CITATION: Yarco Developments Inc. v. Home Construction Regulatory Authority (Registrar), 2024 ONSC 93
DIVISIONAL COURT FILE NO.: 22-573
DATE: 20240108
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Backhouse, Gomery, and Nishikawa JJ
BETWEEN:
REGISTRAR, HOME CONSTRUCTION REGULATORY AUTHORITY
Appellant
– and –
YARCO DEVELOPMENTS INC.
Respondent
– and –
LICENCE APPEAL TRIBUNAL and ATTORNEY-GENERAL OF ONTARIO
Intervenors
Demetrios Yiokaris for the Registrar, Home Construction Regulatory Authority
Jack Lloyd for Yarco Developments Inc.
Emtiaz Bala and Shayna Levine-Poch for the Attorney General of Ontario
Douglas Lee for the Licence Appeal Tribunal
HEARD in Toronto: September 13, 2023
JUDGMENT
Justice Sally Gomery
[1] The New Home Construction Licensing Act, 2017, S.O. 2017, c. 33 (the "New Licensing Act") requires that companies and individuals seeking to build and sell new homes in Ontario be licensed by the Home Construction Regulatory Authority. In 2021, Yarco Developments Inc. (“Yarco”) applied to renew a licence it had obtained under earlier legislation. The Registrar of the Home Construction Regulatory Authority advised that it intended to deny Yarco’s application based on the criminal record of the company’s sole owner, officer and director. Yarco appealed this decision to the Licence Appeal Tribunal. In a September 6, 2022, decision (the “Decision”), the Tribunal concluded that Yarco met the licensing criteria. Among other things, it found that the evidence before it afforded reasonable grounds for belief that Yarco’s business would be carried on “in accordance with the law and with integrity and honesty” as required under s. 38(1)(b)(iii) of the New Licensing Act. The Registrar sought reconsideration, which the Tribunal denied in a second decision on December 14, 2022 (the “Reconsideration Decision”).
[2] The Registrar appeals the Tribunal’s Decision to this court. It argues that the Tribunal erred in law in its interpretation of the integrity and honesty criterion at s. 38(1)(b)(iii) of the New Licensing Act. The Registrar requests that the Tribunal’s Decision be set aside and asks that the Court affirm the Registrar’s denial of Yarco’s application or, in the alternative, that it remit the appeal of the Registrar’s decision to a different panel of the Tribunal for a new hearing.
[3] Yarco contends that the Tribunal did not err in interpreting s. 38(b)(iii) of the New Licensing Act and that the past criminal conduct of the Respondent corporation’s owner is an insufficient basis to deny a renewal of its licence. It asks that the appeal be dismissed.
[4] The Attorney General of Ontario obtained leave to intervene on the appeal. It points out that 70 statutes and regulations in Ontario contain similar integrity and honesty provisions. It contends that the Tribunal’s interpretation in this case is inconsistent with how other gatekeeping legislation has been interpreted and that it will have serious consequences for the regulation of a wide range of professions, businesses, and products.
[5] For the reasons that follow, I am of the view that the appeal should be granted, the Decision should be set aside, and Yarco’s appeal of the Registrar’s decision ought to be remitted back to the Tribunal for consideration by a different panel.
Applying for a licence under the New Licensing Act
[6] Further to s. 37(2) of the New Licensing Act, no person “shall act or hold oneself out as a builder, offer to construct a new home or construct a new home unless the person is licenced as a builder and meets the other prescribed requirements, if any”. The criteria for a company to obtain or renew a licence are set out at s. 38(1):
Application for licence
38 (1) An applicant is entitled to a licence or a renewal of a licence by the registrar if, in the registrar’s opinion,
(b) the applicant is a corporation and,
(i) having regard to its past and present financial position and the past and present financial position of all interested persons in respect of the corporation, the applicant can reasonably be expected to be financially responsible in the conduct of its business,
(ii) having regard to the past and present financial position of its officers and directors and of all interested persons in respect of its officers and directors, the applicant can reasonably be expected to be financially responsible in the conduct of its business,
(iii) the past and present conduct of its officers and directors, of all interested persons in respect of its officers and directors and of all interested persons in respect of the corporation affords reasonable grounds for belief that its business will be carried on in accordance with the law and with integrity and honesty, and
(iv) no officer or director of the corporation has made any false statement with respect to the conduct of the applicant’s business;
(c) neither the applicant, nor any interested person in respect of the applicant, has carried on or is carrying on activities,
(i) that are in contravention of this Act or the regulations, or that will be in contravention of this Act or the regulations if the applicant is issued a licence, or
(ii) that are in contravention of prescribed legislation, or that will be in contravention of prescribed legislation if the applicant is issued a licence;
(d) the applicant is not in breach of a condition of the licence, if the applicant is applying for a renewal of a licence;
(e) the applicant meets the prescribed requirements, if any, including requirements for competency;
(f) the applicant or, if the applicant is a corporation, its directors, officers and other prescribed persons, have complied with all tax laws and regulations that are prescribed; and
(g) granting the licence or the renewal, as the case may be, would not be contrary to the public interest.
