of $549,671.84. The

plaintiff seeks damages for breach of contract in that amount. The plaintiff also

seeks legal costs of the action as damages arising from the breach of contract by

the defendants.

[17] For their part, the defendants take issue with the plaintiff’s overall position as

to the scope of each party’s obligations under the PIP Schedule and the share

transfer agreement. The defendants also take issue with the figures in Ms. Zhang’s

evidence, and her allocation or apportionment of certain costs to the defendants.

[18] The defendants further contend that the plaintiff has breached its obligation

under Clause 3.5 of the share transfer agreement to adjust the sale price to account

for $21,479.94 in inventory at the time that the hotel changed hands. The defendants

say that the plaintiff’s breach of this term effectively disentitles the plaintiff from suing

for breach of contract. The defendants have also, presumably as an alternative

position, filed a counterclaim against the plaintiff, its representatives Mr. Kang and

Ms. Zhou, and its real estate agent Mr. Purba, for damages in breach of contract.

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Legal Analysis

(1) Suitability for Summary Trial

[19] Under Rule 9-7 of the Supreme Court Civil Rules, B.C. Reg. 168/2009

[Rules], a party can obtain judgment by way of a summary trial on an issue or

generally, unless it is not possible for the court to find the facts necessary to decide

the issues, or it would be unjust to decide the matter on a summary application.

[20] In Gichuru v. Pallai, 2013 BCCA 60 at paras. 30–31 [Gichuru], the Court

referred to a number of factors to be considered in determining whether a matter is

suitable for a summary trial, namely: (a) the amount involved, (b) the complexity of

the matter, (c) the cost of a conventional trial in relation to the amounts involved, (d)

the course of the proceedings, (e) the timing of the summary trial application, (f)

whether credibility is a critical factor in determining the dispute, (g) whether a

summary trial would itself create unnecessary complexity, and (h) whether the

application would involve litigating in slices.

[21] Where a party brings an application for summary trial, the opposing party

cannot frustrate the process by failing to take necessary steps in responding to the

application. The opposing party cannot “simply insist on a full trial in hopes that with

the benefit of viva voce evidence, ‘something might turn up’”: Gichuru at para. 32,

citing Everest Canadian Properties Ltd. v. Mallmann, 2008 BCCA 275 at para. 34.

[22] The plaintiff says this is a relatively straightforward breach of contract claim,

with few disputed facts. The plaintiff says it is a relatively easy exercise to identify

the uncompleted work assigned to the defendants in the PIP Schedule, and then

consult the evidence of the plaintiff’s representative – who oversaw the construction

– to determine the costs incurred by the plaintiff to compete the work.

[23] The defendants say this case is not suitable for summary trial, arguing that

the Court is unable to find the facts necessary to decide the issues, and that it would

be unjust to decide the matter having regard to various case-specific factors

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including the amount of money at stake, the complexity of the case, and the

importance of witness credibility given the conflicts in the evidence.

[24] I do not agree with the defendants that the Court is unable to find the facts

necessary to decide the issues. Based on my review of the record, I do not see any

significant issues of credibility or head-on conflicts in the evidence. The principal

witnesses for each party had no direct interactions with each other, and the Court is

not being invited to prefer the evidence of one witness over the evidence of another

based on credibility considerations.

[25] The defendants point out that the PIP works were undertaken at Ms. Zhang’s

direction, under the supervision of one contractor, altogether with no effort to

distinguish between work that was the responsibility of the plaintiff and work that was

the responsibility of the defendants. I accept that this poses challenges in

ascertaining the cost of PIP works attributable to each of the parties. However, there

is no reason to believe that it would be manifestly easier to resolve issues of this sort

on the basis of viva voce evidence in a full trial.

[26] The most reliable records pertaining to the nature and costs of the PIP works

are the spreadsheets and underlying records contemporaneously created or collated

by Ms. Zhang while the work was being done. Ms. Zhang has appended the

spreadsheets, contractor invoices, and subcontractor invoices to her affidavits, and

the defendants were able to cross-examine her on the affidavits and the underlying

records.

[27] There is no reason to believe that viva voce evidence from the contractor or

subcontractors retained to do the work would be any more reliable or accurate in

ascertaining the cost of work attributable to each of the parties under the PIP

Schedule. There is no evidence that the contractors were asked to segregate the

work attributable to each of the parties. They were tasked with performing the work

itself, not with delineating how much of it was attributable to the contractual

responsibilities of each of the parties.

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[28] As for whether it would be unjust to the decide the matter by way of a

summary trial, there are factors going both ways. On balance, I do not consider it

unjust to decide the case by summary trial, for the reasons that follow.

[29] On the one hand, I agree with the defendants that the amount in issue is

substantial, and that a seven-day trial would not be out of proportion to the plaintiff’s

claim for damages in excess of $500,000. On the other hand, I also agree with the

plaintiff that this is not a complex case, and that a consideration of the history of the

litigation and the timing of the application weighs in favour of deciding the matter in a

summary trial.

[30] The timing of the application does not present any injustice to the defendants.

Document production is complete. The defendants have completed an examination

for discovery of the plaintiff’s representative Mr. Kang, and have cross-examined the

plaintiff’s key witness, Ms. Zhang, on all of her affidavits with the exception of her

reply affidavit.

[31] Finally, I am satisfied that deciding the issues raised in the plaintiff’s summary

trial application and the defendants’ cross-application will effectively resolve the

entire case. Accordingly, deciding the matter by way of a summary trial will not result

in litigation in slices, nor will it unduly add to the complexity of the proceedings.

(2) Plaintiff’s Breach of the Agreement and its Implications

[32] The defendants say that the plaintiff breached its obligations under the share

transfer agreement by failing to comply with the inventory adjustment clause. Under

Clause 3.5 of the agreement, the plaintiff was obliged to make a retroactive

adjustment of the sale price to account for the inventory on site when the hotel

changed hands. The defendants say there was $21,479.94 of inventory on hand, for

which the plaintiff failed to make any adjustment or otherwise compensate the

defendants. The defendants further argue that breach of this obligation disentitles

the plaintiff to sue on the contract.

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[33] I agree with counsel for the defendants that the plaintiff breached its

obligation under the inventory adjustment clause. The plaintiff was obliged to make a

retroactive adjustment to the sale price to account for inventory on hand. The

evidence establishes that an inventory was taken, and a record of it was created and

signed by representatives of both parties on or about the closing date. There is no

evidence that the plaintiff ever made an inventory adjustment or compensated the

defendants for inventory on hand. The plaintiff concedes this point, and agrees that

the defendants are entitled to credit for the inventory on hand by way of damages in

their counterclaim.

[34] The more controversial question is whether the defendants are right in

asserting that, as a consequence of the breach, the plaintiff is somehow disentitled

to sue for relief in connection with alleged breaches of the contract by the

defendants. In support of this position, counsel for the defendants relies on excerpts

from G.H.L. Fridman, The Law of Contract in Canada, 4th ed. (Toronto: Carswell,

1999), and 6th ed. (Toronto: Carswell, 2011), along with two cases, Jedfro

Investments (U.S.A.) Ltd. v. Jacyk Estate (2006), 80 O.R. (3d) 533 (C.A.) [Jedfro]

and Production Equipment Ltd. v. Langille (1981), 47 N.S.R. (2d) 181 (C.A.)

[Production Equipment].

[35] The first passage from Fridman discusses the duty of strict performance. At

547 (4th ed.), the learned author states, “[the] duty to perform must be carried out

precisely and exactly. Anything less than such performance is a breach of contract

and may preclude the party in default from enforcing the provisions of the contract

that are to his benefit, for example, the payment of the price agreed upon for goods

or services” (emphasis added). I point out that the underlined phrase is an

acknowledgement that breach of a contractual obligation may or may not preclude

the defaulting party from enforcing the contract against the other party. The question

becomes one of determining whether the nature of the breach is such as to deny the

defaulting party the right to pursue any benefit or relief under the contract.

