6428 v. Tarion Warranty Corporation, 2012 CanLII 44088

Licence Tribunal

Appeal d'appel en

Tribunal matière de permis

DATE: 2012-07-26

FILE: 6428/ONHWPA

CASE NAME: 6428 v. Tarion Warranty Corporation

An Appeal of a Decision of Tarion Warranty Corporation under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O. 31 to Disallow a Claim

Applicant

Applican

t              

-and-

Tarion Warranty Corporation

Respondent

-and-

Northern Pine Builders & Suppliers Ltd.

Added Party

REASONS FOR DECISION AND ORDER

ADJUDICATOR: Douglas R. Wallace, Vice-Chair

APPEARANCES:

For the Applicants: Stephen Bale, Counsel

For the Respondent: Danielle Peck, Counsel

For the Added Party: Richard J. Taylor, Counsel

Heard in Peterborough: October 11, 12, 13 and 14, 2011

and May 7, 8, 9 and 10, 2012

REASONS FOR DECISION AND ORDER

A decision by Tarion Warranty Corporation (“Tarion”) held that the Applicant was not entitled to warranty coverage under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31 (the “Act”) on the grounds that the Added Party was not a “builder” as defined by the Act. A pre-hearing order of this Tribunal on July 22, 2011 directed that this hearing determine this issue as a preliminary matter.

BACKGROUND

By Agreement of Purchase and Sale dated April 4, 2006, the Applicant agreed to purchase 14 acres of land from the Added Party together with a single family home to be built on the land by the Added Party. The closing date for the sale of the land and the house was August 25, 2006.

The Agreement does not include an express undertaking by the seller to build a house but obviously anticipates that the seller will do so, by including Schedules dealing with the following subjects:

“D” Feature Sheet (Exterior, Interior)

“E” (Kitchen, Bathrooms, Lower Level)

“F” Upgrades included (increasing asking price from $299,900 to agreed price of $308,398).

“G” Floor Plan

“H” Payment Schedule (Four draws, totalling $175,000).

Plan of Survey

The Agreement includes a crude floor plan with some handwritten marks indicating some of the changes relative to the upgrades shown on Schedule “F”, but no drawings. The Agreement warrants that the Seller is a registered Builder with the Tarion Warranty Corporation and that the home to be constructed has been enrolled with Tarion.

An amendment to the Agreement advanced the agreed date for the transfer of title to the land to May 5, 2006, just prior to the commencement of construction. The land was transferred to the Applicant at this time for $75,000 plus GST.

The Seller/Builder named in the Agreement is Northern Pine Builders and Suppliers Ltd. (Northern Pine) a numbered Ontario company incorporated by Krzysztof Geler (KG) and his brother in 1994. In 2004, KG encountered financial difficulties and resigned as sole director and sole officer of the company to prevent the company’s sole asset, the land in question in this matter, from coming into the hands of creditors. KG retained one percent of the shares in the company but was replaced as a principal in the company by Hanna Czekala (“HC,”) an acquaintance and family friend. HC did not own any shares in the company, but was appointed Secretary and President at this time. It was HC who signed the Agreement of Purchase and Sale on behalf of the Added Party. Following his removal as a director from the corporate records, KG continued to work for the Added Party as its construction supervisor and sub-contractor.

During the course of construction, the Applicant entered into a number of contracts with KG and with others to supply work and material for the home. It is primarily the work performed by KG that led Tarion to conclude that the Added Party did not qualify as a “builder” under the Act.

The question before the Tribunal is whether Tarion was correct in denying warranty coverage to the Applicant on the grounds that the Added Party was not a builder under the Act and secondly, if it finds there is warranty coverage, whether any defects in work or material provided by KG are excluded from warranty by virtue of having been provided under separate contracts between the Applicant and KG. A question fundamental to both issues is whether the relationship between KG and the Added Party justified the Applicant’s belief that in dealing with KG he was dealing with the builder.

EVIDENCE

The negotiation and signing of the Agreement of Purchase and Sale

The Applicant’s evidence:

The Applicant testified that he saw an advertisement in the newspaper and contacted the realtor, NM. The realtor appears to have given him directions to the property and to have given him KG’s name as the person to contact on behalf of the seller. On arriving at the property he was attracted to the land by the sight of a large deer buck standing on a knoll looking straight at him. He was also attracted to the cultured stone exterior finish of a nearby home.

