Court File and Parties

COURT FILE NO.: CV-15-4232-SR DATE: 2022-03-03 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Meron Gebre-Hiwet and Haruyra Gebre-Hiwet Plaintiffs – and – Cindy Lynn McPherson Defendant

COUNSEL: Khaled Wahab, Counsel for the Plaintiffs Lawrence K. Greaves, Counsel for the Defendant

HEARD: November 23, 24 & 25, 2021 (By Zoom)

The HonouRABLe Mr. Justice d.j. gordon

Reasons for Decision

[1] Meron Gebre-Hiwet and Haruyra Gebre-Hiwet purchased certain residential property in the City of Kitchener from Cindy Lynn McPherson. Following closing of the transaction, water was discovered in the basement. In this action, damages are claimed for what is alleged to be an undisclosed latent defect and fraudulent misrepresentation.

Factual Background

[2] The parties entered into an Agreement of Purchase and Sale on October 16, 2014. The purchase price was $300,000.00. The Agreement was conditional upon obtaining a satisfactory home inspection report.

[3] Ralph Kors, of Home Straight Inspection, attended the property on October 18, 2014, and delivered his report the following day. No water leak or damage was discovered on this inspection.

[4] Mr. and Ms. Gebre-Hiwet signed a Notice of Fulfillment of Condition on October 23, 2014. Closing of the transaction occurred on November 27, 2014.

[5] Following closing, Mr. Gebre-Hiwet observed water on the basement cement floor. Subsequent removal of the wooden subfloor and walls revealed water had entered the residence.

[6] Ms. McPherson reported never having experienced water leaks or problems during her ownership.

Litigation History

[7] The statement of claim was issued on December 22, 2015, as a simplified procedure case under Rule 76. Damages were claimed in the maximum amount allowed, namely $100,000.00. This document presents the following allegations:

a) the plaintiffs relied on the defendant’s statutory declaration that no damage had occurred to the property;

b) the basement was modified improperly and without a building permit and the basement was not waterproofed against ground water infiltration;

c) the property had a latent problem with flooding and water damage which was known to and concealed by the defendant; and

d) the defendant installed a plywood subfloor and other repairs due to the wet basement problem and to prevent the plaintiffs from determining that there was pre-existing damage caused by water and flooding.

[8] The statement of defence is dated March 31, 2016. The plaintiffs’ allegations were denied.

[9] Further, the defendant stated:

a) the defendant operated a day care facility in the home and had children sleeping in the basement;

b) no exterior water seepage into the basement was ever encountered;

c) the plaintiffs obtained a home inspection report, and such did not result in any additional information being requested;

d) the defendant never identified any water issues prior to closing; and

e) plywood sheets were replaced in the basement subfloor to level, no pre-existing damage being discovered, and no attempt was made to conceal.

[10] The action was not set down for Trial until October 4, 2019. There was no explanation for the delay.

[11] A Pre-trial Conference was scheduled for August 26, 2020. Braid J. determined the event was premature as counsel had not yet delivered the affidavits of documents and productions as required by Rule 76.10(4) of the Rules of Civil Procedure. The conference was re-scheduled for March 9, 2021 before Sloan J. The action was placed on the trial list for the sittings of September 2021. The case was not reached in September and was traversed to the November 2021 sittings.

[12] There was no evidence to indicate when the residence was constructed. The abstract of title presented is from 2003, when the property was converted from the registry to the land titles system, to the present. The home inspector estimated the age of the house as between 41 and 60 years.

[13] The building code and municipal by-law requirements at the time of the initial construction are unknown. Similarly, there was no evidence of such requirements when the basement was modified, nor even the approximate date when such event occurred.

[14] The residence is a side split design, initially with three usable levels, the fourth area being a crawl space, likely for storage.

[15] A prior owner excavated the crawl space area to make it full height, with stairs leading down to this lower level. It is alleged by the plaintiffs this work was performed without a building permit. Reference was made to a written “access request form”, completed by Ms. Gebre-Hiwet on October 19, 2015, seeking “copies of permits” from the City of Kitchener. The response from the municipality was attached to the form. It only makes reference to a survey, not to any building permits or lack of same. The evidence, at best, is unclear. It is incomplete. No Municipal Official was called as a witness to explain.

[16] After excavating the lower level, the then owner extended the foundation down with concrete and installed a cement floor. In this floor, a trough was constructed from side to side, approximately five inches deep. It connected to the furnace ducts located in the walls. A floor register would allow heat to rise. A plywood subfloor was placed on the cement floor. The area was then partitioned into two rooms.

[17] Sheldon McPherson purchased the property in 1996, residing there until 2004 when he sold it to his sister. During his occupancy, Mr. McPherson used the two rooms for storage.

[18] Ms. McPherson resided in the residence from 2004 until 2014, initially with her son, Matthew McPherson. In 2012, she married Zoltan Zadori. Mr. Zadori, and his son, Daniel Zadori, moved into the home. Renovations were made to the basement to convert the two rooms into bedrooms for Matthew and Daniel. The existing walls were extended and doors installed to each room. Electrical wiring, and receptables, were added to the walls. Two sheets of plywood in the subfloor were replaced, the purpose said to be to level the floor as the existing sheets were thinner. Carpet was placed on the subfloor.

Agreement of Purchase and Sale

[19] In 2014, Ms. McPherson and Mr. Zadori decided to sell the residence and purchase a motel in the Bruce Peninsula. Geoff Kroeger, a real estate agent at RE/MAX Real Estate Centre Inc. was retained for the sale. The property was listed.