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[36] The second passage from Fridman cited by the defendants addresses what is

referred to as the doctrine of “dependency of performance”. At 566 (4th ed.), the

author states, “non-performance in accordance with the terms of the contract,

besides being a breach of contract itself […] precludes the party guilty of such non-

performance from enforcing the contract against the other party”. However, the

author goes on at 567 to point out that “dependency of performance” is by no means

a simple concept, because it “raises the whole question of what has been called

“substantial” performance, and the problem of entire and divisible, or non-entire

contracts”. In Herron v. Hunting Chase Inc., 2003 ABCA 219 at para. 14, the Court

explained that “the principle of dependency applies when the obligation of each party

constitutes the entire contract, such that no consideration is paid unless every

aspect of the contract is perfectly performed”. In any event, when one reads this

particular passage of Fridman’s work in context, it is clear that the non-performance

described therein must relate to a fundamental aspect of the contract. In other

words, this passage from Fridman’s text relates to forms of non-performance that

amount to fundamental or repudiatory breaches.

[37] That brings me to the case law cited by the defendants.

[38] In Jedfro, the plaintiff failed to make payments owed to a lender under the

terms of a joint venture agreement, and later sued the other parties for breaching the

agreement. The trial judge dismissed the claim. In the passage relied upon by the

defendants in the case at bar, the Court of Appeal endorsed the trial judge’s

reasoning, stating at para. 11 that, “[w]here parties act in a way that shows they do

not intend to comply with or be bound by the terms of their written agreement, one

party cannot later come to court and ask to have the agreement enforced for its

benefit.” The defendants say the same reasoning applies in the present case to

preclude the plaintiff from pursuing any remedies or relief under the share transfer

agreement.

[39] Counsel for the defendants did not refer to the further appeal in Jedfro, in

which the Supreme Court of Canada upheld the result, but fundamentally disagreed

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with the reasoning of the courts below: see Jedfro Investments (U.S.A.) Ltd. v.

Jacyk, 2007 SCC 55. At para. 14, Chief Justice McLachlin catalogued “[t]he ways in

which a contract can be discharged”, namely by “performance”, “agreement”,

“frustration”, or “repudiatory or fundamental breach”. On the facts in Jedfro, the

Court was not satisfied that the contract was discharged on any of these bases.

While the trial judge held that the plaintiff’s failure to pay its share of the debt under

the joint venture agreement reflected a lack of regard for the terms of the agreement,

this did not necessarily evince an intention not to be bound by the contract so as to

engage the doctrine of repudiation. At para. 21, the Chief Justice reasoned that

while “ignoring the terms of an agreement” may qualify as a breach, it was not clear

whether the plaintiff’s conduct went beyond “[o]rdinary, non-repudiatory breach”,

explaining that “[m]ore is required to establish repudiation”. The Court found it

unnecessary to determine whether the plaintiff’s refusal to pay its share of the debt

could be objectively regarded as a repudiatory breach, because even if it did, the

opposing party did not elect to treat it as such. The Court went on to decide that

even though the joint venture was never discharged, the plaintiff’s claim failed

because its initial investment was forfeited through a foreclosure.

[40] In the end, what I take from Jedfro is that not every breach of a contractual

obligation constitutes a “fundamental or repudiatory breach” sufficient to lead to a

“discharge” of the contract. Some breaches will constitute “ordinary, non-repudiatory

breaches”. As McLachlin C.J. stated at para. 20, “[a] contract may be said to be

repudiated when one party acts in a way that evinces an intent to no longer be

bound by the contract”, at which point “[t]he other party may then, at its option, elect

to terminate the contract”.

[41] The second case cited by the defendants, Production Equipment, clearly

involves a discussion of the consequences of a repudiatory breach. This case lends

no real support to the position of the defendants that any and all breaches of a

party’s contractual obligations effectively bar the breaching party from pursuing

remedies or relief under the contract.

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[42] There is other case law discussing the difference between an “ordinary, non-

repudiatory breach” and a “fundamental or repudiatory breach”. A “simple breach” is

no basis to rescind a contract. When faced with a material breach of this nature, the

innocent party may sue for damages as described in Nikolaev v. Fakhredinov, 2015

ONSC 6267 at para. 41, but the breach would not necessarily bring the contact to an

end. To qualify as a fundamental or repudiatory breach, the breaching party’s

conduct must be “tantamount to the frustration of the contract either as a result of

the unequivocal refusal of one party to perform his contractual obligation or as a

result of conduct which has destroyed the commercial purpose of the contract,

thereby entitling the innocent party to be relieved from future performance”: Poole v.

Tomenson Saunders Whitehead Ltd., [1987] 6 W.W.R. 273 (B.C.C.A.) at p. 282. The

question is whether the breach “strikes at the heart of the agreement in a manner

that evinces an intention not to be bound by the contract any longer”: Pavlis v. HSBC

Bank Canada, 2009 BCSC 498 at para. 50.

[43] Applying that reasoning in the case at bar, I am not satisfied that the plaintiff’s

breach of the inventory adjustment clause was conduct that evidenced “an intent to

no longer be bound by the contract” so as to engage the doctrine of repudiation. The

plaintiff had paid $12,450,000 to the defendants in exchange for all of the shares in

the hotel company. Thereafter, the plaintiff (through its solicitor) urged the

defendants to complete their portion of the PIP works, and eventually agreed to the

release of certain holdback funds on the understanding that the defendants would

honor their obligation to complete the work. In all of these circumstances, I would not

regard the plaintiff’s failure to make an inventory adjustment of $21,480 as an

intention to no longer be bound by the contract.

[44] Moreover, there is no evidence that the defendants ever treated the plaintiff’s

conduct as a repudiatory breach, and elected to terminate. Well after the date when

the inventory adjustment was due, the defendants (through their solicitor) continued

to engage in correspondence for the release of the holdback funds. The bulk of the

holdback funds were ultimately released to the defendants, on the condition that

they would complete their share of the PIP works. There is no evidence that, at any

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point in this process, the defendants ever raised the plaintiff’s failure to comply with

the inventory adjustment clause, much less sought to characterize it as a

fundamental or repudiatory breach supporting an election by the defendants to

terminate the agreement.

(3) Whether the Defendants Breached the Agreement

[45] The plaintiff says the share transfer agreement clearly obliged the defendants

to complete their share of the PIP works, as set out in the PIP Schedule. Plaintiff’s

counsel points to Clause 6.5 of the agreement, which provides that the parties “are

responsible for the Property Improvement Plan (the “PIP”) work required by the

Licensor as per the attached Schedule 7”. Plaintiff’s counsel also cites Clause 11.3

of the agreement, under which the defendants covenanted and agreed to indemnify

the plaintiff from “any loss, damage, liability, cost and expense” suffered by the

plaintiff “directly or indirectly” as a result of “any breach of representation, warranty,

covenant or agreement” made by the defendants under the share transfer

agreement. Finally, plaintiff’s counsel refers to the description of the work as set out

in the PIP Schedule, attached as Schedule 7 to the share transfer agreement.

[46] The defendants raise two points of contractual interpretation as regards the

scope of their obligations in respect of the PIP works. First, the defendants say their

responsibility for the PIP works is capped by the PIP holdback amount of $100,000

that is provided for in Clause 11.4(f) of the agreement. Second, the defendants say

the agreement did not require them to actually complete any of the PIP works; it only

required them to provide the materials or inputs for the particular items assigned to

them under the PIP Schedule.