When the Applicant met with KG at the site, they discussed several issues regarding the location of the house on the lot. The Applicant told KG that he would like the house built on the side of a hill on the land. KG agreed that this could be done but would require a change in the design of the house to provide a lower-level walk-out. The Applicant also indicated that he really admired the cultured stone exterior on a house he had seen in the vicinity. KG stated that he had built that house for his girlfriend and could easily put a similar cultured stone exterior on the Applicant’s home. KG and the Applicant also discussed changing the location of the driveway and increasing its length beyond the length provided for in the proposed Agreement for Purchase and Sale. KG indicated at this meeting that the changes discussed could be accommodated because he would be doing the “vast amount” of the work. He also assured the Applicant that he would look after the stone exterior personally.

The Applicant indicated that he met KG again in the realtor’s office where he signed the Agreement of Purchase and Sale and initialled the schedules. It was his recollection that HC was not present at the time and that he did not see the Agreement signed by anyone on behalf of the seller. He could not say how or when the changes he had discussed with KG got incorporated into the schedules or when he first saw the signed Agreement for Purchase and Sale and realized that it had been signed by HC. He was certain, however, that he never met HC before she appeared at the building site during the week of June 4, 2006.

Several revisions were made in the schedules attached to the Agreement of Purchase and Sale to implement the changes discussed by the Applicant and KG on site. The most substantial of these changes was the conversion of the home from a bungalow to a two-level walk-out. Other changes discussed at that time, or at a later meeting with KG, were the deletion of a loft shown on the original floor plan and the conversion of what had been shown as an attached garage into increased living space. The agreement to delete the loft was implemented by striking the item off Schedule “F”, while a decision to convert the attached garage shown on the floor plans to a living space, was implemented in the drawings that were submitted with the application by Northern Pine for a building permit

The Agreement of Purchase and Sale itself was amended twice; once to allow for a review by the lawyer retained by the Applicant, and a second time to provide for the transfer of title to the land to take place on May 5, 2006, rather than following the completion of construction as originally intended.

The Applicant agreed to counsel’s suggestion that it was the Added Party who applied for the building permit and that HC signed the application on behalf of the Added Party.

Drawings reflecting the Upgrades in Schedule “F” and the agreement to convert the garage into living space must have been made at some time prior to the commencement of construction but were not attached to the copy of the Agreement of Purchase and Sale filed as an exhibit.

The Added Party’s evidence

KG was the first witness called on behalf of the Added Party. His evidence concerning the events leading up to the signing of the Agreement of Purchase and Sale was markedly different from that of the Applicant. He testified that he did not meet the Applicant prior to the meeting in the realtor’s office at which the Agreement of Purchase and Sale was signed. He also testified that when he arrived at that meeting both the Applicant and HC were present and had already signed the Agreement and schedules. It was only after this first meeting with the Applicant in the realtor’s office that he attended the site with the Applicant and discussed such things as the location of the house on the land and the resulting need for a second level walk-out; the need for a driveway longer than the 50 feet provided in the agreement, and the possibility of finishing the exterior of three sides of the house with cultured stone in lieu of vinyl. He agreed with the Applicant’s evidence that he told the Applicant at this time that he could look after the cultured stone finish and that he would be supervising the job. He added that most of the work would be done by sub-trades.

KG professed no knowledge of either the amendment to the Agreement of Purchase and Sale advancing the date of the transfer of title to the land, or of the application by the Added Party for a building permit. He also indicated that he had no knowledge of the drawings the Applicant testified he had received from him incorporating some of the changes to the home.

HC’s evidence

In her direct evidence, HC testified that she introduced herself to the Applicant when she first met him at the realtor’s office where she “attended to make the Agreement effective”. When it was pointed out to her that she must have known about the changes the Applicant wished to make in the Agreement in order to incorporate them in Schedule “F” she at first retreated from her evidence to suggest that perhaps she had met the Applicant earlier, then suggested that the prices were all negotiated on the spot. She made no mention of KG being at this meeting, or of his arriving after the Agreement was signed.

Agreed facts

Besides the disputed evidence surrounding the events giving rise to the original Agreement of Purchase and Sale, the following facts were either agreed to or contained in documents filed on consent:

1. The Realtor acted on behalf of both the buyer and seller.

2. The Buyer (Applicant) signed a Buyer Agency Agreement on March 29, 2006.

3. A Confirmation of Co-operation and Representation agreement was signed by the Applicant on the same date and by someone on behalf of the seller on March 30, 2006.

