ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 182-03

DATE: 2013-02-15

BETWEEN:

Boyes Homes Inc.
Plaintiff

– and –

Ronald Matthew Payne and Sandra Payne, Bank of Montreal and CIBC Mortgages Inc.
Defendants

Daniel Wyjad, for the Plaintiff

Brian Campbell, for the Defendants, Ronald Matthew Payne and Sandra Payne

HEARD: October 22, 2012

WOOD J.:

[1] Ronald Payne and Sandra Payne (the defendants) have brought two motions. The first in order of priority seeks leave to amend the statement of defence and counterclaim by particularizing a claim against the plaintiff for its failure to properly install a radiant in-floor heating system. The second seeks summary judgment against the plaintiff with respect to the added claim. For the reasons set out below I find that the first motion should be granted and the second motion granted in part.

Background Findings

[2] The plaintiff and the defendants entered into a written contract for the construction of a home on September 19, 2002 at a fixed price of $224,593. Under the terms of the contract the plaintiff was to provide all general contracting services and labour to construct the home. The plaintiff asserts that work was completed on May 27, 2003 and that the house was completed satisfactorily.

[3] The defendants alleged that the plaintiff charged a number of extras that should have been included in the contract. They further contended that there were a number of areas in which the faulty or defective workmanship by the plaintiff or its agents required remedial repairs.

[4] The plaintiff filed a construction lien against the property and commenced this action on August 22, 2003. The action appears to have proceeded at a very leisurely pace, with discoveries not completed until 2009 when a pre-trial was scheduled.

[5] By well before the pre-trial the major issue that had emerged was a defective in-floor radiant heating system. My note on the pre-trial report indicated that the pre-trial was premature and directed the parties to join the sub-contractor who installed the radiant heating system. This was never done.

[6] However in September 2009 the defendants made a claim under the Ontario New Home Warranties Plan Act (the Act). The Act is remedial legislation designed to protect new home owners. It does this by setting up a statutory insurance scheme administered by a corporation (Tarion). A home owner who has a complaint may apply to Tarion for a determination of whether or not the work done on the home complies with the terms of the statutory warranties set out in section 13.

[7] If Tarion determines that the warranties have been breached it may make compensation to the owner within certain statutory limits. If it determines that the warranties have not been breached or that the breaches do not meet the statutory threshold the owner has an appeal as of right to the License Appeal Tribunal, a body created specifically for that purpose. The Tribunal is empowered under section 16(3) and (4) of the Act to hold a hearing joining such parties as it determines are appropriate and to make a determination as to whether the defect meets the statutory threshold. If the Tribunal concludes that it does then the Tribunal may direct Tarion to remedy the defect.

[8] Although Tarion was notified of problems with the heating as early as 2004 no one from that organization attended at the home until September 21, 2009. Following an inspection a Tarion official issued a report on the same date. The conclusion of the report was that Tarion would not assume responsibility for repair because the defendants had altered the system themselves before notifying Tarion thereby violating the terms of the Act.

[9] The defendants appealed this decision to the License Appeal Tribunal. The parties before the Tribunal were Ronald Payne for the defendants, David Boyes as agent for the plaintiff and counsel on behalf of Tarion.

[10] Following six days of testimony and three days of argument, the License Appeal Tribunal found that seven out of the sixteen loops in the radiant heating system were leaking. It further found that the nature of the defects was not obvious and only became apparent over time and with the assistance of tests conducted by experts in the field hired for the purpose. The Tribunal’s conclusion was that the series of defects in work and materials …..“materially and adversely affected the use of the building” and as such amounted to a “major structural defect” as defined in the Act.

[11] Based on this finding the Board ordered that “the homeowners should receive a heating distribution system that complies with the Ontario Building Code”. Tarion appealed the order on the ground that its liability was limited to $100,000.00. This appeal was allowed and the matter was referred back to the Tribunal on the issue of remedy alone, leaving the Board’s findings undisturbed. Tarion subsequently settled the matter with the defendants by paying them $100,000.

[12] The defendants seek additional damages for defective construction of the heating system based on those findings. They also seek leave to amend their statement of defence and counter claim to specifically plead defective workmanship in the construction of the heating system.

[13] The statement of defence and counterclaim as presently filed makes the following claims:

(8) The Paynes state that they are entitled to set off the damages incurred due to the faulty workmanship of the plaintiff as against the amount if any, that this Honourable Court may find due to the plaintiff under the contract.

(16) By way of counterclaim, the Paynes repeat the allegations contained in their statement of defence and claim damages against the plaintiff by counterclaim (sic) for faulty and defective workmanship, which will and has occasioned the Paynes to expend monies for corrective measures.