[20] Mr. And Ms. Gebre-Hiwet were interested in the property. Their real estate agent was Benjamin May at Keller Williams Golden Triangle Realty. They viewed the property in October 2014.

[21] An offer to purchase was presented to Ms. McPherson On October 14, 2014. After several counter-offers, an agreement was reached on October 16, 2014.

[22] As the Agreement was conditional upon obtaining a satisfactory home inspection report, Mr. Kors was retained on the recommendation of Mr. May. The inspection took place on October 18, 2014. In his written report on October 19, 2014, Mr. Kors identified a number of items requiring replacement or correction but he did not mention any water problems.

Home Inspections

[23] Mr. and Ms. Gebre-Hiwet inspected the property on two occasions prior to closing, once with a brother-in-law who was a contractor. The purpose of these events, in part, was to consider renovations needed to the lower levels for the purpose of creating a separate rental unit. There was no mention of their observations on these inspections. The brother-in-law was not called as a witness.

[24] The inspection report of Mr. Kors was tendered in evidence on consent. Mr. Kors was not called as a witness. In this report, Mr. Kors documents his observations of the residence. Relevant to the issues in this case are the following:

(a) Foundation – Materials and Condition – OK – Poured concrete. Typical cracks are noted. Normal shrinkage of concrete and temperature differences cause a certain amount of minor cracking, usually in the first year or two after construction. No action is required unless moisture entry into the basement is observed. [The accompanying photo of the foundation is in some other area than the two rooms in question].

(b) Heating – Type and Location – Basement. Forced Air. − General Operation – OK – Unit was tested and is functional. − Flues, Vents, Plenum – Correct vent piping material is being used. − Ductwork – OK

(c) Electrical System – − Electrical Distribution Panels – OK – Basement. − Main Panel Observations – Repair – There is a 30 amp breaker protecting the air conditioner circuit … Strongly recommend having a licensed electrician replace… with a 20 amp type. − Switches and fixtures – Bedroom #4 (basement) – Replace – The dimmer switch in this room does not function properly…

(d) Plumbing System – Supply Lines – Condition – Ok − Waste Lines – Condition – Ok. − Sump Pump – No sump pump present.

(e) Basement – Access – Basement is only partially accessible due to stored items. Viewing was restricted by wall and floor coverings. Basement is finished and in acceptable condition. − Repair – There is no handrail at the basement stairs. This is a fall hazard. Recommend installing a handrail in this location. − Walls – Ok – Walls are poured concrete. − Moisture – Ok – There are no elevated levels noted on the exposed areas of the basement walls at the time of inspection. − Floor – Ok – No evidence of moisture found in the basement at the time of inspection.

[25] Although unrelated to the issues in this case, Mr. Kors observed “… localized areas with mould or microbial growth in the attic…”, recommending connecting the bathroom vent to the exterior of the house and replacing the affected sheets of plywood in the roof “… at the time of the next roof covering replacement”.

Discovery of Water

[26] The affidavit of Mr. and Ms. Gebre-Hiwet, as evidence in chief, essentially repeats the allegations in the statement of claim on this issue, as follows:

10. After we purchased the property on November 27, 2014, and moved in with our child, we discovered moisture on the floor in the lower side of a corner wall and a small opening of carpet in the basement.

11. We begin removing the carpet and the drywall in the basement of the subject property to assess the damage on November 29, 2014. Upon removal of the carpet, we discovered water damage throughout two rooms and mould on the walls and the concrete.

[27] Cross-examination resulted in clarification and more detail. Prior to moving in, Mr. and Ms. Gebre-Hiwet walked through the house. In one of the basement bedrooms, Mr. Gebre-Hiwet lifted the floor register. He saw water in the cement trough. Mr. Gebre-Hiwet then lifted some carpet, reporting if was not wet. Water was observed on the concrete floor, below the subfloor.

[28] As to the inspection report, Ms. Gebre-Hiwet said she was not surprised Mr. Kors did not see water in this room due to stored items and that had the room been empty, he would have seen the water easily as they had.

[29] Subsequently, Mr. Gebre-Hiwet removed the carpet, subfloor, drywall, framing and insulation in the lower basement level. There was no mention of damage to the subfloor. Mr. Gebre-Hiwet observed two sheets of plywood in the subfloor, along with electrical wiring in the two rooms, having a date stamp in 2012. Black areas were seen on the interior foundation. He understood such was mould. No testing was performed.

Renovations After Closing

[30] As previously mentioned, it was the intention of Mr. and Ms. Gebre-Hiwet to rent the lower levels while the family would reside in the upper levels. No evidence was presented as to whether the municipal zoning by-law permitted a rental unit. Some renovations would be required to convert the basement into a separate unit. The initial plan was to borrow funds for this renovation project. The plan was put on hold as a result of discovering the water problem.

[31] In December 2014, Ms. Gebre-Hiwet obtained quotes from contractors for exterior waterproofing and interior renovations.

[32] In June 2018, Mr. Gebre-Hiwet hired The Crack Specialists to waterproof the interior foundation walls. The cost was $9,548.00.

[33] Further quotes were obtained in 2020 for the remaining work. Mr. Gebre-Hiwet decided to do the renovations himself. Assisted by friends, the interior renovations were completed by the Spring of 2021. The project took four months, primarily done in the evening and weekends. Invoices for material were provided in evidence. However, there was no details as to the actual project work or whether a building permit was obtained and inspections performed by municipal officials. The exterior waterproofing is yet to be arranged, said to be necessary although there was no evidence the ground was excavated to determine the absence of same.