[47] Before dealing with the merits of these arguments, it is necessary to address

the admissibility and permitted uses of Mr. Mandair’s affidavit evidence with respect

to the negotiation of the share transfer agreement. The plaintiff does not appear to

object to the admissibility of Mr. Mandair’s affidavit, but argues that it can only be

received as evidence with respect to the “surrounding circumstances” as discussed

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in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at paras. 56–58

[Sattva].

[48] In Sattva, Mr. Justice Rothstein explained at para. 57 that when interpreting a

contract, it is permissible to consider evidence about the “surrounding

circumstances” in order to “deepen a decision-maker’s understanding of the mutual

and objective intentions of the parties as expressed in the words of the contract”.

However, the interpretation of a particular contractual provision must always be

“grounded in the text and read in light of the entire contract”. Thus, evidence as to

the surrounding circumstances may assist in understanding the meaning of the text

in the contract, but cannot be allowed to “overwhelm the words of [the] agreement”:

Sattva at para. 57.

[49] As to the nature and form of such evidence, Rothstein J. explained at

para. 58 of Sattva that this will “vary from case to case”. Subject to the principles

discussed in the preceding paragraph, and to the strictures of the parole evidence

rule, evidence as to the surrounding circumstances may include “absolutely anything

which would have affected the way in which the language of the document would

have been understood by a reasonable man”: Sattva at para. 58.

[50] Thus, interpretation of the terms of a contract is no longer limited to the “four

corners” of the written contract. The interpretation should be “informed by the

surrounding factual matrix”, based on the principles described in the jurisprudence:

Can-West Development Ltd. v. Parmar, 2019 BCSC 1573 [Can-West Development]

at paras. 22–23. On a proper application of those principles, evidence with respect

to negotiations should only be considered for the limited purpose of showing “that

the parties were in negotiations and the reasons for those negotiations”: Can-West

Development at para. 23, applying McMillan v. Altastream Power Systems Inc., 2018

BCSC 1298 at para. 62.

[51] The case law both before and after Sattva suggests that evidence as to the

surrounding circumstances may also be relied upon to assist in resolving genuine

ambiguity in the words of the contract: Khela v. Clarke, 2021 BCSC 503 at para. 84,

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Page 18

aff’d 2022 BCCA 71, citing Water Street Pictures Ltd. v. Forefront Releasing Inc.,

2006 BCCA 459 [Water Street Pictures] at paras. 23–27. Of course, it is not the role

of the court to “search for ambiguity”: Water Street Pictures at para. 25. Genuine

ambiguity only arises where the operative words in the text of the agreement, read

contextually, are objectively capable of bearing two or more equally plausible

interpretations: Water Street Pictures at para. 26. Where such genuine ambiguity is

present, the surrounding circumstances may shed light on which of the competing

interpretations best accords with the mutual intention of the parties, interpreted

objectively: Water Street Pictures at paras. 23–27.

[52] Applying those principles to the case before me, I accept that the averments

in Mr. Mandair’s affidavit with respect to the circumstances surrounding the

negotiation of the share transfer agreement are admissible. Mr. Mandair’s affidavit

describes some of the considerations that factored into the PIP obligations and PIP

holdback provisions in the agreement. Of course, under the parole evidence rule,

Mr. Mandair’s affidavit evidence is not admissible to “add to, subtract from, vary, or

contradict” the terms of the share transfer agreement. Nor can Mr. Mandair’s

evidence be allowed to “overwhelm the words” in the written agreement.

[53] I should add that Mr. Mandair’s subjective beliefs as to the intent and

meaning of the PIP obligations and PIP holdback provisions has virtually no value in

the interpretive exercise, because evidence about surrounding circumstances is only

relevant to show how the language in the agreement “would have been understood

by a reasonable [person]”: Sattva at para. 58. In other words, the analysis is an

objective one. The point of the exercise is not to ascertain Mr. Mandair’s subjective

belief as to the intent of the contractual terms, but rather, to determine the objective

meaning of the written text, as informed by the surrounding circumstances.

[54] Finally, I find that with one exception discussed in para. 88 below, the

operative words of the share transfer agreement, interpreted contextually in light of

the entire text of the agreement and the surrounding circumstances in which it was

entered into, do not suffer from any ambiguity. Subject to the one exception just

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Page 19

noted, I have no difficulty ascertaining the common intent and objective meaning of

the terms in the agreement, based on the analysis set out below.

[55] I start the interpretive exercise by considering the overall objective or purpose

of the relevant provisions in the share transfer agreement. When read within the

context of the agreement as a whole, the objective of the PIP provisions (Clause 6.5

and the PIP Schedule) was to create a process for ensuring that the improvements

mandated by the franchisor would not unduly impair the ability of the defendants to

sell the hotel to the plaintiff. The parties basically divided up responsibility for the PIP

works, as a means of sharing the associated cost and risk, while allowing for the

sale of the hotel to proceed. The PIP holdback provision (Clause 11.4(f))

represented a further allocation of the associated cost and risk. Its objective was to

provide the plaintiff with some assurance that the defendants would fulfill their

obligation to complete the PIP works, even after the plaintiff had paid the defendants

$12,400,000 for the transfer of all of the shares in the hotel company. The

defendants agreed that the plaintiff could hold back $100,000 as security for the

improvement work for which the defendants had assumed responsibility. The

reference in the PIP holdback clause to the release of funds to the defendants upon

delivery of PIP work invoices was a countervailing measure to ensure that where the

defendants spent money on PIP works, they would receive a release of holdback

funds equal to the amounts expended.

[56] With those overall purposes in mind, I turn to a consideration of the

interpretive arguments raised by the parties.

[57] I will deal firstly with the proper interpretation of Clause 11.4(f), the PIP

holdback clause. The defendants argue that Clause 11.4(f) has the effect of capping

financial responsibility or liability for the parts of the work allocated to them under the

PIP Schedule. I cannot agree that this is an objectively reasonable interpretation of

the PIP holdback clause, read together with the other provisions in the agreement.

[58] Clause 6.5 expressly states that the parties are responsible for the PIP works

as provided for in the PIP Schedule, and the PIP Schedule then allocates various

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aspects of the work to each of the parties. There is nothing in the text of either

Clause 6.5 or the PIP Schedule that expressly limits the responsibility of the

defendants to complete their portion of the PIP works to the amount of the holdback

in Clause 11.4(f).

[59] Clause 11.4(f) states that a total of $100,000 would be held back “to satisfy

any PIP works the [defendants] are responsible to complete”. There is nothing in the

text of this clause expressly providing that the holdback amount constituted a

financial limit or cap on the responsibility of the defendants for the PIP works.

Similarly, there is nothing in the text of Clause 11.4(f) stating that the release of

holdback funds somehow extinguished the defendants’ responsibility to complete the

PIP works as provided for in Clause 6.5. The last sentence in Clause 11.4(f)

provides that the final $10,000 of the holdback funds would only be released upon

the franchisor’s confirmation that the PIP works for which the defendants were

responsible had been completed. This makes it crystal clear that the $100,000

holdback was never intended to represent a cap on the financial responsibility of the

defendants to complete their portion of the PIP works. Indeed, the defendants might

have had to spend tens or hundreds of thousands of dollars more than had already

been invoiced in order to secure the release of the final $10,000 in PIP holdback

funds.

[60] I have considered Mr. Mandair’s evidence on this point. His subjective belief

that the responsibility of the defendants to perform the PIP works was somehow

limited or capped by the amount in the PIP holdback clause is simply not consistent

with the objective meaning of the text in the share transfer agreement, interpreted

contextually. The evidence as to Mr. Mandair’s belief has virtually no weight under

the principles of contract interpretation discussed above. Evidence of this sort could

never be used to vary the written terms, nor can it be allowed to overwhelm the text

of the written agreement. A reasonable person would never have interpreted the

terms of the PIP holdback provision as a financial cap on the defendants’

responsibility to complete its share of the PIP works.

