Executive Summary: Key Legal and Evidentiary Issues

• Existence and scope of a binding profit-sharing obligation under the Smithe Consulting Agreement, including whether it applied only if the "Thalia" design was built or to any development on the Smithe property.

• Whether Smithe Residences, through Mr. Schouw's conduct (4 Corners dealings, creditors, securities issues), repudiated the consulting agreement and thereby justified Boffo Smithe's termination in 2016.

• Alleged breach by the defendants of their contractual duty of good faith, particularly around the transfer of commercial space to an affiliate and how they managed the relationship while benefiting from Artemesia.

• Whether profits from the Smithe project for sharing purposes included only the residential strata units or also the commercial and parking components, and how the Hornby "shortfall" adjustment and project costs factored into the waterfall formula.

• The claim that Boffo Investment, as the parent entity, was unjustly enriched by receiving profits from the Smithe project that should have been paid to the plaintiff under the consulting agreement.

• Quantification of the plaintiff's recovery by applying the contractual "waterfall" to total profits of $31,499,324, resulting in a damages award of $5,945,162 including GST rather than the $29,025,353 the plaintiff had sought.

Background to the relationship and distressed developments

Smithe Residences Ltd., controlled by developer James Schouw, owned three downtown Vancouver properties earmarked for high-end projects: Hornby (Artemesia), Smithe (Thalia, a mixed-use concept) and Homer. By 2009, Mr. Schouw and his companies were in significant financial distress, attributed by Mr. Schouw to the 2008 financial crisis. By mid-2011, all three properties were in foreclosure and court ordered sales were pending. Concord Pacific held an inter alia mortgage requiring any buyer to acquire all three sites together, creating an opportunity for the Boffo Group, a family development group led by Ottavio Boffo, to step in.
The Boffo Group wanted its first downtown Vancouver project and was primarily interested in acquiring the land and clearing title, not in partnering permanently with Schouw. The Hornby property was close to "shovel ready," the Smithe property was at an early design stage, and the Homer property had no concrete design plans.

The joint venture agreement and initial profit-sharing structure

On August 5, 2011, Boffo Investment Corp. and Mr. Schouw personally entered a Joint Venture Agreement (JVA) covering the three properties. Boffo took control of "all aspects of the financing, development, construction and marketing" and undertook to form new single-purpose companies (including Boffo Developments (Smithe) Ltd.) to hold title. Land values and a profit-sharing formula were fixed for Hornby and Smithe, with a handwritten provision extending the same profit structure to Homer.
The JVA did not incorporate any representations or warranties, and it did not contain any conduct clauses, termination or buy-out provisions. Upon execution of the JVA, the Boffo Group paid Mr. Schouw $200,000, as he needed cash to help cover his costs going forward. In total, the Boffo Group spent $28,397,448.98 to purchase the properties, with the balance paid to discharge debts of Smithe Residences, Hornby Residences, and Homer Residences to ensure clear title.

Artemesia: completing the Hornby project and revising the profit deal

By March 2012, the Boffo Group decided to proceed with the Artemesia design because the Schouw Group had managed to arrange for presales of 15 units, sufficient to allow the Boffo Group to secure construction financing. The Schouw Group assisted with design and, crucially, continued to front marketing. The Boffo Group touted that they were bringing Mr. Schouw's vision to life, referencing him in hoarding, their website, and construction updates to purchasers. The Boffo Group viewed Mr. Schouw as a marketing asset even though they were being sued and contacted by Mr. Schouw's creditors at the time.
Artemesia was substantially completed in early 2014 and the final unit sold in August 2015. The total revenue from sales of the 21 residential units was $30,894,389.93. Boffo Developments (Hornby) made more than $4,000,000 in profits on Artemesia, and $320,000 was paid to Hornby Residences under the Hornby Consulting Agreement profit-sharing formula, which the trustee in bankruptcy accepted as the amount owing.

From JVA to consulting agreements: the Smithe Consulting Agreement

Principally, the purpose of the new agreements was to modify the profit split in light of the amount of credits provided to Artemesia purchasers. Two consulting agreements were drafted by the Boffo Group's legal counsel and signed by Mr. Schouw in February 2013, made effective March 19, 2012: one for Hornby and one for Smithe. The Smithe Consulting Agreement altered the profit-sharing arrangement to include a provision that would reduce the amount payable to the plaintiff to account for any shortfalls from the Hornby Street project.
The court held that the Smithe Consulting Agreement replaced the JVA, because it contained an entire agreement clause and both the pleadings and Agreed Statement of Facts characterized it as "a replacement for the Joint Venture Agreement."
Key terms in the Smithe Consulting Agreement included:

• Engagement of Smithe Residences as an "independent contractor, and not as an employee" consultant "with respect to the Smithe Street project."

