Nadeem Ahmed and Mini Riar v. Tarion Warranty Corporation, 2021 CanLII 62554

Date: 2021-07-07

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

Between:

Nadeem Ahmed and Mini Riar

Appellants

-and-

Tarion Warranty Corporation

Respondent

-and-

Dali Homes Inc.

Added Party

DECISION ON MOTION

ADJUDICATOR:

Stephen Scharbach, Member

APPEARANCES:

For the Appellant:

Rahul Gandotra, Counsel

For the Respondent: For Dali Homes Ltd.

Danielle Peck, Counsel Duriya Patel, Officer/Director

Held by video conference: May 20, 2021

Introduction

1Nadeem Ahmed and Mini Riar (“appellants”) appeal a decision of the Tarion Warranty Corporation (Tarion”) to deny their claim for compensation for deficiencies in the construction of a new home built for them by Dali Homes Inc. (“builder”) The appeal is presently scheduled to be heard over 8 days in November 2021.

2However, Tarion brought this preliminary motion requesting that the Tribunal dismiss the appellants’ appeal on the basis that they settled a lawsuit with the builder and released the builder from all claims and warranties relating to the construction of the home, including the deficiencies listed in the appellants’ claim to Tarion.

3As set out below, I agree with Tarion that in the circumstances of this case, the Release granted by the appellants to the builder precludes the appellants’ claim for compensation to Tarion.

The Law

4The Act is intended to ensure that builders of new homes provide enforceable warranties to purchasers of new homes. If a builder breaches those warranties, the purchaser can seek compensation from Tarion. The builder is required to indemnify Tarion for any amounts paid to satisfy the builder’s warranties. Where, as in this case, the purchaser and the builder have settled their dispute, Tarion’s obligations under the Act are at an end.

5Under the Act, a builder warrants to the owner that, among other things, the home is constructed in a workman-like manner, in accordance with the Building Code and free of defects in material and major structural defects. Those statutory warranties are subject to limits and exclusions set out in the Act and regulations. However, subject to those limits and exclusions, an owner of a new home is entitled to receive compensation for damages resulting from a breach of the builder’s warranties if the owner “…has a cause of action against the … builder… for damages resulting from the breach of warranty.”¹

6The source for compensation is the “guarantee fund” which is administered by Tarion. If Tarion pays compensation from the fund as a result of a builder’s failure to comply with the warranties, the Act requires the vendor/builder to indemnify Tarion.²

7Owners may make a claim for compensation to Tarion in accordance with the procedures and timelines set out in the regulations. Once a claim is made, Tarion may conduct inquiries and investigations to determine whether the claim is eligible to receive compensation from the fund. Tarion must serve notice of its decision on the claimant, including notice of the claimant’s right to appeal Tarion’s decision to this Tribunal.

8If an appeal is filed, the Tribunal shall hold a hearing and afterwards may, by order, direct Tarion to take the action that the Tribunal considers Tarion ought to take in accordance with the Act and regulations.³

The Facts

9The appellants hired the builder to construct a custom home in Toronto. The builder began work on the project in April 2012 and stopped work in February 2014. The appellants contend that among other issues related to the construction, the builder’s workmanship/materials were substandard, and several parts of the construction did not comply with the Ontario Building Code.

10On June 12, 2015 the appellants commenced a civil action against the builder seeking (among other things) monetary damages to correct deficiencies in the builder’s work.

11Before they started their lawsuit against the builder, the appellants contacted Tarion to ask about Tarion warranty coverage. The builder had not registered the home with Tarion, apparently taking the position that registration was not required because the appellants acted as their own general contractor.

12Emails between the appellants and Tarion in June and July 2015 indicate that the appellants had reviewed the Tarion website and asked Tarion for clarification as to whether their home should have been registered with Tarion and whether they had coverage under the Act.

13On June 26, 2015, about two weeks after the lawsuit was commenced, Tarion informed the appellants that it was investigating the issue and would let them know of its decision on coverage in due course. Tarion advised the appellants that in the meantime they should submit the appropriate claim forms within the statutory time periods to preserve their claim rights. The appellants were provided with Tarion’s Homeowner’s Information Package which contained a guide to the statutory warranty coverage and claims forms.

14Ultimately, on November 17, 2015, Tarion informed the appellants that their home was eligible for warranty coverage. However, in October 2015, about a month before, the appellants settled their civil suit with the builder. According to Minutes of Settlement signed on October 19 and 21, 2015, the parties agreed to a resolution involving the builder completing certain work, making specified repairs, and paying $100,000 to the appellants.

