COURT FILE NO.: CV-09-0189 & CV-09-0189-A1

DATE: 2014-05-26

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

COURT FILE NO.: CV-09-0189

Daniel Fors, Plaintiff

Derek Noyes, for the Plaintiff

• and -

Vance Overacker and Dorothy Overacker, Defendants

Terry L. Gilbart, for the Defendants

A N D B E T W E E N:

Daniel Fors, Plaintiff

• and -

Vance Overacker and Dorothy Overacker, Defendants

• and –

Jack Mallon and Royal LePage Lannon Realty Ltd., Third Parties

COURT FILE NO.: CV-09-0189-A1

Derek Noyes, for the Plaintiff Terry L. Gilbart, for the Defendants Allan D. Powell, for the Third Parties

HEARD: October 15, 16, 17, 18, 21, 22, and 23, 2013, at Thunder Bay, Ontario

Mr. Justice D. C. Shaw

Reasons For Judgment

[1] This is an action for damages for breach of contract, fraudulent misrepresentation, and, in the alternative, for negligent misrepresentation, arising out of the plaintiff’s purchase of a house from the defendants.

[2] On August 25, 2008, the plaintiff, Daniel Fors, purchased a home at 3165 Acorn Square, Thunder Bay, from the defendants, Vance Overacker and Dorothy Overacker.

[3] The third party, Jack Mallon, was the real estate agent for the defendants on the sale. Mr. Mallon was associated with the third party, Royal LePage Lannon Realty, a real estate brokerage. Mr. Mallon signed the listing agreement on behalf of Royal LePage. Royal LePage agrees that it is vicariously liable for Mr. Mallon’s actions.

Issues

[4] The plaintiff has experienced several significant water problems with the home, related to the sump pump system, the septic field, moisture in the basement and leaking from a skylight. The issue as between the plaintiff and the defendants is whether at the time of the sale the defendants were aware of any or all of these problems and made fraudulent or negligent misrepresentations about the property when they signed a Seller Property Information Statement. The issue as between the defendants and the third party is whether the third party negligently advised the defendants as to how they should answer the questions on the Seller Property Information Statement.

Background

[5] Mr. and Mrs. Overacker owned the home for three years before they sold it to Mr. Fors.

[6] Shortly after Mr. and Mrs. Overacker bought the home in July 2005, they discovered that it was built on land with a very high water table. Because of the high water table, the sump pump system had to work almost continuously to pump out water that flowed into the sump pit. Water that accumulated in the sump pump pit was pumped out through a line that ran from the pumps, through the basement wall into the backyard, turning at a right angle across the property of an adjacent neighbour and then into a ditch. Mr. Overacker testified that water flowed into the sump pit at such a volume that the sump pumps automatically came on every 90 seconds and ran for 30 to 40 seconds.

[7] Mr. Overacker said that shortly after he and his wife moved into the home in 2005, the sump pump system looked dirty. He arranged for Craig Plumbing to clean the system and vacuum it back as far as possible to the weeping tile. Mr. Overacker said that after this cleaning he believed everything would be fine. However, on October 20, 2005, Mr. Overacker was watching television upstairs when he said he heard an odd noise in the basement. He went into the basement and found the sump pit overflowing onto the basement floor. The exhaust line was plugged solid with iron from the groundwater. With the help of a neighbour, he ran another line through a basement window so that the water could exhaust out into the yard. He said that he was shocked by the flood. The entire basement floor was covered with water.

[8] The cleanup of the basement took two to three weeks. The carpet and underlay had to be replaced. The drywall in the basement had to be cut out to a height of two to three feet from the floor and replaced. Mr. and Mrs. Overacker put in a claim with their insurer. The insurance claim totalled approximately $35,000. This claim was paid.

[9] After the flood, Mr. and Mrs. Overacker had two new sump pumps installed, ran a second exhaust line from the secondary pump and plumbed in a line to flush iron out of the primary line.

