King's Bay Development Corp. v. Cornerstone Custom Homes Ltd., 2009 ONCA 611
CITATION: King's Bay Development Corp. v. Cornerstone Custom Homes Ltd., 2009 ONCA 611
DATE: 20090813
DOCKET: C48386
COURT OF APPEAL FOR ONTARIO
Rosenberg, Goudge and Blair JJ.A.
BETWEEN:
King’s Bay Development Corp.
Plaintiff/Defendant-by-Counterlaim (Respondent)
and
Cornerstone Custom Homes Ltd.
Defendant/Plaintiff-by-Counterclaim (Appellant)
and
Tarion Warranty Corporation and The Registrar of Tarion Warranty Corporation
The Registrar of Tarion Warranty Corporation
Third Parties (Respondents)
Brian M. Campbell, for the appellant
Joshua J. Gleiberman, for the respondent King’s Bay Development Corp.
Gena Argitis, for the respondent Tarion Warranty Corporation.
Heard: July 3, 2009
On appeal from the judgment of Justice John McIsaac of the Superior Court of Justice dated January 16, 2008 and the costs order made by Justice McIsaac dated June 10, 2008.
Rosenberg J.A.:
[1] The appellant appeals from the judgment of McIsaac J. dismissing much of its claim against the respondent King’s Bay Development Corp. and its entire claim against Tarion Warranty Corporation and The Registrar of Tarion Warranty Corporation (Tarion).
[2] The trial judge’s decision respecting King’s Bay turned on his interpretation of an earlier order of Lack J. granting certain relief to King’s Bay. In my view, because the trial judge misapprehended the effect of Lack J.’s order, he failed to make crucial findings of fact. In the result, the appeal as against King’s Bay must be allowed and a new trial ordered. I would, however, dismiss the appeal against Tarion. The trial judge made a finding of fact respecting the appellant’s attempt to renew its Ontario New Home Warranty Program registration that is fatal to the appellant’s claim against Tarion.
THE FACTS
[3] The appellant is a home builder. King’s Bay is a developer that owned a parcel of land in the Township of Mariposa. In April 2000, the appellant and King’s Bay entered into a purchase and sale agreement respecting 106 lots on an approved plan of subdivision. The essence of the agreement was that King’s Bay would complete all of the services to make lots ready for building new homes. The appellant would then build the new homes. Once a home was sold, King’s Bay would be paid the price of the lot as set out in the agreement and the appellant would be paid the balance as the purchase price of the home.
[4] The agreement was for a one-year term but could be renewed and it continued until January 21, 2003, when King’s Bay purported to terminate the agreement because of alleged breaches by the appellant. The appellant denied that it had breached the agreement and in turn alleged breaches by King’s Bay. There was an exchange of correspondence, including a letter of February 7, 2003. In that letter King’s Bay barred the appellant from the site because the appellant’s registration with Tarion had lapsed and purported to exercise clause “c” of the Remedies in Schedule “F” to the agreement. That clause required the appellant to give up possession and entitled King’s Bay to retain the land for its own use “together with all improvements thereon completed by the [appellant]”. The immediate effect of this letter was to prevent the appellant from completing homes on three lots (12, 44 and 82) that were in various stages of completion.
THE ORDER OF LACK. J.
[5] King’s Bay applied under Rule 14.05 for declarations (a) that the appellant was in breach of the agreement, (b) that King’s Bay was entitled to exercise its remedies under the agreement as specified in Schedule “F” of the agreement, and (c) that the appellant had no interest in any of the lots. Lack J. heard the application on August 5, 2003. She found that there were no material facts in dispute establishing two breaches of the agreement. First, that the appellant was not registered under the Ontario New Home Warrant Plan. Second, it had failed on more than two occasions within a 12 month period to complete new house construction within 5 days of the date specified for closing sales to the new home buyers. This latter breach related to lots 12, 44 and 82. Accordingly, Lack J. granted the application for the declaration that the appellant was in breach of the agreement.
[6] However, Lack J. refused that part of the application seeking declarations that King’s Bay was entitled to exercise its remedies under Schedule “F” and that the appellant had no interest in any of the lots. She held that the appellant had raised issues as to King’s Bay’s default under the agreement and outstanding monies owed by King’s Bay to the appellant. She therefore ordered a trial of the following issues:
(1) Was King’s Bay in default under the agreement?
(2) What monies, if any, were owing by King’s Bay to the appellant?
(3) In either or both cases, what remedy was the appellant entitled to?
(4) What remedies was King’s Bay entitled to by virtue of the appellant's established breaches?