4. The Agreement of Purchase and Sale was signed by the Applicant as Buyer, on March 29, 2006 and by the Seller on March 30, 2006.

5. The Applicant signed a confirmation that the Agreement with all changes was finally executed on April 4^th, 2006.

6. The schedules to the Agreement contain a number of references to features on the lower level; a list of 16 upgrades adding $8,498.00 to the agreed sale price of $299,900.00; and a payment schedule indicating four draws to be made during the construction progress.

7. All draws called for by the Agreement were made by cheques payable to the Added Party and issued by the Applicant’s solicitor.

8. The Agreement of Purchase and Sale with amendments changing the date of the transfer of title to the land to May 5, 2006 and the date for completion of the home to September 8^th was finally executed by all parties on April 26, 2006. The change in date for the conveyance of land was suggested by the solicitor for the purchaser, but of benefit to both parties. The agreed price of the land was $75,000 and the agreed price for the house was $233,398.

9. Title to the land was transferred to the Applicant and two members of his family on May 5, 2006 by transfer signed by HC on behalf of the Added Party.

10. An application for a building permit made out by KG and signed on behalf of the Added Party, was submitted to the Township on May 16, 2006 and issued on May 19, 2006. The permit granted was for a 2370 square foot dwelling “inclusive of the recreation room in the former garage area”.

11. Construction began on May 16, 2006.

12. On October 16, 2006, Tarion received a 30 Day Warranty form signed by the Applicant indicating an October 13,2006 date of possession

Contracts with KG for work outside the terms of the Agreement of Purchase and Sale

The Applicant and KB signed four, one-page agreements on May 16, 2006, just as construction was starting on the Applicant’s house, and signed a fifth agreement on August 2, 2006. The agreements covered the following subjects:

i. Substitute cultured stone finish for vinyl siding on front and two sides ($28,500),

(2 agreements)

ii. Upgrades in the House ($7,630.00)

iii. Converting Garage to Living Space ($7,800.00)

iv. Cost of Building Detached Garage ($31,500.00) (August 2, 2006).

Although the contracts did not refer specifically to the Agreement of Purchase and Sale, the description of the work makes it clear that each contract other than the last one dealing with the construction of a detached garage modifies the work described in that Agreement. The last contract adds a totally new building that was not contemplated by the original Agreement of Purchase and Sale. The agreements were signed by KG, but gave no indication whether he was signing in his personal capacity or on behalf of the Added Party. The name Northern Pine Builders and Suppliers Ltd. does not appear anywhere on the documents.

The Applicant testified that when negotiating, signing and paying for the work covered by these five agreements, he dealt with KG in the belief that he was the builder. This belief was the result of the events that led up to the signing of the Agreement of Purchase and Sale and KG’s statement to him that he was “the custom home builder for Northern Pine” able to accommodate desired changes in the design of the building.

Applicant’s counsel submitted that if the Applicant’s version of events leading up to the signing of the Agreement of Purchase and Sale was truthful, the Applicant’s belief that KG was the builder was entirely reasonable. KG was the person the realtor referred him to. He had shown the Applicant the land, discussed the location and type of house he could build there, and seemed to have authority to make the necessary changes in the schedules to the Agreement of Purchase and Sale to reflect the outcome of their discussion. The deletion of the loft they discussed, the conversion of the planned building to a split-level and the conversion of the attached garage to living space were all incorporated either in the schedules to the Agreement or the application for the building permit.

The Added Party saw things quite differently. Although Counsel admitted in his closing submissions that KG was probably mistaken in his version of the events that led up to the signing of the Agreement, he maintained that HC’s version was quite plausible. If believed, the Applicant would have been aware that she, not KG, was the signing officer of Northern Pine and had final say over all matters relating to Northern Pine.

The following facts concerning these contracts for extra work were not in dispute:

1. There was no express reference to Northern Pine anywhere in the contracts, nor did HC take any part in their negotiation.

2. The payments for all contracts other than the contract for the construction of the attached garage were made by cash to KG. The payment for the construction of the garage consisted in whole or in part in the transfer of title to a pick-up truck from the Applicant to KG.

3. All payments to the Added Party under the Agreement of Purchase and Sale were in the form of cheques passing between the lawyer for the Applicant and the Added Party’s lawyer.