[14] At paragraph 19 the defendants listed thirteen items that they said the plaintiff had failed to complete or had done so negligently so that repairs or extra work would be required. Although the radiant heating system was not specifically mentioned, paragraph 16(m) provided;

Concrete foundation negligently poured which has caused continuous shifting and the floor to fracture, damages substantial but not yet determined.

The Issues:

[15] The issues to be decided are as follows:

(a) Are the defendants entitled to amend their counterclaim to seek damages specifically for defects in the installation of the radiant heating system?

(b) If the answer to (a) is yes, are the defendants entitled to summary judgment on the issue based upon the decision of the License Appeals Tribunal?

Amendment to the Pleadings:

[16] The defendants seek leave under Rule 26 of the Rules of Civil Procedure to amend the statement of defence and counterclaim to include a specific pleading in paragraph 19 claiming damages for breach of contract or negligence for failing to install a “properly working radiant heating system”. They argue that this should be allowed as the change sought is merely to particularize an item already covered in the pleading.

[17] The rule directs the court to allow amendments at any stage of the proceedings unless “prejudice would result that could not be compensated for by costs or an adjournment”. The defendants argue that the issue of the radiant heating has been at the center of the parties’ dispute since at least 2004 and was the subject of a nine day hearing in which the plaintiff participated as a party. Therefore they say, there can be no prejudice to amending the pleadings to conform with the evidence as it has emerged over the last eight years.

[18] The plaintiff argues that the amendment sought by the defendants is not merely the particularization of something already pleaded but rather the addition of a new cause of action. As such, it argues, the claim is statute barred under the Limitations Act. Its position is that the defendants have known about the heating problem at least since 2004 when they first complained to Tarion. It further argues that to allow the amendment at this stage would cause prejudice that could not be compensated as it is now too late for the plaintiff to join the heating sub-contractor.

[19] The timing of this action leaves some doubt as to whether the limitation period governing new causes of action is six years under the Limitations Act 1990 R.S.O. 1990 c.L.15 or two years under the Limitations Act 2002 S.O. 2002 c.24. However I do not propose to deal with the issue since it is clear from the defendants’ own material that they were aware of problems with the heating system as early as 2003 and are therefore outside either Act’s limitation period.

[20] The question is therefore whether the relief sought is an amendment to the defendant’s existing pleadings or a new cause of action. The former must be allowed unless it causes non-compensable prejudice. The latter may never be allowed. Joseph v Paramount Canada’s Wonderland (2008) 2008 ONCA 469, 90 O.R. (3d) 401 (C.A.) para 28. Frohlick v. Pinkerton Canada Ltd. (2008) 2008 ONCA 3, 88 O.R. (3d) 401(C.A.) para 24.

[21] In Kawartha Lakes (City) v Gendron 2012 ONSC 2035 214 A.C.W.S. (3d) 151 MacDougall J. of this court summed up the approach to be taken to the question as follows:

30 The jurisprudence on this issue requires an analysis as to whether all of the material facts have already been pleaded, and, if so, there is no "new cause of action". In other words, where the factual matrix has not changed, there is no new cause of action. See: Gladstone, Denton, Ivany, and Silveria.

[22] I believe that the approach of the courts in Ontario to this issue supports the following proposition. Where an existing pleading skirts close to dealing with the issue sought to be particularized the surrounding circumstances should be examined to shed light upon the reality of the litigation. Limitation Acts are designed to provide certainty and to protect defendants from being surprised by claims brought forward long after an event has occurred. Where there is notice and no surprise, the purposes of the legislation should be kept in mind when making a finding.

[23] In the useful case of 1309489 Ontario Inc. v. BMO Bank of Montreal 2011 ONSC 5505, 107 O.R. (3d) 384 Lauwers J. reviewed the case law extensively. Having done so he concluded that in deciding Limitations Act questions the court should not take a narrow approach to the question but rather should lean toward ensuring that a cause of action be decided on its merits rather than defeated on technical grounds.

21 In my view, the trend of the cases favours the broader, factually-oriented approach to the meaning of "cause of action" in interpreting and applying rule 26.01: Fitzpatrick Estate v. Medtronic Inc, 1996 8118 (ON SC), [1996] O.J. No. 2439 (Ct. J.) at para. 22; Gladstone v. Canadian National Transportation Ltd., 2009 38789 (ON SCDC), [2009] O.J. No. 3118 (Div. Ct.) at paras. 37-40, 44; Rausch v. Pickering (City), 2010 ONSC 2393, [2010] O.J. No. 1889 (S.C.) at paras. 38-42.

