Licence Tribunal

Appeal d'appel en

Tribunal matière de permis

DATE:

2011-08-10

FILE:

6412/ONHWPA

CASE NAME:

6412 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

Applicants

-and-

Tarion Warranty Corporation

Respondent

-and-

The Acorn Development Corporation Added Party

REASONS FOR DECISION AND ORDER

ADJUDICATOR:

JANE WEARY, Vice-Chair

APPEARANCES:

For the Applicants:

APPLICANTS, Self-represented

For the Respondent:

MARSHALL REINHART, Counsel, representing Tarion Warranty Corporation

For the Added Party:

JOSEPH DURANTE, Agent, representing The Acorn Development Corporation, the Added Party

Heard in Toronto:

July 18 and 19, 2011

DECISION AND ORDER

This is an appeal by the Applicants from the December 6, 2010 Decision Letter of Tarion Warranty Corporation (“TWC”), pursuant to Section 14(3) of the Ontario New Home Warranty Plan Act R.S.O. 1990, c.O.31, (the “Act”), denying their claim of a breach of warranty in the construction of their home by The Acorn Development Corporation, (Added Party).

For privacy reasons the Applicants’ names are not referred to in this decision.

BACKGROUND

Having lived in a previous home with wood interior windows constructed by the Added Party, the Applicants purchased their new home from them in September 2008, taking possession of the premises in May 2010. Of the items they claimed were deficient in their 30 Day List to TWC, the only one remaining unresolved concerns their complaint that the interior wood clad windows which they had contracted for with the Added Party were not those installed. They allege the vinyl windows which they did receive are inferior. As a consequence, the Applicants seek damages in the amount of

$125,000.00, based on the estimated cost to replace the windows.

The Added Party acknowledged that the windows installed were not those described in the Agreement of Purchase and Sale. It submits it substituted windows of equal and/or better value than those described in the Agreement of Purchase and Sale as it is entitled to do under the terms of the contract and under the Act with the consequence that there has been no breach by it of its warranty obligations under contract or the legislation.

The Respondent, TWC, inspected the home in early November 2010. In its consequent Warranty Assessment Report of November 22, 2010 it agreed with the Added Party’s position concluding that there was no breach of the warranties provided in the Act. The Applicants appeal that decision to this Tribunal.

ISSUES

The Tribunal must determine whether the Added Party has breached a warranty under the Act which sets out the following relevant warranties:

(1) That the home is fit for habitation;

(2) That, if the Added Party did substitute an item of selection in the Applicants’ purchase agreement, it first obtained the Applicants’ consent; or

(3) That, if the Added Party substituted an item which was not one selected by the Applicants, the substituted item was one of equal or better quality than that specified in the purchase agreement.

In the event there has been a breach of one of these legislated warranties, the Tribunal must then determine:

(a) whether the Applicants have a cause of action for damages against the builder under section 14 of the Act; and, if so

(b) the amount of the damage.

EVIDENCE

The Applicants are a husband and wife. The husband alone testified. There was no other witness called by the Applicants.

The Respondent, TWC, presented the following witnesses: Tiffany Hallatt, its field claims representative who inspected the home and denied the Applicants’ warranty claim; Deniz Jeronimo, the Added Party’s Consumer Service Manager; Joseph Durante, General Manager with the Added Party; and David Prohaska, a mechanical engineer of significant experience and qualified for this proceeding as an expert in window design.

Applicants’ Position

The Applicant testified that the couple had been offered a choice of two types of housing by the Added Party. One involved a “Standard Features List”1; while the other included a “Limited Features List”2. The Applicants opted for the former selection at an additional cost of $75,000.00 in the home’s purchase.

Although numerous additional upgrades are available on the “Standard Feature List”, the Applicant advised that a significant reason for the Applicants’ decision to purchase from the Added Party was because it was one of the few builders which do provide wooden casement windows. Although these are more expensive, it was a feature which was an important part of the Applicants’ decision to purchase as they did.