4. The negotiated price for the cultured stone should have resulted in a credit in the price quoted for the construction of the house in the Agreement of Purchase and Sale for vinyl siding. Similarly, the price quoted for replacing a 1 piece tub with a 6 foot soaker in the contract relating to Upgrades should have resulted in a reduction in the price in the Agreement of Purchase and Sale for the 1 piece tub. HC said she discussed the possibility of providing a credit for the vinyl siding with the Applicant although the Applicant could recall no such conversation and the record of payments makes no mention of any such credit.

5. HC gave evidence that she refused to have most, if not all, of this work done under contract with the Added Party due primarily to a possible detrimental effect on the Added Party’s efforts to complete the house on time. There is no evidence that the Applicant asked, or would have agreed to have this work done by anyone other than KG.

6. The work done under all these contracts other than the contract with respect to the building of the attached garage was known at the time work began on the construction of the home.

7. The work done under the contracts for upgrades and the conversion of the garage to living space would normally have been reflected in drawings prepared for the builder at the start of construction.

Contracts for extra work by parties unrelated to the Added Party

Following the transfer of title of the land to the Applicant, the Applicant had work done by a number of local trades people unrelated to the Added Party. These contracts included a contract with Kawartha Home and Property for landscaping ($8,533.00), a contract with M & D Plumbing for the replacement of a tub shower valve ($1,362.10) and a contract with McCall Homes Inc. for the supply and installation of Big “O” around the garage and grading to divert water away from the garage ($4,020). Invoices for this work were dated September 28, 2006, December 8, 2006 and November 23, 2006 There was no suggestion that the work carried out under these agreements was other than work or material supplied by the owner.

The Tribunal heard evidence from Paul Michel Johnston of P.J. Johnston Heating and Air Conditioning. Mr. Johnston installed the heating for the Added Party during two visits and returned a third time at the request of KG to install additional air ducts and a fireplace in the living space that had been shown on the original plans as a garage. His total invoice for the work and material on the third visit was $2,500.00. This price included approximately $2,200.00 for the fireplace and $400.00 for additional duct work. Mr. Johnston was paid for this work by KG pursuant to what he understood to be a contract between the Applicant and KG.

THE LAW

The relevant definitions in the Act are as follows:

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; (“constructeur”)

“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; (“propriétaire”)

“sell” includes entering into an agreement to sell; (“vendre”)

“vendor” means a person who sells on his, her or its own behalf a home not previously occupied to an owner and includes a builder who constructs a home under a contract with the owner; (“vendeur”)

While the relevant definitions found in Regulation 892 under the Act are as follows:

“construction contract” means an agreement between a builder and an owner of land which provides for the construction of a home on the land; (“contrat de construction”)

“contracted home” means a home constructed pursuant to a construction contract; (“logement sur contrat”)

date of possession” means the date on which the home is completed for possession by an owner as specified in the applicable certificate of completion and possession; (“date de prise de possession”)

“purchase agreement” means an agreement between a vendor and any person providing for the purchase by such person of a home; (“convention d’achat”)

“purchaser” means a person who enters into a purchase agreement with a vendor for the purchase of a home and includes an assignee of the purchaser’s interest in a purchase agreement; (“acheteur”).

The Act sets out the warranty provisions and exemptions in section 13.

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. R.S.O. 1990, c. O.31, s. 13 (1).

Exclusions

13. (2) A warranty under subsection (1) does not apply in respect of,

(a) defects in materials, design and work supplied by the owner;

ISSUES

The Tribunal has been asked to determine two issues:

1. Whether the Added Party in this case, is a “builder” under the Act, and if so,

2. Whether any defects in “material, design and work” provided by the Added Party is excluded from warranty under section 13 (2) (a) of the Act.

APPLICATION OF LAW TO FACTS

1. Is the Added Party in this case a “builder”/

Tarion submitted that for Northern Pine to be considered a “builder” under s.1 of the Act, it must have “undertaken the performance of all the work and supply of all the materials necessary to construct a completed home”. KG agreed to provide essential elements in the construction of a completed home under the five contracts entered into between the Applicant and himself and therefore the work that remained in the Added Party’s control was not sufficient to qualify it as a “builder”.

The Tribunal accepts the position, for reasons set out below, that in entering into the five contracts with the Applicant, KG was acting on behalf of the Applicant and not in his capacity as supervisor for the Added Party.