22 This is a more functional approach that is also consistent with a purposive approach to the interpretation of limitations legislation. In Bannon v. Thunder Bay (City) (2000), 2000 5708 (ON CA), 48 O.R. (3d) 1 (C.A.) rev'd on other grounds, 2002 SCC 20, [2002] 1 S.C.R. 716, Doherty J.A. explained at para. 24: [Emphasis added.]

Limitation periods are creatures of statute. Short limitation periods evince a legislative intention to vigorously promote those interests associated with the creation of limitation periods, even at the expense of denying recovery to plaintiffs who have valid claims and have moved with reasonable dispatch to prosecute those claims. The Supreme Court of Canada has, however, made it clear in a number of recent decisions that when interpreting statutory provisions which create limitation periods, even short ones, the court cannot ignore the legitimate interests of potential plaintiffs: M.(K.) v. M.(H.), 1992 31 (SCC), [1992] 3 S.C.R. 6; Murphy v. Welsh, 1993 59 (SCC), [1993] 2 S.C.R. 1069; Peixeiro v. Haberman, 1997 325 (SCC), [1997] 3 S.C.R. 549, supra; Novak v. Bond (1999), 1999 685 (SCC), 172 D.L.R. (4th) 385 (S.C.C.).

[24] Justice Lauwers went on to observe that where the parties have known the issues they are fighting about for some time the court should see that the issue is joined rather than allow one party to escape through a technical defence.

28 I pause to observe that BMO knew without doubt that the "litigation finger" was pointing at it, to borrow an expression from the misnomer cases: Spirito v. Trillium Health Care, 2008 ONCA 762, [2008] O.J. No. 4524, 302 D.L.R. (4th) 654 (C.A.) at para. 5; Ormerod (Litigation guardian of) v. Strathroy Middlesex General Hospital, 2009 ONCA 697, [2009] O.J. No. 4071, 97 O.R. (3d) 321 (C.A.) at para. 14. I share the view of Master Short in Brand Name Marketing Inc. v. Rogers Communications Inc., 2010 ONSC 2892, [2010] O.J. No. 5430 (S.C.) at para. 84:

that if a defendant knows that the "finger of litigation" is pointing in its direction, and an action is commenced on a timely basis based on specific actions, this court ought to take appropriate steps to ensure that the true lis between the parties is addressed, rather than permitting one party to perhaps escape its possible liability by relying upon a technical Limitations Act defence.

[25] In this case negligence on the part of the plaintiff in building the house was clearly pleaded (see paragraph 8 above). Paragraph 19(m) provided specifically:

Concrete foundation negligently poured which has caused continuous shifting and the floor to fracture, damages substantial but not yet determined.

[26] The exact cause of the radiant heating system’s failure remains in dispute. However the faulty component consists of loops of (leaking) plastic pipe embedded in the concrete floor. Movement of that floor may well have a great deal to do with the failure of the system. The defendant’s should at least be allowed to advance that theory. In addition, there is no question that the plaintiff has known since at least 2005 that the “litigation finger” was pointing at it with respect to the heating system.

[27] In my view a finding that particularizing one of the several problems with the concrete pad already pleaded, and known to the parties would constitute a new cause of action would be ludicrous.

[28] In the circumstances of this case I find that the defendants’ allegation of negligence in the construction of the concrete pad which encased the heating system, is a sufficient statement of the “material facts” upon which they rely to support the requested particularization. I therefore find that the requested addition is an amendment to make the pleadings conform to facts discovered in the course of litigation, and not a new cause of action.

[29] I further find that the plaintiff is not irredeemably prejudiced by allowing the amendment. It has known of the problems with the radiant heating system for eight years now. It was urged at a pre-trial that the heating contractor be joined. The plaintiff chose not to do so. It cannot therefore now claim prejudice. The amendment sought to the statement of defence and counterclaim should therefore be allowed.

Are the defendants entitled to summary judgment?

[30] The defendants seek summary judgment against the plaintiff for the cost of repairing the heating system. They base this claim on the fact that The Licence Appeals Tribunal established under the Ontario New Home Warranties Act found that the deficiencies in the system amounted to a major structural defect as defined in the Act and ordered Tarion, the administrator of the warranties to make good the deficiencies. This they say was a final decision on the same issue, between the same parties by a judicial tribunal and as such has finally decided the issue.