Warranty

[34] The Agreement of Purchase and Sale included a schedule with the following provisions:

The Seller warrants, to the best of his knowledge and belief, the property does not contain any hidden defects, including but not limited to urea formaldehyde foam insulation (whether existing or removed), buried fuel tanks, termite infestation or asbestos insulation… These warranties shall survive the closing of the transaction, but shall only apply to circumstances existing at or before closing date.

[35] There was also the standard term in the Agreement as follows:

This agreement including any Schedule attached hereto shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition which affects this Agreement other than expressed herein.

Statutory Declaration

[36] Ms. McPherson executed a Vendor’s Combined Declaration form on November 21, 2014. Mr. and Ms. Gebre-Hiwet said they relied on this declaration to complete the transaction. The declaration appears to be a standard form document, “combining” multiple items formally provided on closing. It is unclear whether Mr. and Ms. Gebre-Hiwet saw the declaration prior to closing. Their real estate lawyer was not called as a witness. He would likely have seen a draft of the declaration, prepared by the lawyer for Ms. McPherson, prior to closing, receiving the executed document on closing.

[37] The following provisions were identified in evidence or submissions as being relevant to this case:

Ownership and Possession

4. Possession and occupation of the above lands by the vendors have been undisturbed throughout by any action, suit or other proceedings or adverse possession or otherwise on the part of any person whomsoever and during such possession and occupation, no payment has ever been made or acknowledgment of title given by the undersigned, or , so far as we know, by anyone else, to any person in respect of any right, title, interest or claim upon the said lands.

5. To the best of my knowledge and belief, the buildings used in connection with the premises are situate wholly within the limits of the lands above described, and there is no dispute as to the boundaries of the said lands. Except as may be registered on title, I/we have never heard of any claim of easement affecting the lands, either for light, drainage, or right of way or otherwise.

Construction Liens

10. That no work, construction or alterations have been done on the premises, or material supplied thereto, which would result in a lien being registered under the Construction Lien Act.

Harmonized Sales Tax

18. The above property is occupied as a residential unit, and all parts of the property are reasonably necessary for the use and enjoyment of the property as a place of residence for individuals.

Condition of Premises

34. That no damage has occurred to the property, including the buildings situate on the subject property as well as the chattels and fixtures included in the purchase price, since the same were inspected by the purchasers.

Plaintiff’s Expert

[38] Rene Caskanette is a civil engineer and principal of Caskanette Udall Consulting Engineers. He was retained by the former counsel for Mr. and Ms. Gebre-Hiwet in October 2015 to conduct “… an independent engineering analysis of the wet basement conditions”. Mr. Caskanette delivered reports on October 13, 2015, and August 24, 2020.

[39] Mr. Wahab sought to have Mr. Caskanette qualified to provide opinion evidence in the area of “civil engineering”. Mr. Greaves was opposed. While structural engineering is a component in the work of some civil engineers, the proposed qualification was too wide and the preliminary questions did not focus on the specific expertise for the intended evidence.

[40] Further, Mr. Caskanette did not comply with Rule 53.03(2.1), applicable in simplified procedure cases by Rule 76.09.1, which requires:

EXPERT WITNESSES 53.03 (2.1) A report provided for the purposes of subrule (1) or (2) shall contain the following information:

1. The expert’s name, address and area of expertise.
2. The expert’s qualifications and employment and educational experiences in his or her area of expertise.
3. The instructions provided to the expert in relation to the proceeding.
4. The nature of the opinion being sought and each issue in the proceeding to which the opinion relates.
5. The expert’s opinion respecting each issue and, where there is a range of opinions given, a summary of the range and the reasons for the expert’s own opinion within that range.
6. The expert’s reasons for his or her opinion, including, i. a description of the factual assumptions on which the opinion is based, ii. a description of any research conducted by the expert that led him or her to form the opinion, and iii. a list of every document, if any, relied on by the expert in forming the opinion.
7. An acknowledgement of expert’s duty (Form 53) signed by the expert

[41] Compliance with this sub-rule was required 90 days before the pre-trial conference held on March 9, 2021. The only information provided in the report was the name and address. This, in my view, was a significant discrepancy. Mr. Greaves would have been prevented from an effective cross-examination at the qualification stage. My gatekeeper role required this matter be addressed.

[42] I offered Mr. Wahab a brief recess to consider the dilemma. He was not the original counsel but was responsible as trial counsel. When court resumed, Mr. Wahab delivered, by e-mail, an acknowledgement of expert’s duty, signed by Mr. Caskanette as well as a resume. This is improper during a trial.

[43] Mr. Wahab requested I exercise the discretion permitted by Rules 1.04 and 53.03(3) and allow Mr. Caskanette to present opinion evidence. I declined to do so for a number of reasons, including:

a) This was a serious deficiency; b) Compliance with substantive matters is mandatory; c) Even with the presented documents, Mr. Caskanette had not complied with Rule 53.03 (2.1), 2, 3, 4, 5 or 6; d) In particular, there was no information as to training, education or experience with respect to the subject-matter of this case; e) The reports are conclusory in nature, with no reference to examination or testing, and include opinions without a factual basis; and f) The information is necessary, and at an earlier stage than trial, to allow the opposing party to determine if the proposed expert is qualified and whether to retain her own expert.

To allow opinion evidence in the absence of necessary and meaningful disclosure would render Rule 53.03 inoperative. Such cannot be allowed.

Defendant Never Saw Water

[44] Ms. McPherson, and family members, occupied the residence from April 2004 to November 2014. She indicated no water leaks were observed in this time period. Similarly, her brother, Sheldon McPherson, reported no water leaks being seen in his period of ownership from 1996 to 2004. Ms. McPherson was unequivocable in denying knowledge of water problems, concealing same or making fraudulent or reckless misrepresentations.