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[61] I turn next to interpretation of the PIP Schedule. The defendants argue that

they were only required to supply materials for the particular items of work assigned

to them under the PIP Schedule. Once again, I cannot agree that this is an

objectively reasonable interpretation of the words in the share transfer agreement,

interpreted in light of the entire factual matrix of the contract.

[62] Clause 6.5 states that the parties “are responsible for the Property

Improvement Plan (the “PIP”) work required by the Licensor as per the attached

Schedule 7”. The agreement uses the term “work”, not “materials”, “supplies”,

“inputs”, or any like phrase. Moreover, the language in Schedule 7, referred to

throughout these reasons as the PIP Schedule, describes the respective obligations

of the parties to perform various works, not merely to provide materials or supplies.

The PIP Schedule uses terms like “repaint” (not merely “supply paint”), and “replace”

wall coverings, “caulked and sealed at connecting edges” (not merely “supply

wallpaper”). A reasonable person would clearly have understood these terms to

contemplate that each party was responsible for completing the particular works

assigned to that party under the PIP Schedule, not merely to supply the materials or

inputs required to do the work.

[63] The defendants say the language in Schedule 7 of the share transfer

agreement is a mere reproduction of the PIP Schedule prepared by the franchisor,

and as such it is not a reliable reflection of the true intentions of the parties. The

defendants also point out that there is no provision in the share transfer agreement

for them to access the hotel after the change in possession. They also say it is

unrealistic to expect that the plaintiff and the defendants would both be working on

their respective property improvements at the same time. Finally, the defendants

point to the second last sentence in Clause 11.4(f), which states that that portions of

the PIP holdback funds were to be released to the defendants upon providing

invoices for their share of the PIP works. All of this is said to indicate that the parties

never intended to allocate responsibility for completing the PIP works, but only to

allocate responsibility for providing the necessary materials or supplies.

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[64] I do not find these arguments convincing, either individually or cumulatively,

for the reasons that follow.

[65] The fact that the parties used the PIP documents prepared by the franchisor

as a starting point for the negotiations does not alter the significance of the agreed

upon text in Schedule 7 to the share transfer agreement. In negotiating the

agreement, the parties clearly allocated responsibility for various items to either the

plaintiff or the defendants. Thus, whatever the origin of the PIP Schedule, its terms

were clearly negotiated between the parties and appended to the share transfer

agreement for the specific purpose of allocating responsibility for the PIP works as

provided for in Clause 6.5.

[66] The fact that the share transfer agreement was silent on the issue of access

to the hotel does not negate the clear intent and meaning of the PIP provisions

themselves. Under Clause 11.10, each party was obliged, before and after the

closing date, to “do such acts and things” as may be “reasonably required by

another party to carry out the intent and meaning” of the share transfer agreement.

This would include allowing access to the hotel to complete the PIP works.

[67] With regard to the part of Clause 11.4(f) requiring the release of PIP holdback

funds to the defendants upon provision of receipts, the text of that clause states that

the holdback funds are to be held “to satisfy any PIP works that the [defendants]

were responsible to complete”, and the defendants would be entitled to release of

the funds “[u]pon providing invoices for work completed” (emphasis added). The text

does not support the interpretation advanced by the defendants. Indeed, the text is

entirely consistent with the plain meaning of the language used in Clause 6.5, and

Schedule 7 (the PIP Schedule), both of which are drafted in terms that require each

party to actually complete the work allocated to that party under the PIP Schedule,

as opposed to merely providing supplies or inputs.

[68] With regard to Mr. Mandair’s evidence, his subjective belief that the

defendants were only responsible for supplying PIP materials as opposed to actually

completing their share of the PIP works is not consistent with the objective meaning

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Page 23

of the text in the agreement, interpreted contextually. A reasonable person reading

the text of the agreement, and aware of the entire factual matrix, would clearly have

understood that the mutual intent was to allocate to each party the responsibility for

actually completing the PIP works allocated to that party under the PIP Schedule.

(4) Responsibility for Particular Aspects of the PIP Work

[69] On the basis of Ms. Zhang’s affidavit evidence, I am satisfied that the

defendants breached the terms of the share transfer agreement by failing to

complete the portions of the PIP works assigned to them under the PIP Schedule.

Under Clause 11.3 of the agreement, the defendants are required to indemnify the

plaintiff for “cost and expense” arising “directly or indirectly” from any such breach.

[70] The next issue to be addressed is the quantum of damages to which the

plaintiff is entitled in connection with the failure of the defendants to complete their

share of the PIP works. The plaintiff claims to have spent a total of $549,671.84 on

PIP works that were the responsibility of the defendants under the PIP Schedule. In

written submissions, the plaintiff grouped the expenditures under a number of

headings, as discussed below.

[71] Before addressing the specific categories of work, it is necessary to briefly

explain the hotel’s layout and room composition. At all material times, the hotel had

55 standard guest rooms and 22 guest suites for a grand total of 77 rooms, spread

over three floors. The main floor had 17 standard rooms and four suites, and the

second and third floor each had 19 standard rooms and nine suites.

(a) Wallpaper

[72] Sections 1.1(8) and 1.1(9) of the PIP Schedule required the defendants to

“[r]eplace wall covering with new vinyl wall covering”, and “[p]rovide new accent vinyl

wall covering… at headboard wall”, with all of the coverings to be “caulked and

sealed at connecting edges”, for all “standard guestrooms” on the first and second

floor. Sections 1.4 and 1.5 of the PIP Schedule required the defendants to renovate

“guest suites” on all three floors, with the same scope of work as outlined above.

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[73] Ms. Zhang avers in her affidavit that she engaged two companies to provide

wallpaper, at a total cost of $54,298.88, and that the general contractor charged the

plaintiff a total of $75,807 for removal and disposal of the old wallpaper and

installation of the new wallpaper. (This latter figure was corrected or updated in

closing argument to $82,800 based on the supporting documents in the record).

Accordingly, the plaintiff claims a total of $137,098.88 for costs incurred to replace

the wallpaper as provided for under the PIP Schedule.

[74] The defendants say they were not responsible for any wallpaper work in

relation to the “guest suites”, because the relevant portion of the PIP Schedule,

ss. 1.4 and 1.5, states “n/a” – which I take to be shorthand for “not applicable” –

under the columns for responsible party, timeline, holdback, exemption, and results.

However, the entry in the first column of the table under both ss. 1.4 and 1.5 states,

“[r]enovate suites following scope previously defined for guestrooms, with the

addition of the items listed below”. There are no additional items listed. The clear

intent of this catch-all phrase was that, in respect of the “guest suites” on the first

and second floor (s. 1.4) and the third floor (s. 1.5), each party would be responsible

for the same scope of work for items described in earlier sections of the PIP

Schedule applicable to “guestrooms”. On this basis, I reject the argument that the

defendants were not responsible for any PIP work in relation to the “guest suites”.

[75] The defendants also rely on the affidavit evidence of Mr. Mandair, who avers

that the plaintiff’s claim does not account for wallpaper the defendants purchased

and left at the hotel when they gave up possession to the plaintiff. However,

Ms. Zhang counters this point in her reply affidavit, in which she explains that the

wallpaper materials referred to by Mr. Mandair were for replacement of wallpapering

on the third floor, and that all of the wallpaper costs the plaintiff incurred related to

rooms on the first and second floors.

[76] The defendants also complain that the plaintiff failed to obtain competitive

quotes for the wallpaper. This point is also addressed in Ms. Zhang’s reply affidavit,

explaining that her general practice was to use the supplier specified in the earlier

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design plans, which the defendants had commissioned while they owned the hotel.

