Court of Appeal for Ontario

Date: July 27, 2018

Docket: C64532

Judges: Rouleau, Roberts and Fairburn JJ.A.

Between

Jack Gillham and Heather Gillham Plaintiffs (Appellants)

and

The Corporation of the Township of Lake of Bays, Royal Homes Limited and J.D. MacKay o/a MacKay Construction Defendants (Respondents)

Counsel

David A. Morin, for the appellants

Stuart Zacharias, for the respondent, The Corporation of the Township of Lake of Bays

David Thompson, for the respondent, Royal Homes Limited

Heard

May 7, 2018

On Appeal

On appeal from the judgment of Justice Edward J. Koke of the Superior Court of Justice dated October 3, 2017, with reasons reported at 2017 ONSC 5879.

Roberts J.A.

A. Overview

[1] This appeal involves the discoverability of claims for damages arising out of construction deficiencies. The question for determination on this appeal is whether the motion judge erred by finding that the appellants' claims were statute-barred because they were discoverable more than two years before the appellants issued their statement of claim.

[2] The appellants appeal from the dismissal of their action. The respondents successfully moved for summary judgment of the appellants' action against them on the basis that the applicable two-year limitation period under s. 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (the "Act"), had expired.[1]

[3] The appellants assert that the motion judge erred in his approach to discoverability, specifically, that he erred in finding that by 2009 the appellants had all the material facts they needed to start a claim against all of the defendants.

[4] For the reasons that follow, I would allow the appeal.

B. Factual Background

[5] The appellants' action against the respondents arises out of alleged deficiencies in the construction of their prefabricated cottage. In May of 2006, J.D. MacKay excavated the foundation, the pier footings for the deck, and constructed and backfilled a stacked rock retaining wall. The purpose of the stone retaining wall was to ensure that the foundation of the cottage had the necessary depth of backfill to satisfy the requirement for frost protection for a foundation wall prescribed by Ontario's Building Code, O. Reg. 332/12. Royal Homes Limited constructed the footings and foundation for the cottage and deck, then assembled the prefabricated cottage and deck, completing its work in July 2006.

[6] The appellants allege that the construction of the foundation of the cottage and the stone retaining wall was negligent because they were built on loose soil, which caused them to migrate down the slope of the property. The appellants plead that the Corporation of the Township of Lake of Bays was negligent in its oversight and approval of the construction of the cottage foundation and the stone retaining wall.

[7] The appellants first noticed a problem with one of the deck piers in the summer of 2009. Specifically, they observed that one of the deck piers at the northeast corner of the deck behind the stone retaining wall had sunk about 1 ¼ inches, pulling the deck post away from the cottage. They were initially concerned that the big foot sono tubes supporting the deck posts had not been installed to a sufficient depth.

[8] The appellants approached Royal Homes seeking warranty assistance. Royal Homes initially advised the appellants that these issues had nothing to do with the cottage construction because it was a slope problem and that these issues were not serious in any event. It then suggested that the sinking deck pier did not appear to be caused by the pier installation but that the stone retaining wall erected by J.D. MacKay behind the deck seemed to be settling and pulling the deck pier with it. On Royal Homes' recommendation, the appellants subsequently retained Trow Associates Inc., a structural engineering firm, to investigate.

[9] In its September 2009 report, Trow confirmed that the problem to be investigated was that: "the northeast corner of the deck is experiencing some settlement". The focus of Trow's investigation and report was on determining "the appropriate course of action required to provide a solution to the settlement issues associated with the deck". Trow identified "a localized slope failure and/or localized consolidation of the underlying soils occurring at the north east corner of deck" as the root problem, indicating that "[t]he weight that was added by the construction of the stone retaining wall and the backfill that was placed behind it to raise the grade appears to be causing a failure of the lower retaining structure, causing it to move laterally towards the northeast". With respect to the cottage, Trow also noted that while "this does not appear to have affected the dwelling yet, there is a hairline crack (less than 1 mm in width – typical of shrinkage cracks) in the basement floor that is located in the northeast corner of the basement".

[10] Trow recommended several expensive investigative and remedial steps, including the removal of the stone retaining wall and the reconstruction of the deck pier foundations. With the removal of the stone retaining wall, the grade against a portion of the foundation would be lowered and, because of frost, the underpinning of a portion of the dwelling foundation at a lower elevation would be required. They also recommended further slope stability investigation. However, it cautioned that undertaking these steps "will not guarantee that there will not be any further movement of the slopes in this area" [emphasis added] but that "it should significantly slow the progress of any movement". Trow did not suggest that the stone retaining wall constructed by Mr. MacKay was failing nor that there were any construction issues with the stone retaining wall or the cottage foundation.