[45] Ms. McPherson operated a daycare business in the residence for eight years. Children would sleep in the basement. Ms. McPherson said she would not have allowed such had she been aware of water problems.

[46] Renovations in 2012 were completed by Mr. Zoltan. A permit was not required, according to Ms. McPherson. She observed much of the work performed, including replacing two sheets of plywood in the subfloor. The prior sheets, she said, were thinner and the floor needed to be level as the rooms were to be used as bedrooms. Ms. McPherson added that the plywood was not installed in the room where Mr. Gebre-Hiwet discovered the water. She did not see any water on the cement floor when the plywood was removed by her husband.

[47] Daniel Zadori was fourteen years of age in 2012. He assisted his father with the renovations, including the removal of two sheets of plywood. Daniel saw the cement floor when the plywood was taken up. There was no water. Nor, he said, was there any visible damage to the plywood.

[48] Mathew McPherson was fifteen years of age in 2012. He observed his stepfather remove the sheets of plywood. Matthew did not see any water on the cement floor. He did not examine the plywood removed. Matthew would not agree the plywood shown in a photograph was of that installed. The plywood, he said was replaced in Daniel’s bedroom. The water was later discovered by Mr. Gebre-Hiwet in his bedroom

[49] Daniel and Matthew said there were no water problems in the years they occupied the bedrooms. Nor was there any odour of water issues.

[50] Geoff Kroeger has been involved in residential sales for twenty-one years. During the listing process, he prepared a “disclosure statement”, recording the answers of Ms. McPherson to various questions. This document no longer exists due to the passage of time. Mr. Kroeger reported there was no disclosure of water problems in this document.

[51] Mr. Kroeger attended the residence on numerous occasions for the listing and ultimate sale. He never saw any water damage. Nor did he smell a water issue.

[52] Ms. McPherson acknowledged her furniture was in the residence at the time of the inspection by Mr. Kors as they were still living there. Items were also stored in the basement. Ms. McPherson agreed with the statement by Mr. Kors that the basement was only “partially visible”. So did Mr. Kroeger. Neither were asked for further details.

Damages

[53] There are a number of components to the damage claim, addressed in evidence, to a limited extent, by Mr. and Ms. Gebre-Hiwet.

[54] The intention was to rent the basement. Some renovations were required, unrelated to the water damage. No time frame or budget was presented. Mr. Gebre-Hiwet did not attend to the renovations until 2021. The rental income loss is said to be $77,000.00, from December 2014 to May 2021, relying on Kijiji postings for apartments in Kitchener. The basement had not been rented as at the time of trial.

[55] A loss of use and enjoyment is claimed, at $500.00 monthly, for a total of $39,000.00 to May 2021.

[56] Renovation material and contractor expense is said to be $20,622.00. Some unknown amount was unrelated to the water damage. The electrical work of $1,799.00 is an estimate and $3,500.00 was reported to be a cash payment to a contractor to assist but no details were provided. The labour provided by Mr. Gebre-Hiwet is calculated at $14,432.00 at his regular employment rate of $22.00 per hour.

[57] Exterior waterproofing, yet to be done, is estimated to cost $13,900.00 plus HST.

[58] General damages, identified for concealing the latent defect, are sought at $30,000.00. Aggravated damages of $20,000.00 are claimed for not admitting liability and in delaying this case.

[59] Nevertheless, Mr. Wahab has limited the plaintiff’s claim to $100,000.00, the maximum award under Rule 76 at the time the action was commenced, plus interest and costs.

Issues

[60] The pleadings and evidence presented at trial raise a number of issues, including caveat emptor, latent and patent defects, fraudulent misrepresentation, warranty and damages.

Principles of Law

A) Caveat Emptor

[61] The principles pertaining to caveat emptor have applied to the sale of land for centuries. A concise description of the common law concerning caveat emptor was provided by Professor Bora Laskin, as he then was, in Defects of Title and Quality: Caveat Emptor and the Vendor; Duty of Disclosure in LSUC Special Lectures 1960: Contracts For the Sale of Land (Toronto: De Boo, 1960). At p. 403, he said:

Does the vendor have any duty of disclosure in matters of quality and fitness which do not constitute defects of title? Here we deal with the classical notion of caveat emptor as applied to physical amenities and condition of the property unrelated to any outstanding claims of third parties or public authorities such as would impinge on title. Absent fraud, mistake or misrepresentation, a purchaser takes existing property as he finds it, whether it be dilapidated, bug infested or otherwise uninhabitable or deficient in expected amenities, unless he protects himself by contract terms.

[62] Professor McCamus in Caveat Emptor: The Position at Common Law in LSUC Special Lectures 2002: Real Property Law: Conquering the Complexities (Toronto: Irwin Law, 2002), with reference to the above statement by Professor Laskin, reported, at p. 99:

… the general principles of caveat emptor persists as the governing principle, against which such developments are measured.

[63] At p. 100 Professor McCamus went on to describe a reluctance for change, saying:

In the real estate context, the doctrine of caveat emptor draws strength from the common law’s traditional unwillingness to imply conditions and warranties relating to quality and fitness into contracts for the purchase and sale of land.