15As part of that resolution, the appellants signed a “Mutual Full and Final Release” (“Release”) on November 2, 2015. According to the Release, the parties released each other from:

…all claims, actions, causes of actions … proceedings, prosecutions, charges, complaints, demands, damages, warranties, costs, repairs, deficiencies, defects …of whatever nature or kind …, whether known, unknown or unanticipated …arising from or relating to the design and/or construction of the Plaintiff’s custom home at ..[address].

16In addition, the parties agreed that they will not,

… make or continue any existing, further or other claim or demand or take or continue any existing, further or other proceedings against any … corporation or other entity that might claim contribution or indemnity from the Parties, or any one of them, under the provisions of any statute or otherwise, for the matters released herein.

17The Release further states that if a party makes a further claim or demand in respect of the matters included in the Release,

“…this document may be raised as, and shall be agreed to be, an estoppel and complete bar to any such claim, demand, … proceeding…”.

18On November 17, 2015, about two weeks after the appellants signed the Release, Tarion informed the appellants that their home was eligible for Tarion coverage and they were invited to submit any second-year claims forms by December 21, 2015. The appellants submitted their second-year form and their claim was accepted and processed by Tarion.

19Processing of the claim took some time but ultimately, in a decision letter dated November 23, 2020, Tarion denied the bulk of the appellants’ claims. The appellants appeal that decision to this Tribunal and take the position that all of their claims are warrantable and should be paid without any deduction for the settlement funds.

20After a case conference in March 2021, Tarion issued a supplementary decision letter dated March 17, 2021 in which Tarion advanced a further reason for denial of the claim - the appellants released the builder from all claims and warranties relating to construction of the home. According to Tarion, the Release now precludes the appellants from any further compensation under the Act and therefore their appeal should be dismissed.

Decision

21I conclude that in the circumstances of this case, the appellants’ claims to Tarion are precluded by the Release they signed when they settled their lawsuit against the builder.

22Accordingly, there is no need to proceed with a hearing to determine whether the appellants are entitled to compensation for breaches of the builder’s warranties and I have directed Tarion to deny the appellant’s claims.

Analysis and Reasons

23Tarion pointccording to the Act, to qualify for compensation from the guarantee fund, a claimant must have a cause of action against the builder. Section 14(3) states:

Subject to the regulations, an owner of a home is entitled to receive payment out of the guarantee fund for damages resulting from a breach of warranty if, …… (b) the person has a cause of action against the vendor or builder as the case may be, resulting from the breach of warranty.

24Tarion argues that in this case the appellants no longer have a cause of action against the builder because they settled their lawsuit and formally released the builder from all claims and warranties arising from the construction of their home.

25I agree with that submission. I note that:

• The parties agree that the construction deficiencies which are the basis of the Tarion claim were also included as deficiencies in the appellants’ lawsuit against the builder.
• The appellants signed the Release after a mediation was conducted in an attempt to resolve the appellants’ lawsuit against the builder. The appellants were represented by counsel throughout the process.
• The Release clearly and unambiguously releases the builder in respect of all claims and warranties related to the construction of the appellants’ home.
• The appellants also agreed that they will not make, or continue, any demand or further proceeding against any other entity that might claim indemnity from the parties - in this case that includes the claims made by the appellants to Tarion.

26I also take into consideration two previous decisions, including one at the Divisional Court level, that have dealt with this issue and concluded that a validly executed release precludes a further claim to Tarion with respect to the items covered under the release.

27In the Ontario Commercial Registration Appeal Tribunal case of Darling (Re) the issue for the Tribunal was whether a Full and Final Release signed by the owner also acted as a release from any claim he could make under the Tarion warranty program. The Tribunal held that the release precluded a claim to Tarion and stated:

[the owner] knew his rights, had received all required documentation, and was paid a substantial amount to satisfy his claim. If this Tribunal were to find that the Mandos case holds that under section13(5) of the Act, parties may not pursue amicable settlements which included waiving any further rights under [the Act], the unacceptable result would be that every single dispute between a homeowner and builder would have to be resolved by this Tribunal. It goes without saying that if parties could reach settlements whereby one party is indemnified and the other party receives a Release, that no amicable settlements would be possible. The whole thrust of our judicial process, however, is one which allows the parties to freely settle disputes where they can…That plainly is not the intention of Mandos and of the Act, The Act itself speaks often of settlements as something to be encouraged.