[11] The appellants discussed the problems with Mr. MacKay. His view was that these types of retaining walls often settled a bit. He told the appellants that they should just monitor the situation and "wait and see" if the stone retaining wall found its own level over the next year or two. As a result, the appellants took no further steps at that time.

[12] Having watched the problems continue, the appellants retained Fowler Construction Company Ltd. to inspect the property in 2012. Fowler recommended that a soil study be undertaken. Terraprobe Inc. conducted the study. In their report dated July 30, 2012, Terraprobe concluded that the stone retaining wall was failing and recommended that it be removed and reconstructed. In its report, Terraprobe opined that "the wall and backfill materials have moved due to some construction issues". Specifically, Terraprobe stated that the wall had been built on very loose sand and fill "without adequate support of the wall base/toe from the downgrade slope". Terraprobe recommended that "it must be confirmed that the deck piers and house foundations are placed on native, undisturbed soils and/or bedrock capable of supporting the design loads". When Fowler commenced the remedial work in 2013, it discovered that the cottage foundation and footings had also been constructed on loose soil.

[13] The appellants commenced their action on October 21, 2013.

[14] In allowing the respondents' motion for summary judgment and dismissing the appellants' action as statute-barred, the motion judge concluded that the appellants knew or should have known in 2009 that there were some problems with the construction of their cottage, with or without the Trow report.

C. Analysis

[15] In my view, the motion judge erred in his approach to the question of discoverability of the appellants' claims and made palpable and overriding errors in his consideration of the evidence related to that question.

[16] On the respondents' motion for summary judgment, the motion judge was required to consider whether there were any genuine issues requiring a trial with respect to the discoverability of the appellants' claims against the respondents. These claims were not limited to the negligent construction of the stone retaining wall built by J.D. MacKay but also comprised the negligent construction of the cottage foundation, as well as the Township's alleged negligence.

[17] However, the motion judge misapprehended the evidence relating to the discoverability of the construction issues respecting the stone retaining wall and erred in law by failing to consider all the criteria for discoverability.

(1) The Legal Framework

[18] In his discoverability analysis, the motion judge was required to consider the provisions of s. 5(1) of the Act[2], in the light of the governing principles regarding discoverability.

[19] Section 5(1) of the Act provides as follows:

(1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

[20] The overarching question in the discoverability analysis under s. 5 of the Act is whether the claimant knew or reasonably should have known, exercising reasonable diligence, the material facts stipulated under s. 5(1)(a) that give rise to a claim: Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONCA 851, 113 O.R. (3d) 401, at para. 32. Section 1 of the Act defines a claim as "a claim to remedy an injury, loss or damage that occurred as a result of an act or omission". Section 2(1) provides that the Act "applies to claims pursued in court proceedings" (with certain enumerated exceptions that do not apply here).

[21] Knowledge of the claim includes knowledge of the identity of a potential defendant, although it is not necessary for a claimant to know with certainty a potential defendant's responsibility for an act or omission that caused or contributed to the loss. As this court observed in Longo v. MacLaren Art Centre, 2014 ONCA 526, 323 O.A.C. 246, at para. 44: "All that is required is that the plaintiff has prima facie grounds to infer that the acts or omissions were caused by the identified parties."

[22] While neither the extent nor the type of loss need be known, the claimant must know that some non-trivial loss has occurred, and that a proceeding would be a legally appropriate means to seek to remedy it: Markel Insurance Company of Canada v. ING Insurance Company of Canada, 2012 ONCA 218, 109 O.R. (3d) 652, at para. 34. The common law acknowledges that trivial damages do not trigger a limitation period, since a prudent plaintiff would not bring an action to recover a trivial loss: Grey Condominium Corp. No. 27 v. Blue Mountain Resorts Limited, 277 D.L.R. (4th) 644 (Ont. S.C.J.), aff'd 2008 ONCA 384, 90 O.R. (3d) 321, at para. 58.

(2) The Motion Judge's Misapprehension of the Evidence and Flawed Discoverability Analysis

[23] In the present case, the motion judge determined that the Trow engineering report "alerted or ought to have alerted the plaintiffs to the fact that the problems were construction related and that they had a cause of action against the defendants". In particular, he stated that the Trow report "identified that there was a failure of the stone wall constructed by J.D. Mackay."