[7] The form and content of an application for licence or licence renewal is prescribed by Applications for Licences, O. Reg. 631/20. When considering an application, the Registrar may seek further information from the applicant under s. 40(5) of the New Licensing Act. The Registrar may also obtain information about the applicant’s financial position from Tarion Warranty Corporation under s. 38(3) and (4). (Tarion was responsible for the licensing of new home builders and vendors in Ontario under the predecessor Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31, (the “ONHWPA”), prior to the creation of the Home Construction Regulatory Authority under the New Licensing Act. Tarion remains responsible for administering the warranty provisions that attach automatically to new houses sold in Ontario.)
[8] A licence may be denied if, “in the registrar’s opinion, the applicant or licensee is not entitled to a licence under subsection 38(1)”: s. 40(1). Under s. 40(6), the Registrar may also deny a licence to an applicant who fails or refuses to provide requested information. Prior to denying an applicant for a new licence or a renewal either under s. 40(1) or 40(6), however, the Registrar must give notice to the applicant under s. 43. The notice sets out the reasons for the Registrar’s proposed action and advises the applicant of their right to seek a hearing before the Licence Appeal Tribunal. Following a hearing, the Tribunal may issue an order directing the Registrar to proceed with the proposed denial, or it may substitute its opinion for that of the Registrar: s. 43(8).
Yarco’s application for licence renewal in 2021
[9] Yarco is owned by Manoharan Subramaniam, who is also the company’s sole director and officer. In 2018, Yarco obtained a licence to build and sell new homes from Tarion under the ONHWPA. After getting this licence, however, Yarco did not register any homes with Tarion nor did it provide any security to Tarion for any construction projects.
[10] In 2021, Yarco applied to the Home Construction Regulatory Authority for a renewal of its licence. On January 28, 2022, the Registrar advised Yarco in writing advising that it intended to deny its application (the “Notice of Proposal”). In the Notice of Proposal, the Registrar noted that Subramaniam had been convicted of 22 offences between August 2007 and August 2010, including fraud over $5,000; possession of instruments for falsifying credit cards; using documents in someone else’s name; possession of and unauthorized use of credit card data; possession of a credit card forgery device; and using counterfeit money. Subramaniam was also found to have breached various recognizances, probation orders and a conditional order, and to have obstructed a police officer. He received short custodial sentences for some offences and served two one-year conditional sentences for others, as well as extended probation periods.
[11] In the Notice of Proposal, the Registrar advised that it considered Yarco’s history, including Subramaniam’s criminal record, in determining the company’s entitlement to licence renewal. It concluded that renewing Yarco’s licence was contrary to the public interest on two grounds:
(1) “Under s. 38(1)(a)(i) of the [New Licensing Act], in the Registrar's opinion, it has not been demonstrated that having regard to the past and present financial position of the Applicant, all interested persons in respect of the Applicant can be reasonably expected to be financially responsible in the conduct of business”; and
(2) “Under section 38(1)(b)(iii) of the [New Licensing Act], in the Registrar's opinion, it has not been demonstrated that having regard to the past and present conduct of the officers, directors or interested persons, as applicable, of the Applicant, that the Applicant can be reasonably expected to carry on business in accordance with the law and integrity and honesty”.
[12] After receiving the Registrar’s Notice of Proposal, Yarco applied for a Tribunal hearing.
The Licence Appeal Tribunal’s decisions
[13] In its September 6, 2022 Decision, reported at 2022 84678 (ON LAT), Adjudicator Osterberg held that the Tribunal needed to consider four issues in determining whether Yarco’s licence should be renewed:
(1) whether Yarco and its owner, Subramaniam, could reasonably be expected to be financially responsible in the conduct of their business according to ss. 38(1)(b)(i) and (ii) of the New Licensing Act.;
(2) whether Subramaniam’s past conduct affords reasonable grounds to believe that Yarco would carry on its business in accordance with the law and with integrity and honesty according to s. 38(1)(b)(iii) of the Act.;
(3) whether renewing Yarco’s licence would be contrary to the public interest according to s. 38(1)(g) of the Act;
(4) if a licence were granted, whether any conditions should attach to it.
[14] The Adjudicator found in Yarco’s favour on the first three issues and directed the Registrar to grant it an unconditional licence.
[15] With respect to the integrity and honesty provision, the Adjudicator held at para. 14 of its Decision that Yarco would “be entitled to a renewal of its licence if there are reasonable grounds for belief that its business will be carried on in accordance with the law and with integrity and honesty”. Accordingly, the “onus on appeal is on the Registrar to show that a licence should not be renewed” under s. 38(1)(b)(iii); Decision, at para. 17. The Adjudicator based this conclusion in his reading of the wording of s. 38(1)(b)(iii), especially when contrasted with the wording of s. 7(1) of the ONHWPA, which it replaced. The relevant text of the old and new provisions are as follows:
Ontario New Home Warranties Plan Act – ss. 7(1)(b) & 7(1)(c)(ii)
New Home Construction Licensing Act – s. 38(1)(b)(iii)
7 (1) An applicant is entitled to registration by the Registrar except where, […]
(c) the applicant is a corporation and,
(ii) the past conduct of its officers or directors affords reasonable grounds for belief that its undertakings will not be carried on in accordance with law and with integrity and honesty
38 (1) An applicant is entitled to a licence or a renewal of a licence by the registrar if, in the registrar’s opinion, […]
(b) the applicant is a corporation and,
(iii) the past and present conduct of its officers and directors, of all interested persons in respect of its officers and directors and of all interested persons in respect of the corporation affords reasonable grounds for belief that its business will be carried on in accordance with the law and with integrity and honesty
[16] At para. 15 of the Decision, the Adjudicator held that: “The ONHWPA "reasonable grounds for belief" test applied to whether the Registrar has proven the appellant will not carry out its undertakings as required. Under the current Act, the "reasonable grounds for belief" test applies to whether the appellant has proven that its business will be carried on as required.”