[31] In the recently released decision of the Court of Appeal in Metropolitan Toronto Condominium Corporation No. 1352 v. Newport Beach Development Inc. 2012 ONCA 850 Laskin J.A. confirmed that a decision by Tarion or the Licence Appeal Tribunal can constitute a decision giving rise to issue estoppel and thus forming the basis for a summary judgment provided that such a decision meets the requirements set out by Binnie J. in the Supreme Court of Canada decision in Danyluk v. Ainsworth Technologies Inc. 2011 SCC 52, 2011 S.C.C. 52 (Can LII)

[34] It is now well accepted that a decision made by an administrative tribunal or officer can give rise to issue estoppel: see Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, 2001 SCC 44, [2001] 2 S.C.R. 460; British Columbia (Workers’ Compensation Board) v. Figliola, at para. 27. Tarion, though a private corporation, was established under a statute to administer a legislative regime. The decision of a Tarion field claim representative, acting as an administrative officer, may therefore be subject to the operation of issue estoppel.

[35] However, as Binnie J. emphasized in Danyluk, at para. 33, the underlying purpose of issue estoppel is to balance the public interest in the finality of litigation against the public interest in ensuring justice is done in a particular case. This balancing requires the court to undertake a two-step analysis. At the first step, the court determines whether the moving party – here Newport – has established the preconditions to the application of issue estoppel. If it has, at the second step, the court determines, in its discretion, whether issue estoppel ought to be applied or whether applying it would work an injustice.

[36] The preconditions for applying issue estoppel are well-established: see Angle v. Minister of National Revenue, 1974 168 (SCC), [1975] 2 S.C.R. 248; Danyluk, at paras. 35-61. To apply issue estoppel to Metro 1352’s civil action, Newport had to establish that:

• Tarion decided the same question or issues now raised in the action;

• Tarion’s decisions were judicial decisions;

• Tarion’s decisions were final decisions; and,

• The parties or their privies to Tarion’s decisions were the same persons as the parties or their privies to the civil action.

[32] Applying the test to the facts of this case I make the following findings.

Did The License Appeal Tribunal decide the same question or issue as that raised in this litigation?

[33] The License Appeal Tribunal found that seven out of the sixteen loops in the radiant heating system were leaking. It further found that the nature of the defects was not obvious and only became apparent over time and with the assistance of tests conducted by experts in the field hired for the purpose. The tribunal’s conclusion was that the “series of defects in work and materials… materially and adversely affected the use of the building”, and as such amounted to a “major structural defect” as defined in the Act. It made these findings after hearing six days of evidence dealing exclusively with the defects in the heating system.

[34] In finding that the problems with the system amounted to a “major structural defect” as defined in the Act the Tribunal ruled that the plaintiff had breached the implied warranty under the section 13(1)(b) of the Act that the home would be free of major structural defects.

[35] The pleadings as amended seek a finding that the plaintiff “failed to install a proper radiant in floor heating system”. I am satisfied that a finding that the system as installed was so defective as to amount to a major structural defect answers the same question as would a finding that the plaintiff had failed to install a proper radiant in floor heating system.

Was the decision by the License Appeal Tribunal a “judicial” decision?

[36] The answer to this question is clearly yes. The Tribunal heard six days of evidence. It then heard three days of argument before issuing a written decision. Neither party to these proceedings has questioned the judicial nature of the Tribunal’s decision and for good reason.

Was the decision final?

[37] Tarion appealed the decision of the tribunal on the narrow ground that the order required it to take whatever steps were necessary to provide the home with a properly operating heating system and that to do so would exceed its statutory liability limit of $100.000. The Divisional Court granted the appeal and referred the matter back to the Tribunal. Tarion then settled with the defendants paying out $100,000 to them.

[38] Neither side appealed the findings of the Tribunal upon which the order was based. Therefore the decision, apart from quantum, was a final one.

Were the parties before the Tribunal the same as in this action?

[39] The defendants appealed Tarion’s ruling to the Tribunal. The Tribunal added the plaintiff corporation as a party. Pursuant to its powers under section 16(4) of the Ontario New Home Warranties Act. The only party to this action not before the Tribunal was CIBC Mortgages Inc. It has not participated in this litigation and played no role in the dispute before the Tribunal. Therefore I find that the parties before the Tribunal were the same as the parties to this action.

[40] The decision of the Tribunal that the condition of the heating system amounted to a major structural defect meets all of the criteria required by Danyluk for issue estoppel to apply. The question then becomes whether issue estoppel ought to be applied or whether applying it would work an injustice. (see Metro Toronto Condominium Corp No. 1352 v Newport para 35 above).