[24] The motion judge's conclusions are problematic because they contain a fundamental misapprehension of the expert reports and reveal a flawed discoverability analysis.

[25] First, the motion judge's finding of discoverability is based on a fundamental misstatement of the Trow report. Contrary to the motion judge's reasons, the Trow report stated there was a failure of the pre-existing lower wooden retaining structure, and not the stone retaining wall constructed by J.D. MacKay. Rather, it is the Terraprobe report that stated that the stone retaining wall was failing due to having been built on loose soil.

[26] Second, the main problem suggested in the Trow report is "a localized slope failure and/or localized consolidation of the underlying soils occurring at the north east corner of deck", not the construction of the stone retaining wall or the cottage and its foundations. Certainly, Trow indicated that the weight of the latter exacerbates the movement of the deck pier. However, Trow identified a "localized" slope failure or consolidation of the underlying soils occurring at an isolated point on the property, rather than human error in the construction of the stone retaining wall or the cottage and its foundations. This explains Trow's admonition that the remedial steps may not resolve the naturally occurring issues.

[27] The respondents argue that the appellants' claim against them is statute-barred because they knew or should have known of any construction deficiencies on receipt of the Trow report. They submit that the concern raised by Trow that there was movement in the soil causing the pulling away of a deck post ought to have alerted the appellants that Royal Homes did not, as represented, build the cottage so as to ensure that it would not move toward the lake despite being constructed on a slope. However, the Trow report does not reveal any problems with the cottage construction. Indeed, the reference to a hairline crack in the basement floor as typical of shrinkage cracks would not reasonably give rise to any concern but rather serve to dismiss it.

[28] The motion judge similarly misapprehends the contents of the Terraprobe report. While acknowledging the appellants' argument that the Terraprobe report explicitly identified "construction issues" as the cause of the problems, the motion judge does not otherwise analyse the report. Rather, he appears to treat the Terraprobe report as confirming the issues raised in the Trow report.

[29] This was an error. The Terraprobe report's conclusions differ importantly from those of the Trow report with respect to the issue of discoverability. Terraprobe identified the cause of the problems to be the negligent construction of the stone retaining wall on loose soil, which could have been prevented, and not the isolated, naturally occurring localized slope and/or soil problems raised by the Trow report. Further, the Terraprobe report raised for the first time the possibility of problems with the construction of the cottage foundation that had to be investigated.

[30] The motion judge further erred by concluding that even without the Trow report, the appellants would have known that "their cottage was not constructed properly" and that they had a claim against the defendants because they had been "assured that their new cottage would be built on a stable foundation and that they could leave their problems with the site conditions behind once the new cottage was built." However, there was no evidentiary basis for the appellants to reasonably suspect that there was anything wrong with the cottage or its foundation until receipt of the Terraprobe report and its recommendation that "it must be confirmed that the deck piers and house foundations are placed on native, undisturbed soils and/or bedrock capable of supporting the design loads" [emphasis added]. Again, it must be recalled that the stated purpose of the stone retaining wall was to provide adequate frost cover of the deck piers and not to provide stability.

[31] The motion judge's material misapprehension of the expert reports caused him to err in his discoverability analysis. It is not enough under s. 5(1) of the Act that the appellants were aware of a problem. As this court has said in Fennell v. Deol, 2016 ONCA 249, 97 M.V.R. (6th) 1, at para. 20:

The date of discovery is the earlier of the two dates under s. 5(1) — when (a) the person with the claim had knowledge of, or (b) a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have had knowledge of, the matters referred to in s. 5(1)(a)(i) to (iv).

[32] The question is whether the appellants knew or reasonably ought to have known that the problem observed with the deck pier in 2009 was possibly caused by the acts or omissions of the defendants and gave rise to a claim (as defined under the Act) that was appropriately pursued in a court proceeding. Royal Homes and J.D. MacKay dismissed the issues with the stone retaining wall and deck pier as not serious and due to settling which should resolve. Until receipt of the Terraprobe report in 2012, the appellants did not have the requisite knowledge that their loss was not trivial and possibly arose from the acts and omissions of the respondents, and that it was appropriate to pursue their claim in a court proceeding.

