Executive Summary: Key Legal and Evidentiary Issues

• Central dispute revolves around whether the defendant had prior knowledge of the unpaid nurse-call system installation before acquiring the property on September 30, 2019.

• Plaintiff's claim relies on the Builders Lien Act, arguing the defendant qualifies as an "owner" who should be deemed to have requested the improvement due to prior knowledge.

• Alternative unjust enrichment argument asserts the defendant benefited from the improvement without legal justification while the plaintiff suffered financial detriment.

• Defendant invokes the bona fide purchaser for value defense, claiming it acquired the property and assets without notice of the plaintiff's pre-existing equitable interest.

• Evidentiary weakness in the plaintiff's case stems from Mr. McIlwrick's affidavit failing to establish actual or constructive notice, and Ms. Krapohl's bare assertion lacking specifics and context that she informed the defendant of the unpaid work.

• Contractual warranties in the assets contract stipulated the assets were "free and clear of all charges and encumbrances of every nature and kind whatsoever," with vendor indemnification for any such charges and encumbrances.

Background and parties involved

In early 2019, Coho Communications Ltd., a company in the business of installing and servicing electronic communication systems operated by its principal and sole director Mr. Lennie McIlwrick, was contacted by Ms. Brigitte Krapohl to inspect the nurse calling system at Island View Place Care Inc., a multi-unit residential care facility for seniors located at 7013 East Saanich Road in Saanichton, BC. Mr. McIlwrick determined that the existing system was obsolete and needed to be replaced. Ms. Krapohl was at the time the directing mind of a company called Comet Consultants Ltd. and the de facto owner and operator of the facility. A verbal contract was entered for the purchase and installation of a Tek-Tone 160 nurse-call system at an agreed price of $42,694 plus GST.

Financial distress and the sale transaction

At the time of the contract, Ms. Krapohl's companies were in significant financial distress. Since February 2018, the property, along with a number of parcels of land adjacent to it, had been the subject of foreclosure proceedings related to a mortgage debt of over $3 million. In addition, there were security agreements in favour of the lender attaching all presently owned and after-acquired personal property of Ms. Krapohl and her companies arising from, or used in connection with, the encumbered land. Lease financing was arranged with a company called Derotto Holdings Ltd., with the understanding that the lease agreement would be finalised and registered after the work was done. Mr. McIlwrick began installing the system on July 29, 2019. His timesheet submitted in evidence suggests that the job was almost done by September 3, 2019, but he submitted no invoice for payment. Completion of the work was delayed, mostly due to defects in the system's central processing units, requiring coordination with the manufacturer and assistance from a third-party contractor.

On September 17, 2019, apparently unbeknownst to Mr. McIlwrick, Ms. Krapohl, on behalf of her companies, agreed to sell the facility, the property on which it was located, and all its assets and appurtenances, plus the adjoining parcels of land, to 1222424 B.C. Ltd. (the defendant). There were two sales contracts related to this transaction: one for the various parcels of real property for $4.3 million, and a second for the "assets, appliances, materials, equipment, chattels and personal property" located on or used in connection with them for $50,000. The closing date for both contracts was September 30, 2019. The assets contract included an appended Schedule "A" which specified that it covered the cost of acquiring, amongst other things, all computers and software, electronics, safety equipment, and alarms within the facility. The assets contract contained express warranties that the assets were "free and clear of all charges and encumbrances of every nature and kind whatsoever," with the seller agreeing to "indemnify and save the Buyer harmless from any and all charges and encumbrances."

Post-sale events and the disputed invoice

After the closing date, Mr. McIlwrick, still claiming to be unaware that the property and facility had been sold, returned to the facility to remedy the defects in the system's central processing units that he had identified weeks before the sale. He installed the replacement units on October 23 and 30, 2019 and says that, while he was at it, he spoke to Marlen Gjoka, a director of the defendant. He did not say what was discussed, but by his own account, neither the improvement nor the amount payable was discussed or confirmed. He did not even know that the property had been sold or that Mr. Gjoka was involved in the new ownership; it was only later that he learned in passing from an unnamed nurse at the facility that "Mr. Gjoka was Island View's new owner."

