Licence Tribunal / Tribunal d'appel en matière de permis

DATE: 2010-09-24

FILE: 5812/ONHWPA

CASE NAME: 5812 v. Tarion Warranty Corporation

An Appeal of a Decision of Tarion Warranty Corporation under the Ontario New Home Warranties Plan Act – to Disallow a Claim

Applicants -and- Tarion Warranty Corporation Respondent -and- L.S. Bock Developments Inc. Added Party

REASONS FOR DECISION AND ORDER

ADJUDICATOR: PATRICIA L. CASSIDY, Vice-Chair

APPEARANCES:

For the Applicants: FAMILY MEMBERS OF THE APPLICANTS, Agents, representing the Applicants

For the Respondent: JOSEPH KENNEDY, Counsel, representing Tarion Warranty Corporation

For the Added Party: LUC S. BOCK, Agent, representing L.S. Bock Developments Inc., the Added Party

Heard in Sudbury: June 9, 10 and August 4, 2010

REASONS FOR DECISION AND ORDER BACKGROUND

By Notice of Appeal dated December 12, 2009, the Applicants by their representatives appealed the Decision Letter issued by Tarion Warranty Corporation (“Tarion”) dated October 23, 2009. The Decision letter was entered as Exhibit #1 and the Notice of Appeal was entered as Exhibit #2 in this hearing. Essentially, these documents deal with the following:

1. The Applicants entered into a contract to purchase a new home located in a small community in northern Ontario. They paid a deposit to the Added Party vendor, L.S. Bock Developments Inc., in the sum of $27,000.00 towards the purchase of the home.

2. On consent, the closing date for the transaction was extended several times and a final closing date was eventually agreed to be December 12, 2007.

3. A dispute arose between the Applicants and the Added Party vendor regarding the amount of money required to finalize the purchase of the home, and, when no satisfactory resolution was reached, the transaction did not close and the Applicants never did acquire title to the home.

4. The Added Party vendor subsequently sold the home to another party and title was transferred to them.

5. The Applicants commenced a civil action in the Ontario Superior Court of Justice against the Added Party. That action was ultimately settled, on consent, and a Release was signed releasing the Added Party vendor from any and all causes of action, claims, demands for damages for financial loss or compensation of any nature or kind relating to the action.

6. The Applicants then made these claims against the Ontario New Home Warranties Plan Act (the “Act”) for a deposit refund under section 14(1) of the Act, and for delayed closing compensation under section 2 of O. Reg. 165/08 under the Act.

7. Tarion determined that the Applicants were not entitled to a deposit refund or to delayed closing compensation under the Act.

THE EVIDENCE

The following were not contested and are found as facts:

1. The Applicants, pursuant to an Agreement of Purchase and Sale dated July 4, 2007, agreed to purchase a new home from the Added Party, L.S. Bock Developments Inc., within a municipality located in northern Ontario.

2. The Applicants paid the Added Party a deposit of $27,000.00 towards the purchase of the home.

3. The original closing date for the real estate transaction was October 31, 2007; however, that date for closing was extended, on consent, several times. Ultimately, the date for closing the real estate transaction was set for December 12, 2007, again, on consent.

4. A dispute arose between the Applicants and the Added Party regarding the amount of money due to the Added Party on closing, and, when they were unable to resolve the dispute, the transaction did not close and the Applicants did not ever acquire title to the home.

5. The Added Party vendor listed the subject property for sale, the home was sold and title was taken by the current owners, who are not parties to this appeal.

6. The Applicants commenced an action in the Ontario Superior Court of Justice, by Statement of Claim issued on December 18, 2007, claiming, among other things, general damages of $150,000.00. The Statement of Claim made specific reference to the deposit paid to the Added Party vendor in the amount of $27,000.00.

7. The Applicants and the Added Party vendor were both represented by counsel in the Ontario Superior Court action, and, ultimately, they resolved that action on consent. Pursuant to the Consent filed with the court, an order was issued providing that the Applicants would receive the sum of $60,000.00 out of monies which had been paid into court by the Added Party vendor.