In relation to the wallpaper, Ms. Zhang actually contacted a separate supplier, but

that supplier was not responsive. On the basis of all this evidence, I am satisfied that

the costs incurred by the plaintiff to perform the wallpaper work attributable to the

defendants under the PIP Schedule were reasonable and necessary. I find the

defendants liable to pay damages for the full amount, $137,098.88.

(b) Furniture and Casegoods

[77] Sections 1.1(11), (12), (13), and 1.2(4) of the PIP Schedule required the

defendants to replace various items of furniture in the “guest rooms” on the first and

second floor. Section 1.1(10) required the defendants to replace “casegoods” in the

“guest rooms” on the first and second floor. And ss. 1.4 and 1.5 of the PIP Schedule

required the same scope of renovation with respect to the “guest suites” on the

second and third floors.

[78] Based on the information in the checklist she created when the plaintiff took

over operation of the hotel, Ms. Zhang avers in her affidavit that the defendants had

not replaced “most of the furniture” as required under the sections of the PIP

Schedule cited in the preceding paragraph. Similarly, Ms. Zhang says the

defendants had not replaced cabinetry, i.e. casegoods, “in certain rooms”.

Ms. Zhang goes on to state that the plaintiff spent a total of $40,980.69 on

replacement furniture, and $2,167.20 on replacement casegoods. Finally, Ms. Zhang

asserts that the general contractor charged the plaintiff a total of $33,075 for

furniture removal and replacement. Accordingly, the plaintiff claims a total of

$76,222.89 for the replacement of furniture and casegoods that were supposed to

be the responsibility of the defendants under the PIP Schedule.

[79] The defendants contend that they had no responsibility to provide furniture for

the “guest suites”. That position is based on an interpretation of the PIP Schedule

which I have already considered and rejected in para. 74 above.

[80] The defendants also contend that the plaintiff has failed to take into account

replacement furniture that had already been ordered by the defendants, as reflected

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in the “time line” column in ss. 1.1(10) to (13) of the PIP Schedule. The defendants

also rely on the affidavit of Mr. Mandair, attaching copies of invoices for furniture

purchased by the defendants, and a copy of the hotel inventory showing that these

materials were actually on hand at the hotel when the plaintiff took possession.

[81] On my reading of the PIP Schedule, the defendants were responsible for

providing replacement furniture and casegoods for 36 standard guest rooms and 22

guest suites, for a total of 58 rooms. Considering the records cited by the

defendants, I cannot agree with Ms. Zhang’s assertion that the defendants had not

replaced “most of the furniture” in the 58 rooms for which they were responsible

under the PIP Schedule. It is possible if not likely that Ms. Zhang based her

assessment that the defendants had failed to replace “most of” the furniture and

casegoods in the rooms on her room checklist. But Ms. Zhang’s checklist may not

have accounted for the inventory of new furniture that was on hand, some of which

was still in the basement when the property changed hands.

[82] However, it is also clear to me that the number of units of particular items of

furniture and casegoods that the defendants had already ordered and paid for as set

out in the preceding paragraph does not equal the number of units of furniture and

casegoods required to replace everything in the 58 rooms for which the defendants

were responsible under the PIP Schedule. On the whole of the evidence, I am

satisfied that the defendants had not ordered enough furniture and casegoods.

[83] Comparing the number of units of furniture and casegoods previously ordered

by the defendants with the number of units that the plaintiff subsequently purchased,

in many cases the numbers added together are equal to or very close to the total

number of units of furniture and casegoods required to refit the 58 hotel rooms that

were the responsibility of the defendants under the PIP Schedule. This

demonstrates that the plaintiff only purchased additional units of furniture and

casegoods necessary to complete the refitting of the 58 rooms in question. Although

the numbers do not add up exactly, they are close enough to convince me that the

work undertaken and paid for by the plaintiff did not fail to account for the furniture

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and casegoods that the defendants had ordered and left on site before the hotel

changed hands.

[84] This conclusion is reinforced by the reply affidavit of Ms. Zhang, who asserts

that the plaintiff “used all the goods left behind by the [defendants]”, that the furniture

and casegoods on hand were “not sufficient for all the rooms”, and that the evidence

relied upon by the plaintiff relates to the furniture and casegoods “required to

complete the PIP works for the remaining rooms”. I interpret Ms. Zhang’s use of the

phrase “remaining rooms” to refer to unfinished rooms that were the responsibility of

the defendants. I accept Ms. Zhang’s evidence on this point and I find it to be

consistent with the invoices and other records relied upon by both parties.

[85] Descending further into the details, the defendants take issue with the cost of

two particular categories of furniture and casegoods, namely TV motion mounts and

lighting.

[86] With regard to TV motion mounts, the defendants say these were not part of

the PIP works required by the defendants. Counsel points to s. 1.1(10) of the PIP

Schedule, which states that the defendants are responsible for replacing casegoods

with new “contract quality” materials or items, including “TV wall unit[s]”. Amongst

the items ordered, paid for, and left on hand by the defendants when the hotel

changed hands were a total of 59 “LCD TV wall units”. This is one more than the

total number of hotel rooms for which the defendants were responsible. The plaintiff

later purchased a total of 53 “full motion mounts”, described in Ms. Zhang’s affidavit

as “TV motion mounts”, at a total cost of $5,039.89. I am not satisfied that this is a

cost arising out of the PIP works for which the defendants were responsible under

the PIP Schedule. It was a superadded expense incurred by the plaintiff.

Accordingly, I would deduct this amount from the plaintiff’s claim for replacement

furniture and casegoods.

[87] With regard to lighting, the plaintiff’s claim for replacement furniture and

casegoods includes a total of some $10,000 for standing lamps and floor lamps. The

defendants say these items are not properly characterized as either furniture or

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casegoods. They point out that under ss. 1.1(3) and (4) of the PIP Schedule, the

plaintiff was responsible for lighting of various kinds. Section 1.1(3) refers to

“architectural light fixtures”, and s. 1.1(4) refers to “decorative light fixtures”.

[88] I find that there is genuine ambiguity in the contract on this particular point.

On the one hand, I would not consider plug-in lamps to fit within the commonly

understood meaning of the terms “fixture” or “lighting fixture”, which would generally

only apply to lighting that is affixed to the structure: Merriam-Webster Dictionary

(online: https://www.meriam-webster.com) [Merriam-Webster], “fixture”. Thus, one

cannot say that replacement lamps were clearly the responsibility of the plaintiff. On

the other hand, I would not consider lamps to fall within the meaning of the term

“casegoods”, which is generally understood to refer to furniture that provides interior

storage space, such as bureaus or bookcases: Merriam-Webster, “casegoods”.

Thus, it is not entirely clear from the text of the contract that replacement lamps were

the responsibility of the defendants.

[89] The case law instructs that where there is genuine ambiguity in the terms of

the contract, the court can have regard to evidence of the surrounding

circumstances to assist in interpretation. The PIP Schedule indicates that as of the

date of the written agreement, certain “casegoods” had already been ordered. The

defendant has presented, as evidence of what was ordered, invoices for the

purchase of items including headboards, nightstands, coffee tables, and access

pillows. The defendants later obtained the release of PIP holdback funds based

upon these invoices. Some of the items listed do not fit easily into the common

meaning of the term “casegoods”, that is, furnishings with interior storage space.

Despite this, both parties appeared to accept that these items fell within the scope of

the PIP works. This evidence assists me in determining that the parties had a mutual

understanding and agreement that the term “casegoods” was not limited to furniture

providing “interior storage”.

[90] I conclude that the desk lamps and standing lamps fell within the scope of the

PIP improvements under the responsibility of the defendants as provided for in

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s. 1.1(10) of the PIP Schedule. The plaintiff is entitled to damages for the cost of

these items.