• A duty to perform services "in a diligent, trustworthy, businesslike, and efficient manner."

• An express clause that the consultant had "no authority…to bind" Boffo companies without written consent.
  Schedule A listed broad services including rezoning and development approval, engaging and supervising consultants, preparing strata plans and the disclosure statement pursuant to the Real Estate Development Marketing Act, and designing and implementing a marketing program. Schedule B ("Consulting Fees") contained the profit "waterfall," requiring first, 15% of total project costs to Boffo Smithe; second, 5% of total project costs to the consultant; third, $2,000,000 to Boffo Smithe; and fourth, the remaining balance split 60% to Boffo Smithe. The profit allocation was based on the aggregate gross sales revenue for the Smithe Project being at least $63,000,000, net of any credits.

Rezoning the Smithe property and exclusion of the plaintiff from the new project

Mr. Otto Boffo was sceptical that the Thalia design was feasible, acknowledging in a January 2024 email to Richard Young that from the start his opinion was that Mr. Schouw's proposed project was not feasible. Starting in January 2012, the Boffo Group began working towards rezoning, and on May 5, 2015 filed a formal rezoning application for 93 residential condominium units, commercial retail and office space, and six stories of underground parking. On January 19, 2016, the Boffo Group received Vancouver City planning and Council approvals, more than doubling the buildable residential density from 80,000 square feet to 165,000 square feet.
The Boffo Group did not involve the Schouw Group in the rezoning process. No one from the Boffo Group ever requested that the plaintiff provide any services listed in the Smithe Consulting Agreement, although Mr. Schouw was paid $8,000 per month for seven months commencing on April 1, 2012, for "services regarding the design, permit coordination, and other relevant matters for the Smithe Project."

The 4 Corners financing and mounting creditor and regulatory issues

In February 2010, 4 Corners had provided $6.75 million in financing to the plaintiff. To clear title, Boffo's solicitors obtained elections and authorizations so the 4 Corners charges would not be registered, enabling Boffo Smithe to acquire the Smithe Property free of any encumbrances.
In a letter to 4 Corners dated September 19, 2011, Mr. Schouw on behalf of Smithe Residences stated that the company intended to honour all previous obligations via the Joint Venture, specifically including a February 1, 2010 Purchase and Sale Agreement for the commercial-retail-office space. Mr. Otto Boffo learned of the existence of the letter in December 2012 and obtained a copy of it in the summer of 2013. The 4 Corners action against the Boffo Group was dismissed following a summary trial on October 18, 2013.
Mr. Schouw's broader financial and regulatory problems intensified: multiple investor lawsuits, CRA collection action, creditor confrontations at the Artemesia site, and on November 6, 2015, the British Columbia Securities Commission issued a Notice of Hearing citation against Mr. Schouw and Hornby Residences asserting fraud against investors.

Alleged repudiation and Boffo's unilateral termination

On January 11, 2016, Mr. Otto Boffo and Mr. Ellis met with Mr. Schouw and provided him with a letter stating that the Boffo Group would be commencing legal proceedings seeking a declaration that both the August 5, 2011 agreement and the Smithe Consulting Agreement were "frustrated and void as a consequence of Mr. Schouw's personal affairs and conduct, and the publicity related thereto." The court rejected evidence that Mr. Schouw accepted this; Mr. Ellis described Mr. Schouw as very angry and storming off, but the judge did not accept Mr. Ellis' evidence.
On March 30, 2016, Mr. Schouw emailed Mr. Otto Boffo emphasizing that Smithe Residences remained committed to its obligations pursuant to the Smithe Consulting Agreement and indicating willingness to consider a contract buyout or early conclusion. On May 5, 2016, counsel for the Boffo Group sent notice that it considered the Smithe Consulting Agreement to have been repudiated. On June 6, 2016, the Boffo Group confirmed their position that all agreements were at an end. The legal proceedings referred to in the January 11, 2016 letter were never commenced.
The court held there was no repudiation. The consulting agreement contained no conduct, morality or reputation clauses and did not require Mr. Schouw to be solvent, deal with creditors with the utmost good faith, not obtain financing in unconventional ways, abide by the law, or to be of good character generally. The plaintiff never evinced an intention not to be bound by the agreement. The court also found the requirement that the plaintiff complete work in a "trustworthy" manner was not the same as requiring Mr. Schouw to be a trustworthy person, and since the defendants never asked the plaintiff to provide any services, there was no ability to argue that work was performed in an untrustworthy manner.

