Licence Appeal Tribunal

Safety, Licensing Appeals and Standards Tribunals Ontario

Tribunal d’appel en matière de permis Tribunaux de la sécurité, des appels en matière de permis et des normes Ontario

Date: 2018-05-08

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

Between:

R.R. and D.R. Appellants

-and-

Tarion Warranty Corporation Respondent

DECISION and ORDER

Adjudicator: Stephen Scharbach, Member

Appearances: For the Appellants: Self-represented For the Respondent: Zahir Ali, Counsel

Heard in Toronto: February 20, 21, 26, 27, March 23, 2018

Date of Decision and Order: May 08, 2018

Overview

1The appellants appeal a decision by the Tarion Warranty Corporation (“Tarion”) to deny their claim for losses suffered by the failure of Gordon Bartley Construction (“GBC”)¹ to substantially perform a contract for the construction of their home.

2Their claim was made under s. 14(2) of the Ontario New Home Warranties Act, R.S.O. 1990, C.31 (“Act”). That subsection limits compensation to losses suffered when a “builder” - a defined term in the Act - fails to substantially perform a home construction contract.

3Under the Act, a “builder” is a person who,

…undertakes the performance of all of the work and supply of all of the materials necessary to construct a completed home… (emphasis added)

4The appellants assert that GBC meets the statutory definition of “builder”. They say GBC either performed, or directed and controlled through other contractors, the construction all of the significant components of the home.

5Tarion states that GBC was not the “builder” of the appellants’ home because it did not direct and control the construction of all essential elements of the home. According to Tarion, GBC was only one of several contractors hired by the appellants and the appellants themselves directed and controlled the construction of what was essentially an owner-built home. Since subsection 14 (2) limits compensation to losses caused by a “builder”, Tarion denied the claim.

Issue

6At the beginning of the hearing, the parties informed me that the sole issue in this appeal is whether GBC was the “builder” of their home as that term is defined in the Act. The parties regarded that as the threshold issue. If GBC is found to have been the builder, the parties intended to then deal with the question of the amount of the financial compensation to which the appellants would be entitled under the Act.

7However, if GBC is found not to have been the builder, the appellants would have no entitlement to compensation under s.14(2) and their appeal would fail.

8The onus is on the appellants to prove on a balance of probabilities, that GBC was the “builder” of their home as that term is defined in the Act.

Decision

9On the basis of the facts and analysis set out below, I have concluded that the appellants have not established that GBC was the “builder” of the appellants’ home and therefore their claim for financial compensation under s.14(2) of the Act must fail.

The Legal Framework

A. Claim is Limited to Losses Caused by “Builders”

10Subsection 14(2) of the Act entitles an owner to financial compensation for losses suffered when a “builder” fails to perform a contract with the owner to construct a home on the owner’s land.

11The wording of subsection 14(2) makes it clear that claims are limited to cases where the owner has entered into a home construction contract with a “builder” as defined in the Act. Subsection 14(2) states:

Subject to the regulations, an owner of land who has entered into a contract with a builder for the construction of a home on the land and who has a cause of action against the builder for damages resulting from the builder’s failure to substantially perform the contract is entitled to receive payment …

B. The Definition of “Builder”

12“Builder” is defined in section 1 of the Act as follows:

“Builder” means a person who undertakes the performance of all of the work and supply of all of 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.

13That definition, specifically the requirement that a builder perform all of the work and supply all of the materials necessary to construct a completed home, has given rise to significant discussion in Tribunal and Court decisions, many of which were referred to me in the course of the hearing.

14Those cases arise both in situations like this one where Tarion denies warranty coverage on the basis that the losses were not caused by a “builder”, and in Provincial prosecutions where the defendant denies committing an offence such as failing to register as a “builder” with Tarion because it was not a builder as defined in the Act.

15Taken literally, the definition suggests that any contribution by an owner to the completed home, no matter how minor or non-essential, would take the contractor out of the statutory definition and potentially deprive the owner of warranty coverage.

