SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: 07-CV-337402PD 1
DATE: 20130122

RE: Tarion Warranty Corporation

Plaintiff

AND:

136950 Ontario Limited, Rafie Lotfie Noushad, Farideh Jamshidi Moghaddam

Defendants

BEFORE: Marrocco J.

COUNSEL: Neil Abbott, for the Plaintiff

Mauro Marchioni & Brent Pearce, for the Defendants

HEARD: January 15 & 16, 2013

ENDORSEMENT

[1] 136950 Ontario Limited carried on business as Romance Homes. In November 2001, 136950 Ontario Limited was registered as a builder of the Registrar appointed under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31 (“the Act”). At that time, 136950 Ontario Limited signed both a Builder Agreement and a Vendor Agreement. It was a condition of registration that the defendant, Rafie Lotfie Noushad, personally indemnify 136950 Ontario Limited’s obligations to the plaintiff, or the plaintiff’s predecessor, to a maximum amount of $1,760,000.

[2] Under s. 6 of the Act, no person shall act as a vendor or a builder unless the person is registered. The Registrar of Tarion Warranty Corporation refused to renew the registration of 136950 Ontario Limited in February 2005. This meant that 136950 Ontario Limited could not commence the construction of a new home after February 2005.

[3] Despite this fact, 136950 Ontario Limited entered into twenty-two Agreements of Purchase and Sale, which required the construction of new homes well past February 2005. 136950 Ontario Limited did not complete these homes because it could not, with the result that Tarion Warranty Corporation refunded to the various prospective purchasers deposits to a maximum of $20,000 or $40,000 each.

[4] Pursuant to s. 14 of the Act, a person who has entered into a contract to purchase a home is entitled to receive payment from Tarion Warranty Corporation for the amount paid as a deposit for a home not previously occupied, if the vendor has fundamentally breached the Agreement of Purchase and Sale for that home.

[5] I am satisfied that 136950 Ontario Limited fundamentally breached the twenty-two Agreements with which this litigation is concerned when it entered into those Agreements without the legal capacity to build the homes which it was promising to build. The Supreme Court of Canada defined fundamental breach in Hunter Engineering Co. v. Syncrude Canada Ltd., 1989 129 (SCC), [1989] 1 S.C.R. 426 as:

A fundamental breach occurs where the event resulting from the failure by one party to perform a primary obligation has the effect of depriving the other party of substantially the whole benefit which it was the intention of the parties that he should obtain from the contract.

[6] The inability of 136950 Ontario Limited to build the homes it contracted to construct in the Agreements of Purchase and Sale deprived the purchasers of the entire benefit of the Agreement. The homes could not be built and the purchasers received no benefit from the contract whatsoever.

[7] Accordingly, the statutory pre-condition for a deposit refund was satisfied in respect of each of the twenty-two Agreements with which we have been concerned in this litigation.

[8] With respect to lots #38, #39, #40 and #41, the plaintiff relied on Agreements of Purchase and Sale to demonstrate that the funds returned were deposits to be credited to the purchase price when the sale was completed. Mr. Marchioni suggested the funds were not deposits, but represented a loan to 136950 Ontario Limited and Rafie Lotfie Noushad. Mr. Marchione referred to notations on a cheque written by the defendants’ law firm at that time. No representative from the defendant’s law firm, Anderson Wylde, was called to testify. Anderson Wylde also acted for 136950 Ontario Limited when it applied for registration under the Act. The defendant, Rafie Lotfie Noushad, did not attend the trial.

[9] I prefer the evidence of the Agreements of Purchase and Sale to the unexplained reference on the prospective purchaser’s cheque. The Agreements of Purchase and Sale did not require that the deposits were to remain in trust. It is quite possible, therefore, that the funds could have been used by the defendants and still have the character of a purchase price deposit.

[10] The plaintiff called Ms. Irene Swain to testify. During the relevant time period, she was the Manager of Contractual Claims. Ms. Swain testified that she was satisfied that the funds had been paid as a deposit and, for that reason, authorized the refund. I accept her evidence. Ms. Swain appeared to me to be knowledgeable. She indicated that the claim from this prospective purchaser was looked at with more care than usual because this particular prospective purchaser had purchased fourteen lots from 136950 Ontario Limited. I am satisfied, based on Ms. Swain’s evidence, that all of the funds refunded to the various prospective purchasers were refunded on account of deposits.

[11] Rafie Lotfie Noushad is required to provide personal indemnity in the amount of $1,760,000 for 136950 Ontario Limited. As well, 136950 Ontario Limited agreed to provide a surety bond as a condition of its application for registration. This bond was in the amount of $780,000. This bond was entirely drawn down in respect of claims which are not at issue in the matter before me. Mr. Marchioni suggested that Rafie Lotfie Noushad’s indemnity obligation was reduced by the value of the bond.