Mr. McIlwrick alleges that a person called Debra Tilley, then an accounting clerk with the defendant's parent company, contacted him "to request my invoice for the system" via a voicemail message on October 25, 2019. However, the court found that the message was not a request for an invoice for the system, but was only a request for a quote for repairs immediately necessary to make the system operable. On October 31, 2019, Mr. McIlwrick invoiced the defendant, not just for the work done to get the system working properly, but for the entire contract price of $44,828.70 plus $403.20 for additional materials and labour. The defendant refused to pay, taking the position that it was not responsible for the plaintiff's account and that, by the terms of the property and assets contracts, Ms. Krapohl and her companies alone were liable to pay it. There is no evidence in the record to show that an invoice was ever issued to Ms. Krapohl or her companies.

On December 5, 2019, the plaintiff filed a claim of lien against title to the property in the Victoria Land Title Office for the outstanding amount. The defendant does not dispute that the lien was filed in time or allege that there was any procedural defect in its registration. On February 7, 2020, the plaintiff filed its notice of civil claim. On October 21, 2020, the lien was cancelled in return for the defendant depositing $50,000 in trust pending a resolution of the matter.

Legal arguments and the issue of prior notice

The plaintiff advanced two principal arguments. First, under the Builders Lien Act, S.B.C. 1997, c. 45, it claimed the defendant was an "owner" within the meaning of s. 1 because it had prior knowledge of the unpaid improvement before acquiring the property. Under s. 3 of the Act, the plaintiff argued that even in the absence of contractual relations between the parties, the improvement is deemed to have been done at the defendant's request, entitling the plaintiff to its lien and making the defendant legally bound to pay for the improvement. Second, the plaintiff claimed entitlement to damages in the contract amount on the basis that the defendant had been unjustly enriched by the improvement, having sustained a financial detriment while the defendant enjoyed a corresponding benefit without any legal justification.

The defendant responded that the legal justification is found in the assets contract, by which it purchased the improvement free and clear from Ms. Krapohl and her companies on warranties that there were no outstanding liabilities. The defendant maintained that as a bona fide purchaser for value, without prior knowledge of the plaintiff's claim for the value of the improvement, it had not been unjustly enriched and had no equitable obligation to the plaintiff. Through its witnesses, Mr. Gjoka and Mr. Michael Forbes, the defendant denied having any knowledge of the unpaid improvement prior to closing, denied receiving any quotation from the plaintiff prior to the closing of the transaction, and denied making any commitment to pay the plaintiff's outstanding account.

Evaluation of evidence and credibility findings

The court found that Mr. McIlwrick's affidavit standing alone does not provide any material facts in support of his claim that the defendant had prior knowledge of the improvement. He referred only to the one-off conversation with Mr. Gjoka at the facility in mid-October 2019 in which, by his own account, neither the improvement nor the amount payable was discussed or confirmed. He gave no evidence of circumstances surrounding this conversation that could give rise to the inference that constructive notice was given.

The court also determined that Ms. Tilley's phone message was not a request for an invoice for the system, but was only a request for a quote for repairs immediately necessary to make the system operable. She assumed that Mr. McIlwrick had attended the facility "to look at the wiring and so on" and wanted to know how much his services would cost the defendant to render the system functional. The court found Mr. McIlwrick's evidence suggesting otherwise to be unsustainable.

Ms. Krapohl's affidavit evidence stated that at some unspecified time during the negotiation and completion of the contracts, she informed the defendant about the plaintiff's work and services, and that Mr. Gjoka committed to pay the plaintiff in full "together with other suppliers and service providers." However, the court found this evidence to be unpersuasive. It not only lacked specifics and context, but also ran contrary to the express terms, warranties and indemnities in the property and assets contracts that she agreed to on behalf of her companies. The court accepted Mr. Gjoka's denial, finding that especially in light of the clear and unambiguous provisions of the assets contract, it makes logical sense and accords with common experience, while Ms. Krapohl's version seemed unlikely by comparison and must be measured against the possibility that she made it up to shift responsibility to the defendant to pay for work that she alone requested.

Ruling and outcome

The court granted the application for summary trial, finding the matter suitable for expedited resolution given that the amount of money involved is at the very lower end of the Court's monetary jurisdiction, the cost of a conventional trial would be out of proportion to the value of the claim, and the matters at issue dated back more than six years with no trial date set. On the merits, the court dismissed the plaintiff's claim, concluding that on the totality of the evidence presented, the defendant was a bona fide purchaser for value without notice of the plaintiff's pre-existing equitable interest. The $50,000 funds held in trust pending the decision were ordered returned to the defendant, which was also awarded costs on Scale B. No amount was awarded in favour of the plaintiff, as its claim was entirely dismissed.