[7] Lack J. also held that King’s Bay could complete the construction of the homes on lots 12, 44 and 82 in accordance with paragraph (b) of the Remedies of Default of Schedule “F”. Paragraph (b) provided that if new house construction had been commenced upon lots that were the subject of a default, King’s Bay could retain other contractors to complete construction and then complete sale of the lot to the new home buyers. Lack J. held that final disposition of the net proceeds of the sales may be taken into account on the trial.
KING’S BAY’S CLAIM
[8] King’s Bay alleged that it had suffered various types of damages by reason of the appellant’s defaults under the agreement. For example, King’s Bay claimed that the appellant had failed to remit deposits that had been paid by new home buyers that King’s Bay had to refund. It also claimed that the appellant had impaired its ability to sell lots on the property so that it incurred additional interest charges.
THE APPELLANT’S CLAIM
[9] The appellant denied that it had caused the damages alleged by King’s Bay and counterclaimed against King’s Bay. The appellant claimed that it had incurred substantial expenses because it was forced to carry out work on various lots that under the agreement were to have been performed by King’s Bay. It also claimed that it was entitled to the value of the work that it had performed on lots 12, 44 and 82.
[10] The appellant also claimed that King’s Bay had breached Lack J.’s order. Instead of retaining another company to complete the construction of the houses on lots 12, 44 and 82, and selling the completed homes to new house buyers, King’s Bay did nothing for over a year and then sold the lots to another company at “fire-sale” prices. The appellant claimed that as a result, it lost its share of the profit that it would have been entitled to from the sale of the houses.
THE TRIAL JUDGE’S REASONS
[11] The trial in this matter lasted 11 days including testimony in October 2006 and closing submissions in August 2007. The parties filed written submissions. The appellant in particular filed a 41-page written argument and 11-page reply argument. The trial judge released his four page reasons in January 2008. He dealt with King’s Bay’s claim in one short paragraph and the appellant’s claim in two short paragraphs. He made no findings of fact with respect to those claims stating that the claims and the amounts were either uncontested or determined by the earlier order of Lack J. I will set out his reasons below.
ANALYSIS
King’s Bay’s Damages
[12] The trial judge’s reasons respecting King’s Bay’s damages were as follows:
King’s Bay seeks damages totalling $573,981.08 from the defendant made up of three heads: additional interest charges in the amount of $573,981.08[sic], $40,000 paid to the purchasers of Lot 44 as a refund of their deposit and a payment of $4,976.85 to a third party for a plumbing installation at the same location. Cornerstone has not contested any of these claims which are, in my opinion, well documented and established.
[13] There are two problems with these reasons. First, it is not correct that the appellant did not contest any of the claims. The appellant both in cross-examination of King’s Bay’s main witness and in its submissions at the conclusion of the trial contested its liability for the largest part of the claim, the additional interest charges. The basis for the additional interest charges appeared to be that, because of the appellant’s breaches of the agreement, King’s Bay had been unable to sell any additional lots. The appellant denied that its actions had impaired King’s Bay’s ability to sell the additional lots or that King’s Bay had lost any sales as a result of its actions. Some of the evidence given by King’s Bay’s main witness in cross-examination appeared to lend substantial credence to the appellant’s position. The trial judge simply did not deal with this evidence, nor the issue it raises.
[14] The other problem with the reasons is that the trial judge failed to identify the legal theory that would entitle King’s Bay to the additional interest charges or make the findings of fact necessary to sustain it. For example, the trial judge did not identify anything in the agreement that would make the appellant liable for these charges.
[15] Accordingly, the award of damages against the appellant cannot stand.
The Appellant’s Claim Against King’s Bay
[16] The trial judge’s reasons respecting the appellant’s claim against King’s Bay are as follows:
The defendant claims that King’s Bay owes it $731,000 for various alleged defaults under the contract. I am unable to accept the first part of that claim in the amount of $309,000 because it is based on a premise which would be contrary to the ruling of Lack, J. The defendant also claims $442,000 for certain payments made on behalf of King’s Bay along with costs associated with a delay in obtaining necessary approvals to permit this development to move forward. The plaintiff does not really contest this part of the claim which, in my opinion, has been properly documented and proved.
The result of these two claims means that the plaintiff is entitled to judgment against the defendant in the amount of $131,981.08.
[17] The first problem with these reasons is the assertion that the appellant’s claim for $309,000 was based on a premise that was contrary to the order of Lack J. As I understand it, the trial judge’s reference to $309,000 relates to the appellant’s claim for reimbursement for the work it had performed on the three lots and interest on the money. The trial judge gave no reasons for this holding and so the basis for the holding is obscure.