[12] I reject this submission. There is no limiting provision in the indemnity agreement. The bond provides that it can be used to cover both deposit claims and claims related to the workmanship and construction carried out by 136950 Ontario Limited. Because the purpose of this statute is to protect purchasers of new homes, I see no reason to imply a limitation on the indemnitor’s obligation. Limitations on the obligations of a person providing an indemnity in this context should be negotiated during the application for registration because, at that point, prospective purchasers are not applying for a deposit refund. In addition, the Registrar, at that point, has the option to decline registration.

[13] I am satisfied that the surety bond is in addition to the obligation of Rafie Lotfie Noushad as the indemnitor.

[14] Mr. Marchioni has suggested that the plaintiff could not refund the deposit until the closing date had passed. He offered the speculation that 136950 Ontario Limited might have found a registered entity to complete the construction. One of the plaintiff’s witnesses, Mr. Adil Darr, testified that he had been to the building site and that there was no construction taking place. This is not surprising because 136950 Ontario Limited had no licence to construct.

[15] There is no reason to require a prospective purchaser to wait for a refund in this type of situation. 136950 Ontario Limited should never have entered into the contract in the first place. In addition, most Agreements of Purchase and Sale for new homes provide that the builder can extend the closing date. Prospective purchasers, who have done nothing more than pay the required deposit, would, thus, be compelled to wait until the maximum period for extending the closing date had passed before they could recover their deposits. Absent specific wording in the Act, I would not come to such a conclusion. Further, the defendant’s breach rose to the level of a substantial failure of performance. Therefore, it was acceptable for the purchasers to repudiate the contract after the breach (see: Place Concorde East Limited Partnership v. Shelter Corp. of Canada Ltd., 2006 16346 (ON CA), [2006] O.J. No. 1964 (C.A.), at para. 52). The purchasers, therefore, met the requirement under the Act, as the builder had fundamentally breached the contract, allowing them to fulfill the statutory conditions under the Act at the moment the breach occurred.

[16] Mr. Marchioni questioned some of the conclusions Ms. Swain drew concerning some of the claims. In effect, he invited me to re-make the decisions that she had made refunding some of the deposits. In my view, there was a basis for the decisions Ms. Swain took. For example, in one claim, the prospective purchaser claimed for a deposit paid in respect of two properties identified as Lot #2 and Lot #3. The agreement of purchase and sale referred to lot #71. Ms. Swain, in her report, indicated that the deposit in question was originally paid in respect of Lot #71 and then transferred to lots #2 and #3. Mr. Marchioni objected to the fact that there appears to be no evidence of the transfer of the deposit in the file relating to Lot #2. However, as part of the plaintiff’s documentation in relation to Lot #3, there is an Agreement which appears to amend the Agreement of Purchase and Sale and transfer the deposits in a manner consistent with Ms. Swain’s decision.

[17] The Ontario Legislature set up this process for refunding money to prospective purchasers of new homes. Some deference should be paid by this court to decision-makers such as Ms. Swain who have the responsibility for adjudicating individual claims. The Supreme Court of Canada has emphasized that courts should be highly deferential towards administrative bodies making these kinds of immediate non-jurisdictional decisions (see: Halifax (Regional Municipality) v. Nova Scotia (Human Rights Commission, 2012 SCC 10, [2012] 1 S.C.R. 364). Most certainly, I should not substitute my discretion for hers.

[18] Mr. Marchioni also suggested that his client received no notice of the processing of the various claims. The indemnity agreement signed by Rafie Lotfie Noushad contains various waivers of notice. Rafie Lotfie Noushad did not attend and did not indicate that he suffered prejudice by reason of a failure of notice. No one from 136950 Ontario Limited testified that it suffered prejudice as a result of a failure by the plaintiff to give notice. Ms. Swain testified that, in her experience, builders and vendors as a practical matter have notice of the processing of these claims. I accept her evidence. I do not find it necessary to determine whether the notice was waived.

[19] Section 4.1 of Regulation 894 of RRO 1990 provides that a registrant shall pay to the plaintiff an administration fee equal to 15% of the amount paid out of the guarantee fund on account of claims. Section 4.2 of the same regulation provides that a registrant shall pay interest to the plaintiff at the rate of 1.5% per month.

[20] The plaintiff provided, in Exhibit “B”, a listing of the various claims paid. This listing accurately totals the claims paid, the administration fee and the appropriate taxes.

[21] The plaintiff is entitled to judgment against 1369450 Ontario Limited and Rafie Lotfie Noushad in the amount of $694,315.78, plus pre-and post-judgment interest at the rate of 1.5% per month. The plaintiff is entitled to costs. If the parties cannot agree on the costs, brief submissions may be made.

MARROCCO J.

Date: 20130122