[64] The concepts identified by these academics are reflected in the caselaw. In Fraser-Reid v. Droumstsekas, [1980] 1 S.C.R. 720 (S.C.C.), Dickson J. commenced his decision with the following statement:

Although the common law doctrine of caveat emptor has long since ceased to play any significant part in the sale of goods, it has lost little of its pristine force in the sale of land. In 1931, a breach was created in the doctrine that the buyer must beware, with recognition by an English court of an implied warranty of fitness for habitation in the sale of an uncompleted house. The breach has since been opened a little wider in some of the states of the United States by extending the warranty to completed houses when the seller is the builder and the defect is latent. Otherwise, notwithstanding new methods of house merchandising and, in general, increased concern for consumer protection, caveat emptor remains a force to be reckoned with by the credulous or indolent purchaser of housing property. Lacking express warranties, he may be in difficulty because there is no implied warranty of fitness for human habitation upon the purchase of a house already completed at the time of sale. The rationale stems from the laissez-faire attitudes of the eighteenth and nineteenth centuries and the notion that a purchaser must fend for himself, seeking protection by express warranty or by independent examination of the premises. If he fails to do either, he is without remedy either at law or in equity, in the absence of fraud or fundamental difference between that which was bargained for and that obtained.

B) Latent and Patent Defects

[65] The claim in this case is dependent, in part, on a finding of a latent defect. The onus of proof is on the plaintiffs.

[66] A latent defect is some fault in the structure of property that is not readily apparent during a routine inspection. A patent defect is observable or discoverable by the exercise of due diligence. See: Tony’s Broadloom and Floor Covering Limited v. NMC Canada Inc. (1996), 31 O.R. (3d) 481, at pp. 486-7 (Ont. C.A.).

[67] A patent defect discernable by ordinary vigilance by a purchaser is not a defect in the land for which blame can be attached to the vendor. See: Holtby’s Design Service v. Campbell Chevrolet Oldsmobile, [2002] O.J. No. 2889 (Ont. S.C.J.), aff’d [2004] No.183 (Ont. C.A.), at para.s 53-54.

[68] In his paper referred to above, Professor McCamus cautions as to distinctions between latent and patent defects, at p.111 offering these comments;

As a matter of general principle, then, the vendor is not under a duty to disclose either latent or patent defects of quality. It is no doubt for this reason that in his discussion of defects in quality, Professor Laskin makes no reference to the distinction between latent and patent defects. To be sure, however, there are obiter dicta in a number of trial decisions suggesting that the vendor is subject to a duty to disclose latent defects of which it is aware. These statements may be harbingers of a brave new world of vendor disclosure duties. For the moment, however, they do not appear to represent good law.

[69] More is required than simply a finding of a latent defect, as the academics point out. In McGrath v. McLean (1975), 95 D.L.R. (3d) 144 (Ont. C.A.), Dubin J.A., with reference to comments by Professor Laskin above, said:

I am prepared to assume that, in an appropriate case, a vendor may be liable to a purchaser with respect to premises which are not new if he knows of a latent defect which renders the premises unfit for habitation. But, as is pointed out in the lecture above referred to , in such a case it is incumbent upon the purchaser to establish that the latent defect was known to the vendor, or that the circumstances were such that it could be said that the vendor was guilty of concealment or a reckless disregard of the truth or falsity of any representations made by him. It is to be observed that that is quite a different case than the one founded on the principle of M’Alister (or Donoghue) v. Stevenson , supra.

Similarly, I am prepared to assume that there is a duty on the vendor to disclose a latent defect which renders the premises dangerous in themselves, or that the circumstances are such as to disclose the likelihood of such danger, e.g., the premises being sold being subject to radioactivity. Again, however, under such circumstances the cause of action is not dependent on the principles enacted in M’Alister (or Donoghue) v. Stevenson .

[70] Similarly, in Cotton v. Monahan, [2011] O.J. No. 4944 (Ont. C.A.), at para.s 3 and 6, the panel expanded on the comments of Dubin J.A. saying:

3. The trial judge dismissed the claim by applying the decision of this court in McGrath v. McLean (1975), 22 O.R. (2d) 784 , which held that to be successful in such a claim, a purchaser must establish that the vendor knew of the latent defects, concealed the latent defects or made representations with reckless disregard for the truth.

4. We do not accept the submission that the trial judge erred in failing to find that the actions of the respondents amounted to “concealment” as that term is used in McGrath v. McLean. In our view, “concealment” in this context connotes an act done with an intention to hide from view some defect of which the vendor is either aware or wilfully blind. The trial judge did not err in holding that “active concealment” was required as that formulation of the test is well established: see Gumbmann v. Cornwall (1986), 44 R.P.R. 114 (Ont. H.C.J.) at para. 63 ; Guglielmi v. Russo, 2010 ONSC 833, 92 R.P.R. (4 th ) 117 (Ont. Div Ct) ; J. Victor Di Castri, The Law of Vendor and Purchaser , 3 rd ed., loose-leaf (Toronto: Carswell, 1988), vol. 1 at para. 239.

C) Fraudulent Misrepresentation

[71] The claim is also based on fraudulent misrepresentation. Again, the onus of proof is on the plaintiffs.

[72] Fraud is the most serious allegation in a civil law context. Although the burden of proof is on a balance of probabilities, in Continental Insurance Co. v. Dalton Cartage Co., [1982] 1 S.C.R. 164 (S.C.C.), Laskin C.J., at p. 170 commented on the trier of fact being,

… justified in scrutinizing evidence with greater care, if there are serious allegations to be established by the proof that is offered.

[73] Fraudulent misrepresentation requires the following:

i. Representations by the vendor; ii. The representations were false; iii. The vendor knew the representations were false or that such were made recklessly without caring; and, iv. The representations induced the purchasers to enter into the agreement to their prejudice.

