COURT FILE NO.: 270/06
DATE: 20070717
SUPERIOR COURT OF JUSTICE – ONTARIO
DIVISIONAL COURT
RE: Carmelo Celebre and Connie Celebre, Plaintiffs (Respondents)
-and-
1082909 Ontario Limited o/a Amerispec Inspection Services, Defendant (Appellant)
HEARD: June 8, 2007
BEFORE: Lane J.
COUNSEL: Ronald G. Chapman, for the appellant
Moses Muyal, for the respondents
R E A S O N S F O R J U D G M E N T
LANE J.:
[1] The appellant appeals from the judgment of Freeman D.J. of the Toronto Small Claims Court dated May 8, 2006, whereby he awarded damages of $9,148.58 to the plaintiffs for negligence of the defendant in carrying out a home inspection. The appellant seeks dismissal of the action or a new trial on the ground that the trial judge misapprehended the evidence and failed to give effect to the limitation of liability clause in the contract.
[2] Prior to closing their agreement to purchase a home in Nobleton in July 2003, the respondents engaged the appellants to perform a home inspection. The inspection failed to disclose a latent defect, being water leakage from outside the house into the basement and consequent deterioration of wood structures in the basement. Relying on the inspection report, which did not note any damage or problem in the basement, the respondents closed. It turned out that there was actually a very large problem and the foundation needed to be dug up, the exterior wall tarred and the weeping tile replaced. At least one rotted piece of the wood was put in evidence. Mrs. Celebre described the problem as a long-standing one which had been ongoing for some years. The respondents say that the defects would have been revealed by ordinary care and that the limiting provisions in the agreement cannot assist the appellant.
[3] The appellant contends that as the basement wall was dry-walled, it was not intended that the inspection be any more than visual and non-intrusive. What was behind the drywall was not the subject of inspection unless there were stains on the dry wall. As there were no visible stains, the inspector did not see the need to employ the moisture meter with which he was equipped.
[4] The evidence of the inspector was that he first inspected the exterior. He found that the water management was “fairly poor”[^1]. He found that the gutters needed to be cleaned; the downspouts were too short to direct the water away from the foundation, the grading sloped toward the house. All of these matters needed to be repaired to ensure that water could not enter through the foundation walls.
[5] The interior inspection disclosed that the walls were completely dry-walled so that inspection of the interior of the foundation wall was not possible. As noted, he said he did not use the moisture meter because there were no stains. The judge asked at this point:
Now if you see problems on the outside, such as the eaves or the – basically the drainage, because of the slopes, would you not use a moisture meter in the basement in that case?
A. I would if I see signs of the –of water in the area and as I said there were no signs at all. The drywall were dry; there’s no stains. If the owner of the house went to the extent of hiding the damage and I cannot – I cannot be a detective looking for, for hidden – for someone trying to hide – to hide the problems from my eyes.
BY MS. CELEBRE: You just said that you would use a moisture detector if you saw that there was some evidence of moisture in the area. Now you had given us some suggestions, so that moisture wouldn’t go into the exterior or into the basement foundation, by changing eavestroughs, which we did and the grading. So did you notice that there were some moisture problems in the area…
A. Yeah, I …
Q. …to the exterior.
A. Yeah, I thought that there would be potential problems in the area, yes.
Q. So why wasn’t the moisture meter used?
A. As I said, I did not see any signs on the outside - on the inside- as I went inside that tells me that I should use my moisture meter and these areas were covered by furniture Your Honour, and household items.
[6] In rebuttal, Mr. Celebre testified that the area behind which the leak existed was furnished only with a small TV stand.
[7] In his report on the inspection of the basement, the inspector wrote:
704 Walls Poured concrete.
Normal moisture levels were observed at the time of inspection.
[8] In reporting on the joists, columns, insulation and beams in the basement, the inspector referred in each case to his inability to report because the ceiling and walls were finished. He testified the walls were dry, but he reported that he saw “normal” levels of moisture. Counsel for the appellant submitted that a report of “normal” moisture cannot be a signal of a moisture problem. Therefore the evidence did not support this finding. But dry wall does not normally have moisture on it; moisture does serious damage to drywall. The trial judge picked up on this in his reasons:
The defence witness testified that he did not observe any moisture on the walls. However, the inspection report, Exhibit number 4, which I rely on, indicates there was moisture on the walls. I find that, having observed moisture on the walls, the inspector should have proceeded further by either using a moisture meter or some other means and consequently there was gross negligence on behalf of the defendant. Exhibit 1 indicates the water damage was four to five years old.
[9] Accordingly, the judge gave judgment for the costs of repair.
[10] The standard by which this court reviews the findings of fact made at trial is one of deference to the judge who saw and heard the witnesses. This means that we do not interfere unless the trial judge made a palpable and overriding error; an error that is plainly seen.[^2] One such error would be reaching a conclusion of fact when there was no evidence to support it. The appeal does not involve my re-weighing the evidence and choosing what to believe. Rather I look to see if there is evidence in support of the finding. If there is such evidence I cannot interfere.
[11] In my opinion, the evidence I have referred to is plainly capable of supporting the finding of the judge. The inspector observed conditions outside the house such that water was being directed toward the foundation and not away from it, making it more probable that water problems would occur. The presence of moisture on the walls is reported in the report and the judge was entitled to prefer the report to the inspector’s oral evidence and to find gross negligence in failing to follow up. The appeal from the finding of negligence is dismissed.