8. On October 23, 2008, the Applicants signed a Full and Final Release, wherein they acknowledged receiving the settlement funds of $60,000.00 from the Added Party vendor. In addition, the Release provided that the Added Party vendor was released from any and all actions, causes of action, claims, demands for damages for financial loss or compensation of any nature or kind whatsoever relating to the action. In signing the Release, the Applicants also agreed not to make any claims or commence any proceedings with respect to any matter released and discharged, which might result in any claim against the Added Party vendor for contribution or indemnity or other relief. Further, in signing the Release, the Applicants declared that they fully understood the terms of the settlement and the $60,000.00 settlement funds received was accepted by them in full and final settlement of any and all claims they might have against the Added Party vendor. The Release did not preserve the Applicants’ rights to pursue any claim of any kind against the Added Party vendor; it was a full and final release.

9. At all material times, during the negotiation and execution of the settlement, the Applicants were represented by counsel and assisted by their daughter and her husband.

A great deal of evidence was received by the Tribunal over three full days of the hearing of this appeal. Although the male Applicant did not participate in the hearing, the female Applicant was present throughout the hearing and testified. In addition to the female Applicant, a total of eight witnesses testified at this hearing. The witnesses who testified included Mr. Denis Michel, Barrister and Solicitor, who represented the Applicants in their failed attempt to purchase the subject property from the Added Party vendor and who also, represented the Applicants in the civil suit they brought against the Added Party vendor at the Ontario Superior Court of Justice. Mr. Leo Arseneau, Barrister and Solicitor, who represented the Added Party in defending the claim brought by the Applicants herein at the Ontario Superior Court of Justice also testified. In addition to the evidence received through oral testimony given by witnesses, this Tribunal also received considerable documentary evidence which was filed and entered as Exhibits #1 through #10 in this proceeding.

Denis Michel is a lawyer in Sudbury, Ontario, and represented the Applicants in their attempt to purchase the subject property from the Added Party. He testified that he drafted and had the Statement of Claim issued at the Ontario Superior Court of Justice, wherein the Applicants sued the Added Party for damages over the failed real estate transaction. In his evidence, Mr. Michel acknowledged he never advised or indicated to Mr. Arseneau that his clients would be making a claim to Tarion. Mr. Michel also confirmed, in his testimony, that he took the Applicants’ oath for the proof of claim submitted to Tarion on October 24, 2008, one day after they had completed the Full and Final Release settling the civil claim before the Ontario Superior Court of Justice.

Leo Arseneau is also a lawyer in Sudbury, Ontario. He was admitted to the bar in Ontario in 1979, and has been practicing law for more than 30 years. He represented the Added Party, L.S. Bock Developments Inc., in the civil action brought against it by the Applicants, which resulted in the payment of $60,000.00 to the Applicants. Mr. Arseneau testified that the settlement was “all inclusive” and that it included the $27,000.00 deposit paid by the Applicants to the Added Party vendor. He stated that he never received any correspondence from the Applicants or on their behalf, advising that the $60,000.00 settlement did not include the deposit, nor did he ever receive any correspondence stating that the Applicants wanted to preserve their right to make a claim against Tarion.

Mr. Arseneau testified that he had drafted the Full and Final Release executed by the parties to settle the Ontario Superior Court action commenced by the Applicants against the Added Party vendor and that neither the Applicants nor their lawyer requested any changes to the Release at any time. Mr. Arseneau elaborated that the terms of the Full and Final Release clearly indicated that it was a final settlement and the Release precluded the Applicants from making any further claims against the Added Party or the Respondent because of the contribution and indemnity provision contained in the Release.

The female Applicant testified for many hours, in which she reviewed the difficulties she and her husband encountered in their attempt to finalize the real estate transaction they had hoped to close with the Added Party, for ownership of the property in a small community located in northern Ontario. In her testimony, the female Applicant acknowledged that neither she nor her husband ever owned the property and she also confirmed her understanding that the Act required her to be an owner to be entitled to compensation for delayed closing.