(3) Failure to Consider s. 5(1)(a)(iv) of the Act

[33] The motion judge erred in failing to undertake an analysis of the criterion under s. 5(1)(a)(iv) of the Act. That the appellants might have a "cause of action" against the defendants, as the motion judge found, is not the end of the analysis under s. 5(1) of the Act. As this court said in Kudwah v. Centennial Apartments, 2012 ONCA 777, 223 A.C.W.S. (3d) 225, at para. 2:

It is important when considering a limitation period claim to appreciate that the terms of the 2002 Act must govern. A court considering the limitation claim must address the specific requirements of s. 5 of the Act, particularly on the facts of this case, the requirement of s. 5(1)(a)(iv).

[34] Therefore, the motion judge had to consider whether the appellants had a claim as defined under the Act. In considering whether the appellants knew or should have known that they had a claim, the motion judge had to go on to consider whether, having regard to the nature of the injury, loss or damage, the appellants knew or should have known that a proceeding would be an appropriate means to seek to remedy it. This omission by the motion judge is an error of law: Har Jo Management Services Canada Ltd. v. York (Regional Municipality), 2018 ONCA 469, at paras. 21 and 35.

[35] Section 5(1)(a)(iv) represents a legislative addition to the other factors under the discoverability analysis. As Laskin J.A. explained in 407 ETR Concession Company Limited v. Day, 2016 ONCA 709, 133 O.R. (3d) 762, leave to appeal to SCC refused, [2016] S.C.C.A. No. 509, at paras. 33-34:

The appropriateness of bringing an action was not an element of the former limitations statute or the common law discoverability rule. This added element can have the effect – as it does in this case – of postponing the start date of the two-year limitation period beyond the date when a plaintiff knows it has incurred a loss because of the defendant's actions.

Also, when an action is "appropriate" depends on the specific factual or statutory setting of each individual case: see Brown v. Baum, 2016 ONCA 325, 397 D.L.R. (4th) 161, at para. 21. Case law applying s. 5(1)(a)(iv) of the Limitations Act, 2002 is of limited assistance because each case will turn on its own facts.

[36] One recognized reason why the legislature added "appropriate means" as an element of discoverability was to enable courts to function more efficiently by deterring needless litigation: see 407 ETR Concession Company, at para. 48; Markel Insurance Company of Canada v. ING Insurance Company of Canada, at para. 34.

[37] Here, the motion judge failed to consider "the specific factual or statutory setting" of the case before him and determine whether it was reasonable for the appellants not to immediately commence litigation but to "wait and see" if the 1 ¼ inch sinking of the deck pier observed in 2009 would worsen over time or if the issue would resolve once the stone retaining wall had settled, as had been suggested to the appellants by Mr. MacKay. Neither Royal Homes nor Mr. MacKay believed the problem was serious, or due to the manner of construction. This evidence does not support the conclusion that the appellants knew or ought to have known in 2009 that their loss was not trivial and initiating legal proceedings was the appropriate means to remedy their loss.

(4) Failure to Consider the Discoverability of the Appellants' Claim Against the Township

[38] Finally, the motion judge erred by failing to consider whether the appellants knew or reasonably could have known the material facts giving rise to their claim against the Township more than two years prior to the commencement of their action. After the Terraprobe report, the appellants learned from the structural engineer retained by Fowler as part of the remediation that the Township should have required engineering drawings of the stone retaining wall. When Fowler started remedial work in 2013, it uncovered the foundation wall that had been approved by the Township and discovered that the cottage footings and foundation were also negligently placed on the same loose soil and organic materials as were under the stone retaining wall. There is no evidence that these material facts informing a claim against the Township were known to or reasonably discoverable by the appellants in 2009.

D. Conclusion

[39] These errors were material to the motion judge's conclusion that the appellants knew or ought to have known the material facts giving rise to all of their claims against the respondents. If he had not made these errors, he would not have concluded that the appellants' claims were discoverable in 2009 but at the earliest in 2012. As a result, the appellants' claims are not statute-barred. A trial is not necessary to determine this issue.

E. Disposition

[40] Accordingly, I would allow the appeal and set aside the judgment.

[41] I would grant the appellants their costs of the appeal in the agreed upon amount of $5,000. I would also grant the appellants their costs of the motion below in the amount of $20,000, to be paid on an equal basis by the respondents. Both amounts are all inclusive of disbursements and applicable taxes.

Released: July 27, 2018

"L.B. Roberts J.A."

"I agree. Paul Rouleau J.A."

"I agree. Fairburn J.A."

Footnotes

[1] The appellants settled their action with J.D. MacKay by way of a Pierringer Agreement.

[2] The statutory presumption under s. 5(2) of the Act was not argued.