[10] Mr. Overacker said that because of the iron in the water, the pumps, the pit and the lines required frequent cleaning, especially in the Fall and Spring. Mr. Overacker said that if he did not keep up on the cleaning, he was asking for trouble in the sense of a repeat of the flood.

[11] Because of the problems presented by the high water table, Mr. Overacker asked Craig Plumbing to suggest a solution. Mr. Craig suggested that an external well could be built with a pump installed about four feet deeper than the basement of the house. Water from the property would then flow into the well and be pumped out to the road. However, Mr. Overacker decided against the suggestion because he did not like the idea of cleaning iron out of a pump that was 10 to 12 feet below ground, especially during the winter.

[12] Mr. Overacker then retained a contractor, Donald Nichols, who dug a trench around the perimeter of the property down to the same depth as the drainage ditch at the front of the property. Weeping tile was installed in the trench. Fabric and styrofoam were placed over the tile and the soil was replaced. This cost Mr. Overacker about $6,500. Mr. Overacker said that he was disappointed with this system and that he could see no measurable benefits.

[13] Mr. Overacker testified that the house almost suffered a second flood in 2007. He said he had become used to hearing the sump pumps cycle on and off every 1 ½ minutes and that if the noise was not audible, he would notice it and know there was a problem. He said that after he had experienced the flood in 2005, he had a heightened sense of awareness as to whether the pumps were working properly. One day in 2007, while he was watching television, Mr. Overacker became aware that the sump pumps were not cycling on and off. He said that he got to the basement just in time to prevent flooding. The water was at the top edge of the sump pit. The floats of the sump pumps were stuck. The pumps cycled on after Mr. Overacker released the floats.

[14] Mr. Overacker said that if the sump pumps stopped working, there would be a flood in the basement within approximately 15 minutes. He said that he checked on the pumps in the basement every day to be sure they were running. It became part of his daily routine.

[15] Mr. Overacker testified that shortly after he and his wife moved in, he was cutting the lawn above the septic field when he saw water spraying up under the tires of the lawn tractor. He called in A-1 Sewage to pump out the septic tank.

[16] Mr. Glen Bascello of A-1 Sewage attended at the home on several occasions, at the request of the Overackers to pump out the septic tank. He testified that the septic tank of an average home, with four to five occupants, would have to be pumped out every three to five years. Mr. Bascello said that A-1 Sewage pumped the septic tank at the request of Mr. and Mrs. Overacker seven times in the two months between October 20, 2005 and December 16, 2005. He said that Mrs. Overacker had the tank pumped on a weekly schedule during this time because she was afraid that the septic tank would back up into the house. The septic tank was pumped again in April 2006 and on August 21, 2008, four days before the sale to Mr. Fors. Mr. Overacker testified that he had the tank pumped out on August 21, 2008 as a courtesy to Mr. Fors.

[17] Mr. Bascello said that the reason the septic tank was pumped so frequently was because the septic field became saturated and water would run from the field back into the tank.

[18] Mr. Overacker testified that after he saw that the septic filed was saturated, he observed that the ditch into which the sump pump line exhausted was overflowing and coming back into the backyard. He said that the City had installed a pipe into which the ditch flowed. The ditch and pipe had to be cleaned frequently. In the Fall, when leaves became caught up in the ditch and pipe, he would have to clean them as frequently as two to three times a day to prevent the water from flowing back into the yard.

[19] Mr. Overacker said that the reason he had to have the septic tank pumped seven times in the first two months after he moved in, and only twice in the next 32 months, was because he worked at keeping the drainage line from the sump pump clear of debris. He also made a point of de-thatching the lawn to allow the septic field to get air and water to evaporate. He also adjusted the lawn’s irrigation system to reduce the amount of water going onto the lawn.

[20] In May 2004, Mr. and Mrs. Overacker listed the house for sale after living there for approximately two years. Mr. Overacker said that they decided to sell and to build a new core floor house because of his wife’s deteriorating health.

