An Appeal of a Decision of Tarion Warranty Corporation under the Ontario New Home Warranties Plan Act to Disallow a Claim
Between:
M.W. and D.W. Appellants
and
Tarion Warranty Corporation Respondent
REASONS FOR DECISION AND ORDER
INTRODUCTION:
1Under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31 (“Act”), homeowners may appeal to the Licence Appeal Tribunal (“Tribunal”) if the Tarion Warranty Corporation (“Tarion”) denies their claim for the statutory warranties provided to remedy defects in a new home. Tarion is the respondent in these appeals.
2In this particular appeal, Tarion has brought a motion to add a builder, Charleston Homes Ltd. (“CHL"), as a party.
SUMMARY:
3Tarion’s motion raises the following questions:
Based on the evidence before the Tribunal, does CHL have a significant interest in this particular appeal? To that end, what substantive rights of the builder are being decided, or adverse effects could it face, which justify CHL being named as a party in the appeal?
4Having considered the evidence and the applicable statutory and procedural rules, I decline Tarion’s motion to add CHL as a party in this appeal. Appeals under the Act are not meant to be procedurally complex for homeowners; builders should only be added when they can show they have a “significant interest” in the appeal. In this case, CHL wholly relied on Tarion’s submissions and evidence to make that argument. Tarion’s submissions focussed on the policy reasons for adding builders as parties rather than providing specific evidence about CHL’s circumstances and how an order from the Tribunal would specifically affect CHL.
BACKGROUND RELATING TO THE MOTION:
5D.W. and M.W., who are the homeowners in this matter, made a claim to Tarion because they were dissatisfied with the work done by CHL on their new home. Tarion denied their claim.
6On October 11, 2017, the homeowners filed an appeal with the Tribunal. The Tribunal sent Tarion the appeal on October 16, 2017.
7On October 17, 2017, Tarion sent a letter to the Tribunal requesting that CHL be added as a party to the proceeding. The letter was copied to the homeowners and to CHL.
8In the past, the Tribunal received and granted these written requests as simply an administrative matter. With new procedural rules in place, the Common Rules of the Licence Appeal Tribunal, Animal Care Review Board, and Fire Safety Commission (the “Tribunal’s Rules”) that came into effect on October 2, 2017, Tarion was directed to bring a motion to add CHL as a party.
9The motion was heard by telephone on March 22, 2018. Tarion filed a motion record and a factum. Both CHL and the homeowners were self-represented and neither filed any materials. Shortly before the motion, the Tribunal heard from Tarion that all parties had consented to its motion and asked whether the motion hearing was still needed. Tarion essentially asked the Tribunal to issue an order, on consent and without hearing, to add CHL as a party. Despite the consent of the parties, I directed the motion hearing to proceed as I wanted to hear from all parties to be sure that CHL has a significant interest in this appeal.
The LAW on ADDInG Parties:
10In these appeals s. 16(4) of the Act deems Tarion and homeowners as parties. It also provides that “such other persons as the Tribunal may specify” may be added as parties but does not prescribe a test for determining this.
11Rule 3.6 of the Tribunal’s Rules sets out the test for adding parties to a proceeding:
The Tribunal may add a person as a party to a proceeding if the person has a significant interest in the proceeding.
12For purposes of this Rule, an association or corporation is properly considered a “person,” particularly given the definition of “party” in Rule 2.16.
13To determine if CHL has a significant interest in the proceeding, it is helpful to look at the purpose and legislative context surrounding these appeals and the submissions from CHL, Tarion, and the homeowners with respect to how the outcome of the appeal will affect CHL’s interests. In particular, what substantive rights of CHL are being decided or affected by the potential order of a Tribunal.
ANALYSIS:
Purpose of the Act
14The Act, as a whole, has been described as consumer protection legislation.1
15In accordance with that general principle, the specific objective of s.16 is to provide an appeal process for homeowners that is not meant to mirror complex construction litigation heard by the courts.2 As discussed below, a review of the Act shows that this objective is met by providing homeowners and builders different ways of challenging Tarion’s decisions.
How Homeowners challenge Tarion Decisions: Appeal to the Tribunal[^3]
16Under s.13 of the Act, warranties are deemed to be given to homeowners by vendors, including builders, concerning the quality of construction.
17Section 14 of the Act provides that compensation for breach of these warranties is paid out of a guarantee fund administered by Tarion. If a homeowner believes that a statutory warranty has been breached, and that the builder has not remedied the breach, the homeowner may make a claim to Tarion.