16However, as many of the cases have pointed out², the Act seems to specifically contemplate some owner contribution. Subsection 13(2) of the Act excludes the builder’s warranties from defects in materials, design and work supplied by the owner, suggesting that the Act intended that owners could supply some materials and labour without taking the contractor out of the definition of “builder”.

17The cases also make it clear that in practice, owners commonly take responsibility for certain aspects of a completely constructed home, especially the finishing components such as landscaping, painting, floor coverings, cabinets, plumbing and lighting fixtures, doors, windows, and railings.

18Thus, Tribunal and Court decisions have stated that the term “builder” must be given a broad and liberal interpretation that recognises that a contractor who leaves some work to be completed by a homeowner will still be regarded as the “builder” for the purposes of the Act. The Court of Appeal for Ontario has stated that:

This approach requires an interpretation of builder that would cover persons who build a home but leave some work to be performed by the owner. Courts have recognised that the Act contemplates that owners will often perform some work relating to a construction projects …Given the purpose of the Act, it is important not to deny such owners New Home Warranty coverage. To hold that a contractor who leaves some work to a homeowner is not a “builder” would therefore be inconsistent with the statutory scheme.³

19That raises an issue important in this case - how much of the construction project can the owner assume or control before the contractor no longer qualifies as a builder?

C. “Builder” Controls Construction of Essential Elements

20Several Tribunal and Court cases have considered that question. Although stated in various ways, their approach is to determine whether the contractor had control over the performance of the work and the supply of materials in connection with the essential, or most significant elements of the house.

21That approach has been articulated several times by this Tribunal and the Courts.⁴ It has also been affirmed by both the Divisional Court and the Court of Appeal for Ontario. In Ontario (5319-ONHWPA-Claim) the Tribunal stated:

The Tribunal has held in other cases that the question of control and the degree thereof is an important factor in determining this question [of how much work can be performed by the owner while still allowing the builder to fall within the statutory definition.]

The Tribunal finds that JRC had primary control of the construction the home. JRC did all the essential work to build the home, save for the brickwork. The contract provided for such an event and gave a pre-determined allowance to the Applicants.⁵

The Tribunal … declares that JRC is the builder under the Act in this case…

22The Tribunal’s approach in that case was affirmed on appeal to the Divisional Court:

In our view the Tribunal did not err in concluding that JRC was a builder as defined by the Act. The presiding Vice Chair followed the applicable case law and properly considered who was responsible for completing the essential elements of the home and who had control over the construction of the home…

The Tribunal’s finding on this issue of whether JRC was a builder is consistent with the facts and the case law. JRC supplied and installed the essential elements of the home. The footings and foundations the building envelop (framing), the electrical and plumbing systems, and the heating air conditioning systems. The exterior cladding is the only essential element at issue.⁶

23The Divisional Court’s approach to the definition of builder in that case was endorsed by the Court of Appeal for Ontario:

The interpretation of the definition “builder” in cases like McPhail, JRC Developments Inc., and Boissonneault is, in my view consistent with the consumer protection purpose of the ONHWP Act, the wording of the definition of the word “builder”, and a contextual reading of the definition with other provisions of the Act, such as s. 13(2)(a).⁷

24The Divisional Court and Court of Appeal decisions are binding upon this Tribunal. I conclude that a contractor will be regarded as the “builder” under the Act if it is responsible for completing the essential elements of the home and has control over the construction of the home. In my view this makes sense. As this Tribunal has stated:

It is quite logical that the party that controls the quality of the work and materials should bear the responsibility for providing the Warranty, as it is responsible for the quality of the work done and the materials used.⁸

25On the other hand, if an owner retains, or assumes significant control over the performance of the work or supply of materials in connection with one or more of the essential elements of the home, the contractor will not meet the statutory definition of builder.

D. What are the Essential Elements of Home Construction?

26The Act does not contain a definition and no doubt those elements can vary from project to project. However, according to uncontradicted evidence given by Tarion’s witnesses, the essential elements of the appellants’ home construction include the foundation, framing, electrical system, roughed in plumbing system, heating and air conditioning system (‘HVAC”), and the building envelope.

