BC Court of Appeal rules against owners who sold property through misrepresentation

The BC Court of Appeal found property owners liable for tort and breach of contract when they misrepresented to the buyers the true condition of the house they were selling.

In Kuhnke v. Karner, 2022 BCCA 399, Matthew and Dawn Kuhnke owned a residential property located on Ker Avenue in Saanich. The property is a two-storey structure with a second-storey back deck. In 2017, the deck was damaged when several large rocks fell from a rockface abutting the property.

Matthew Kuhnke obtained a geotechnical report that advised a large and unstable wedge rock remained perched above the deck and that emphasized the need for timely remedial action. A second report estimated the cost of a potential remedial solution to be approximately $70,000. Instead of conducting any remediation work, Matthew and Dawn decided to sell the property.

Matthew and Dawn provided a disclosure form to prospective purchasers which confessed that “some rock” had previously damaged the back deck and that the surface of the deck required repair. It made no mention of the unstable rock wedge or the geotechnical report. Shannon Karner and Cristopher Clark bought the property for $660,000. It was only after they had purchased the property that they learned the full extent of the risk concerning the rockface. They undertook the necessary remedial work, costing them more than $170,000. Karner and Clark then filed a civil claim against Matthew and Dawn Kuhnke, alleging tort and breach of contract.

The trial judge found the Kuhnkes liable for breach of contract and the tort of deceit. He awarded Karner and Clark $181,661 as compensatory damages and found the Kuhnkes severally liable to pay $2500 each in punitive damages. The Kuhnkes elevated the matter to the BC Court of Appeal, arguing that the trial judge made adverse findings of credibility against them without adequately developing the basis for those findings.

Knowing misrepresentations

The appellate court dismissed the Kuhnkes’ appeal. The court agreed with the trial judge’s finding that the “half-truths” the Kuhnkes had told with respect to the existence of the geotechnical report constituted knowing misrepresentations. The trial judge said the case before him, “featured an undisclosed engineering report in circumstances where the vendors tried and succeeded in their effort to divert the purchaser’s attention from the defect.”

The appeal court found that immediately after obtaining the geotechnical and cost estimation reports, the Kuhnke’s decided to sell the property. The court further found that Matthew Kuhnke texted one of the tenants residing in the property cautioning them not to use the deck and bemoaning the “nightmare” he faced due to the instability of the rockface. The trial judge noted that the Kuhnkes had failed to alert their realtor to the existence of the geotechnical and cost estimation reports because they knew their realtor might share the information with prospective purchasers. Interested buyers would learn the extend of the hazard, and the greater expense, required for remediation. Based on these facts and findings, the appeal court said there was ample basis to infer that the Kuhnkes knowingly misrepresented the condition of the property and associated risks in the disclosure form.

Reliance on false representation

The appeal court noted that reliance on a defendant’s false representation is a necessary element of the tort of deceit. The buyers, Karner and Clark, asserted that they would not have purchased the property if they had been aware of, or had seen the reports showing the extent of the damage to the property.

The trial judge adopted the view that “the plaintiffs have a very strong case on reliance” and accepted their evidence. The appeal court said that the judge’s finding that Karner and Clark relied on the Kuhnkes’ misrepresentations was a finding of mixed fact and law, and there was no palpable or overriding error with that finding. The appeal court ultimately upheld the award of pecuniary compensatory damages in favor of the buyers of the property.