In 2007 the Applicant’s wife suffered a serious asthma attack which required hospitalization. Follow-up testing in the hospital concluded that she was allergic, amongst other components, to vinyl and other plastics. Exhibit 2, Document 10 is a copy of a pharmacy superscription receipt illustrating her most recent medication requirement. This consists of an inhaler prescribed in October 2010 which is a repeat of an identical script issued in March 2007. A different inhaler was prescribed in February 2010. The Applicant stated that the health of his wife was a primary concern in their desire for wood casement window models.

At no time did the Added Party ever advise the Applicants of its decision to substitute the window design from wood to vinyl. As a consequence, their consent to this change was never sought and never provided.

The Applicant supports his contention that the vinyl design is not of “equal or better quality” than the wood in part by relying on Exhibit 4, being a letter dated May 20, 2011 from What A Window Ltd. owner who describes himself as an individual with over 11 years in window sales and marketing. The Applicant conceded this was not an expert in window design and/or function. Nonetheless, this individual attended at the Applicants’ home on May 19, 2011 to inspect the windows installed as well as window documents supplied by the Added Party providing specifications of the intended windows and the installed windows. The writer of the letter adds up the different values these documents ascribe to the different windows finding that those installed total a higher number of “worse values” and a lower number of “beter (sic) values”. He concludes that the windows intended for installation have higher Energy Efficiency Ratings than those in fact provided and therefore “better performance results”.

1 Exhibit 2, Schedule “D”, Document 1

2 Ibid, Document 2

The Applicant stressed that the value differences were not that important; rather, what was important was the wood, not vinyl, nature of the product.

Various estimates for replacement of the windows were provided by the Applicant. While the difference to the Added Party in installation and product cost was advised as being no greater than $1,600.00, the manufacturer of the originally intended wood windows (“M”) informed the Applicants that replacement of all the homes windows would cost upwards of $83,000.00. He would not put this quote in writing. Home Depot quoted a pre-tax installation cost of $84,216.00 in August 20103 – a similar amount – as did a third window dealer who quoted a pretax cost of $72,396.00. The Applicant notes these quotes were made over one year ago and do not include taxation amounts. He claims the true cost today would be closer to $125,000.00.

In cross examination the Applicant acknowledged he did not know the relationship between asthma and allergies but believed the latter was a cause of the former. He agreed that the Applicants had never expressed concerns of the wife’s health issues to any employee of the Added Party, nor to any TWC representative during the conciliation and inspections process.

The Applicant further agreed that he had taken a walkthrough of the home after the windows were installed but before any of the interior work was completed to inspect electrical placings. At that time he had not looked at, or been concerned with whether the windows installed were of the wood he required, or something different. He also conceded a number of the homes furnishings were plastic/vinyl based, including bathroom fixtures, the bathtub and electrical plate coverings.

After a number of questions the Applicant admitted that the Added Party’s “Limited Features List” was not, in fact an option of consumer choice at the time of purchase. It was only later, after taking possession, that the Applicant became aware that more recent purchasers had paid less for similar model homes and that the windows actually installed on his house (“JW”) also appeared on these lesser valued homes as well as on new feature sheets then available in the Added Party’s offices.

Respondent’s Position

Tiffany Hallatt has been a Field Claims Representative with TWC for three years. Part of her duty includes conciliation and inspection of consumer warranty claims. She is responsible for issuing Warranty Assessment Reports which, in turn, form the basis of Decision Letters issued by TWC on warranty claims. Prior to taking on her role with TWC, Ms Hallatt had upwards of 15 years experience in the construction industry, beginning with her parents contracting business and moving through other employers where she held positions in sales, marketing and customer relations.

Ms Hallatt first became aware of the Applicants’ warranty claim when she was allocated the role of inspecting the consumer’s 30 day deficiency list. At this inspection there was

no doubt the installed windows were indeed vinyl. She was also aware that the home’s electrical, entertainment and register faceplates were all constructed of plastic. The allegation of health concern was first raised at the time of the inspection by the Applicant whose wife was not present.