[21] The house was listed with Shanlee Calonego, a real estate agent, for a price $499,000. Mr. and Mrs. Overacker completed and signed a Seller Property Information Statement with the assistance of Ms. Calonego.

[22] A Seller Property Information Statement (SPIS) is a standard form document prepared by the Ontario Real Estate Association which contains a series of questions to be answered by the sellers regarding the property being sold.

[23] Certain of the questions on the SPIS that Mr. and Mrs. Overacker completed with Ms. Calonego, which are relevant to this trial, were as follows:

“Environmental

3. Is the property subject to flooding?

Improvements and Structural

7. Are you aware of any moisture / and or water problems?

8. Are you aware of any damage due to wind, fire, water, insects, termites, rodents, pets or wood rot?”

[24] The SPIS also had a Schedule titled “Water Supply, Waste Disposal, Access Shoreline”. Question 2(b) to the Schedule under the heading Water Supply and Waste disposal, read: “Are you aware of any problems with the sewage system?”

[25] To each of these questions, Mr. and Mrs. Overacker answered “No”.

[26] At the bottom of the second page, under the heading “Additional Comments”, Mr. and Mrs. Overacker wrote:

“Oct 05 pump drain plugged causing back-up in basement – Strone clean-up – 2 sump pump and battery back up professionally installed and lot drainage installed in Aug/06.”

[27] Mr. Overacker testified that the Additional Comments were inserted as a result of discussions with Ms. Calonego.

[28] Mr. Overacker said that he and his wife had answered “No” to the above questions because they no longer had any problems. He said that in his view a “water problem” was an unexpected flood such as where a river overflows its banks or a dam bursts. He also said that he and his wife had answered “No” to these questions because of the Additional Comments that they had written on the form.

[29] The house did not sell during the seven months that it was listed with Ms. Calonego. That listing expired.

[30] In February 2008, Mr. Overacker contacted Mr. Mallon to list the home for sale with him. On February 24, 2008, Mr. Mallon met with Mr. and Mrs. Overacker at the home. The home, which was an “executive home”, was approximately 17 years old. Mr. Mallon described the house as “gorgeous”. He said that in the basement he noticed the two to three foot strip of drywall around the basement walls, which he said was a sign that there had been repairs after water damage or a flood. He also observed what he described as a “sophisticated” sump pump system. He said he was curious about the operation of the system and what it took to maintain it.

[31] After his walk through the house, Mr. Mallon sat with Mr. and Mrs. Overacker at the kitchen table. He produced a Listing Agreement which they signed and which he signed on behalf of Royal LePage. He then produced an SPIS which he placed before Mr. and Mrs. Overacker.

[32] The SPIS contained the following instructions on the first page:

“ANSWERS MUST BE COMPLETE AND ACCURATE. This statement is designed in part to protect Sellers by establishing that correct information concerning the property is being provided to buyers. All of the information contained herein is provided by the Sellers to the brokerage/broker/salesperson. Any person who is in receipt of and utilizes this Statement acknowledges and agrees that the information is being provided for information purposes only and is not a warranty as to the matters recited hereinafter even if attached to an Agreement of Purchase and Sale. The brokerage/broker/salesperson shall not be held responsible for the accuracy of any information contained herein.

BUYERS MUST STILL MAKE THEIR OWN INQUIRIES. Buyers must still make their own inquiries notwithstanding the information contained on this statement. Each question and answer must be considered and where necessary, keeping in mind that the Sellers’ knowledge of the property may be inaccurate or incomplete, additional information can be requested from the Sellers or from an independent source such as the municipality. Buyers can hire an independent inspector to examine the property to determine whether defects exist and to provide an estimate of the cost of repairing problems that have been identified. This statement does not provide information on psychological stigmas that may be associated with a property.”