[17] The Adjudicator reviewed Subramaniam criminal convictions, described at length in a 2010 decision of the Immigration and Refugee Board of Canada. Subramaniam distributed $400,000 to $500,000 in the largest counterfeit operation in Canadian history. After being arrested for his role in the operation, he embarked on a new criminal scheme, unlawfully extracting data from debit cards used by customers at automatic teller machines, then transferring the data to new debit cards which were then used to take money from the customers' bank accounts. Subramaniam was also convicted of using false names at least twice when dealing with the police, and violating bail conditions, including possession of credit cards not in his name.
[18] Despite this criminal record, the Immigration and Refugee Board stayed an order deporting Subramaniam to Sri Lanka, provided that he complied with the terms of his parole. In October 2015, the Board issued a one page decision ordering that the Removal Order be set aside on the basis that Subramaniam had complied with the terms. Subramaniam became a Canadian citizen in 2022. At the Tribunal hearing, he testified that he had not been charged with any further offences since 2010, and that he had worked for the past ten years at his wife’s automobile body shop. Subramaniam completed the training required by Tarion for the purposes of registration as a home builder and seller in 2017. No complaints or concerns had been expressed in relation to that registration since then.
[19] The Adjudicator noted that the New Licensing Act is consumer protection legislation, and that past criminal convictions may be relevant in determining whether there is reason to believe that a business will be carried out with integrity and honesty and in accordance with the law. He observed, however, that a criminal record may not, in of itself, preclude an applicant from obtaining a licence, especially if the record is dated: Ontario v. Mander, 2018 ONSC 1795 (Div. Ct.).
[20] After reviewing the evidence regarding Subramaniam’s conduct since 2010, the Adjudicator concluded that Subramaniam’s past and present conduct afforded reasonable grounds for belief that the appellant’s business would be carried on in accordance with the law and with integrity and honesty. While he recognized the offences that Subramaniam committed were serious and relevant to Yarco’s entitlement to a licence, he noted that they had all been committed over a short period of time over 15 years earlier. The Adjudicator was impressed by Subramaniam’s testimony at the hearing and by the fact that he had not lied about his criminal past in his application for licence renewal, writing at para. 37 that:
As noted above, Subramaniam answered the application's questions dealing with his criminal history honestly. The evidence of the witnesses presented by the Registrar was that Subramaniam's criminal history would likely not have become known to it had he not disclosed that history in the application. In my view, the fact that Subramaniam was forthright in providing information about his criminal history in the application speaks positively to his honesty and the likelihood that he and the appellant would act with honesty and integrity in the future.
[21] The Adjudicator accepted Subramaniam’s testimony that he had turned his life around, that he had acted as a law-abiding, contributing member of the community for over a decade, and that he undertook to continue to do so in the future.
[22] The Adjudicator likewise found that the Registrar had failed to show that Yarco and Subramaniam would not be financially responsible, given Subraminiam’s uncontradicted evidence that he held large commercial mortgages with two banks, had a good credit rating, had never declared bankruptcy or failed to pay debts as they became due, and had been employed for more than ten years earning good income.
[23] Finally, the Adjudicator held that, under s. 38(1)(g), the onus was on the Registrar to prove, on a balance of probabilities, that granting a licence was not in the public interest; Decision, paras. 42 and 43. At para. 45 of the Decision, he concluded that the Registrar had not done so.
[24] The Tribunal accordingly substituted its opinion for that of the Registrar, set aside the Notice of Proposal, and directed the Registrar to renew Yarco’s licence as a vendor and builder under the New Licensing Act.
[25] The Registrar asked the Tribunal for reconsideration of the Decision. Its principal argument was that the Adjudicator had interpreted the integrity and honesty provision at s. 38(1)(b)(iii) in a way inconsistent with the legislator’s intent, the statutory framework, and previous Tribunal decisions, and that this error of law gave rise to an unreasonable outcome.
[26] In his Reconsideration Decision released on December 14, 2022 (reported at 2022 120031 (ON LAT)), the Adjudicator rejected these arguments.