[74] Intention to deceive, or reckless disregard, are critical factors. See: Derry v. Peek (1889), 14 App. Cas. 337 (H.L.) ; Redican v. Nesbitt, [1924] S.C.R. 135 (S.C.C.); Parnu v. G. & S., [1971] S.C.R. 306 (S.C.C.); Toronto-Dominion Bank v. Leigh Instruments Ltd. (1998), 40 B.L.R. (2d) 1 (Ont. Gen. Div.), aff’d (1999), , 45 O.R. (3d) 417 (Ont. C.A.); S.M. Waddams, The Law of Contracts , 5th ed., (Toronto: Canada Law Book, 2005), para.s 416-7; and A.W. LaForest, Anger & Honsperger: Law of Real Property (Aurora: Canada Law Book, 2008), para. 23:40.30(a).

[75] Fraud may also be established by conduct of the vendor, such as active concealment of a latent defect in the building with the intention to deceive the purchasers. See: Abel v. McDonald (1964); and 688530 Ontario Ltd. v. Piron , supra.

D) Warranty

[76] A Warranty, if express, is an exception to caveat emptor. In this case, the warranty as stated in the schedule to the Agreement of Purchase and Sale is qualified by the phrase “to the best of his knowledge and belief.” The warranty is dependent upon being “reasonably fair and truthful to the best of his knowledge and belief”. See: John Levy v. Cameron & Johnstone (1992), 26 R.P.R. (2d) 130 (Ont. Gen. Div.); Vokey v. Edwards, [1999] O.J. No. 1706 (ONT. S.C.J.); and Melko v. Lloyd Estate, [2002] O.J. No. 3822 (Ont. S.C.J.).

E) Duty of Care – The Professionals

[77] There is a further issue in this case, perhaps secondary, not specifically identified by counsel but arising from the evidence, or lack of evidence. Here, I speak of the duty of care owed to the plaintiffs by the real estate agents and the home inspector. These were paid professionals, providing advice and recommendations. There can be no dispute, they had a duty of care, the standard being the exercise of the skill and care expected of a prudent professional in similar circumstances. See, for example, Crits. v. Sylvester (1956), 1 D.L.R. (2d) 502 (Ont. C.A.), at para. 13.

[78] The real estate agents were paid a significant commission on this transaction. Mr. Kroeger, the agent for Ms. McPherson, testified. Mr. May, the agent for Mr. and Ms. Gebre-Hiwet, was not called as a witness. Real estate agents are not tour guides escorting a prospective purchaser through a residence. Rather, they provide advice and are expected to exercise due diligence in making inquiry about the premises. They should also have some knowledge regarding construction of homes and be mindful of the potential for water and other problems.

[79] The reliance on disclosure statements from vendors has been criticized in prior cases. See, for example: Alevizos v. Nirula (2003), 2003 MBCA 148, 234 D.L.R. 352 (Man. C.A.). In this case, the disclosure statement was not incorporated into the Agreement of Purchase and Sale. Regardless, the purpose of a disclosure statement cannot be to protect real estate agents, nor does obtaining such a document meet their standard of care. Due diligence inquiry is necessary.

[80] The standard of care for home inspectors has been addressed in prior cases, adopting the American Society of Home Inspectors (“ASHI”) Standards of Practice. This requires the home inspector to “inspect readily accessible, visually observable, installed systems and components… [including] walls, ceilings and floors… [but not] paint, wallpaper and other finish treatments”. See: ASHI Standards of Practice , sections 2 and 10.

[81] In Seltzer-Soberance v. Kolgut, [1999] O.J. No. 1871 (Ont. S.C.J.), at para. 6, Wright J. said:

The usual home inspection is general in nature and is performed by a visual inspection. A house inspector cannot be held responsible for a problem which is not readily apparent by a reasonable visual inspection.

See, also: Deters v. Elliott, 2017 ONSC 4224; Li v. Baker Street Inspection Services Inc.; Biggs v. Harris, [1999] O.J. No. 4831 (Ont. S.C.J.); and Cresswell-Jones v. Seqouin, 2013 ONSC 6989 (Div. Ct.).

[82] This appears to be an extremely low standard of care. Every case is different and, in my view, a number of factors would need to be considered, including the experience of the inspector, the fee paid, the information provided to the client in advance and, of course, how such relate to the particular problem. Home inspectors are expected to be knowledgeable in construction, building codes and municipal by-laws.

Analysis

i) Credibility

[83] All of the witnesses that testified, in my assessment, were credible. There was no attempt to exaggerate or mislead.

[84] The use of affidavits, as evidence in chief, is meant to reduce trial length. This is a practice I do not support as it tends to cause unnecessary problems. Affidavits are prepared by lawyers, not witnesses. Often, as with the affidavit of Mr. and Ms. Gebre-Hiwet, such contain improper opinion or editorial comment or the purported evidence of other persons. Inadmissible evidence in affidavits must be ignored. However, any problems in affidavit evidence does not impact credibility. My assessment is primarily from cross-examination.

[85] Mr. Wahab complains about inconsistencies in the evidence of defendant witnesses. He also says they were evasive. With respect, I disagree. Some inconsistencies are expected, particularly with the passage of time since the events in 2014 and prior. The absence of inconsistencies suggest staging of evidence. Minor matters are of no concern. Major inconsistencies are.

[86] There were minor inconsistencies with respect to the plywood sheets, particularly whether such were those depicted in the photographs. This is of no interest given the evidence as a whole.