On request, the Added Party supplied Ms Hallatt with copies of its contracts from both

M. and JW for her to assess whether there was a significant difference in the monetary value of the two. She concluded that the wood product contract was higher by

$1,600.00 in total amount. The Added Party advised her that all affected homeowners had been offered compensation of greater value in the form of air conditioning or sprinkler systems. All except the Applicant had accepted the offer.

Ms Hallatt also reviewed the differences in the performance of the wood vs. vinyl product. She concluded that the three factors of performance concern were:

(a) insulation properties;

(b) thermal performance; and

(c) maintenance.

As regards the issue of insulation, Ms Hallatt found any difference in the two products minor and insignificant, as a consequence of the strict pre-approvals required in testing all current windows used in today’s building construction. She acknowledged however that some windows have been found to out perform others thermally which may be a factor in determining whether one window’s performance was better than another. Finally, it was well known in the industry that wood windows required significant more maintenance due to the weather condition strains placed on the material and this was one of the primary reasons why so few builders offer it as an option in model homes.

Ms Hallatt determined from her review that the product provided to the Applicant in the form of the vinyl windows was not inferior in quality to the wood product referenced in the Agreement of Purchase and Sale and therefore denied the Applicants’ warranty claim against the Added Party.

Deniz Jeronimo has been the Added Party’s Customer Service Manager for the last five years. He was responsible for arranging and attending on the electrical walkthrough which was the first opportunity which the Applicants had of attending at the site to review the construction in the presence of a builder representative. He recollected that the walkthrough took no longer or shorter a time period that is usual and no reference was made by the Applicants’ to the windows.

Mr. Jeronimo agreed that numerous items in the home are normally constructed of vinyl or plastic and this is no different in the Applicants’ home. Such products include a variety of bathroom elements, electric wire coating, faceplates, registers, both builder and city piping, as well as interior kitchen cabinetry. While the Added Party does offer substitutes on consumer request for a number of these items, in this case, no concern was ever raised by the Applicants.

Mr. Jeronimo was unable to say why the contracted wood interior casings were not provided in the homes’ windows, but advised such had occurred with all the homes in the development, most of which had the same “Standard Feature List” as part of the original Agreement of Purchase and Sale.

The second list, the “Limited Feature List” was provided to buyers at a later time, commencing in July 2009, when the company was attempting to increase sales by reducing the price of the houses. Of the 60-70 homes forming the development, 42 had been sold with the “Standard Feature List”. Once aware of the discrepancy, the Added Party had offered to compensate all 42 buyers affected with compensatory options of a sprinkler, upgraded air conditioning or a patio deck. In all but the Applicants’ case, the offer had been accepted. Consequently, the Added Party had extended to only the Applicants an additional offer of monetary compensation more generous than the

$1,600.00 price difference of the windows. This too had been rejected.

In attempting to reconcile the positions, Mr. Jeronimo had requested an independent assessment from CAN-BEST (Canadian Building Envelope Science and Technology), which he later provided to the Applicants. It eventually formed the basis of the What a Window Ltd. Report they submitted in Exhibit 4. It was also the basis for the Added Party’s Engineer Consultant Report4. The engineer’s conclusion was that with regard to both water leakage and thermal efficiency the JW vinyl model actually outperforms the M wood model. When Mr. Jeronimo in turn so advised the Applicant, the Applicant maintained his earlier position and refused to enter into discussions as to any form of compensation short of a cash amount to replace the windows in his home. There was no mention made of the alleged allergy issues of his wife.

Joseph Durante is the General Manager of the Added Party where he has worked for over seven years. His duties include day-to-day operations including marketing, sales, design, customer relations and TWC relations. Mr. Jeronimo reports to him.