18Once a claim is made, the builder has a specified amount of time to repair the alleged defect. If the builder does not remedy the defect, Tarion tries to resolve the dispute in a mandatory conciliation under s. 17 of the Act. Tarion gathers information about the alleged defect and independently inspects the property. Both the homeowner and the builder are given the opportunity to submit arguments, expert evidence, documents and information from relevant witnesses.
19Where the dispute is not resolved by conciliation, Tarion issues a warranty assessment report, which is a preliminary assessment of whether an alleged defect is covered by a statutory warranty. One of two things may result:
Tarion may uphold a homeowner’s claim; or,
Tarion may deny a homeowner’s claim (in whole or in part) and will provide the homeowner its reasons in a decision letter.
20Homeowners who are dissatisfied with Tarion’s decision to deny a claim may appeal to the Tribunal under s. 16(2).
21The Tribunal’s powers to order a remedy are defined by s. 16(3) of the Act. The Tribunal’s orders are limited to directing Tarion "to take such action as the Tribunal considers [Tarion] ought to take in accordance with this Act and the regulations." The Tribunal may order that Tarion – not the builder – pay the homeowner compensation from the guarantee fund, or perform or arrange remedial work.
How Builders challenge Tarion Decisions: Arbitration or Defending an Action
22In s. 16 appeals, the Tribunal has no power to make any order for or against a builder.
23Under s. 13 of the Act, if Tarion finds a warranty has been breached and compensation is paid from the guarantee fund to the homeowner, builders are required to pay an administration fee and indemnify Tarion pursuant to s. 4(iv) of R.R.O. 1990, Regulation 894 made under the Act. Indemnification may be waived if Tarion finds the builder has “fully and completely” cooperated with Tarion, among other criteria.
24Builders may not appeal Tarion’s decision about a homeowner’s claim to the Tribunal. If builders dispute Tarion’s demand for indemnification, they may seek redress through an arbitration process which is not overseen by the Tribunal. Builders may obtain a hearing in the Builder Arbitration Forum.4
25When Tarion pays compensation from the guarantee fund to the homeowner, it also has the option of pursuing a subrogated claim against the builder. These actions are not heard by the Tribunal. They are heard in the courts and the builder is the defending party. The homeowner may be called as a witness but is not deemed to be a party to that proceeding. Although homeowners may have relevant evidence to offer, their right to compensation is not affected in that action.
26Builders are not automatically deemed to be parties under s. 16 and the Tribunal does not issue orders for or against builders in these appeals. Given this, what does a builder need to establish to show it has a “significant interest” in an appeal?
How does a Builder establish it has a “Significant Interest” in an Appeal?
27Builders may only be added as parties in appeals at the discretion of the Tribunal. The Tribunal is not fulfilling its statutory mandate if it decides the question as a matter of rote without considering the merits of the specific request.
28Starting from first principles, we need to remember there are generally two ways to participate in a proceeding at the Tribunal: as a witness or as a party. Witnesses have a limited role. They have no independent right to participate in a hearing; their participation is contingent on a party calling them to provide evidence. In contrast, parties have the right:
to be represented by counsel in the proceeding;
to obtain disclosure, introduce evidence, call witnesses, bring motions, and raise objections;
to make submissions about how the law should apply to the facts and what orders the Tribunal should make; and,
to participate in all hearings and case conferences.
29While a person may have important and relevant information that homeowners or Tarion may wish to put into evidence that is not reason enough to grant that person the extensive rights enjoyed by a party. If builders are named as parties in appeals under s.16 of the Act, it should not just be for the reason that their evidence is needed by the Tribunal.
30To be added as a party under s. 16(4), there should be evidence that the outcome may result in an order affecting that person’s interests. An interest is demonstrated by providing evidence that a person’s substantive rights are being decided or affected by the potential order of a Tribunal. To decide this question, the Tribunal needs to consider the purpose of the legislation, the subject matter of the proceeding, the potential party’s interest in the proceeding, and the effect on that interest.
31In conclusion, in deciding whether or not to add CHL as a party, the Tribunal must apply Rule 3.6 and satisfy itself that CHL has a significant interest in the proceeding. The Tribunal needs to consider the following questions when hearing this motion:
Based on the evidence before the Tribunal, does CHL have a significant interest in this particular appeal? To that end, what substantive rights of the builder are being decided, or adverse effects could it face, which justify CHL being named as a party in the appeal?