Although the female Applicant truly believed that she was entitled to the return of the deposit of $27,000.00 paid to the Added Party, she admitted that she had nothing in writing to support her belief that the deposit would be protected. She admitted that she had read, understood and signed the Full and Final Release and that she understands that the phrase “all inclusive” contained therein means “everything”.

Notwithstanding these admissions, the female Applicant testified that she believed the advice she received that, even if she accepted the $60,000.00 settlement funds to resolve the Ontario Superior Court action, she could still make a claim to Tarion. She confirmed that she signed the Tarion proof of claim after signing the Full and Final Release settling the Ontario Superior Court action.

The female Applicant admitted that, on the original date scheduled for closing the real estate transaction of October 31, 2007, the Applicants did not tender funds or documents, and that on the last scheduled closing date in December 2007, they did not tender the funds requested by the vendor.

During the presentation of the Applicants’ case, a great deal of time was spent on the issue of whether or not the addendum to the Agreement of Purchase and Sale had ever been presented to the Applicants. In her testimony, the female Applicant acknowledged that the addendum had never been requisitioned on their behalf, and, she admitted that in December 2007, she would have purchased the property regardless of whether or not the addendum had formed part of the Agreement of Purchase and Sale. She acknowledged that, to the best of her recollection, neither she nor her counsel ever asked about it and she acknowledged having received the Tarion Homeowner’s Information Package in December 2007.

Although there were broad allegations made that the builder/vendor had breached provisions of the Agreement of Purchase and Sale, the female Applicant could not identify what provisions of the Agreement the Added Party allegedly breached.

The undisputed facts include the fact that the Applicants never owned the property located in northern Ontario. Title to the home was not transferred to the Applicants because there was no agreement on the amount of funds due to the vendor on closing. The Applicants did not tender the funds required by the vendor and title to the property never passed to them. Subsequent to the failed closing, the Applicants initiated a civil suit against the Added Party, which ultimately settled on consent. The settlement included the payment of the sum of $60,000.00 to the Applicants by the Added Party in exchange for which the Applicants provided the Added Party with a Full and Final Release. It is not necessary to review and summarize the totality of the evidence received during this appeal in light of the undisputed facts.

THE LAW

The Act contains the following relevant provisions:

Definitions

1. In this Act, “builder” means a person who undertakes the performance of all the work and supply of all the materials necessary to construct a completed home whether for the purpose of sale by the person or under a contract with a vendor or owner; “home” means,

(a) a self-contained one-family dwelling, detached or attached to one or more others by common wall,… “owner” means a person who first acquires a home from its vendor for occupancy, and the person’s successors in title;

Warranties

13. (1) Every vendor of a home warrants to the owner,

(a) that the home,

(i) is constructed in a workmanlike manner and is free from defects in material,

(ii) is fit for habitation, and

(iii) is constructed in accordance with the Ontario Building Code;

(b) that the home is free of major structural defects as defined by the regulations; and

(c) such other warranties as are prescribed by the regulations.

Application of warranties

(6) The warranties set out in subsection (1) apply despite any agreement or waiver to the contrary and are in addition to any other rights the owner may have and to any other warranty agreed upon.

Compensation

14. (1) Subject to the regulations, a person who has entered into a contract to purchase a home from a vendor is entitled to receive payment out of the guarantee fund for the amount that the person paid to the vendor as a deposit to be credited to the purchase price under the contract on closing if,

(a) the person has exercised a statutory right to rescind the contract before closing; or

(b) the person has a cause of action against the vendor resulting from the fact that title to the home has not been transferred to the person because,

(i) the vendor has gone into bankruptcy, or

(ii) the vendor has fundamentally breached the contract.