[27] The Adjudicator held that the words in s. 38(1)(b)(iii) of the New Licensing Act are unambiguous. He emphasized that, on a plain reading of the section, the test to be applied under the New Licensing Act is different than that under s. 7(1) of the ONHWPA. On his reading, the shift from negative wording in s. 7(1) of the ONHWPA to positive wording in s. 38(1)(b)(ii), and the reference to both past and present conduct in the New Licensing Act, mandated a broader examination of an applicant’s conduct. The Adjudicator denied that his interpretation of the integrity and honesty criterion would make it harder for the Registrar to withhold a licence than it had been under the ONHWPA, noting that the New Licensing Act had other provisions which “appear to make it harder for an applicant to qualify for licensing”; Reconsideration Decision, para. 20. He also denied that, in interpreting s. 38(1)(b)(iii), he mistakenly imposed a balance of probabilities standard instead of a less onerous reasonable grounds for belief standard.
[28] The Adjudicator concluded that the Registrar had not shown that the Tribunal’s interpretation of s. 38(1)(b)(iii) of the Act was wrong in law. He also rejected the Registrar’s contention that the Decision contained errors of fact and that the Tribunal had not provided the Registrar with notice of its intended interpretation of the New Licensing Act.
The standard of review on this appeal
[29] Under s. 11(1) and (2) of the Licence Appeal Tribunal Act, 1999, S.O. 1999, c 12, Sched. G, a party may appeal Tribunal decisions to this court under the New Licensing Act on questions of law, fact, or mixed law and fact.
[30] The interpretation of the New Licensing Act is a question of law. The standard of review on a question of law is correctness: Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, [2019] 4 S.C.R. 653, at para. 37, citing Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 8.
[31] The application of the licensing provisions to Yarco’s application for licence renewal is a question of mixed law and fact. The court may not intervene on a question of fact or mixed law and fact absent a palpable and overriding error: Vavilov, at para. 37, citing Housen, at paras. 10, 19 and 26-37.
Did the Tribunal err in interpreting s. 38(b)(iii)?
[32] In my view, the Adjudicator erred in law in his interpretation of s. 38(b)(iii). He failed to take the modern approach to statutory interpretation and, as a result, mistakenly concluded that the onus is on the Registrar to disprove an applicant’s qualification for licensing based on integrity and honesty criteria, on a standard inconsistent with the “reasonable grounds for belief” test.
[33] Courts and tribunals are required to interpret laws as remedial and to give a statute “such fair, large and liberal interpretation as best ensures the attainment of its objects”: Legislation Act, 2006, S.O. 2006, c. 21, Sched. F., s. 64(1). This is particularly important in interpreting consumer protection law such as the New Licensing Act.
[34] Using the modern approach, statutory interpretation “cannot be founded on the wording of the legislation alone”: Rizzo & Rizzo Shoes Ltd. (Re), 1998 837 (SCC), [1998] 1 S.C.R. 27, at para. 27. A literalist approach “presupposes the impossible — that meaning can in fact be constructed in the absence of context”; Ruth Sullivan, The Construction of Statutes, 7th ed. (Markham: LexisNexis, 2022), §3.02, s 5. Looking at the words of a statutory provision in isolation is not “permissible or helpful”: Rooney v. ArcelorMittal S.A., 2016 ONCA 630, at para. 21.
[35] In order to discern the meaning of a statute, a court or tribunal must consider the legislative scheme, the legislator’s object or intent, and the context of the words at issue: Rizzo, at para. 23; Rooney, at paras. 13, 18, and 21. These principles were reiterated recently by the Supreme Court of Canada in La Presse inc. v. Quebec, 2023 SCC 22. Quoting E. A. Driedger, Construction of Statutes (2nd ed. 1983), at p. 87, Chief Justice Wagner directed that “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”; La Presse, at para. 22.
[36] Contrary to these principles, the Adjudicator focused on what he viewed as the literal meaning of certain words in s. 38(1)(b)(iii), instead of reading the text in the context of the statutory framework as a whole and with due consideration to the objects of the New Licensing Act. He interpreted s. 38(1)(b)(iii) primarily by contrasting its wording with the language in ss. 7(1) (b) and (c) of the ONHWPA, writing at paras. 14 and 15 of the Decision:
Pursuant to s. 7(b) and (c) of the ONHWPA, an applicant was entitled to registration except where past conduct afforded reasonable grounds for belief that its undertakings would not be carried out in accordance with law and with integrity and honesty.
The ONHWPA "reasonable grounds for belief" test applied to whether the Registrar has proven the appellant will not carry out its undertakings as required. Under the current Act, the "reasonable grounds for belief" test applies to whether the appellant has proven that its business will be carried on as required.
[37] Having concluded that the text was plain and unambiguous, he did not consider how its meaning was informed by other considerations. Aside from reviewing the wording of predecessor legislation, the Adjudicator’s only reference to legislative intent was his acknowledgement, at paras. 27 and 28 of the Decision, that the New Licensing Act is consumer protection legislation, the purpose of which is to protect homebuyers.
[38] When asked by the Registrar to reconsider his interpretation, the Adjudicator reaffirmed that he was bound by the wording of s. 38(1)(b)(iii), reiterating at paras. 19 and 25 of the Reconsideration Decision that its words are unambiguous on their face. The Registrar argued that the clear legislative intent of the New Licensing Act was to improve consumer protection and strengthen the regulation of new home builders and vendors. This did not persuade the Adjudicator to revisit his interpretation because, in his view, it was “not open to the Tribunal to interpret the Act in a manner that has the effect of re- writing the Act in the way that the Registrar argues it should”; Reconsideration Decision, at para. 19. He again highlighted how the wording in the provision differed from the wording in s. 7(1) of the ONHWPA. In particular, he emphasized that s. 38(1)(b)(iii) refers to what an applicant will do as opposed to what it will not do. Based on the wording differences, he held that the Tribunal was not bound by past decisions on licensing under the ONHWPA.