The Evidence of the Homeowners for adding CHL as a Party
32At the motion hearing, while the homeowners advised me they had consented to Tarion’s request to have CHL added as a party, they noted this was not their main concern. They wanted to be able to call two specific CHL employees as witnesses should this matter proceed to a hearing on the merits of the appeal. They advised me that, at one point, they had had to call the police in their dealings with CHL. They were concerned that Michael Parker, the official at CHL who was present on the telephone for the motion hearing, did not have first-hand knowledge of the work they were complaining about. They asked me if they would be able to call the two CHL employees with first-hand knowledge as witnesses.
33The homeowners asked a valid question. I will answer it now. As a party to the proceeding, the homeowners have a right to give evidence and to call expert evidence, witnesses from CHL, witnesses from Tarion, or others who they can show have relevant information. They can obtain summonses from the Tribunal to require witnesses to attend. They can bring motions for production. They can question the witnesses of other parties. Tarion, as a party, has those rights. If CHL is added as a party, it would have those rights, too.
34Although the homeowners consented to CHL being added as a party, their evidence and submissions suggest that they were attempting to ensure the availability of certain CHL employees as witnesses, and that they did not necessarily agree that CHL has a significant interest in this proceeding and should be added as a party.
The Evidence of CHL for being added as a Party
35CHL adopted everything Tarion said without elaboration or clarification. I asked Mr. Parker, the official representing CHL, if he wished to add anything to the submissions made by Tarion. He declined.
The Evidence of Tarion for adding CHL as a Party
36Tarion submitted that builders should generally be added as parties for four reasons:
a. Because any award against Tarion can be – and generally does become – a liability claimed over against the builder as a result of its obligations to Tarion.
b. Because of the builder’s contingent and ultimate liability in seeing that the best and relevant evidence is put before the Tribunal.
c. Because a builder’s involvement can result in a significant reduction or elimination of its consequent liability.
d. Because a builder’s participation provides it an opportunity to participate in meaningful mediated efforts.
37The first three reasons are really the same point: a general proposition that a builder’s financial interests are affected because a builder may be required to indemnify and pay an administration fee to Tarion and be subject to later court proceedings, should the Tribunal find in the homeowners’ favour.
38Tarion also submitted that natural justice requires CHL to be added as a party so that CHL is given an opportunity to represent its own interests by retaining its own legal counsel, presenting its own evidence, and making its own submissions.
39The test under Rule 3.6 requires evidence that a builder’s interests are at issue and that the interests are significant. I am not satisfied that Tarion’s submissions have established that for CHL.
40If Tarion’s reasons for adding CHL as a party were to be followed, a request to add a builder would have to be granted in every appeal, which would undermine both the Act’s objective of avoiding court-like complexity for homeowners and the Tribunal’s discretion under s. 16(4) of the Act.
41In this motion Tarion was basically stepping into the shoes of CHL to advocate that CHL should be added as a party. Tarion showed its interest in this appeal is primarily aligned with CHL in responding to the homeowners. Because Tarion is a responding party in this appeal, having an allied and added party join the proceeding will add unnecessary complexity for the homeowners – which is contrary to the objective of s. 16(4).
42A request for party standing on the grounds of procedural fairness is best advanced by the person whose interests may be at stake. This ensures the Tribunal hears directly from that person as to the actual significance of the interest in that proceeding. While Tarion’s written and oral submissions focussed on the general interests of builders under the Act, neither CHL nor Tarion submitted any specific evidence about how an order from the Tribunal could affect CHL.
43I accept that evidence about the quality of a builder’s work will be important in both an appeal to the Tribunal and in a subrogated claim before a court. In the former it will help determine what Tarion must pay to a homeowner if a claim was denied. In the latter it will help determine what a builder must pay to Tarion. If there are found to be a number of significant breaches of a builder’s warranty, the payment of a claim from the guarantee fund may be substantial. Consequently, a subrogated claim heard by a judge may be significant and the court’s order could in some situations pose a significant financial risk for a builder. Alternatively, the financial risk to a builder could be smaller if the breaches of the warranty are few or minimal, or easily remedied by the builder. Either way, the actual risk for a builder is best understood by the Tribunal if it hears these specifics from the builder.
44Unfortunately, neither Tarion nor CHL submitted specific evidence as to what the precise liability of CHL would be if the homeowners succeed in whole or in part and how that could materially affect CHL. It would have been helpful to hear from Tarion, and especially from CHL, on that issue.
45As noted above, when the Tribunal overturns Tarion’s decision and orders compensation to a homeowner, Tarion has authority to waive a builder’s obligation to indemnify Tarion if a builder is cooperative with Tarion in the conciliation process. It would also have been helpful to understand from CHL and Tarion whether or not CHL did, could have, or might still obtain this waiver.