14. (6) In assessing the amount for which a person is entitled to receive payment out of the guarantee fund under this section, the Corporation shall take into consideration any benefit, compensation, indemnity payable, or the value of work and materials furnished to the person from any source.

Notice of decision under s. 14

16. (1) Where the Corporation makes a decision under section 14, it shall serve notice of the decision, together with written reasons therefor, on the person or owner affected.

Powers of Tribunal

16. (3) Where a person or owner gives notice in accordance with subsection (2), the Tribunal shall appoint a time for and hold the hearing and may by order direct the Corporation to take such action as the Tribunal considers the Corporation ought to take in accordance with this Act and the regulations, and for such purposes the Tribunal may substitute its opinion for that of the Corporation.

APPLICATION OF LAW TO FACTS

To succeed with their claim for a refund of the deposit paid, the Applicants have the burden of proving the elements required by section 14(1) of the Act have been satisfied. To qualify for warranty coverage, an applicant must first prove each of the requirements of that section and the Applicants herein have failed to do that. On the facts, there was no statutory right for the Applicants to rescind the contract of purchase and sale which they entered into with L.S. Bock Developments Inc., and there was no allegation they attempted to in any event.

Further, title to the home was not transferred to the Applicants because of a dispute between them and the Added Party vendor over the funds required to close the transaction. It was not a case of the vendor having gone bankrupt or of it having breached the contract as contemplated by the Act. They disagreed on the amount due on closing and, consequently, the transaction never closed and the vendor subsequently sold the home to the current owners who are not parties in this appeal.

To be entitled to delayed closing compensation, the Applicants must prove that they are owners as defined by section 1 of the Act, but they are not, and, in fact, never were owners of the subject property. Consequently, the Applicants are not entitled to delayed closing costs.

Section 14(6) of the Act requires Tarion to consider any compensation or benefits available from any source. The undisputed fact is that the Applicants accepted the sum of $60,000.00 from the Added Party vendor, and, in exchange for having received those funds they signed a Full and Final Release. It is notable that prior to executing the Full and Final Release, the Applicants had received independent legal advice from a lawyer of their choosing who was fully cognizant of the events leading up to the execution of that Release, given that he had been involved as the Applicants’ legal counsel in the aborted real estate transaction and had also represented the Applicants in the civil suit launched at the Ontario Superior Court of Justice. After receiving independent legal advice, the Applicants signed the Full and Final Release and did not preserve any rights to pursue the return of the deposit paid to the Added Party.

The $60,000.00 settlement of the action commenced at the Ontario Superior Court of Justice, which the Applicants accepted in full and final settlement of all claims they had or might have had against the Added Party, is a benefit as contemplated by section 14(6) of the Act.

Section 13(6) of the Act deals with the application of warranties which are set out in section 13(1) of the Act. Neither the return of deposit funds paid nor delayed closing costs are warranties under the Act. The warranties identified in the Act and the Regulations to it relate to construction and not the issues raised by the Applicants in this appeal. Section 13(6) of the Act does not apply to this case.

This is a very unfortunate situation. There is no question that this ordeal has been a difficult one for all of the parties involved. They have all suffered a great deal of emotional and financial strain coming to this point. The reality is that the Release executed by the Applicants is a standard full and final release. There is nothing ambiguous or unclear about it. The Applicants, upon receiving independent legal advice, knew or ought to have known, that all matters at issue between them and the Added Party were resolved. The undisputed facts are that, in addition to the fact that the Applicants never were owners of the property as contemplated by the Act, nobody, at any time, gave notice of intent to preserve any entitlement to make any claims to Tarion. The clear and unambiguous language in the Full and Final Release precludes the Applicants from recovering any further compensation such as they seek in this appeal.

ORDER

For the reasons outlined above, the Tribunal, pursuant to the authority vested in it by section 16(3) of the Act directs Tarion to disallow this claim.

LICENCE APPEAL TRIBUNAL

Patricia L. Cassidy, Vice-Chair

RELEASED: September 24, 2010