Mr. Durante explained that the Added Party had released M from its supplier obligations prior to the installation of any windows as a result of negative experiences with M’s wood windows in a prior contract at a separate development where M windows had proven to be the cause of significant customer complaints. From air leaks to wind noise to maintenance frustration, they had provided the Added Party grounds to contract with another window supplier, JW, when the Applicants’ area was under construction. In the end, all the homes in the Applicants’ development had been built with JW vinyl windows.

The Applicants were one of the first seven purchasers of the homes. At the time of their purchase the window change decision had been made. However, changing the Feature Sheets of the contract was overlooked. When Mr. Durante realized this oversight, he was not concerned since the contracts of sale included a specific provision allowing the Added Party to make substitutions in material5.

In the economic downturn of January 2009, homes were not selling as well as earlier. The Added Party therefore revised its product, creating the “Limited Features List” to accompany model homes being constructed with less exclusive features (including vinyl interior window frames, reduced hardwood, non-granite counter tops, etc.) dropping the sale price of these homes by $75,000.00.

When the Applicants continued to complain about the issue, the Added Party requested M supply a letter outlining the various strengths and weaknesses of using wood rather than vinyl interior window frames6. Dated April of this year and written by the VP of Sales, this letter concludes that 75% of all its sales are vinyl, “…a clear indicator …vinyl will become the product of choice for all levels of home building...” and that “…most architects designing custom homes prefer all vinyl over wood…due to zero maintenance factors and longevity of all vinyl, as well as the preferred resale (zero maintenance) value…”

In cross examination Mr. Durante was asked about the photographs submitted by the Applicants illustrating what appears to be mould and mildew buildup in the corner of the windows against the wood sill7. He explained that this was caused not by faulty installation or material, but rather as a natural consequence of too much moisture in the home, allowing condensation on the panes to run down and pool on the sill. Being wood, the sill is more likely than vinyl to exhibit mould. The number one cause of such an occurrence is inadequate use or lack of de-humidifier and inadequate maintenance. In this case there was evidence that the Applicants had shutters on the inside window which may trap the moisture exacerbating the problem.

Mr. Durante conceded he preferred the look of wood personally, but is very aware of the increased maintenance demands required of the product.

Mr. Durante acknowledged that a new development now under construction by the Added Party is installing M’s wood interior windows. He noted, however, that the product has been upgraded and is superior to what was available back in 2009 when the Applicants’ home was under construction. Moreover, the new development has a condo-style managed governance, implying there is professional maintenance provided.

The last witness for the Respondent was David Prohaska. A mechanical engineer with an engineering degree from University of Toronto, he has worked with flat building glass applications since first employed as a student in 1974. He was President of the Insulating Glass Manufacturing Association of Canada and was instrumental in creating their certification standard, now internationally recognized. He has worked for the federal government organization, the Canadian General Standards Board (CGSB), creating their original certification manual presently in use for the design and testing of glass in buildings throughout the country. He also prepared the original window certification program for the Canadian Window and Door Manufacturers Association.

Mr. Prohaska was recognized by the Tribunal as an expert in the properties and standards required of residential glass and windows.

It was Mr. Prohaska’s opinion that, after comparing the independent data sheets provided by M and used by What a Window Ltd.,8 the two window products “… are very similar in performance” noting however that the JW product performed marginally better in both thermal energy and water penetration resistance.

Mr. Prohaska advised that the three main criteria to assess a window’s performance are air leakage, water leakage and thermal performances. He reviewed the CAN-BEST thermal data and concluded that, where there were differences in values, such were insignificant and, at times, more a reflection of sales and marketing than of a qualitative measure of performance. For example, the data provided for the Thermal Performance Reports is based on a formula of watts per meter squared. If there is a difference in the data of one window over another by 4, as demonstrated in the figures provided by What a Window Ltd.9, such is not significant as it means 4 watts per square meter of energy is lost over a heating season. In other words, for every 100 meters of window, 4 extra watts of energy is expanded, being about 40 cents in additional cost.