[39] The Adjudicator justified his textual approach by citing Blue Star Trailer Rentals Inc. v. 407 ETR Concession Company Limited, 2008 ONCA 561, at para. 24, for the proposition that “it makes sense to start by examining the ordinary meaning or meanings of the words being interpreted”. As the Court of Appeal emphasized at paras. 23 to 25 of Blue Star, however, discerning the ordinary meaning of the words in a text is only the beginning of the interpretive exercise. Meaningful statutory interpretation requires an examination of not only the language of a provision, but its context and the purpose of the legislation or overall statutory scheme.
[40] The Supreme Court has repeatedly warned that failing to test an initial impression of meaning based on isolated language in statutory text may lead an adjudicator to overlook latent ambiguity, writing at para. 23 of La Presse that:
[T]he plain meaning of the text is not in itself determinative and must be tested against the other indicators of legislative meaning — context, purpose, and relevant legal norms (R. v. Alex, 2017 SCC 37, [2017] 1 S.C.R. 967, at para. 31). The apparent clarity of the words taken separately does not suffice because they “may in fact prove to be ambiguous once placed in their context. The possibility of the context revealing a latent ambiguity such as this is a logical result of the modern approach to interpretation” (Montréal (City) v. 2952-1366 Québec Inc., 2005 SCC 62, [2005] 3 S.C.R. 141, at para. 10).
[41] The hasty adoption of a plausible interpretation based on the perceived plain meaning of a text may lead to a plausible but inferior reading, inconsistent with true legislative intent: Vavilov, at para. 121.
[42] In my respectful view, the Adjudicator fell into these interpretive traps. He based his interpretation of s. 38(1)(b)(iii) based on his understanding of some of the wording of the provision without testing it in a meaningful way against other indicators of legislative meaning. For reasons explained more fully below, this resulted in an interpretation that is wrong in law.
[43] Yarco argues that the Adjudicator was correct in interpreting s. 38(1)(b)(iii) as he did, based on the replacement of negative language in s. 7(1) of the ONHWPA (“the past conduct of its officers or directors affords reasonable grounds for belief that its undertakings will not be carried on in accordance with law and with integrity and honesty”) with the positive language in s. 38(1)(b)(iii) (“the past and present conduct of its officers and directors, of all interested persons in respect of its officers and directors and of all interested persons in respect of the corporation affords reasonable grounds for belief that its business will be carried on in accordance with the law and with integrity and honesty”.) The Adjudicator also found it significant that s. 7(1) referred only to past conduct, whereas s. 38(1)(b)(iii) refers to both past and present conduct.
[44] In my view, the use of positive as opposed to negative language and the reference to both past and present conduct is immaterial to the interpretation of a provision such as s. 38(1)(b)(iii).
[45] Courts and tribunals have routinely considered both an applicant’s past and present conduct whether or not both are explicitly mentioned in the governing statute. In Asadi v. Registrar, Real Estate and Business Brokers Act, 2014 ONSC 6517 (Div. Ct.), the Divisional Court granted an appeal of a Tribunal decision on the basis that it applied a balance of probabilities standard instead of a reasonable grounds for belief standard in considering whether a real estate licence should be issued to an applicant. Although the licencing legislation at issue referred only to past conduct, the court held at para. 10 that present conduct could also be relevant, writing: “[W]hile past conduct can provide the necessary basis for reasonable grounds for belief, it does not have to. That conduct must be weighed against any evidence of the respondent’s more recent circumstances, including any evidence that would point to the fact that the conduct of concern will not be repeated”.
[46] With respect to the positive/negative language distinction, it would be absurd to find that the Registrar could legitimately deny licensure to an applicant whom the Registrar believed would not act with integrity, honesty, and in accordance with the law, but that the Registrar would be compelled to grant licensure to the same applicant simply because s. 38(1)(b)(iii) expresses this qualification in positive language. Any criteria framed in the negative can be reframed in positive terms and vice versa. This should have no impact on the gatekeeping purpose or function.
[47] As the Attorney General points out in their submissions, there are currently integrity and honesty provisions in at least 70 Ontario statutes and regulations providing for the assessment of the qualifications of persons for various professions, trades, or activities. Some are framed in positive language, some use negative language, and a few contain both. Some of them explicitly reference both past and present conduct, while others do not. Regardless of these wording differences, courts and tribunals have recognized that all these gatekeeping provisions have the same purpose and function and read them consistently to permit the gatekeeper to deny certification or licensure on a “reasonable grounds for belief” standard. Where gatekeeping criteria are framed in negative terms, courts and tribunal have frequently restated the test in positive terms: see, for example, Ontario Alcohol and Gaming Commission v. 751809 Ontario Inc. (Famous Flesh Gordon’s), 2013 ONCA 157, at para. 26; Registrar, Motor Vehicle Dealers Act v. Unity-A-Automotive, 2009 67420 (Div. Ct.), at paras. 20 and 23; and Filion v. Registrar, Alcohol, Cannabis and Gaming, 2021 48109 (LAT), at para. 33.