[87] The witnesses were not evasive. They answered Mr. Wahab’s questions succinctly and without hesitation. Just because the witnesses disagreed with the suggestions of Mr. Wahab does not mean they were evasive.

ii) Evidentiary Record

[88] There is a significant shortfall in the evidence presented for the plaintiffs. Simplified procedure does not mean simplified evidence. Plaintiffs must prove their case regardless as to the amount involved.

[89] There was a troubling lack of detail, primarily in the evidence of Mr. and Ms. Gebre-Hiwet, but also in the presentation by other witnesses. Witnesses were simply not asked to provide details or were not asked to clarify or expand.

[90] There was little evidence as to what Mr. and Ms. Gebre-Hiwet did or observed on the three occasions they viewed or inspected the basement. This is of particular concern with respect to the room where water was later discovered. Ms. McPherson acknowledged that viewing of this room was “partially obstructed” by furniture and stored items. Neither Ms. McPherson nor Mr. and Ms. Gebre-Hiwet were asked for detail as to what “partially’ meant.

[91] Potential witnesses were not called to testify. The brother-in-law, a contractor, was present on one inspection. Mr. May was the real estate agent and Mr. Kors did the home inspection. It is unknown as to what these individuals did, observed or recommended, beyond the written report of Mr. Kors.

[92] Did Mr. May and Mr. Kors meet their standard of care? A potential wet basement would be high on their checklist, particularly when, as here, there was no sump pump.

[93] I cannot speculate as to what evidence might be. Findings are restricted to the evidence presented. A shortfall in evidence can impact meeting the onus of proof.

iii) Water Leak

[94] Ms. McPherson does not challenge the presence of water as discovered after closing. Although little evidence was presented as to the cause, it appears water entered the basement either through or under the foundation. Repair work by The Crack Specialist in 2018 is said to have resolved the problem.

[95] Caveat emptor applies unless Mr. and Ms. Gebre-Hiwet establish an evidentiary basis for an exception.

iv) The Professionals

[96] Further comment regarding the involvement of Mr. May and Mr. Kors are, in my view, appropriate at this stage. Neither individual is a party and no negative findings would be appropriate in the absence of their testimony.

[97] Although Mr. and Ms. Gebre-Hiwet were not asked, my impression was they were not experienced purchasers. Perhaps this was their first transaction. The role of professionals on their behalf becomes important. Purchasing real estate is not a simple task.

[98] As previously stated, potential wet basements should be high on the checklist for real estate agents and home inspectors. Such problems are not uncommon, particularly with older homes, as in this case. The absence of a sump pump, in my view, was a “red flag”, suggesting there was no exterior water drainage.

[99] Mr. Kroeger referred to a disclosure statement in which Ms. McPherson made no reference to water problems. Mr. Kroeger did not observe moisture in the basement. Presumably, Mr. May was aware of the disclosure statement but no reference was made as to any inquiry by him or recommendations to Mr. and Ms. Gebre-Hiwet other than to obtain a home inspection.

[100] The report of Mr. Kors was based upon a visual inspection. Although identifying the lack of a sump pump, there is no further comment. Presumably, he checked the basement floors as per the ASHI standards and would be aware of the subfloor and the floor registers.

[101] Again, the “partially obstructed” room was not addressed. It is unclear how much of the room either Mr. May or Mr. Kors saw or why nobody asked Ms. McPherson for permissions to move stored items.

v) Latent or Patent defect

[102] It appears the plaintiffs’ case is based on the assumption that the water leak was a latent defect. If so, this is a dangerous practice as the evidence is less than compelling.

[103] Mr. Gebre-Hiwet discovered the water on the cement floor when he lifted the floor register. In the absence of evidence, I am prevented from finding the room was inaccessible. It was only partially inaccessible. Even with stored items in the room, it would be unlikely the floor register was covered as such was the only source of heat.

[104] In result, I am not persuaded this was a latent defect. The evidence does not lead to a finding of due diligence. Hence, it appears the water problem was discoverable. At the very least, I cannot find it was not.

[105] A patent defect is not compensable. The plaintiffs have not met the onus of proof.

[106] Regardless, in the event my conclusion is incorrect, the analysis will continue.

vi) Declaration

[107] The Vendor’s Combined Declaration addresses a number of different topics. Mr. Wahab says this document provides an “absolute guarantee that there were no defects in the property”. With respect, I disagree.

[108] In evidence and submissions, reference was made to para.s 4, 5, 10, 18 and 34 in the declaration. Para.s 4 and 5 are part of a declaration of possession. Para. 10 addresses the Construction Lien Act. Para. 18 provides language regarding harmonized sales tax. None of these provisions is a warranty nor do they apply to the condition of the house.

[109] Only para. 34 is relevant as it addresses the “Condition of Premises”, saying there was no damage since the property was inspected by the purchasers. This is a qualified statement only covering the time period from the date of the Agreement of Purchase and Sale until closing.

[110] No evidence was presented to suggest the water damage occurred in this time period. Indeed, the plaintiffs position is that it was a pre-existing problem.

[111] In result, I conclude the Vendor’s Combined Declaration is not a warranty and has no relevance to this case.

vii) Warranty

[112] Ms. McPherson did provide an “express warranty” in the schedule attached to the Agreement of Purchase and Sale. However, the warranty is qualified by the phrase “to the best of his knowledge and belief”. The warranty is not absolute and its impact will be determined hereafter regarding the knowledge of Ms. McPherson.

viii) Fraudulent Misrepresentation

[113] There was no evidence as to any oral representations made by, or on behalf of, Ms. McPherson. The plaintiffs rely on documents and in the interpretation of the evidence. Again, the focus here is on knowledge, as hereafter discussed.

ix) Vendor’s Knowledge and Concealment

[114] Whether Ms. McPherson was aware of the water problem, or reckless as to its existence, and concealed it from the purchasers is the key issue in this case.