The question remains whether the work that was left to be done by the Added Party under the Agreement of Purchase and Sale was all that was necessary to construct a completed home. The Tribunal finds that it was.

As has often been held, there is an apparent conflict between the definition of a builder in s.1 of the Act and the wording of s.13 (2) (a). Section1 appears to indicate that no one other than the contractor may contribute any work or material to the construction of a house if the contractor is to be considered a builder and the house is to be warranted. S.13 (2) (a) on the other hand, clearly indicates that an owner may contribute some work and material to the house without vitiating his warranty on the rest of the house.

Many attempts have been made to resolve this apparent inconsistency. One method involved making a distinction between “undertaking” to provide the work and material and actually providing the work and material. This distinction has the advantage of giving a meaning to each word used by the legislators and may explain why the legislators did not simply define a “builder” as one who provides all the work and material….”. The approach was applied in Bond (1988) O.C.R.A.T., in Kozieok (1989) O.C.R.A.T. and in Ontario New Home Warranty Program v. McPhail [1997] O.J. No. 4570 at paragraph .25.

If the Tribunal followed this approach it would have no difficulty finding that the Added Party’s undertaking was to provide all work and material necessary for the construction of a completed home.

This approach is not however, the approach taken in the leading case of Tarion Warranty Corp.v.Kozy [2011] O.J .No.5768 which is binding on the Tribunal. In this case the Court of Appeal held that the term “builder” must be given an interpretation that is consistent with the purpose of the Act. The purpose of the Act is set out in Ontario New Home Warranty Program v. Lukenda (1991) 1991 CanLII 7167 (ON CA), 2 O.R. (3d) 675 as follows:

The major purpose of the Plan Act is to protect purchasers of new homes by requiring that vendors and builders be screened for financial responsibility, integrity and technical competence. To assure public protection, it provides warranties, a guarantee bond and compensation in the event of loss by a purchaser resulting from dealings with a registrant. In order to effect this purpose of the Plan Act, a broad and liberal interpretation of it provisions is appropriate.

Having found that the Act should be given a broad and liberal interpretation, informed by the purpose of the Act, the courts considered and expressly approved the application of this principle in the two recent cases of JRC Developments Inc. v. Tarion Warranty Corp, 2012 ONSC 6205 and R. v .Segal, 206 ONCJ 80

In JRC Developments, the Court said that “whether a contractor is a “builder” involves consideration of “who was responsible for completing the essential elements of the home and who had control over the construction of the home.”

In Segal, the Court said at paragraph 54:

In order to rationalize section 13(2) (a), which contemplates that an owner may provide some work or materials to the construction of the new home, with the definition of a “builder|” which refers to the provision of “all” work and materials, the definition of a “builder” has been interpreted as meaning the provisions of a significant portion of construction. A home is not taken outside of the preview of the Act only because the owner was responsible for some work or materials.

Applying these tests to the case at hand, the Tribunal looks first at the work which the Added Party provided under the Agreement of Purchase and Sale.

While the Agreement does not contain an express undertaking by the Added Party to construct a house, it is clear that the intent of both Parties was that a house containing the features listed in Schedule “D”, “E” and “F” would be built by Northern Pine and transferred to the Applicant. In the absence of any detailed drawing it is assumed that the house was to be built in accordance with the floor plan attached as Schedule “G” and the drawings filed in support of the Added Party’s application for a building permit. These drawings were not before the Tribunal but the permit issued on or about the day that construction began indicates that the home would have increased living space in an area originally reserved for an attached garage. The Schedules themselves describe a two bedroom home, with den, kitchen, dining room, bathrooms, furnace, laundry room, and an unfinished basement with lower level walk-out. The lot is to be graded but landscaping is not included, nor is the detached garage.

The Tribunal finds that in entering into this Agreement of Purchase and Sale, the Added Party “was responsible for completing the essential elements of the home” The Tribunal finds further, that that the Added Party built the home it had agreed to provide complete with excavation, foundation, framing, vinyl siding, electrical wiring, plumbing, roofing, a septic system and a heating system. Although P. J. Johnston Heating and Air Conditioning provided an upgrade for the heating system, the basic system was provided under contract with the Added Party.

Characterization of the work done by KG.

After taking into account the $75,000.00 paid for the land in May 2006, the total amount paid to the Added Party for the construction of the house was $233,398.00. The Applicant paid, or is under a continuing obligation to pay, this amount to the Added Party.