[48] Finally, I find that the Adjudicator’s interpretation of the onus requirement under s. 38(1)(b)(iii) was incorrect.
[49] First, at para. 15 of the Decision, the Adjudicator found that the reasonable grounds to believe standard applied to what Yarco, not the Registrar, had to prove. This has no support in any other interpretation of licensing regimes and has the effect of flipping the gatekeeping function on its head.
[50] Second, the Adjudicator held that Yarco was entitled to renewal of its licence and that the onus is on the Registrar to prove that a licence should not be renewed. At para. 30 of the Reconsideration Decision, the Adjudicator denied that his interpretation had the effect of imposing a balance of probabilities standard on the Registrar. At para. 24 of the Reconsideration Decision, however, he formulated the question to be determined as whether “a review of all of the past and present conduct, when considered as a whole, affords reasonable grounds for belief that the business will be carried on as required”. As will be discussed further below, the reasonable grounds for belief standard does not require a regulator to weigh all evidence as a whole, but simply to reach an opinion based on compelling and credible information. I accordingly conclude that the Adjudicator did in fact require the Registrar to prove Yarco’s ineligibility under s. 38(1)(b)(iii) on a balance of probabilities standard.
[51] In my view, the Adjudicator’s errors led to an interpretation clearly inconsistent with the intent of the New Licensing Act, that is, the enhancement of consumer protection and strengthening of the licensing regime. The purchase of a home is generally the single biggest purchase that a person will ever make. It usually involves a very significant and long term, financing commitment. A home should provide safe and reliable shelter to individuals and families. This is compromised if the home is built shoddily or with substandard or hazardous materials. For these reasons, home buyers suffer terrible financial and human costs if the builder or seller acts dishonestly or unlawfully. Through the New Licensing Act, the Ontario legislature has reaffirmed the need to protect consumers who purchase and live in new homes. An aspect of this protection is ensuring that home builders and vendors of new homes act honestly, with integrity, and according to the law. It would be contrary to this purpose to interpret s. 38(1)(b)(iii) in a way that undermines the Registrar’s gatekeeping role.
[52] For these reasons, I conclude that the Tribunal committed legal errors in its interpretation of s. 38(1)(b)(iii).
What is the proper interpretation of s. 38(1)(b)(iii)?
[53] When s. 38(1)(b)(iii) is read taking into account its wording, its purpose, the surrounding statutory framework, and the legislative intent of the New Licensing Act, I find that it allows the Registrar to deny registration when it believes, based on objective, compelling and credible information about the applicant’s past and present conduct of officers, directors, and other interested parties, that the applicant will not conduct itself in accordance with the law and with integrity and honesty. Where put on notice that the Registrar intends to deny registration based on s. 38(1)(b)(iii), an applicant may seek a hearing for the purpose of presenting evidence that establishes otherwise. This does not impose an onus on the Registrar to prove ineligibility on a balance of probabilities standard. The onus is on the applicant to prove the non-existence of reasonable grounds for belief supporting a denial of licensure.
[54] The analysis of s. 38(1)(b)(iii) begins with the text itself, which I reproduce again here for convenience:
38 (1) An applicant is entitled to a licence or a renewal of a licence by the registrar if, in the registrar’s opinion,
(b) the applicant is a corporation and,
(iii) the past and present conduct of its officers and directors, of all interested persons in respect of its officers and directors and of all interested persons in respect of the corporation affords reasonable grounds for belief that its business will be carried on in accordance with the law and with integrity and honesty.
[55] As already seen, the Adjudicator interpreted this provision to place on the Registrar the onus to disprove an applicant’s entitlement to a licence if there is some evidence that its business will be carried on in accordance with the law and with integrity and honesty. To read the provision this way ignores the language in s. 38(1)(b)(iii) that shows that the legislator intended the Registrar to play a meaningful gatekeeper role.
[56] First, whether an applicant meets the criterion in s. 38(1)(b)(iii) is explicitly a matter of the Registrar’s opinion. This is inconsistent with a reading that places a significant evidentiary onus on the Registrar. Second, the standard for that opinion is “reasonable grounds for belief”. In Mugesera v. Canada (Minister of Citizenship and Immigration), 2005 SCC 40, [2005] 2 S.C.R. 100, [2005] S.C.J. No. 39, at para. 114, the Supreme Court of Canada held that the "reasonable grounds for belief" standard:
[R]equires something more than mere suspicion, but less than the standard applicable in civil matters of proof on the balance of probabilities… .In essence, reasonable grounds will exist where there is an objective basis for the belief which is based on compelling and credible information… . [Citations omitted.]