[33] The SPIS contained questions similar to those on the SPIS that Mr. and Mrs. Overacker had completed with Ms. Calonego:

“Environmental

3. Is the property subject to flooding?

Improvements and Structural

8. Are you aware of any moisture and/or water problems?

9. Are you aware of any damage due to wind, fire, water, insects, termites, rodents, pets or wood rot?

10. Are you aware of any roof leakage or unrepaired damage?

11. Are you aware of any problems with the plumbing system?”

[34] Mr. Overacker testified that he told Mr. Mallon about the flooding of the basement. Mr. Overacker said that although in the first SPIS, which he and Mrs. Overacker had completed with Ms. Calonego, they had disclosed that the sump pump drain had become plugged causing a back-up into the basement, they did not make this disclosure in the second SPIS that they completed with Mr. Mallon because they were given to understand by Mr. Mallon that if the problem had been fixed, then it was not an issue.

[35] Mr. and Mrs. Overacker answered “No” to questions numbered 3, 8, 9 and 10 on the SPIS. The only entry under “Additional Comments” related to installation of a new floor, a fireplace, a hot water air conditioning system, a water softener and an alarm system.

[36] Mr. Overacker said that Mr. Mallon did not advise them to meet with the buyer before closing.

[37] The bottom of page 3 of the SPIS, above the vendors’ signature line, contained, inter alia, the following statement:

“The sellers state that the above information is true based on their current actual knowledge as of the date below. Sellers are responsible for the accuracy of all answers. Any important changes to this information known to the sellers will be disclosed by the sellers prior to closing: ...”

[38] Mr. Overacker testified that Mr. Mallon did not tell them that they were to inform him if anything happened to the home after the SPIS had been completed. Mr. Overacker said that Ms. Calonago had also not told them to advise her of any changes to the information in the SPIS.

[39] Mrs. Overacker testified that she and her husband told Mr. Mallon that there was quite a maintenance schedule to be followed on the sump pump system and that if the schedule was not followed, the basement would probably flood again. She said that they told Mr. Mallon that it was important that he inform the buyer of this. She said that Mr. Mallon did not tell them that they should explain this to the buyer.

[40] When Mrs. Overacker was asked why she and Mr. Overacker did not disclose the flooding in the SPIS, she said that after they had explained everything to Mr. Mallon, he advised them that they did not have to disclose it.

[41] Mr. Mallon had been a real estate agent for 12 years at the time that he entered into the listing agreement with Mr. and Mrs. Overacker.

[42] He said that if a home had been listed previously, it was not his practice to look at the prior SPIS. He said he preferred to educate himself about the home as he went through a new SPIS with the vendors.

[43] He said that he and Mr. and Mrs. Overacker sat around the table, discussed the amenities of the house, completed the listing agreement, filled out a form entitled “Working with a Realtor” and then began working on the SPIS. He said that as they went through the SPIS, they had an in depth discussion about the sophisticated sump pump system and the maintenance that was required for the system. He said that this discussion was triggered when they reached question number 8 on the SPIS, under the heading “Improvements and Structural” – “Are you aware of any moisture and/or water problems?” Mr. and Mrs. Overacker explained to him the problems they had experienced after they moved into the home when the pump stopped working. They told him about putting in new pumps and running two exhaust lines. Mr. Mallon said he asked them if they had experienced any problems after they installed the new system and they said they had not. He told them that they could therefore answer “No” to the question. Mr. Mallon testified that he felt that the buyer should be aware of how the system operated and what was involved and that there would be a meeting before closing between Mr. Overacker and the buyer in this regard.

[44] Mr. Mallon testified that he had no discussions with Mr. and Mrs. Overacker about problems with the septic system nor about excessive iron in the water.

[45] Mr. Mallon said that there were no discussions with Mr. and Mrs. Overacker about the drywall in the basement. He said it was his understanding that this was a remediation effort for a flood and that his understanding was confirmed when Mr. and Mrs. Overacker explained what had happened.