Good faith in contractual performance and transfer of commercial space

The plaintiff advanced a separate good-faith claim, alleging that the defendants did not intend to honour the Smithe Consulting Agreement when they caused the plaintiff to enter into it; that they affirmed and required performance of the Hornby Consulting Agreement while having determined not to honour the Smithe Consulting Agreement; and that they conveyed the commercial space to Bassano for inadequate consideration, defeating the plaintiff's rights.
The court found the defendants did not mislead the plaintiff when the Smithe Consulting Agreement was entered into. It was unlikely but still genuinely possible that Thalia could be built; the Boffo Group was "keeping all of its options open." The Hornby and Smithe consulting agreements were executed at the same time, so the plaintiff's performance of the Hornby Consulting Agreement was assured regardless. Neither the Smithe Consulting Agreement nor the predecessor JVA prohibited Boffo Smithe from selling the Smithe Property or any part of it. The plaintiff had not established that the defendants breached their duty of good faith in contractual performance.

Unjust enrichment of Boffo Investment

Although Boffo Investment was not a party to the Smithe Consulting Agreement, Messrs. Otto and Mike Boffo both acknowledged that profits from the Boffo Group's companies are routinely transferred to Boffo Investment, and at the time of trial, all the profits from Boffo Smithe had been moved out.
The court found that Boffo Investment was enriched by receipt of the portion of the profits owing to the plaintiff, that the plaintiff correspondingly was deprived of profits owed to it, and that there was no juristic reason for the benefit conferred on Boffo Investment. The defendants did not present any substantive financial evidence that would explain why Boffo Investment should retain the profits owed to the plaintiff, offering only general explanations such as "standard practice" or repayment of loans.

Interpreting the consulting agreement: profit sharing and scope

On whether profit sharing only applied if Thalia was built, the court found the Smithe Consulting Agreement never mentioned Thalia; it referred to the "Smithe Street project" and contemplated generic development and marketing services including rezoning. The absence of any Thalia-specific language combined with express inclusion of rezoning, which would be unnecessary if Thalia was built, indicated the parties intended profit sharing regardless of what form the development took. The court drew an analogy to Kingsdale Partners LP v. Sprott Asset Management LP, 2025 ONSC 2812, where a success fee was payable even though "success" was achieved without the adviser's direct involvement.
On scope, the court held that "project profits" under the Smithe Consulting Agreement included profits from the entire mixed-use development, not just the residential strata units. There was nothing in the text to support limiting profit sharing to residential sales, and even under a Thalia-only scenario, Thalia was intended to be a mixed-use development.

Damages: applying the waterfall and quantifying the plaintiff's share

The Smithe project ultimately generated:

• Residential revenue: $175,269,851.

• Commercial-space value (as of December 5, 2021): $29,000,000.

• Total gross revenue: $204,269,851.

• Project costs: $160,248,433 (per the Agreed Statement of Facts, which the court held was a binding admission).

• Less Bassano's equity investment: $12,522,094.

• Resulting total profit: $31,499,324.
  The Hornby shortfall was $1,500,000, plus a 20% premium, resulting in a total shortfall of $1,800,000 to be deducted from the Smithe Project profit before any profit allocation.
  Applying Schedule B's waterfall: first, Boffo Smithe was entitled to recoup 15% of project costs ($24,037,265); second, the consultant was entitled to 5% of project costs, which would nominally be $8,012,422. However, after paying the Hornby shortfall and the developer's 15% return, only $5,662,059 of the remaining profit was available for distribution. The defendants were also liable to pay GST on the profit owed to the plaintiff.

Overall outcome and the ruling

The court, per Justice J. Walker, found the Smithe Consulting Agreement was binding and enforceable and that the defendant Boffo Smithe breached the agreement by failing to pay the plaintiff a share of the profits of the Smithe Project in accordance with the provisions of the agreement. The court also found that the defendant Boffo Investment was unjustly enriched to the detriment of the plaintiff when Boffo Smithe transferred profits from the Smithe Project, a portion of which was owed to the plaintiff, to Boffo Investment. The defendants were held jointly and severally liable for damages in the amount of $5,945,162 (including GST), plus prejudgment interest at the Registrar's rate commencing on December 5, 2021, and post-judgment interest at the Registrar's rate. The court reserved the issue of costs for further submissions.