[57] In the Court of Appeal’s decision in Ontario Alcohol and Gaming Commission, it cited this passage in the context of an appeal on the integrity and honesty criteria for obtaining a liquor licence. At para. 19 it held that the standard required the registrar “simply to show that [the applicant’s] past or present conduct provides reasonable grounds for belief that he will not carry on business in accordance with the law and integrity and honour. The registrar does not have to go so far as to show that [the applicant’s] past or present conduct make it more likely than not that he will not carry on business as required” [emphasis in the original text].
[58] A reading that requires the Registrar to have only reasonable grounds for belief is furthermore consistent with the history of s. 38(1)(b)(iii) and the New Licensing Act more generally, as well as a comparison of the entire scheme to regulate licences under the ONHWPA and the scheme under the New Licensing Act.
[59] The New Licensing Act was enacted based on recommendations made by the Honourable Douglas Cunningham, who was appointed as a special advisor to review the ONHWPA and Tarion in November 2015. According to an Ontario government press release on the appointment, his mandate was to “review protections for owners of new homes and identify opportunities to improve consumer protection measures”. In his final report released in December 2016, the Honourable Cunningham recommended that an overriding objective of new licensing legislation should be consumer protection. To achieve this goal, he proposed the creation of a new regulator with strong compliance and enforcement tools and practices to regulate the new home sector. Recognizing the importance of examining the past conduct of individuals when assessing eligibility for licensing, he recommended that the new regulator be given a broader mandate.
[60] Following these recommendations, the New Licensing Act was enacted and came into force in February 2021 through Bill 166, Strengthening Protection for Ontario Consumers Act. Among other things, the Act transferred the responsibility for regulating new home builders and vendors to the newly created Home Construction Regulatory Authority.
[61] Under s. 3(3) of the New Licensing Act, the Home Construction Regulatory Authority is required to “comply with the principles of … promoting the protection of the public interest”. The Registrar was empowered to review not just the past conduct of officers and directors, but the past and present conduct of directors, officers and “all interested persons in respect of the corporation”. It was also empowered to obtain a broader scope of information about applications for licence and licence renewal, and to deny applications if information it requests is not provided. All the criteria in 38(1), unlike those in s. 7(1) of the ONHWPA, are subject to the Registrar’s opinion.
[62] In short, the text, history, purpose, and statutory context of s. 38(1)(b)(iii) all indicate a legislative intent to increase the consumer protection. This supports an interpretation that gives the Registrar the ability to deny a licence or licence renewal where it believes, on some objective basis based on compelling and credible information, that the applicant will not conduct itself with integrity and honesty. The legislative intent is inconsistent with an interpretation that assumes that an applicant will conduct itself appropriately, unless the Registrar can prove otherwise.
[63] An interpretation of s. 38(1)(b)(iii) that gives the Registrar robust gatekeeping powers is supported by the interpretation given to similar integrity and honesty provisions in other regulatory legislation. In Chauhan v. Health Professions Appeal and Review Board and The College of Physicians and Surgeons of Ontario, 2013 ONSC 1621 (Div. Ct.), the Divisional Court considered a registration requirement for medical residents established by way of a regulation to the Health Professions Procedure Code, Schedule 2 to the Regulated Health Professions Act, 1991, S.O. 1991, c. 18. Under the regulation, it was a “non-exemptible standard and qualification for a certificate of registration that the applicant’s past and present conduct afford reasonable grounds for belief that the applicant…will practise medicine with decency, integrity and honesty and in accordance with the law”. Having completed his first year of residency, Dr. Chauhan applied for a certificate for his second year. The application was denied by a registration committee because Dr. Chauhan had been charged, but not convicted, of several serious crimes. The refusal was upheld by the Health Professions Appeal and Review Board, which held that the information about the criminal investigations and charges against Dr. Chauhan justified the committee’s determination that he did not meet the registration requirement and that Dr. Chauhan had not tendered evidence at the registration committee hearing that would prove his qualification under the integrity and honesty provision.
[64] Writing for a unanimous panel, Harvison Young J. (as she then was) concluded that Dr. Chauhan’s application for judicial review of the Board’s decision should be dismissed. At para. 40 of Chauhan, she described the scheme in the regulation as one which “clearly sets the process of registration as part of a gatekeeping function regulating entry to the profession”. At para. 37, she agreed with the Board that, pursuant to the regulation, the onus was on the applicant to satisfy the integrity and honesty requirement in the regulation; there is no presumption of good character. Harvison Young J. noted at para. 52 that practising medicine in Ontario is a privilege, not a right, and that the “application process serves the role of ensuring that there is a reasonable basis that those who are granted this privilege do so with honesty, integrity, and in accordance with the law, so as to not violate that essential position of trust”.
[65] The analysis in Chauhan has been applied in other cases involving integrity and honesty thresholds for registration that are expressed in positive terms; see, for example, J.A. v Ontario (College of Massage Therapists), 2019 3032 (ON HPARB), at para. 69; F.E. v College of Nurses of Ontario, 2019 29058 (ON HPARB), at para. 44; and I.M. v College of Physiotherapists of Ontario, 2017 4198 (ON HPARB), at para. 38. These cases involve the licensing or registration of health care professionals. There is no reason, however, why the Chauhan analysis would not apply to the other gatekeeping schemes such as s. 38(1)(b)(iii) of the New Licensing Act. In all these cases, the overarching purpose of the gatekeeping —protection of the public and ensuring public confidence in a regulated industry — are essential to the regulatory scheme. Being licensed to build and sell new homes in Ontario is a privilege, not a right.