27Non-essential elements include elements such as painting, interior finishing, floor covering, plumbing and electrical fixtures.

28I accept that evidence. It accords with common sense and is consistent with the approach adopted by this Tribunal in the cases referred to above.

29Given this framework, the specific question that must be answered to determine whether GBC was the “builder” of the appellant’s home is, did GBC provide, take responsibility for, or control construction of the essential elements of the appellant’s home - the foundation, framing, electrical system, roughed in plumbing system, HVAC, and building envelope?

30As set out below, I conclude that GBC did not provide or control construction of the essential elements of the home’s construction. GBC performed or was responsible for the provision of the foundation, framing, roof, and other more minor items. The other essential elements were provided by other contractors who were selected, hired, paid and controlled by the appellants themselves.

Facts

A. Overview of the Construction Project

31According to the appellants, they acquired a parcel of land on < > Rd. in Norland, Ontario that had been in Ms. R’s family for many years and they decided to fulfill a family dream by building a vacation home on it. According to Mr. R, they extensively researched all aspects of their proposed construction project. They eventually decided to build a home that included a unique feature - insulation made out of compressed and treated straw bales covered by plaster on both the interior and exterior of the home.

32The appellants were referred to Straworks Inc., (“Straworks”) a Peterborough company that specialises in straw bale construction. They met with Straworks’ owner, Deirdre McGahern, at the building site in 2010. Ms. McGahern, who testified at the hearing, stated that she was willing to participate in the project and referred the appellants to Patrick Marcotte, a home designer familiar with straw bale construction. The appellants contacted Mr. Marcotte in September 2012 and hired him to develop a design and plan for construction of their home.

33Mr. Marcotte developed a set of plans that suited Straworks’ construction methodology. The plans were completed in July 2014 and provided to the appellants.

34The appellants contacted GBC in November, 2013, before the plans were finalized, and met with its owner, Gord Bartley. In December 2013, after some discussions, GBC and the appellants agreed that GBC would provide construction services in connection with the appellant’s project.

35Whether the appellants and GBC agreed that GBC would deliver a substantially completed home, or whether GBC only agreed to construct certain elements of the home is in dispute. That issue, discussed in more detail below, is complicated by the lack of a written contract between the appellants and GBC, and the fact that Gord Bartley died on September 8, 2015.

36The appellants themselves applied for a building permit on July 24, 2014 and a permit was issued on August 21, 2014. Excavation of the building site took place around that time and construction of the home began in early September, 2014. The footings, foundation, framing, steel roof and other more minor items were constructed by GBC or were controlled by it through subcontractors. Other separate contractors attended on site during the fall of 2014 to install plumbing to the roughed-in stage, the HVAC system, the electrical system, and the straw bale construction.

37Construction continued during the spring and summer of 2015. Unfortunately, Gord Bartley became seriously ill and on August 6, 2015, GBC notified the appellants that it would not be able to continue work on their project. On September 8, 2015, Gord Bartley died and GBC’s business was taken over by Jason Bartley, Gord Bartley’s son. GBC did no further work on the appellants’ home.

B. The Role of Gord Bartley Construction

38According to the appellants, they hired GBC in part because they wanted a builder located close to the build site and who had experience with straw bale construction.

39The appellants testified they understood that GBC would co-ordinate, supervise and control all aspects of the project and deliver to them a completed home. The appellants say they needed someone to “quarterback” the project because they had no experience with actual construction, lived about two hours away from the build site, and have full time jobs and significant family commitments.

40Although there is no written contract setting out the scope of work to be delivered by GBC, the appellants testified that Gord Bartley verbally agreed to supervise and control all aspects of the construction. They state that role was consistent with GBC’s advertising and promotional material which stated, among other things, that GBC was, “carrying on the family tradition of building quality homes in the area for 150 years” and, “Gord Bartley Stone Mason Carpenter – Basements to Roof, Fireplace to Landscaping”.