It was, moreover, noted this apparent higher performance value was only indicated in the one category of Fixed Window (shape). The other categories for which data was compiled by What a Window Ltd. revealed that for the Fixed Window values were identical; and for the last category of Casement Windows the JW models in fact performed better.

Mr. Prohaska was shown the photograph of the Applicants’ window illustrating a mould or mildew build-up on the wood sill. He was of the opinion that, given the apparent existence of shutters on the interior windows, this build-up was naturally occurring and not a function of something substandard in either the wood sill or the vinyl casement or even the combination of the two.

THE LAW

The Act provides in part as follows:

s.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.

14(3) Subject to the Regulations an owner of a home is entitled to receive payment out of the guarantee fund for damages resulting from a breach of warranty if,

(b) the person has a cause of action against the vendor or the builder, as the case may be, for damages resulting from the breach of warranty.

O. Reg. 892

s.18(1) Every vendor of a new home warrants to the owner that the vendor shall make no substitutions in those items of construction or finishing for which purchaser is entitled to make selection pursuant to the purchase agreement without the written consent of the purchaser. R.R.O. 1990, Reg. 892, s.18 (1).

s.19 Every vendor of a new home warrants the purchaser that, where the vendor makes a substitution with respect to an item that is referred to in the purchase agreement that is not an item that is to be selected by the purchaser, the item will be of equal or better quality than the item referred to in the purchase agreement.

R.R.O. 1990, Reg. 892, s. 19.

DECISION ANALYSIS

The Tribunal’s jurisdiction is set out in s.16 of the Act which provides the homeowner with a right to appeal to the Tribunal from a TWC decision denying a warranty claim under section 13.

The onus is on the Applicants to prove their claim to a civil standard – being the balance of probabilities – see F.H. v. McDougall, 2008 SCC 53. If a breach of warranty is proved, subsection 14(3) provides that the Applicants are entitled to damages arising from the breach where the homeowners have a cause of action against the builder for that breach.

The Tribunal has authority under s.16(3) to order TWC to take such action as the Tribunal considers it ought to have taken.

The Act is consumer protection legislation and is to be given a broad and liberal interpretation: Markey v. Tarion Warranty Corporation (2006) OJ No 2929 (On SCDC).

The Tribunal has carefully reviewed the exhibits and the testimony of the witnesses and concludes that the Applicants have failed to establish that the Added Party has breached the warranties set out in s.13 of the legislation or Regulation 892. As a consequence there is no need to discuss damages.

Section 13 of the Act

There was no support for the allegation made by the Applicant that the home was unfit for habitation by his wife as a result of the Added Party’s substitution of the window product. There was no evidence that the unfitness contemplated in the Act is a subjective one, but even if it were, the Tribunal concludes such unfitness for habitation has not been proved. Certainly there was no suggestion that the wife has not been able to reside in the home. The evidence of the puffer prescription shows it commenced prior to the Applicants taking possession and fails to illustrate any significant change in the wife’s medical needs following that possession. This fails to establish any effect on the wife’s health of the vinyl windows in the home.

As well, other evidence, such as the fact the Applicants had not replaced numerous items made of plastic/vinyl in the home – including, most surprisingly, the bath – when Ms. Hallatt attended for inspection six months after possession, suggest that the health concerns alleged are exaggerated.

Regulation 892

There is no need to consider the applicability of Regulation 892 s.18 as the evidence makes it clear that window choice was never an item of selection for the homeowners. The Applicants had no choice as to windows to be supplied in their model house. Whether the Applicant was evasive in his testimony or simply uncertain of language subtleties, in the end his evidence was that the windows were but a “specified” item in their purchase and thus their substitution triggers the protection provided to consumers in Regulation 892 section 19.

Consequently, the Added Party was entitled to substitute the windows in the purchase agreement with others provided that the substituted items were of “equal or better quality”.