[46] In cross-examination, Mr. Mallon was asked why, when Mr. and Mrs. Overacker told him about the flood, he did not put it down on the SPIS. Mr. Mallon answered that it was a “judgment call”. He said he felt that a meeting would have been better. He said that today, he felt he should have told Mr. and Mrs. Overacker to put the information about the flood into the SPIS. He said, “My advice today to Mr. and Mrs. Overacker would be different.”

[47] Mr. Mallon agreed that he, himself, as a buyer of the home, would have wanted this information. Mr. Mallon agreed that it was his idea to keep the sump pump flood of 2005 out of the SPIS because he planned that Mr. Overacker would have a meeting with the buyer before the buyer bought the house and that Mr. Overacker would tell the buyer about the sump pump system at the meeting. Mr. Mallon said that he believed that any buyer should be made aware of the sump pump system which was state of the art and which required an explanation by the person who knew it, namely, Mr. Overacker. He agreed that it would be important to have the meeting before the closing. Mr. Mallon said that he disagreed with the evidence of Mr. and Mrs. Overacker that he did not talk to them about a proposed meeting with the buyer.

[48] In 2008, Mr. Fors and his wife were moving from Sudbury to Thunder Bay. At the time, Mr. Fors was an underground hard rock miner, working in Indonesia for eight weeks at a time. Later, from 2009 to 2013, he worked in Mongolia on an eight-weeks-on, four-weeks-out basis. In August 2013, he started working in the Northwest Territories on a similar schedule.

[49] Mr. Fors first found out that the home at 3165 Acorn Square was for sale in the Spring of 2008, on-line. On June 15, 2008, he and Mrs. Fors came from Sudbury to look at several houses that were for sale. Mr. Fors called Mr. Mallon from Sudbury to arrange to view the home at 3165 Acorn Square. Mr. and Mrs. Fors met with Mr. Mallon at the home. Mr. and Mrs. Overacker were there at the time, but they remained in the sunroom and did not speak to Mr. and Mrs. Fors.

[50] Mr. Fors testified that he asked Mr. Mallon several times if there were any maintenance issues with the home. He said that Mr. Mallon told them that they would have no troubles with the home. Mr. Fors said that when they viewed the home, it appeared spotless and well maintained. They saw nothing that raised a concern. He said the basement looked very good. There were no stains or deposits on the floor. They looked at the sump pump pit. There was no water in it and no water coming in. The pumps looked clean. Mr. Fors said that part of his responsibilities as a miner was to care for large pumps underground. Mr. and Ms. Fors also had a sump pump in their home in Sudbury.

[51] While they were viewing the home, Mr. Mallon gave them the SPIS. Mr. Fors said that after reading the SPIS, which showed that there was nothing wrong with the home, he signed an offer to purchase. Mr. Fors signed the SPIS below the statement:

“I acknowledge that the information provided herein is not warranted and hereby acknowledge receipt of a copy of the above information including any applicable Schedule(s).”

[52] Mr. Fors testified that the statements in the SPIS, which indicated that there were no problems with the home, affected his decision to make an offer.

[53] Mr. Fors first offered $350,000. As of the date of that offer, the listing price had been reduced from $449,000 to $419,000. The first offer was not accepted. A second offer of $392,00 was presented. Mr. and Mrs. Overacker accepted this second offer.

[54] The parties entered into an Agreement of Purchase and Sale dated June 17, 2008. The Agreement did not include a home inspection as a condition of purchase. Mr. Fors testified that he talked to Mr. Mallon about a home inspection after he viewed the house. He testified that Mr. Mallon said that Mr. and Mrs. Overacker did not have a home inspection when they purchased the house, that Mr. Fors did not need a home inspection and that they would have no trouble with the home.

[55] Mr. Mallon testified that he vaguely recalled Mr. Fors asking about maintenance on the home while they were looking at the sump pump system. Mr. Mallon recalled saying that it would just require normal maintenance.