41According to the appellants, the understanding they developed with Gord Bartley was:

• GBC would construct the footings, foundations, framing, and steel roof and undertake other work to be determined as the project developed.

• There would be no written contract. Instead, as the work progressed, GBC would provide the appellants with estimates of the cost of each stage of the construction. If the estimates were accepted, GBC would complete the work and then invoice the appellants.

• GBC would co-ordinate, supervise and control the contractors who would install the building envelope (straw bale), plumbing, electricity and HVAC systems (collectively referred to as the “trades”).

• Gord Bartley would give the appellants the names of trades who he knew and trusted but the appellants themselves would contact them, make the final decision as to whether or not to hire them, and pay them directly.

42According to the appellants, Gord Bartley told them that if he hired and paid the trades directly he would charge the appellants an additional 10%. The appellants say they understood that fee was simply an administration charge for “running the trades through his books” and decided to avoid that cost by hiring and paying the trades directly. To them, hiring and paying the trades directly was just an administrative arrangement.

43Clearly, an important issue in this case is whether Gord Bartley assumed the responsibility to direct and control the construction of all of the essential elements of the appellant’s home. As mentioned, determination of that issue is made more difficult because there is no written contract and Gord Bartley is now deceased.

44In order to determine whether Gord Bartley actually assumed that responsibility, in the absence of a written contract I find that the following information is most relevant:

• GBC’s estimates and invoices - they describe in detail the scope of work that GBC actually performed on behalf of the appellants,

• The testimony of each of the trades that contributed to the project, especially with respect to whether GBC directed and controlled their work.

C. GBC’s Estimates and Invoices

45Estimates and invoices that GBC submitted to the appellants were placed into evidence. They, together with the appellants’ testimony, indicate the scope of GBC’s work on their project. The major components of GBC’s work consisted of:

• Footings

• Foundation

• Framing

• Installation of windows, doors

• Steel roof

• Scaffolding, tarps, ice shield and heating to facilitate Straworks’ exterior plastering work

• Installation of joists,

46The estimates/invoices make it clear that GBC was directly responsible for some essential elements of construction (foundation, framing, roof), but certainly not all.

47According to the appellants, the total cost of the construction was approximately $750,000 and, of that amount, just under $330,000 (44%) was paid to GBC. The majority of the construction costs were consumed by other contractors/services.

48It is also significant that there is no indication that GBC included in its estimates or invoices any amounts to compensate it for directing or supervising the work done by the other trades. If GBC had assumed that significant responsibility, I think it likely that GBC would expect to be paid for that service and it would be reflected in the invoices.

49In that connection, Jason Bartley testified that his father told him the appellants wanted Gord Bartley to act as the general contractor. However, the appellants did not want to incur the additional cost (which Jason Bartley stated was 15%) that his father would charge for assuming the responsibility for supervising and controlling the work of the trades. That evidence is second hand and I consider it cautiously.

50According to the appellants, Gord Bartley told them in their initial discussions that he would charge an additional 10% if he hired and paid the contractors. The appellants say they understood that 10% to be merely an administrative fee. I have no reason to doubt the appellants’ sincerity and that may well have been their understanding.

51However, a 10% fee would be approximately $33,000, an amount that seems excessive if meant only to compensate GBC for an administrative burden. I think it more likely than not that the 10% fee mentioned by Gord Bartley was intended by him to be compensation for directing and controlling the trades. The appellants decided to avoid that expense and Gord Bartley therefore did not assume the role of directing or controlling the other trades.

52According to the appellants, Gord Bartley assured them that he and the other contractors would work as a team and that he would “quarterback” the project. The appellants testified that they often communicated their wishes and concerns to Gord Bartley with the expectation that he would direct and supervise the other trades.

53In fact, on-site meetings were held which were attended by the appellants, Gord Bartley and at least some of the other trades, and there were some instances where Gord Bartley communicated the appellant’s wishes and concerns to the other trades. However, that evidence was insufficient to conclude that Gord Bartley supervised and controlled the other trades, especially in view of the evidence on that point that was provided by the contractors as described below.