[115] Ms. McPherson was clear, concise and unequivocal in her evidence, saying she was never aware of a water problem during her ownership of the property. Similarly, all of the defendant witnesses stated they never observed water or water damage.

[116] Mr. Wahab quite properly challenged Ms. McPherson, and her witnesses, but was unsuccessful in obtaining any concessions. There were no follow-up questions, nor was other information provided to these witnesses that might have had an impact on their testimony. Nor was there other evidence presented to suggest knowledge or concealment. It is unknown what investigation was made, if any, on behalf of the plaintiff in this regard.

[117] The evidence in this case is not like that presented in the cases Mr. Wahab relies on. For example, in Whaley v. Dennis, 2005 Carswell Ont. 4172 (Ont. S.C.J.), there was evidence as to the vendor’s knowledge and in steps he took to address the problems, all being presented by non-party witnesses who had contact with the vendor.

[118] Cross-examination of Ms. McPherson and her witnesses was ineffective. There was no evidence presented to suggest Ms. McPherson was aware of the water or was reckless or concealed the problem. The evidence presented by Ms. McPherson and her witnesses was straightforward and, in my view, believable and truthful.

[119] In result, I conclude Ms. McPherson

(a) was not aware of the water; (b) was not reckless as to the water problem; (c) made no effort to conceal the water problem; and (d) was fair and truthful.

[120] Accordingly, I find there was no fraudulent or reckless misrepresentation, concealment or breach of warranty.

x) Unfit for Habitation

[121] Mr. Gebre-Hiwet discovered the water on November 27, 2014. The repairs occurred in 2018 and 2021. Mr. and Ms. Gebre-Hiwet resided in the residence throughout this time period. Hence, it cannot be said the house was unfit for habitation.

[122] The use of the basement was prevented for a period of time. There may have been mould on the foundation but it was not tested so, like Mr. Kors, I am “unable to determine whether this is a ‘harmful’ type”. There was no evidence indicating how, or when, the mould issue was addressed.

[123] The basement, or lower level, is only a small portion of the residence, perhaps twenty-five per cent. I am not persuaded the inability to use the basement rendered the residence unfit for habitation. Further, as hereafter discussed, the time period is far too long. The repairs could have been made within six months, or less, from closing of the transaction.

xi) Damages

[124] Given my determination of the claim on its merits, damages are briefly reviewed should there be appellate review.

[125] The damage claim consists of:

(a) rental loss $77,000.00; (b) loss of use and enjoyment $39,000.00; (c) renovation expense $20,622.00; (d) labour of Mr. Gebre-Hiwet $14,432.00; (e) future exterior waterproofing $13,900.00 (f) general damages $30,000.00; and (g) aggravated damages $20,000.00.

[126] The claim is presented for the time period from closing of the transaction in November 2014 to May 2021 when the renovations were substantially completed. Delay in completing the work was due to the lack of funds, according to the plaintiffs. However, no evidence was presented regarding the financial circumstances and, in any event, I am not persuaded the defendant can be held liable for this extended time period.

[127] The renovation work was completed by Mr. Gebre-Hiwet in five months, working evenings and weekends. Hence, I would limit the defendant’s liability to six months.

(a) Rental Loss

[128] The claim of $800.00 per month appears reasonable, despite limited evidence as to comparable units. Some renovation work was required, unrelated to the water damage. I would limit the claim to five months, namely $4,000.00.

(b) Loss of Use and Enjoyment

[129] No evidence was presented to support this claim. It appears to be a duplication of the actual claim for a rental loss. The plaintiffs never intended on using the basement for their own purposes.

(c) Renovation Expense

[130] Some of the out-of-pocket expense is for items unrelated to the water problem, pertaining to the intended rental. Other items would represent betterment. Some items were not proven. There was no description of the work for “contractor assistance”, paid in cash with no supporting documents. The proven expense, at most, was $15,000.00.

(d) Labour of Mr. Gebre-Hiwet

[131] Mr. Gebre-Hiwet would be entitled to compensation for his labour, choosing to do the work rather than hire a contractor. No evidence was tendered as to his ability, experience, work performed and what a reasonable hourly rate might be. The lack of evidence limits the ability to assess the claim. I would allow $7,000.00 for this item.

(e) Future Exterior Waterproofing

[132] The water problem appears to have been resolved from inside the residence. There is now a sump pump. No evidence was presented as to the need for exterior waterproofing. It is unknown whether such was originally installed, or not. This claim is denied.

(f) General Damages

[133] In the absence of an explanation for the amount sought, I would assess general damages at $10,000.00.

(g) Aggravated Damages

[134] The basis of this claim is said to be for not admitting liability and delay. Neither component meets the test for aggravated damages. The delay in this case results from the plaintiffs side as they control the process. The trial could have been scheduled much earlier, say 2016, had there been a request.

[135] Regardless, aggravated damages were not sought in the statement of claim and there was no motion to amend pleadings.

(h) Summary on Damages

[136] Damages are assessed at $36,000.00 for all claims.

Summary

[137] For these reasons, the action is dismissed.

[138] I expect counsel will resolve the issue of costs; failing which, brief written submissions are to be exchanged and delivered within thirty days of the release of this Decision to my attention by email, care of Kitchener.SCJJA@ontario.ca. If no submissions are received within the prescribed time period, the issue of costs will be considered settled and the file will be closed.

D.J. Gordon, J.

Released: March 3, 2022