[56] Ms. Fors testified that she had made it clear to Mr. Mallon before putting in an offer, that because Mr. Fors worked out of town and because she worked and was taking accounting classes, she had no time for maintenance of the home. She said that Mr. Mallon told her that there were no maintenance issues and that there was nothing wrong with the home.

[57] Mr. Fors and Mr. Mallon signed a Buyer Customer Service Agreement on June 17, 2008. This Agreement recorded that the seller was considered to be the Brokerage’s client and that the Brokerage’s primary duties were to protect and promote the interests of the seller. The Agreement also provided that even though the Brokerage’s primary duty may be to the seller, the Brokerage may provide customer service to the buyer. The Agreement stated, in part:

“When providing customer service to the Buyer, the Brokerage’s duties to the Buyer include:

• the Ethical duty to deal fairly, honestly and with integrity;

• the Legal duty to exercise due care when answering questions and providing information; and

• the Legal duty to avoid misrepresentation.”

[58] When questioned at trial about the Buyer Customer Service Agreement, Mr. Mallon said that he believed at the time he signed the Agreement that it was ethical not to tell Mr. Fors about the pumps and the flood because he thought that his plan for a meeting between Mr. Fors and Mr. Overacker before closing was a better way to proceed. He stated that there was a lot to be explained about the sump pump system. With respect to his legal duty, Mr. Mallon said that he thought his plan was a better way of handling the situation than a simple “No” on the SPIS. He said that because he had planned for a meeting, it was his idea to keep reference to the sump pump flood of 2005 out of the SPIS.

[59] Mrs. Overacker testified that she was “very anal” that any prospective purchaser be told about the maintenance necessary for the property. She said that when she was told by Mr. Mallon that there was an offer, she asked him if the buyers were aware of the maintenance issues. She testified that Mr. Mallon told her that the buyers were “aware of everything”.

[60] The completion date for the purchase of the home was August 15, 2008.

[61] Mr. Overacker testified that in May 2008, after the SPIS was signed, but one to two months before he and his wife entered into the Agreement of Purchase and Sale with Mr. Fors, they experienced a leak in the area of the skylight in the ceiling of the home. Mrs. Overacker described it as like a drip from a tap. They put a bucket under the drip. Mr. Overacker called Bruce Swan, who was building the Overackers’ new home. Mr. Overacker and Mr. Swan went up on the roof. Mr. Overacker said that the caulking around the skylight had dried out. They removed the caulking and replaced it with new caulking. They waited a day for the new caulking to dry and then tested it with water.

[62] Mr. Overacker testified that he did not call Mr. Mallon after the leak in the area of the skylight nor did he mention it when he and Mrs. Overacker met with Mr. Mallon to sign the Agreement of Purchase and Sale. Mr. Overacker testified that he did not advise Mr. Mallon of the leak because he assumed that if the leak had been fixed, it did not have to be disclosed. Mrs. Overacker testified that she did not think of advising Mr. Fors or Mr. Mallon of the leak because it was her understanding that if the problem was fixed, it did not have to be disclosed.

[63] Mr. Overacker agreed that as of the date of the Agreement of Purchase and Sale, the sump pumps were still running constantly and had to be cleaned regularly. He agreed that if there was a severe storm, the sump pumps may not have been able to keep up. He agreed that the installation of the weeping tile around the perimeter of the yard had not been successful. He agreed that he had been told by Mr. Swan that the caulking around the skylight had to be replaced every couple of years. He agreed, in hindsight, that this was all information that Mr. Fors could have benefitted from and that he, himself, would have wanted if he was purchasing the home.

[64] Notwithstanding Mr. Mallon’s plan to have a meeting between Mr. Fors and Mr. and Mrs. Overacker to discuss the sump pump system, before the completion of the sale on August 15, 2008, no such meeting was arranged.