(D) Evidence from the Contractors

54Witnesses from the straw bale, electrical and plumbing contractors attended the hearing and provided their testimony. Evidence from the HVAC contractor was provided through an affidavit. Each of the witnesses testified that their work was not directed or controlled by GBC.

(i) Straworks Inc.

55Straworks provided the building envelope, an essential element of the construction. That element consisted of installation of the straw bale insulation on all of the outside walls above the lowest level, several layers of plastering on both the inside and outside walls, and associated work.

56According to invoices submitted by Straworks, that work was completed between October 2014 and August 2015. Straworks was paid $126,298, about 17% of the total cost of construction.

57Deirdre McGahern, the owner and president of Straworks, testified at the hearing. She was personally on the building site for much of the time that Straworks was completing its work.

58With respect to whether GBC directed or controlled the construction, Ms. McGahern testified that:

• She was initially contacted about this project by the appellants.

• She met with the appellants at the site together with Gord Barley once at the stage when the foundation had been constructed.

• Although there was no formal contract, Straworks’ agreement to provide services was with the appellants, not GBC.

• She invoiced the appellants directly and was paid by them directly.

• Based on her observations when she was on the building site, and her interactions with GBC, the other trades and the appellants, she understood that GBS was not the general contractor and that the appellants themselves directed the trades.

• She confirmed her response to written questions from Tarion in which she stated that the appellants “…requested, directed, oversaw and paid for the work Straworks completed on their dwelling…I witnessed them engage with other contractors in the same way …”

(ii) Gull River Plumbing

59Gull River Plumbing (“GRP”) installed the plumbing system on the appellants’ project, another essential element.

60GRP is a plumbing contracting business operated by Larry Case and Margaret Hirmann Case, both of whom testified at the hearing. Larry Case is a master plumber. Margaret Case is GRP’s office manager and prepares estimates and invoices, schedules staff, and communicates with customers.

61They testified that GRP was first contacted about the project by Gord Bartley in May, 2014. According to Ms. Case, Mr. Bartley was contacting local trades he trusted to recommend them to the appellants and he asked if GRP was available to do the plumbing on the appellants’ project.

62GRP agreed. The appellants provided the plans of their project so that GRP could prepare an estimate. An estimate was prepared and provided to the appellants who approved it. Work began during the fall of 2014. Eventually, disagreements developed between Mr. Case and the appellants and, in an email dated February 2, 2015, Ms. Case informed the appellants that it would be best to terminate their working relationship.

63With respect to whether GBC directed or controlled construction of the home, in summary Mr. Case and Ms. Case testified that:

• Although GRP was recommended to the appellants by Gord Bartley, its agreement to provide services was with the appellants and not with GBC.

• GRP’s estimate was provided directly to the appellants who approved it.

• GRP’s invoices were provided directly to the appellants and the appellants paid GRP directly.

• GRP considered itself to be working for the appellants and not for GBC.

• Gord Bartley, who was responsible for the foundation and concrete floors, contacted GRP to let it know when the floors were to be poured so that Mr. Case could install piping under the floors beforehand. However, no construction schedule was provided by either Mr. Bartley or the appellants.

• The appellants communicated directly with GRP concerning changes to the work, or requests that deficiencies to be corrected.

• When GRP decided to terminate its relationship with the appellants, Ms. Case informed the appellants directly, and not Gord Bartley.

(iii) Arc Electrical

64Arc Electrical is an electrical contractor that installed the electrical system on the appellant’s project, another essential element. Its owner, Scott Luff, testified at the hearing.

65Mr. Luff did not remember if he was first contacted by the appellants or GBC about the appellant’s project. With respect to whether GBC directed or controlled his work of the project, Mr. Luff testified that:

• Most of his work is determined by Building Code requirements but he met with the appellants who gave him a list of work they wanted done.

• He invoiced the appellants directly and they paid him directly.

• Mr. R supplied him with the necessary electrical materials because he was able to source them through his employer.

• The appellants discussed their expectations with him directly and would contact him directly if there were any concerns.

• Mr. Luff knew Gord Bartley but did not subcontract for him in this case.