[66] Finally, in the only other case put before the court involving s. 38(1)(b)(iii), the Tribunal held that the integrity and honesty provision in the New Licensing Act should be interpreted consistent with past caselaw under the ONHWPA. In 1957922 Ontario Ltd. v. Registrar, New Home Construction Licencing Act, 2017, 2022 49929 (ON LAT), the Registrar issued a notice advising that the applicant would not be granted a licence. The notice was sent before the New Licensing Act came into force, but transitional rules provided that the applicant’s appeal to the Tribunal was subject to the Act’s provisions. At para. 25 of 1957922 Ontario, adjudicator Kevin Lundy made the following comments about s. 38(1)(b)(iii):
With respect to the ground of honesty, integrity and compliance with the law, in Ontario (Alcohol and Gaming Commission of Ontario) v. 751809 Ontario Inc., the Ontario Court of Appeal found that as a standard of proof, “reasonable grounds for belief” is lower than the “balance of probabilities.” It requires more than mere suspicion and an objective basis for the belief based upon compelling and credible information. The Court of Appeal also noted that when examining past conduct, the Registrar is not limited to the operation of licensee’s business and may consider both criminal and noncriminal conduct. Further, according to CS v. Registrar, Real Estate and Business Brokers Act, 2002, there must be a nexus between the Appellant’s past conduct and its ability to conduct business under the Act serving the interests of the public. [Citations omitted.]
[67] In his Reconsideration Decision, the Adjudicator in the case at bar found 1957922 Ontario irrelevant because, in his view, the integrity and honesty standard ultimately applied was that at 7(1) of the ONHWPA. I agree that the Tribunal’s conclusions in 1957922 Ontario are expressed using the wording of the older legislation. Adjudicator Lundy’s comments are nonetheless relevant since they show that his reading of s. 38(1)(b)(iii) is consistent with my interpretation of it.
[68] For all of these reasons, I conclude that s. 38(1)(b)(iii) of the New Licensing Act confers on the Registrar the power to deny a builders’ licence to a company where the Registrar has reasonable grounds for belief, based on the past and present conduct of the company’s officers, directors, and other interested parties, that it will not conduct itself in accordance with the law and with integrity and honesty. The question that the Tribunal should have addressed is not whether the Registrar could disprove Yarco’s eligibility, but whether the evidence supported the Registrar’s Notice of Proposal.
Should the Court substitute its decision for that of the Tribunal?
[69] The Registrar asks the court to set aside the Tribunal’s Decision and to direct that Yarco’s application for licence renewal be denied. It is certainly entitled to the first order. The question is whether this court should substitute its decision for that of the Tribunal rather than remit the question back to the Tribunal for a further hearing based on these reasons.
[70] Some of the Registrar’s submissions about flaws in the Adjudicator’s approach to the evidence strike me as well-founded. For example, the absence of any complaint to Tarion against Yarco between 2017 and 2021 has no possible relevance, given that Yarco did not register any building or selling of houses during this period. I would also not infer, as did the Adjudicator, that Subramaniam’s disclosure of his lengthy criminal record implies honesty on his part. In his place, I would have assumed that the Registrar would obtain a criminal record check as part of its review of Yarco’s application for renewal.
[71] In the circumstances of this case, however, it would be inappropriate to substitute this court’s assessment for that of the Tribunal. The Tribunal’s hearing, which included viva voce testimony, was not recorded. The court does not even have a complete record of all documentary evidence before the Tribunal.
[72] This court’s guidance on s. 38(1) criteria may furthermore affect the evidence that the parties would wish to present at a Tribunal hearing. This is particularly important in this case because the Registrar was taken by surprise by the Adjudicator’s interpretation of the provision, given the formulation of the question before the Tribunal in a case conference report prior to the hearing. This is why the Registrar sought reconsideration.
[73] In these circumstances, it would be unfair and inappropriate for the court to dispose of this appeal as proposed by the Registrar.
Disposition
[74] I would grant the appeal and remit Yarco’s appeal of the Registar’s Notice of Proposal to the Licence Appeal Tribunal for consideration by a new panel guided by these Reasons. Pursuant to the parties’ agreement, no costs are awarded.
“S. Gomery, J.”
“I agree: N. Backhouse, J.”
“I agree: S. Nishikawa, J.”
Released: January 8, 2024
CITATION: Yarco Developments Inc. v. Home Construction Regulatory Authority (Registrar), 2024 ONSC 93
DIVISIONAL COURT FILE NO.: 22-573
DATE: 20240108
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Backhouse, Gomery, and Nishikawa, JJ
BETWEEN:
REGISTRAR, HOME CONSTRUCTION REGULATORY AUTHORITY
Appellant
– and –
YARCO DEVELOPMENTS INC.
Respondent
– and –
LICENCE APPEAL TRIBUNAL and ATTORNEY GENERAL OF ONTARIO
Intervenors
JUDGMENT
Gomery J.
Date of Release: January 8, 2024