[18] Lack J. had held only that King’s Bay had shown that the appellant breached the agreement. She expressly left open the question of what remedies King’s Bay was entitled to by reason of the two established breaches and what remedies the appellant might be entitled to. The fact that the appellant had breached the agreement in two respects did not determine King’s Bay’s entitlement to remedies nor necessarily disentitle the appellant to a remedy. It may be that King’s Bay was entitled to the remedy in paragraph “c” of the Remedies of Default of Schedule “F”, in which case it would not be liable to account to the appellant for the improvements. However, that was a contested matter at trial. Because of the trial judge’s misapprehension of the effect of Lack J.’s orders he failed to make the necessary findings of fact. He also failed to identify the legal theory that disentitled the appellant to the remedies it sought.
[19] Further, the order of Lack J. suggested that King’s Bay was to complete the homes on the three lots with the net proceeds of the sales to be taken into account on the trial. The trial judge failed to deal with the appellant’s submission that King’s Bay had breached Lack J.’s order and thus wrongfully deprived the appellant of the amounts it had expended to improve the lots and of its share of the profit on the sales to new house buyers.
[20] The trial judge was also in error in holding that the $442,000 claim by the appellant was not contested by King’s Bay. There was a serious dispute about the amounts claimed by the appellant, a fact confirmed by counsel for the appellant in his oral submissions before us.
Remedy
[21] The purpose of Lack J.’s order directing a trial of the four issues she identified was because material facts were in dispute and there was a serious contest as to the legal basis for the claims made by both the appellant and King’s Bay. King’s Bay submits that the trial judge’s reasons are sufficient and that the record supports his findings. It relies upon the decision of the Supreme Court of Canada in R. v. M. (R.E.), 2008 SCC 51, [2008] 3 S.C.R. 3, where the court pointed out that a trial judge’s reasons are sufficient if they show why the judge arrived at the decision; it is not necessary for the reasons to demonstrate how the judge reached the decision. But, as McLachlin C.J.C. said in R. v. M. (R.E.) at para. 20, “the trial judge need not expound on evidence which is uncontroversial, or detail his or her findings on each piece of evidence or controverted fact, so long as the findings linking the evidence to the verdict can be logically discerned” [emphasis added]. That was not done in this case. The reasons in this case contain bare conclusions tainted by a misapprehension of the parties’ positions and a misunderstanding of the impact of Lack J.’s order. To the extent the reasons show why the trial judge arrived at his conclusions, the reasons are erroneous.
[22] Since the trial judge made no findings of fact and failed to identify the legal basis for any of the orders he made in relation to the dispute between King’s Bay and the appellant, there must be a new trial. Because the damage claims by both parties are so interrelated, the new trial must be in relation to all of the claims by both parties, even though there was no cross-appeal by King’s Bay.
The Claim Against Tarion
[23] Tarion Warranty Corporation is the regulating body of the new home building industry in Ontario and administers the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31. All vendors and builders of new homes must register with Tarion. The registration must be renewed annually, and the renewal application must be accompanied by up to date financial statements.
[24] The appellant’s registration under the Act was to expire on November 27, 2002. The previous year, Tarion had waived the financial statement requirement but imposed a requirement that the appellant provide $5,000 security for each home enrolled. The appellant was also told that financial statements would have to be submitted with the next renewal application. It was made clear at the time that the 2001 waiver was a one-time favour to the appellant.
[25] The appellant did not submit its renewal application in November 2002 since it did not have up-to-date financial statements. Nothing further occurred respecting the renewal until January 6, 2003, when the appellant attempted to enrol a home so that it could close the sale. The appellant’s principal, Vic Walker, attended at Tarion’s head office and was told that the registration had expired, but that Tarion would reactivate the registration if the completed renewal application, including the financial statements, was provided by January 15, 2003. The appellant did not submit its renewal application by January 15. On January 20, Mr. Walker reattended at Tarion’s office with the application, including the financial statements, but Tarion refused to accept the application.
[26] On February 20, 2003, Tarion accepted an enrolment fee for the home that the appellant had attempted to register on January 6, 2003 and took $5,000 security. As a result, the sale of that home could be completed.
[27] The appellant submits that Tarion was negligent in refusing to accept its renewal application either on November 27, 2002 or January 15, 2003 and it suffered damages as a result. For example, since its registration expired, the appellant was deemed to be in breach of its agreement with King’s Bay and inter alia was prevented from completing the homes on lots 12, 44 and 82.
[28] The trial judge dealt with this claim on the basis that the appellant’s loss of registration “was due to its wilful and persistent failure to file necessary financial documentation”. He also held that “no liability arose from [Tarion’s] gratuitous offer to reinstate the registration following its lapse nor from Tarion’s agreement to permit a ‘one-off’ registration”.