[41] In Danyluk, Binnie J. listed seven factors the Court should consider in deciding whether or not issue estoppel should apply. They are as follows:

(a) The wording of the Statute from which the power to issue the order derives

(b) The purpose of the legislation

(c) The availability of an appeal

(d) The safeguards available to the parties in the administrative procedure

(e) The expertise of the administrative decision maker

(f) The circumstances giving rise to the administrative proceedings

(g) The potential injustice.

[42] I make the following findings with respect to these factors.

The Purpose and Wording of the Statute

[43] As discussed above, the Ontario New Home Warranties Act is remedial legislation designed to protect new home owners. It does this by setting up a statutory insurance scheme administered by Tarion. A home owner who has a complaint may apply to Tarion for a determination of whether or not the work done on the home complies with the terms of the statutory warranties set out in section 13.

[44] If Tarion determines that the warranties have been breached it may make compensation to the owner within certain statutory limits. If it determines that the warranties have not been breached or that the breaches do not meet the statutory threshold the owner has an appeal as of right to the License Appeal Tribunal. This body is empowered under section 16(3) and (4) of the Act to hold a hearing joining such parties as it determines are appropriate and to make a determination as to whether the defect meets the statutory threshold. If that determination is that it does then the Tribunal may direct Tarion to remedy the defect.

[45] There are three important factors here. First the purpose of the statute is to deal with just the sort of dispute between builder and owner that forms the subject of this litigation. Secondly the decision making body in this case was a Tribunal sitting in appeal from Tarion’s administrative decision. Thirdly that Tribunal is directed by section 16 of its originating legislation to hold a hearing. In other words the nature of the Tribunal’s decision making process is judicial rather than administrative.

The availability of an appeal and the safeguards available in the procedure

[46] An appeal lies to the Divisional Court from an order made by the Tribunal. This is but the first of the procedural safeguards afforded to the parties to a hearing before it. As noted above, the Tribunal proceeds by way of hearing during which each party has the opportunity to give evidence, call witnesses and make argument. These proceedings are recorded and a transcript is available. The hearing in this matter involved six days of evidence and another three of argument. I am satisfied that the parties were afforded a full opportunity to be heard and to appeal the Tribunal’s ruling should they have wished to do so.

The expertise of the decision maker

[47] The License Appeal Tribunal has two purposes under the Act. The first is to deal with refusals to license builders by Tarion. The second is to deal with refusals by Tarion to compensate owners for defects in their properties. It is clear that with this limited mandate the members of the Tribunal will have an expertise in the subject matter before them. A review of the Tribunal’s decision which was filed, makes it clear that its author was in fact familiar with the language of construction and of engineering reports and with the decision making process.

[48] Based on the forgoing analysis I am satisfied that there was nothing in the process by which the Tribunal reached its conclusions that might be found to have worked an injustice on either party. Rather there are a number of factors indicating that the parties were afforded a hearing on the issue which was as good as, or perhaps better than would have been provided by a court. Therefore I find that the defendants should have judgment against the plaintiff for breach of contract with respect to the installation of the radiant heating system.

Should the Liability be quantified at this stage?

[49] The defendants have asked that they be awarded judgment in the amount of $643,000.00 based on the decision of the License Appeals Tribunal. There is absolutely no justification for this request. The figure is merely the highest estimate contained in a number of engineering reports filed with the Tribunal. Nowhere in its decision does the Tribunal make any finding as to the cost of repairs, nor does it attach any figures to its order for remediation.

[50] Rule 20.02(3) of the Rules of Practice provides that where the only genuine issue is the amount to which the moving party is entitled, it may order a trial of that issue or direct a reference. In this case other issues remain in dispute between the parties. Those issues are set down for trial. Therefore the appropriate disposition of the question of quantum is to direct that a trial of the issue be held at the same time as the rest of the trial on such terms as the trial judge may direct.

[51] There will be an order as follows:

(1) The defendants, plaintiffs by counterclaim, may amend their statement of defence and counterclaim to conform with the draft attached as schedule “A” to the supplementary notice of motion dated October 15th 2012.

(2) The defendants, plaintiffs by counterclaim, are granted judgment against the plaintiff for breach of contract for failing to install a proper operating in floor radiant heating system.

(3) The quantum of damages flowing from the said breach shall be determined by way of trial of an issue to be held at the same time as the trial on any other outstanding issues in this litigation on such terms as the trial judge shall direct.

(4) The parties may submit written cost arguments within 30 days of the date of release of these reasons.

Thomas M Wood J.

Released: February 15, 2013