[12] Regrettably, the trial judge did not give any reasons except for the passage quoted above. He did not deal with the debate about when the contract was signed and under what circumstances. The inspector testified that the contract was signed after he had examined the exterior and when they went inside to examine the interior. They stopped and he explained the contract and the fee and the limitation of liability clause to Mr. Celebre and obtained his signature. The respondent testified that there was no such discussion and no signature until after all the inspection was completed. He acknowledged that he was then told of the limitation of liability clause, what the fee would be and he signed. I cannot resolve this issue as I did not see the witnesses. However, I can resolve the appeal without resolving this particular issue, because, even assuming that the contract was signed as described by the appellant, there is a legal issue relating to the enforceability of the limitation of liability clause in the circumstances.
[13] While it is the case that the contract was signed, it does not follow that the limitation of liability clause is enforceable. The contract is one of adhesion, a consumer standard-form, and not the result of negotiation and the circumstances typically are that there is a limited time allowed in the contract of purchase and sale for the buyer to have a home inspection done. The buyer is not normally in the position of being able to have a second inspection done; there simply is not time. At its best for the appellant, this contract was not presented for signature and was not explained until the entire inspection of the exterior had been completed. At that point the buyer is not, in practical terms, able to reject the contract and engage another inspector. The inspector has done much of the work and will expect to be paid for it. There is thus a pressure applied by the practice of delaying the explanation and signature until after much work has been done. This was described by the inspector as his usual practice. It seems to me that this practice is not a fair one. If there are particularly onerous terms in a contract of adhesion, the duty of the inspector is to explain the term at a time and in a manner that gives the customer a real opportunity to refuse and to find an alternate inspector.
[14] Counsel for the appellant drew my attention to another case[^3] involving the appellant company, in which Coo J. of this court at trial enforced the limitation of liability clause and reduced the damages to the amount of the fee. That case, however, was not the same as this one. The court rejected the plaintiff’s claim that there had been a prior oral agreement that governed the relationship. Significantly, the trial judge found that the contract was “…signed by the plaintiff before any real work was done by the inspector and as a clear and unequivocal condition of there being any inspection at all.” That is not our case, and the emphasis placed by the judge in the quoted passage reinforces the importance of a timely explanation and execution of the contract.
[15] A contract is fundamentally breached when the result of the breach is to deprive the innocent party of all or substantially all of the benefit contracted for[^4]. The respondents did not contract for or expect to receive a warranty that the house was well built, or a form of insurance. They contracted for a competent inspection of the house so that they could decide to accept the purchase as written, bargain for a price reduction if defects were found, or abandon the purchase altogether. The trial judge has found gross negligence in the manner of inspection. The respondents did not receive the only thing they bargained for.
[16] The leading case on the effects of fundamental breach is Syncrude[^5] where the Court decided that an exclusion of liability could be enforceable even in the face of a fundamental breach. As Wilson J. said, the court must consider whether:
“… in the context of the particular breach which had occurred it was fair and reasonable to enforce the clause in favour of the party who had committed that breach even if the exclusion clause was clear and unambiguous.” Later, she continued: “In particular, the circumstances surrounding the making of a consumer standard-form contract could permit the purchaser to argue that it would be unconscionable to enforce an exclusion clause.” And: “I believe however, that there is some virtue in a residual power residing in the court, to withhold its assistance on policy grounds in appropriate circumstances.”
[17] The finding that the breach is fundamental is not in itself a basis for refusing to enforce the limitation clause. It opens the door to a consideration of whether to enforce the exclusion of liability clause not only in respect of the circumstances of the making of the contract containing the clause, but also in the light of the subsequent breach.[^6] The contract may be enforced as written unless the circumstances are such that it would be unconscionable, unfair, unreasonable or contrary to public policy to do so.
[18] The limitation of liability clause is clear and applicable to the work done. However, in my view it would be unfair to enforce it in the circumstances. The explanation of the limitation of liability clause was delayed until much work had already been done, placing the respondents in an unfair position, and the breach deprived them of the entire benefit of the contract.
[19] For these reasons, the appeal is dismissed. Submissions as to costs may be made in writing but only after the parties have attempted to settle them.
Lane J.
DATE: July 17, 2007
[^1]: Evidence of Mr. El Hoda transcript page 19. [^2]: Housen v Nikolaisen, [2002] S.C.R. 235; paragraphs 8 – 12; 23, 26. [^3]: John Di Santo v Amerispec Home Inspection Service March 7, 2003 S.C.J. file 01-CV-210571CM. [^4]: See: Fraser Jewellers (1982) Ltd. v Dominion Electric Protection Co. (1997), 34 O.R. (3rd) 1 (Ont. C.A.); Dupont Canada Inc. v. Prodigy Colour Systems Inc. 2001 CarswellOnt 844 (S.C.J.) [^5]: Syncrude Canada Ltd. v. Hunter Engineering Co. (1989), 57 D.L.R. (4th) 321 (S.C.C.) at 376 [^6]: See: Shelanu Inc. v Print Three Franchising Corp. (2003), 64 O.R. (3rd) 533 (Ont. C.A.) paras. 30-35