The total cost of work and material supplied to the project by KG, discounting the cost of building the attached garage that cannot be considered part of the original work covered by the Agreement of Purchase and Sale, was $43,930. The work consisted of the replacement of the vinyl finish provided for in the Agreement of Purchase and Sale with cultured stone, upgrades in the interior of the house, and the finishing of the basement living space. None of this work could, in the Tribunal’s opinion, be considered essential to produce a habitable or complete home.

The work provided by third parties

The work and material supplied by parties not related to the Added Party included landscaping, a replacement of a shower valve, grading around the newly constructed garage and additional duct work to add heat to the newly added finished basement. None of this work fell within the scope of the work the Added Party undertook to provide in the Agreement of Purchase and Sale and none, including the addition of a free standing propane fireplace could be considered essential to the production of the home which the Added Party turned over to the Applicant in October, 2006.

Reviewing the comparative dollar values of the work done by the Added Party and the work done by contractors retained by the Applicant, the Tribunal finds that the Applicant’s contribution to the total cost of constructing the home the Added Party undertook to provide did not exceed 20% of the work described in the Agreement of Purchase and Sale. More importantly perhaps, the work contributed by the Applicant did not include items essential for the completion of a habitable home.

The Tribunal has carefully considered whether in entering into five contracts with KG the Applicant could be said to have taken control of the construction of this home. There is no doubt that some extra work was done but the greatest part of this work (the cultured stone and the detached garage) had nothing to do with the Added Party’s completion of the work undertaken by the Added Party in the Agreement of Purchase and Sale. Further, it is difficult to imagine how it can be said that KG, who was supervising trades for the Added Party, coordinating inspections and carrying out undefined work for the Added Party, would not accommodate this extra work within his overall work schedule on behalf of the Added Party The Tribunal does not overlook the fact that there was some unexplained exclusions of workers from the property by the Applicant. No evidence was given, however, as to the effect, if any, these actions had on the Added Party’s completion of the home.

In summary, the Tribunal finds that the Added Party remained in control of the construction of this home and provided everything necessary or significant to deliver a completed home to the Applicant. The work included the excavation, foundation, framing, and roof, as well as the electrical, plumbing and all almost all of the HVAC systems.

All Parties made submissions on the question whether the transfer of title to the Applicant changed the house from being a “purchase agreement home” to a “construction agreement home” along with a change in status of the Added Party from a builder to a vendor under the Act. In light of the Tribunal’s finding that the Added Party’s status as a builder was not vitiated by the work provided by KG under his contact with the Applicant, it is not necessary to decide this question.

2. Are there any defects in material, design and work provided by the Added Party which are excluded from warranty under s. 13 (2) (a) of the Act

To answer this question, the Tribunal must examine the relationship between the three parties: the Applicant, KG and the Added Party.

A true understanding of the relationship between the parties is difficult for several reasons. The relationship appears to have changed over the period of time relevant to the issues in this case, each party may have a different view of the relationship, and no party appeared to be entirely forthcoming in describing their view of the relationship.

The first relationship to form was that between KG and Northern Pine. KG founded the company in 1994 and was its first officer and director.

The relationship between KG and HC appears to have begun at more or less the same period of time. It appears to have been a close relationship as both parties shared the same premises at 385 Sumcot Drive for some time and KG and his brother or brother-in-law were content to put the company in theory at least, in HC”s control when KG resigned as sole director in 2004, KG’s resignation was admittedly designed to place the property which is the subject matter of this hearing, out of the hands of creditors following KG’s bankruptcy in 2004.

Both KG and HC testified that following the transfer of the company to HC, KG’s only role in the company was as an owner of one percent of the shares and as a sometime supervisor of sub trades and occasional sub contractor himself. He had no authority to sign contracts save where HC specifically requested or authorized him to sign on her behalf.

The Applicant takes the position that KG’s role in the company greatly exceeded the role described by KG and HC to the extent that he considered KG and Northern Pine to be one and the same. The grounds for his belief are found in the events leading up to the signing of the Agreement of Purchase and Sale. In particular, the realtor he contacted about the property referred him to KG as the person he should talk to. When he met KG on site, KG advised that he would be doing “the vast amount” of the work on the house to be constructed and discussed possible options for the house to be built on the property. The impression that the Applicant formed of KG’s authority was that talking to KG was the same as talking to Northern Pine. This view was confirmed when KG had the changes they discussed incorporated in schedules ready for the Applicant’s signature.