The Release signed by Mr. Darling was proper and signed after negotiations and consultation with professionals. As a result, an end was put to the dispute with the builder. This, ipso facto, also released the New Home Warranty Program from any claim. … therefore there is no need to proceed with a hearing on the merits as to whether there are defects in the house.⁴

28The Divisional Court, in a 2003 case involving the same issue, stated that it agreed with the above statement and added that it would be contrary to the purposes of the Act to deny the effect of releases that form an essential part of settlement agreements:

As the statute is consumer protection legislation, one of its aims is to reduce the burden of litigation on the consumer by providing a quick, summary procedure for resolving warranty claims at less expense than litigation.

The overarching goal of the Act is to encourage the resolution of disputes and to streamline the process for achieving such resolution. Discussions leading to settlements are part of that process.

It would, therefore, be contrary to the purposes of the Act to construe s. 13(6) as barring settlements by denying effect to the releases that form an essential part of settlement agreements.⁵

29Based on s.14(3) of the Act and the reasoning expressed in the above cases, I conclude that the Release signed by the appellants in their civil suit prevents them from making a claim under the Tarion warranty program.

30The appellants argue that the distinguishing feature in this case is that when the appellants signed the Release, Tarion had not yet confirmed coverage. According to the appellants, the Release should not be interpreted to include Tarion coverage that had not yet been confirmed to exist.

31They also state that a successful Tarion claim would not result in the appellants receiving a double benefit. The Act allows Tarion (and the Tribunal) to take into consideration any compensation paid to the owner in determining the amount of payment to which the claimant is entitled from the guarantee fund.⁶ According to the appellants, it would be open to the Tribunal to subtract the funds received in settlement of the lawsuit from the amount otherwise determined to be payable.

32I cannot accept the appellants’ position. Firstly, as the emails in June and July 2015 make clear, the appellants were looking into whether Tarion coverage was available and had requested that Tarion consider their circumstances and make a decision. Tarion did not confirm coverage until November 2015. However, the appellants were aware that Tarion may provide coverage, both at the time they commenced their lawsuit in June 2015, and when they settled it in October 2015. The appellants were represented by counsel. If the parties had intended to preserve their right to make a claim against Tarion, it would have been open to them to negotiate a more limited release.

33However, the comprehensive wording of the Release leaves me with the distinct impression the parties intended to fully and finally resolve all claims relating to construction of the home. Not only did the appellants release the builder from all claims and warranties, they also agreed not to make a claim to any other entity that may claim indemnity from the builder. The Release thus bars further claims against both the builder and Tarion.

34I would also note that in the Mandos case, as the Divisional Court pointed out in Metropolitan Toronto, the issue was whether a release signed in the context of a construction lien action could preclude the owners from making any claim in the future, even those that were undiscoverable at the time they signed the release. This is not the case here—as noted the very deficiencies for which the appellants now seek warranty compensation were included in their civil lawsuit. Even if there were several deficiencies not included or specified in the civil lawsuit, the extensive and detailed scope of the Release would, in my view, distinguish this case from Mandos.

35According to the appellants, Tarion has acted in bad faith by raising this issue now, years after the claim was first made. I agree that it would have been far preferable if this issue was raised back in November 2015 when the appellants first made their second-year claim to Tarion. However, I also note that according to Tarion’s supplementary decision letter dated March 17, 2021, Tarion only received a copy of the Release in January 2021 when it was supplied to Tarion by the builder. The available facts are insufficient for me to draw any conclusion with respect to bad faith.

36In summary, I conclude that in the circumstances of this case, the appellants’ claims to Tarion are precluded by the Release they signed when they settled their lawsuit against the builder.

37Accordingly, there is no need to proceed with a hearing to determine whether the appellants are entitled to compensation for breaches of the builder’s warranties and I have directed Tarion to deny the appellant’s claims with respect to items listed on their Second Year Form.

ORDER

38Pursuant to s.14(19) of the Act, I direct the Tarion Warranty Corporation to deny the appellants’ claims with respect to items listed on the appellants’ Second Year Form received by Tarion on December 21, 2015.

39The hearing of the appellants appeal, presently scheduled for November 8,9,10,12,15,16 and 19, 2021 is cancelled.

Footnotes

1. 1The Act, s. 14(3)(b).
2. 2O.Reg 627/20, s.13
3. 3The Act, s. 14(19)
4. 4Darling (Re) [1994] O.C.R.A.T.D. No. 5, paragraphs 27, 30
5. 5Metropolitan Toronto Condominium Corporation v Ontario New Home Warranty Program, 2003 CanLII 37222 (ON SCDC), paragraphs 12-15
6. 6The Act. s. 14(11)