[91] In the result, apart from the claim for TV “motion mounts” falling outside the

scope of the PIP works, I am satisfied that the balance of the plaintiff’s claim for

furniture, casegoods, and associated contracting fees relates to items that were the

responsibility of the defendants under the PIP Schedule. I therefore find that the

defendants are liable to pay damages in the amount of $71,183 under this heading.

(c) Patio Furniture

[92] Section 1.9(3) of the PIP Schedule required the defendants to provide new

tables and chairs for the exterior patio. Ms. Zhang deposes that the defendants did

not do so, as a result of which the plaintiff purchased these items at a cost of

$9,947.43.

[93] The defendants point out that the PIP Schedule indicates the patio furniture

had been “ordered” at the time that the written agreement was executed. However,

there are no invoices or other evidence showing that the defendants paid for any

particular items of patio furniture, nor is there any evidence that new patio furniture

was on hand as part of the hotel inventory when the plaintiff took possession.

[94] Even taking into account the indication in the PIP Schedule that the patio

furniture had been ordered, I am satisfied on the affidavit evidence of Ms. Zhang that

these items were not on hand when the hotel changed hands, such that the plaintiff

found it necessary to purchase replacement patio furniture in order to complete the

PIP works to the satisfaction of the franchisor.

[95] The defendants also point out that the plaintiff’s claim for the cost of patio

furniture includes $976.64 for planters that fall outside the scope of the PIP

Schedule. Ms. Zhang accepts this point in her reply affidavit, and plaintiff’s counsel

concedes in his written submission that this amount should be deducted from the

total. In the result, I find that the defendants are liable to pay damages in the amount

of $8,970.79 under this heading.

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(d) Building Permit and Architectural Fees

[96] In her affidavit, Ms. Zhang avers that in order to undertake the PIP works, she

had to obtain a municipal building permit at a cost of $5,143.68. Mr. Mandair

responds in his affidavit by pointing out that none of the work assigned to the

defendants under the PIP Schedule – consisting of providing wall coverings,

painting, and replacing furniture and casegoods – would have required a building

permit. Mr. Mandair explains that none of this work would require any alteration of

the building’s gas lines, electrical system, or water fixtures. In her reply affidavit,

Ms. Zhang said she was not able to comment on what aspects of the PIP works did

or did not require a building permit. She was advised by the supervising

professional, Mr. Kutev, that a building permit was required for the PIP works as “as

a whole”, and she is unable to comment on which particular aspects of the work did

or did not require a building permit.

[97] After considering all of this evidence, I find that the plaintiff has failed to prove

that any portion of the cost of the building permit was attributable to PIP works for

which the defendants were responsible under the PIP Schedule. There is no

evidence before me as to what kinds of work would or would not require a building

permit. Having regard to the nature of the work assigned to the defendants under the

PIP Schedule, which is largely decorative or cosmetic, Mr. Mandair’s explanation

makes sense to me. By comparison, at least some of the PIP works assigned to the

plaintiff would appear to involve changes to the building’s lighting fixtures, plumbing

fixtures, heating and cooling systems. On this record, I find it more likely than not

that the building permit was only required in order to perform aspects of work for

which the plaintiff was responsible under the PIP Schedule. Thus, the plaintiff has

failed to prove this aspect of its claim.

[98] With regard to the architectural fees, the plaintiff does not take the position

that the architectural designs and the like were necessary in order to undertake the

specific works attributable to the defendants under the PIP Schedule. Rather, the

plaintiff says it was obliged by the franchisor to retain an architect to oversee the PIP

works as a whole, and the defendants refused to provide or agree to the release of

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the architectural plans previously prepared by the supervising architect, Mr. Kutev.

As a result of all this, the plaintiff was forced to “re-engage” Mr. Kutev, at a total cost

of $15,541.84.

[99] The plaintiff says that the refusal of the defendants to agree to the release of

the architectural plans was a breach of their obligations under both Clause 6.1 and

Clause 11.10 of the agreement. The former clause required the defendants to

provide the plaintiff with all records, documents, files and other data relating to the

business of the company, and the latter clause required the defendants to do such

acts as may reasonably be required to carry out the intent and meaning of the

agreement.

[100] In support of its position, the plaintiff cites an email dated 25 July 2016 from

Ms. Zhang’s co-worker, copied to Ms. Zhang, to the defendant Mr. Boyal, seeking

assistance in obtaining consent for the release of design documents from the

previous owner of the hotel and their consultant Mr. Kutev. Mr. Boyal responded on

the same day, stating in his reply email, “I would be happy to accommodate [the

plaintiff] once we have received the holdback monies which are overdue to us”. After

the defendants refused to provide assistance in obtaining the design documents, the

plaintiff “re-engaged” Mr. Kutev, who then prepared design plans without the benefit

of any “paperwork” from the “previous owner”.

[101] The defendants contend that the plaintiff’s position is based on a

“misunderstanding” that the defendants refused to provide the relevant documents.

The defendants say the design documents were actually the property of the previous

hotel owner, Fortis Hotels. This is reflected in the original email dated 25 July 2016

from the franchisor to Ms. Zhang and others, stating that the franchisor’s legal team

“has advised that all design documents completed by the previous owner (Fortis

Hotels) and their consultants (Jordan Kutuv [sic] Architect Inc.) are their property

only”. The defendants rely on the reference in this email to the previous owner as

“Fortis Hotel” to say that the plaintiff directed its request to the wrong party.

[102] I do not find the position of the defendants persuasive, for three reasons.

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[103] First, the plaintiff’s request for documents was clearly time-sensitive, given

that both the plaintiff and the defendants had committed to complete the PIP works

by a certain timeline that had already passed. The defendants, who would

reasonably have expected that the plaintiff would be accountable to the franchisor

for the incomplete status of the PIP works, were obliged to provide all relevant

documents per Clause 6.1 of the agreement, and obliged to do such acts as may

reasonably be required to carry out the intent and meaning of the agreement per

Clause 11.10. Despite all of this, Mr. Boyal declined to “accommodate” the request,

citing the ongoing dispute over the status of the holdback funds.

[104] Second, based on the reasoning in paras. 32 to 42 above, I would not

interpret the disagreement about the release of the holdback funds, which was the

subject of ongoing discussion between the parties’ solicitors, as a fundamental or

repudiatory breach by the plaintiff. Accordingly, Mr. Boyal was not justified in

declining to “accommodate” the plaintiff’s request for documents relating to the PIP

works on the basis of the ongoing dispute about the status of the holdback funds.

[105] Third, the plaintiff made a rather straightforward request to the defendant

Mr. Boyal, one of the two prior owners of the hotel, to facilitate access to

architectural documents related to the PIP works. Mr. Boyal did not respond by

indicating that the request was directed to the wrong party. Rather, he responded by

saying that he would be “happy to accommodate” the plaintiff once the holdback

funds were released. Accordingly, I do not accept the position of the defendants that

they did not breach their obligations under the share transfer agreement because

the plaintiff directed its request to the wrong party. Mr. Mandair avers that he and

Mr. Boyal had been the owners of the hotel since 2008 or 2009, and in

contemplation of selling it to the plaintiff, they arranged for the PIP report “at their

own cost” following a site visit by representatives of the franchisor on 22 September

2015. In these circumstances, I infer that the defendants would have been able to

assist in obtaining the architectural designs that went into the preparation of the PIP.

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[106] The defendants were obliged under Clause 11.10 to undertake such acts as

were reasonably required to carry out the intent and meaning of the agreement. The

defendants breached this obligation by refusing to “accommodate” the plaintiff’s

request for access to documents necessary to carry out the PIP works. As a

consequence of the defendants’ breach, the plaintiff had to incur $15,541.84 in

architectural fees. The defendants are liable to pay damages in that amount.