46In respect of Tarion’s fourth reason for adding CHL as a party, Tarion’s position is basically that all builders have a “significant interest” in being added as parties because this is the only means by which builders can be involved in “meaningful discussions or mediation leading towards early resolution or settlement” at the case conference and thereafter. The evidence cited in support of this contention is drawn from Tarion’s annual reports.
47As Tarion observes, “an average of 83% of appeals were resolved without a hearing” between 2014 and 2016. Tarion further submitted that “a critical factor in the resolution of this high percentage of cases is the participation of the builder as a party at the case conference or thereafter.” Additionally, Tarion noted that the two key ways in which builders may contribute to early resolution is by “providing key information, context and assurances to homeowners” and “contributing to or wholly funding a settlement arrangement.”
48Early resolution is a key goal but this is not necessarily contingent on builders being named as parties in an appeal.
49While builders are the direct point of contact with homeowners before they make a claim, once a claim is made and rejected Tarion becomes the direct point of contact with homeowners. In these appeals the Tribunal is determining whether Tarion’s denial of compensation to the homeowner is warranted. The Tribunal is not issuing orders directing builders to do or pay anything. To the extent that “key evidence about the warranty claim(s) at issue” is in possession of CHL, both the homeowner and Tarion are well-placed to make their respective cases by calling CHL’s tradespeople as witnesses. Adding CHL as a party in an appeal is not the only way the Tribunal can receive its evidence.
50Naming a builder as a party in an appeal is also not the only way of bringing a builder to the negotiation table with a homeowner. Tarion has a mandate to conciliate warranty disputes between builders and homeowners and does not need to wait for a case conference or hearing to engage in settlement negotiations with a builder. Case conferences involve settlement discussions and motions concerning a wide variety of procedural and substantive matters in advance of a hearing. While they are not open proceedings, builders could be present if the tribunal adds them as parties to the case conference pursuant to s. 5.3(3) of the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22 (“SPPA”).5 In these circumstances a builder can participate in a settlement discussion facilitated by an adjudicator without having to be named as a party to the appeal.
Case law: Adding Parties is a discretionary decision of the Tribunal
51The Divisional Court decision in Ontario New Home Warranty Program v. Ontario (Commercial Registration Appeal Tribunal), 1998 CanLII 18854 (ON CTGD), [1998] O.J. No. 1948 (Div. Ct.), which Tarion provided in its material, is helpful.
52In that case, where a builder had already been added as a party, the Divisional Court rejected a motion that sub-contractors and others be added as parties. In the court’s view, the Tribunal’s function is to decide if Tarion has correctly determined whether or not there has been a breach of the statutory warranty homeowners are provided. Each case will turn on the evidence. While in some cases builders may be added as parties, the court noted that the only necessary parties to these appeals are homeowners and the administrator of the warranty program, now Tarion.6
53Whether or not parties should be added is a matter of discretion for the Tribunal. In discussing the Tribunal’s power to add parties other than those designated by statute, the court referred to the SPPA (s. 5 states that the parties include those who are “entitled by law” to participate) as well as the principles of natural justice, which afford persons the right to notice and the right to respond where an order made under a statute might affect them.7
54As noted above, the Tribunal’s hearing of these appeals is not meant to mirror complex construction litigation heard by the courts.8 The appeal to the Tribunal is intended to insulate the consumer from the litigation process and leave it to Tarion to recoup costs from builders at a different stage. In Ontario New Home Warranty Program v. Ontario (Commercial Registration Appeal Tribunal), Tarion was concerned that, if subcontractors and others were not added as parties, it would have difficulty calling evidence and making its case. The court noted such matters could be addressed by adjournments and other means (presumably by summons) and that such concerns were not sufficient grounds to warrant others being added as parties. Tarion’s submissions to me about the need to add CHL as a party are basically the same arguments the Divisional Court rejected.
55The essential point of the Divisional Court’s reasons is that the decision to add a party, other than the homeowner and Tarion, is a discretionary decision of the Tribunal.
56Tarion also submitted a previous motion decision of the Tribunal, 8452-ONWHPA-CLAIM (Re), Pre-Hearing Order, June 17, 2015, where a homeowner had applied to have a builder removed as a third party. That motion was denied. In that decision, the Tribunal noted the builder had a “vital interest” in the outcome of the appeal because9:
The builder bore the risk of either being required to carry out or to pay for any remedies that the Tribunal might order.