• Although he coordinated certain aspects of his work with both Jason Bartley and Ms. McGahern, Gord Bartley did not supervise, schedule, or oversee Mr. Luff’s work.

(iv) Coulter Heating & Air Conditioning

66Coulter Heating & Air Conditioning installed the heating and air conditioning system on the appellant’s project, another essential element. Its owner, Laverne Coulter, provided an affidavit which was admitted into evidence.

67According to Mr. Coulter, he was first contacted in early July, 2013 by the appellants. At that point they were still in the process of designing their home. They met with Mr. Coulter on July 22, 2013 to discuss different heating and air conditioning options and had several discussions with him over the next year.

68In the fall of 2014, Mr. Coulter installed floor radiant tubing and the heating and air conditioning system.

69Mr. Coulter invoiced the appellants directly and were paid by them directly.

70According to Mr. Coulter’s affidavit,

All my instructions came from … [the appellants] …I never received instructions from Gordon Bartley or his son Jason Bartley. I did not have anything to do with either Gordon or James Bartley.

Conclusion

71The sole question in this case is whether GBC was the “builder” of the appellant’s home. The answer to that question depends on whether GBC directed and controlled the performance of the work and the supply of materials in connection with all of the essential elements of the home. In this case those elements included the foundation, framing, roof, building envelope, and the electrical, plumbing and HVAC systems.

72The facts indicate that GBC was directly responsible for some of those elements – the foundation, framing and roof. However, it did not control or direct the construction of other significant essential elements – the building envelope and the electrical, plumbing and HVAC systems.

73I believe the appellants when they say that Gord Bartley assured them that he and the other contractors would work as a team and that he would “quarterback” the project.

74However, considering the estimates/invoices and the testimony of the trades, I conclude that Gord Bartley’s quarterback role was relatively minor and did not amount to directing and controlling all of the essential elements of the construction.

Order

75Under s. 16(3) of the Act, the Tribunal may, after holding a hearing, order Tarion to take such action as the Tribunal considers that Tarion ought to take in accordance with the Act and regulations.

76Pursuant to s. 16(3) of the Act, I order Tarion to deny the appellants’ claim.

Footnotes

1. 1According to the evidence, “Gordon Bartley Construction” was a business name registered by Gordon Bartley, a sole proprietor, on March 12, 2012. On February 4, 2015, Gordon Bartley and his son Jason incorporated a numbered business corporation and the business name was registered to that corporation on April 8, 2015. The business will be referred to as “GBC”, and Gordon Bartley and his son will be referred to as Gord Bartley and Jason Barley respectively.
2. 2For Example, Ontario New Home Warranty Program v. McPhail [1997] O.J. No. 4570 (Ontario Court of Justice, R v Segal 2006 ONCJ 80, [2006] O.J. No.1034 (Ontario Court of Justice), 6428 v. Tarion Warranty Corporation [2012] CanLII 44088 (ONLAT), Ontario (5396-ONHWPA-Claim) [2010] O.L.A.T.D. No 32.
3. 3Tarion Warranty Corporation v. Kozy [2011] ONCA 795, para 14 (Court of Appeal for Ontario).
4. 4For example, Segal (supra), Wheeler (Re) [2007] O.L.A.T.D. No. 439, Ontario (5252-ONHWPA – Claim) [2009] O.L.A.T.D. No.323, Ontario (5319-ONHWPA-Claim) [2009] O.L.A.T.D. No 363, JRC Developments v. Tarion Warranty Corporation 2010 ONSC 6205, [2010] O.J. No. 5089 (Divisional Court)
5. 5Ontario (5319-ONHWPA-Claim (Re) [2009] O.L.A.T.D. No 363 (Licence Appeal Tribunal, paragraphs 70, 71, 75
6. 6JRC Developments Ltd. v. Tarion Home Warranty Corp. (supra) paragraphs 4,6
7. 7Tarion Warranty Corporation v. Kozy, (supra) paragraph 20
8. 8Wheeler (Re) (supra) paragraph 49