As noted earlier, each of the three parties had different recollections of how the Agreement of Purchase and Sale got signed. The Tribunal has no hesitation in accepting the Applicant’s evidence on this question over that of KG and HC. Even counsel for Northern Pine agreed in his closing submissions that KG’s version could not be true as KG must have discussed such things as the location of the house on the lot with the Applicant prior to the schedules, which clearly show a lower level walk-out, being drawn up. While HC’s version of these events is a logical possibility, it strains credibility. It seems highly unlikely that HC would come to a meeting to sign whatever was necessary to make the Agreement effective” when she had no previous knowledge of the changes desired by the Applicant. In summary, the Tribunal finds HC’s evidence in this regard not to be credible on the basis that it does not accord with what one would normally expect in such circumstances.

On the question of credibility, the Tribunal accepts Mr. Bale’s submission that where there is a conflict between the evidence of the Applicant and the evidence of HC the evidence of the Applicant should be preferred. The Applicant answered questions from his counsel as well as counsel for the Added Party in a straight-forward manner, neither appearing to accept without consideration the suggestions of his counsel in answering questions nor automatically denying questions asked by opposing counsel. This is in sharp contrast to HC’s demeanor in giving her evidence. She often agreed with questions being asked by her counsel before the words were out of his mouth and was hostile and argumentative with counsel for the Applicant. At one point, she indicated that she could not continue answering counsel’s questions while his client was sitting by his side as she was forced to look at the Applicant which made her physically sick. It is not surprising with such a hostile attitude that she found herself refusing to admit the most obvious facts suggested to her by counsel for the Applicant. Examples are her refusal to admit she knew KG, lived across the road from her house, her refusal to admit she recognized signatures of persons whom she knew well, and her assertion that she warned the Applicant about the possibility of losing Tarion warranty coverage if he continued dealing with KG - a statement alleged to have been made long before she could have had any knowledge of the thorny issue of defining a “builder” under the Act.

Notwithstanding the Tribunal’s finding that it was reasonable for the Applicant to believe that KG and Northern Pine were one and the same at the time he signed the Agreement of Purchase and Sale, the Tribunal finds that by the time the Applicant signed the five contracts with KG on May 16, 2006, the Applicant knew, or should have known, that the party to deal with regarding Northern Pine matters was HC. By this time he had had the opportunity to see that the Agreement of Purchase and Sale had been signed by HC on behalf of the Added Party. He also had ample opportunity to discuss with his lawyer the significance of HC signing on behalf of the company when he discussed the proposed transfer to title to him.

Notwithstanding this knowledge, the Applicant decided to enter into a number of side deals with the Added Party’s on-site supervisor. As noted above, the work covered in these contracts fell in large measure outside the scope of the original Agreement of Purchase and Sale although a small percentage of the work consisted of what would normally be considered upgrades

In coming to its conclusion that the Applicant must have realized that these contracts were side-deals not involving Northern Pine, the Tribunal gives considerable weight to two facts stressed by the Added Party. First, payment was to be made by cash (or in one case the transfer of a personal automobile vehicle) to the site supervisor. This established a whole different stream of funds than the funds which were payable to the Added Party under his Agreement with it. Second, the absence of the name of the Added Party on the contracts must have indicated to the Applicant that these transactions were not likely to come to the attention of the Added Party.

The Tribunal agrees with the Applicant’s submission that the absence of financial records corroborating the assertion that the Added Party received no benefit from these contracts or supporting its claim that KG did not share in the revenue received by Northern Pine is suspicious. The Tribunal is not, however, satisfied that the absence of such records can only be attributed to a desire to conceal the true nature of the Added Party’s relationship with KG from this Tribunal.

In the result, the Tribunal finds that KG was acting under contract with the Applicant when he supplied the design, work and material he did under the four contracts entered into with the Applicant on May 16, 2006 and the one contract dated on August 2, 2006.

ORDER

Having reviewed the evidence as a whole, the Tribunal concludes that the Added Party undertook to perform, and did in fact perform all work and supplied all materials necessary to construct a completed home for the Applicant. The Tribunal also concludes that the work and material supplied by KG constitute work, material and design provided by the owner and any defects therein are excluded from warranty pursuant to s.13 (2) (a) of the Act.

LICENCE APPEAL TRIBUNAL

Douglas R. Wallace, Vice Chair

Released: July 26, 2012