Natural justice required the builder to be provided the opportunity to make a full and complete response to the homeowner’s objections (presumably about the quality of its work).
The issues between Tarion and the builder were not “internal matters” between them.
The builder had the right “to fully present its case to the Tribunal.”
57Tarion has not suggested I am bound to follow that decision and has provided no other Tribunal decisions where this issue has been analysed in detail. In reaching a different conclusion, I do think it important to explain why I have done so.
58I think the first and fourth points noted above do not accurately reflect the nature of these appeals. Builders are not ordered by the Tribunal to carry out or to pay for any remedies. Orders are issued against Tarion, not the builder.
59Builders have no automatic right to present arguments to the Tribunal. Making an argument and providing testimony are two different things. If a builder’s testimony is needed, Tarion or a homeowner can always call those tradespeople as witnesses. However, natural justice interests may arise and justify a builder being named as a party if it has a significant interest. As evident in the reasons for the motion decision from 2015 that Tarion submitted, the answer to the question whether or not to add a party is very dependent on context.
60The Tribunal needs evidence from the persons seeking to be added as parties that the outcome may seriously affect them. In the Divisional Court decision cited by Tarion, the builder had already been granted party status and the subcontractors and others also seeking to be added were represented and made their own submissions about whether or not they should be added.
61In the motion decision from 2015 cited by Tarion, the builder opposing the motion did not simply rely on Tarion to make its case. The builder made its own cogent and fact-based arguments that it should be a party. That was not the case in the motion I heard.
62In its submissions on this motion, Tarion’s four reasons for adding CHL as a party in the appeal can be distilled into two general arguments. First, there may be a potential downstream impact on builders in these homeowner appeals. Second, it is helpful to have builders named as parties so they can participate in case conferences. Tarion framed its submissions as a public policy argument. CHL provided no specific evidence of the adverse impact it was facing and why it should be added as a party.
Conclusion
63For the reasons set out above, I am not convinced there is evidence establishing CHL has a significant interest in the proceeding that justifies it being added as a party pursuant to Rule 3.6. Its tradespeople are able to participate as witnesses called by either Tarion or the homeowners. There is no bar to CHL discussing settlement with Tarion and the homeowners.
64This does not prejudice CHL and other builders, in future appeals, from seeking and obtaining party status. Such motions can be heard at case conferences where settlement discussions may also take place. When bringing such motions, builders (or others) need to present evidence-based arguments to show the Tribunal a particular builder has a significant interest in a specific appeal.
65In future, instead of sending a letter copied to a builder requesting the Tribunal to add a builder as a party in an appeal, Tarion may now wish to contact builders when it receives an appeal from the Tribunal to advise them of the appeal. By doing so, Tarion can initiate the settlement process without waiting for the scheduling of a case conference. This would also put the builder on notice of the appeal so that it could decide whether or not to exercise its right to request party status.
ORDER:
Having considered the evidence and submissions of Tarion, CHL, and the homeowners and the particular circumstances of this motion, I find that Tarion has failed to demonstrate that CHL should be added as a party to this appeal. Tarion’s motion is dismissed.
LICENCE APPEAL TRIBUNAL
Jonathan Batty, Associate Chair
Released: May 14, 2018
Footnotes
- Metropolitan Toronto Condominium Corporation No. 1352 v. Newport Beach Development Inc., 2012 ONCA 850. This decision carefully examines the purposes of the Act and the respective rights and roles of homeowners, builders, and Tarion.
- Ontario New Home Warranty Program v. Ontario (Commercial Registration Appeal Tribunal), 1998 CanLII 18854 (ON CTGD), [1998] O.J. No. 1948 (Div. Ct.) at paragraphs 25 and 36.
- Metropolitan Toronto Condominium Corporation No. 1352 v. Newport Beach Development Inc. at paragraph 22.
- Section 5.3(3) of the SPPA provides that “A member who presides at a pre-hearing conference may make such orders as he or she considers necessary or advisable with respect to the conduct of the proceeding, including adding parties.”
- Ontario New Home Warranty Program v. Ontario (Commercial Registration Appeal Tribunal) at paragraph 26.
- Ibid. at paragraph 19.
- Ibid. at paragraphs 25 and 36.
- 8452-ONWHPA-CLAIM (Re), Pre-Hearing Order, June 17, 2015, page 5.
- Metropolitan Toronto Condominium Corporation No. 1352 v. Newport Beach Development Inc. at paragraphs 15 to 20.