(e) Doors and Door Frames

[107] Section 1.1(5) of the PIP Schedule required the defendant to “[r]epaint all

painted items and surfaces with new color to match [the] new design scheme” for all

standard guest rooms on the first and second floors. Section 1.2(2) required the

defendants to “[r]epaint entry doors where paint is peeling” for guest rooms on the

third floor. Sections 1.4 and 1.5 required the defendants to renovate the guest suites

on all three floors, with the same scope of work as outlined above.

[108] Ms. Zhang deposes that the defendants failed to adequately repaint the

doors and door frames, as a result of which the plaintiff was required to pay for this

work itself. Attached to Ms. Zhang’s affidavit are three separate invoices for door

and frame painting, totalling $10,321.50. Of this amount, $1,558 relates to the

painting of “utility” doors, or doors of other descriptions which appear to be outside

the scope of the defendants’ responsibility. Removing that amount would reduce the

net amount of the defendants’ responsibility for repainting work to $8,763.40.

[109] For their part, the defendants claim that some repainting of doors was done

before the plaintiff took possession of the hotel. Even allowing for this, I accept the

evidence of Ms. Zhang that the door and frame painting as described in her affidavit

was necessary to bring the hotel into compliance with the finishing standards

contemplated in the PIP Schedule. I find that the plaintiff is entitled to recover

$8,763.50 for the cost of repainting doors and door frames within the scope of the

defendants’ responsibility under the PIP Schedule.

[110] The much more contentious issue under this heading relates to the plaintiff’s

claim for $248,296.10 for the complete replacement of guest room doors. In her

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affidavit, Ms. Zhang avers that in early 2017, a representative of the franchisor

inspected the hotel for compliance with the franchise standards. Ms. Zhang avers

that the unnamed representative “said that it would not be acceptable to the

franchisor for us to repaint the doors”, because this would “require the doors to be

removed and sanded down”, which would, among other things, “remove much of the

detailing on the doors”. Accordingly, “the franchisor required the doors to be

removed and replaced with doors that met their standard”.

[111] There are two concerns with Ms. Zhang’s evidence about the replacement

doors. First, it is hearsay. The plaintiff has not identified any applicable exception to

the hearsay rule, or any other rationale on which to admit this evidence for the truth

of its contents. Second, even if the plaintiff had presented some admissible evidence

to establish that repainting the doors would not meet the franchisor’s standards, this

was not the responsibility of the defendants. The defendants were required to

“repaint” surfaces, and touch up door frames as set out in the PIP Schedule. Even if

there were admissible evidence that the franchisor later insisted on better quality

finishing, this was not part of the agreement that the parties had committed to when

they signed the share purchase agreement.

[112] I have another concern about the plaintiff’s claim for the cost of replacement

doors. Section 1.1(2) of the PIP Schedule required the plaintiff to “[r]eplace entry

door lockset with new electronic RFID grade 1 mortise lock hardware” for the guest

rooms on the first and second floor. Based on similar language in ss. 1.2(3), 1.4, and

1.5 of the PIP Schedule, the plaintiff was required to replace the locks on the entry

doors in all of the other guest rooms and guest suites. In this regard, there are

references to the terms “doors and locks” and “doors & hardware” in the invoice and

deposit documents put forward by Ms. Zhang to support the plaintiff’s claim for

replacement doors.

[113] This evidence causes me to question whether it was truly necessary to

replace the doors in order to address the quality of the repainting, or whether,

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alternatively the decision to replace the doors was driven by the plaintiff’s obligation

to replace the “locks” or “hardware”.

[114] Moreover, the subcontractor invoice does not distinguish between the cost of

the doors and the cost of the locks. Thus, even if the evidence established that it

was necessary for the plaintiff to replace the doors as a consequence of the

defendant’s failure to repaint (and I find that it did not), the plaintiff has failed to

prove what portion of the $248,296.60 is attributable to the doors, and what portion

is attributable to the replacement of locks. I would not expect the cost of “electronic

RFID” locks to be minimal. I have no evidence either way, but it could well be the

lion’s share of the total amount invoiced by the subcontractor.

[115] For all of these reasons, I find that the plaintiff has failed to prove that the

$248,296.60 incurred to replace the hotel room doors (and locks) is attributable to

any breach of the defendants’ obligations under the PIP Schedule.

(f) Asphalt Repair

[116] Section 1.13(3) of the PIP Schedule required the defendants to “repair cracks

and reseal asphalt paving” for the “site”. Ms. Zhang deposes that the defendants did

not do this work, and the plaintiff paid $10,080 to have the work completed. The

defendants argue that they were only required to repair “cracks” in the asphalt, not

“replace the entire parking lot”. However, the invoice presented by the plaintiff does

not indicate that the plaintiff paid to “replace the entire parking lot”. According to the

invoice, the work consisted of applying two layers of commercial grade sealant at a

cost of $7,200 plus GST, and a further $2,200 plus GST for painting lines and

repairing a concrete curb. The resealing work was clearly within the responsibility of

the defendants under the PIP Schedule. The curb repair was not. I conclude that the

plaintiff is entitled to damages in the amount of $7,560 under this heading.

(g) Project Management Fees and Disposal Fees

[117] The general contractor for the PIP works charged the plaintiff for particular

aspects of the works, which are dealt with under some of the headings above,

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specifically wallpaper, and replacement of furniture and casegoods. However, the

general contractor also charged the plaintiff contingency fees and monthly

management fees. The contingency fees, calculated at a rate of $300 per renovated

hotel room, totalled $23,100. The monthly management fees, at a rate of $5,777 per

month for seven months, totalled $40,425. Thus, the plaintiff paid its general

contractor a total of $63,525 in overhead charges.

[118] The plaintiff seeks to recover a portion of this from the defendants on the

basis that much of the contractor’s time and effort was taken up by work allocated to

the defendants under the PIP Schedule. In her affidavit, Ms. Zhang states that,

based on her work in overseeing the PIP works, approximately 50% of the general

contractor’s time and effort was attributable to the work allocated to the defendants

under the PIP schedule. Thus, the plaintiff says it is entitled to recover 50% of the

overhead charges from the defendant. The plaintiff relies on Clause 11.1 of the

agreement, in which the defendants agreed to indemnify the plaintiff for any loss,

liability, cost or expense, incurred directly or indirectly as a result of a breach by the

defendants.

[119] The defendants take issue with Ms. Zhang’s assertion that 50% of the

subcontractor’s overhead charges are attributable to work for which they were

responsible. They cite, among other things, the cross-examination of Ms. Zhang, in

which she stated that her attribution of 50% of the overhead costs to the defendants

was a “rough estimate”. Based upon the figures in her spreadsheet, Ms. Zhang

calculated the portion attributable to the defendants to be “about 30 to 50 percent”,

but went on to explain that based on her personal observations, the contractor spent

“significantly” more time on the defendants’ part of the PIP works. The defendants

also point out that they were only responsible for some portions of the work in some

of the hotel rooms that the contractor renovated. Finally, the defendants rely on

Mr. Mandair’s affidavit evidence that, based his experience as a construction

manager and developer, no more than 10% of the subcontractor expenses are

attributable to the defendants.

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[120] I do not consider the conflict in the affidavit evidence of Ms. Zhang and

Mr. Mandair to raise any real issue of credibility. These are not two witnesses giving

different factual accounts of the same event. Rather, both witnesses endeavoured to

provide an estimate of the overhead attributable to the defendants’ portion of the

work, based on their familiarity with the hotel, and their knowledge of the PIP works.

The assessment of this evidence turns on admissibility and reliability, not witness

credibility.

[121] Even if the evidence of both witnesses is admissible as something other than

unqualified opinion evidence, I would not attach much weight to either Ms. Zhang’s

estimate or Mr. Mandair’s estimate.