[29] The appellant submits that the trial judge erred in holding that it wilfully failed to file the financial statements. It submits that the evidence shows that the failure to file the financial statements was not wilful but the result of circumstances beyond its control.
[30] The appellant also submits that, in any event, a renewal application is sufficient if the applicant has submitted the renewal form and the renewal fee; there is no requirement that financial statements be provided. It relies upon s. 9(8) of the Act, which provides as follows:
Where, within the time prescribed therefore or, if no time is prescribed, before expiry of the registration, a registrant has applied for renewal of a registration and paid the prescribed fee, the registration shall be deemed to continue,
(a) until the renewal is granted; or
(b) where the registrant is served with notice that the Registrar proposes to refuse to grant the renewal, until the time for giving notice requiring a hearing has expired and, where a hearing is required, until the Tribunal has made its order.
[31] The appellant submits that it should have been allowed to file the form along with the fee, which would have automatically continued its registration. If, because of the absence of the financial statements, the Registrar was of the view that the registration should not be renewed, the Registrar should have made a proposal under s. 9(8)(b). This would have given the appellant access to a hearing before the Licence Appeal Tribunal. But, in the meantime its registration would have continued.
[32] In my view, there was evidence to support the trial judge’s finding that the failure to file the financial statements was wilful. Mr. Walker never disclosed to Tarion the reason that the statements were not available. He withheld that the appellant was subject to a G.S.T. audit and faced a substantial potential penalty of over $200,000. The appellant was granted an indulgence by Tarion when it extended the renewal date to January 15, 2003, but it was told that this was an absolute deadline.
[33] Further, I do not accept the appellant’s submission that an applicant for renewal need only submit the form and the fee. Section 10(3) of the Regulations to the Act, Regulation 892, R.R.O. 1990 provides that the applicant for a renewal of registration “shall complete, execute and deliver to the Registrar such form or forms of application and such other documentation as the Registrar may provide from time to time” (emphasis added). The renewal form provided by the Registrar requires the applicant to provide current financial statements or interim statements. Thus, a renewal application is not complete unless the documents required by the Registrar have been provided. Since the appellant did not provide the application, including the financial statements, on November 27 or on the extended date of January 15, its registration expired. It was no longer open to the appellant to renew its application; it had to reapply for registration.
[34] As for the events of February 10, 2003, I agree with Tarion’s submission that this did not result in a deemed renewal of the registration. The circumstances surrounding this event are set out in Tarion’s factum as follows:
On February 10, 2003, Cornerstone contacted Tarion because it wished to close a home that day with certain purchasers, the Prankards. By this date, the Prankards had already sold their prior home and were living at their parents’ home or out of their car and expecting to close the transaction for their new home. It was the middle of winter. Tarion was aware of the difficult position the homeowners were in, through no fault of their own – Cornerstone was not registered and therefore, it was contrary to the Act for it to complete the transaction with the purchasers. On the other hand, the purchasers would be homeless if Tarion did not provide Cornerstone with the Certificate of Completion and Possession (“C.C.P.”) so that Cornerstone could close the transaction.
In order to protect the consumers, the Prankards, Tarion ultimately released the C.C.P. to Cornerstone so that it could close the home. On that date, February 10, 2003, Cornerstone tried, once again, to provide Tarion with a completed renewal package, including the financial statements. Again, as on January 20, 2003, Tarion refused to accept the package because the deadline for re-instatement (January 15th) had passed. Tarion again told Cornerstone that it needed to reapply as a new registrant if it wished to be registered under the Act. Cornerstone chose not to reapply.
[35] The fact remained that Tarion’s registration had expired. The Registrar’s actions, taken to protect the consumer, could not retroactively revive the registration.
[36] Accordingly, the claim against Tarion was properly dismissed. Given this conclusion I need not deal with Tarion’s alternative submission that it owed no duty of care to the appellant and thus could not be held liable in negligence.
DISPOSITION
[37] Accordingly, I would allow the appellant’s appeal against King’s Bay and order a new trial of the issues identified by Lack J. in her order of August 19, 2003. The appellant is entitled to its costs of the appeal which I would fix at $6,000 inclusive of GST and disbursements, payable by King’s Bay. I would order that the costs of the trial before McIsaac J. be at the discretion of the judge hearing the new trial. I would dismiss the appeal against Tarion with costs payable by the appellant fixed at $5,000 inclusive of GST and disbursements.
Signed: “M. Rosenberg J.A.”
“I agree S. T. Goudge J.A.”
“I agree R. A. Blair J.A.”
RELEASED: “MR” August 13, 2009