Counsel for the Respondent submitted that definitions of “quality” reference “superiority” or “excellence”. The Oxford Concise Dictionary speaks of “relative character” and “attribute”. The Tribunal finds that all of these are factors to consider in determining the quality of an item. As well aesthetic considerations may play a role, but, for reasons which follow, “quality” can, by no means, be limited to such a concern. Economic considerations are also relevant.

A reliance on aesthetics is problematic due to its subjective premise. For this reason, measurable, more objective criteria must be relied upon in any consideration of an item’s relative quality.

The Tribunal also agrees with the Respondent that, even were there convincing evidence that the health of the Applicant’s wife is negatively affected by the window provided, this would not be relevant to a determination of the “quality” of the substituted windows as intended by the legislation. Such “quality” simply cannot be dependent on

the unique characteristics of any given individual, but must be predicated on an objective standard. If it were otherwise, no builder could protect itself from warranty claims regardless of its diligence unless it somehow was informed of all idiosyncrasies of every purchaser.

The 1994 decision of this Tribunal in Carleton Condominium Corp. No. 495 (Re) [1994] OCRATD No. 85 provides an illustrative example. It involved an applicant appealing a decision to deny a claim under section 19 of the Regulation based on the applicant’s contention that wood–framed windows installed were in fact inferior in quality to the vinyl frames contracted for in the purchase agreement. As such, the applicant’s claim in that case was directly opposite the Applicants’ contention in this proceeding. Based largely on the maintenance issues raised by the wood product, the Tribunal determined the substitution was not of “greater or equal quality”, concluding that the wood product was in fact inferior, and allowed the damages claimed.

In this hearing, objective measurable data was presented. Mr. Prohaska’s testimony was convincing and, in any event, did not contradict that of the Applicants’ own What a Window assessment10. A review of the data supports Mr. Prohaska’s conclusions that the two models are very similar in terms of performance. Only in the Fixed Shape window does the JW product appear to score a worse overall energy rating, but even so, the persuasive testimony of Mr. Prohaska was that this was in fact a negligible difference.

On the other hand, the “U” rating figures, being the insulation value, in all instances favoured the JW model. SHGC figures, which measure solar gain, were marginally higher with the M product; an advantage in the winter season, but a disadvantage in the summer season where air conditioning is in operation. The TVIS indicator is marginally higher in the M product, although this is so slight it is unreliable and, again, would be a worse value in air conditioning conditions.

Water penetration, not measured by What a Window Ltd., was measured by Mr. Prohaska who claimed it a major item of measurability in window performance. He found the JW vinyl product outperformed the M wood product.

Aesthetics is a factor and the evidence was clear that for these Applicants the aesthetic consideration was that the wood was a better product than was the vinyl. However, for the reasons given above, this alone cannot determine the issue of “quality”.

Economic considerations may be probative – see Carlton Condominium Corp. (Re), referenced above. The evidence in this hearing as to cost was not determinative of the issue, however. While the M product did in fact cost the Added Party an additional

$1,600.00 over the JW product, the evidence was not contested that the more expensive M product was off-set to such a great extent by poor performance and increased maintenance costs, that the Added Party moved to a different contractor for supply until M was able to demonstrate these additional liabilities were corrected. Given

10 See Exhibit 4

the additional maintenance and repair costs, there is no clear indication that the wood product’s greater cost indicates a greater quality product.

Finally, all witnesses, except the Applicant, were consistent and clear that the vinyl product provided required far les maintenance than the wood. Mr. Prohaska openly testified he would prefer to have the vinyl product for this very reason. Maintenance is necessarily an element of economic considerations. As found by Justice Southby of the Divisional Court in upholding the Tribunal’s decision to grant the claim in the Carleton case in November 1995: “Durability is often an important component of quality”.11

DECISION

Accordingly, based on the evidence, and by virtue of s.16(3) of the Act, the Tribunal confirms the decision of TWC to disallow the Applicants’ claim.

LICENCE APPEAL TRIBUNAL

Jane Weary, Vice-Chair

RELEASED: August 10, 2011

11 Respondent Book of Authorities, Tab 3