[122] Although Ms. Zhang was in a position to make personal observations of the

contractor’s work, her estimate is based on little more than a general assertion that

the contractor spent a disproportionate amount of time on jobs that fell within the

responsibility of the defendants. Her evidence was also significantly weakened in

cross-examination, specifically her concession that when she tried to calculate the

overhead using the data from her own records, the defendants’ portion came out to

“about 30 to 50 percent”.

[123] Mr. Mandair appears to have based his 10% estimate on a general

knowledge of the hotel, along with his stated experience in development and

construction. He had no direct involvement with the contractor, and was not in a

position to observe the work. I also find it likely that Mr. Mandair’s assertion that no

more than 10% of overhead is attributable to the defendants is based on a narrow

and self-serving interpretation of the scope of the defendants’ responsibilities under

the PIP Schedule.

[124] I would characterize Ms. Zhang’s spreadsheet as a contemporaneous record

of the contractor fees over the course of the project. This spreadsheet indicates that

the total of all direct costs charged by the subcontractor for the PIP works was

$352,447. Of this, some $108,882 of direct costs related to work that had been

assigned to the defendants under the PIP Schedule. Thus, the work attributable to

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the defendants accounted for 30.9% of the direct costs charged by the

subcontractor. I consider that figure to be an objectively reasonable representation

of the proportion of all the subcontractor fees attributable to the defendants. On that

basis, I conclude that of the $63,525 in overhead charges, $19,629 is attributable to

work that was the responsibility of the defendants. The plaintiff is entitled to

compensation in that amount.

[125] The plaintiff also incurred some $12,756.64 in disposal fees, above and

beyond the disposal fees included within the general contractor’s fees. Applying the

same analysis, I find that $3,942 is attributable to the disposal of materials related to

the defendants’ share of the PIP works. The plaintiff is entitled to compensation in

that amount.

(h) Legal Expenses as Damages

[126] The plaintiff also seeks recovery of the entirety of its legal expenses as

contractual damages pursuant to the indemnity provision of the share transfer

agreement. To be clear, this is not merely a plea for costs of the litigation under the

Rules, but rather a claim for full recovery of all legal expenses incurred by the

plaintiff as damage for breach of the contract, pursuant to the indemnity clause in the

share transfer agreement.

[127] The case law recognizes that parties may agree in a contract “that one party

will reimburse the other for actual legal fees and other expenses incurred in certain

circumstances”, in which case “entitlement to recovery of legal fees and expenses is

derived from the terms of the contract, not from the statutory costs regime”: Tanious

v. The Empire Life Insurance Company, 2019 BCCA 329 at para. 52, citing

Canadian Petcetera Limited Partnership v. 2876 R Holdings Ltd., 2010 BCCA 469 at

para. 42.

[128] A contractual right to full indemnification of legal expenses must be “clearly

and unequivocally expressed” in the text of the contract, although no “magical

incantation” is required: Bakshi v. Shan, 2013 BCSC 969 [Bakshi] at para. 44. The

court must ascertain “the reasonable intention of the parties” based on the “language

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used” in the contract: Eisler Estate v. GWR Resources Inc., 2020 BCSC 562 at

para. 32 [Eisler Estate], aff’d 2021 BCCA 247.

[129] It is also important to bear in mind that legal expenses paid to a lawyer are

unlike other expenses, in that they are subject to a statutory right of review under the

Legal Profession Act, S.B.C. 1998, c. 9, as explained in Travelers Guarantee

Company of Canada v. Ryan, 2012 BCSC 43 at paras. 8–19. For this reason, where

a claim for contractual indemnification of legal fees is successful, the proper

approach is to make an order awarding legal fees as damages, with the quantum to

be assessed by the Registrar under Rule 18-1: Shang v. Dhuu, 2021 BCSC 68

[Shang] at para. 20; Eisler Estate at para. 33.

[130] In the present matter, there is a live issue of contract interpretation as to

whether the indemnification clause “clearly and unequivocally” extends to legal

expenses, including legal costs incurred to enforce the share transfer agreement.

Neither party has provided any case law on that issue. There is also the added

wrinkle that the share transfer agreement contains a reciprocal indemnification

clause in favour of the defendants, who have brought a successful counterclaim.

The defendants seek costs but have not advanced a claim for recovery of legal fees

as contractual damages.

[131] In all of these circumstances, I have decided to adjourn the plaintiff’s

contractual claim for indemnification of legal expenses, to be considered at the same

time as any arguments for costs under the Rules. Many comparable cases have

dealt with such claims in a similar way, including Bakshi, Eisler Estate, and Shang.

(5) Sum Total of Damages Payable to the Plaintiff

[132] In summary, I conclude that the defendants are liable to pay the plaintiff

damages for breach of contract as follows: (i) $137,098.88 for wallpaper

replacement costs; (ii) $15,541.84 for architectural fees; (iii) $8,763.40 for the cost of

repainting of doors and door frames; (iv) $7,560 for the cost of asphalt maintenance;

(v) $19,629 for contractor overhead costs; and (vi) $3,942 in material disposal costs,

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for a total of $192,535.12, plus from 27 February 2018, which was the date when the

plaintiff made its final payment to the general contractor.

[133] With regard to the final $10,000 of PIP holdback funds, if those funds have

not already been released, they should be released to the defendants upon payment

of the net amount of the judgment. If the funds have not previously been released to

the defendants and are no longer available for release to them for some reason,

then $10,000 should be deducted from the amount of the plaintiff’s judgment.

(6) Counterclaim

[134] As noted above, the defendants have filed a counterclaim for damages in

connection with the plaintiff’s failure to adjust the contract purchase price to account

for $21,479.94 in inventory materials at the hotel when it changed hands. The

counterclaim is not merely against the plaintiff, but also the personal representatives,

Ms. Zhou and Mr. Kang, and Mr. Purba, who allegedly made personal guarantees to

pay the inventory amount, at the hotel, on the occasion when the inventory was

counted.

[135] The plaintiff admits to breaching the obligation to make an inventory

adjustment under Clause 3.1, and concedes that the counterclaim should be

allowed. The plaintiff says the amount should be set off against the damages

payable by the defendants.

[136] Mr. Zhou and Mr. Kang filed responses to the counterclaim denying liability,

but neither of them filed responses to the defendants’ summary trial application.

Mr. Purba never filed a response to the counterclaim, and is therefore in default

under the Rules.

[137] Given the plaintiff’s concession that the counterclaim against it should

succeed, and given the further reality that damages payable to the defendants in the

counterclaim will be set off against the damages payable to the plaintiff for its

originating claim, I would adjourn the counterclaims against the other parties. It

seems to me that those claims are practically moot, even if not technically so. If the

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defendants take issue with this and wish to seek further relief in that regard, they

may raise the matter in conjunction with their submissions on costs.

[138] In the result, I would allow the counterclaim against the plaintiff and award

damages of $21,479.94 plus interest from 8 March 2016 (the final closing date for

the agreement), to be set off against the award of damages payable by the

defendants in the main action. I would adjourn generally the counterclaim against

the personal defendants by counterclaim, giving the defendants leave to revisit the

matter in conjunction with their submissions on costs.

Costs and Legal Fees

[139] If the parties are unable to agree on: (i) the disposition of the plaintiff’s

contractual claim for legal fees, and (ii) costs of the action, they may file written

submissions, unless either party takes the view that a further oral hearing is required

on these issues. If the parties are content to proceed by written submissions, then:

(a) within three weeks of the date of this judgment, the plaintiff shall file and serve a

written submission no more than eight pages in length, together with any supporting

materials; (b) within two weeks of receiving the plaintiff’s submission, the defendants

shall file and serve a written submission no more than eight pages in length, along

with any supporting materials; and (c) within one week of receiving the defendants’

submissions, the plaintiff may file and serve a written reply submission no more than

three pages in length, plus any supporting (reply) materials.

“Riley J.”