[65] Mr. Fors first spoke to Mr. Overacker about two weeks after the closing. Mr. Overacker telephoned Mr. Fors. Mr. Fors said that during those two weeks, the sump pumps had not come on. Mr. Overacker testified that he did not want Mr. Fors to have the same experience that he had had with a flood because of a failure to maintain the sump pumps and the drainage system. Mr. Overacker came over to the home. Mr. Overacker told Mr. Fors about the flood in 2005. He explained to Mr. Fors the need to regularly maintain the drainage system. Mr. Overacker explained how the ditch had to be maintained daily in the Fall to prevent leaves from blocking the ditch. Mr. Overacker testified that he told Mr. Fors that if the drain line was not kept open, it would “cause all sorts of problems”. Mr. Overacker explained how the base of the sump pumps had to be taken off and the iron which had collected from the water had to be cleaned off the impellers. Mr. Overacker told Mr. Fors that the septic field had been pumped out shortly before the closing. Mr. Overacker did not mention any problems with the septic system or with the skylight.

[66] Mr. Fors testified that he was quite upset on receiving this news from Mr. Overacker. Mr. Fors testified that if he had been advised of the problems with the sump pump system, and the flooding, he would not have purchased the house.

[67] Mr. Fors testified that after he and his wife moved into the home, the sump pumps ran approximately 90% of the time in all seasons other than Winter. Ms. Fors testified that when it rains heavily, the pumps do not shut off.

[68] Mr. Fors installed an alarm system on the pumps that is connected to a security service which will call Ms. Fors at work if the pumps stop working. Ms. Fors said that if there is rain, she has to leave work to check on the pumps. She said that she misses work at least one full day a month to check on the pumps.

[69] Ms. Fors said that she goes down to the basement on a daily basis to check on the pumps. She cleans the pumps regularly. She cleans the exhaust line regularly. Mr. Fors has changed four or five pumps because of damage done by iron.

[70] In August 2013, Mr. Fors ran two – four inch ABS pipes, from the wall of the house and plumbed them into the sump pump exhaust lines. Iron build-up had caused the existing lines to plug up. The new lines were directed out to the ditch in front of the house. Before these lines were installed, it was necessary for Ms. Fors to clean the line running through the back yard and across the neighbour’s property regularly in the spring and summer and two or three times a day in the Autumn when leaves were falling. Ms. Fors described it as a “never ending battle”.

[71] Ms. Fors testified that if the line from the pumps was not kept clear, water would back up and saturate the yard, causing the septic field to flood. She said that she had to call many times to have the septic field pumped when she noticed the toilet flushing slowly or the sink not draining. She said that in the Spring, the septic field was pumped every two weeks until the tank was at a proper operating level. Ms. Fors said that she checked regularly on the tank by lifting the 50 lb. concrete lid to look inside at the level of the water. The amount of pumping in the Fall depended on rain and melting snow.

[72] Ms. Fors testified that she is reluctant to have people over to the home for fear that the extra use of the toilet will affect the septic field. She does not leave the home for any extended times, including vacations, because of concerns that the sump pumps will quit and the basement flood. She is frustrated and emotionally upset with the never ending monitoring of the pumps and the septic system.

[73] In October 2008, there was a rain storm. Ms. Fors discovered water coming into the basement floor at the south wall. Photographs taken at the time show water extending about three feet from the wall and show efflorescence along the wall. Since then, Ms. Fors said that there has been constant seepage along the wall, ranging from two inches to one foot from the wall. She said it gets worse when it rains. Ms. Fors said that she cleans the efflorescence with a brush and mops up the water.

[74] Mr. and Mrs. Overacker testified that they had never observed water or efflorescence in the basement, other than in 2005 when the sump pumps failed.

[75] In January 2009, water began to come into the home through the area of the skylight, leaking down the walls around the whole of the skylight, down to the floor. Photographs of this leaking were entered as exhibits at trial. The water filled a lengthy light fixture and created a six foot long bubble in the paint along the roof beam. The bubble burst.

[76] Jim Malo, a structural engineer, was retained in January 2009 by Mr. and Mrs. Fors to examine the skylight and the leaking in the basement. He was qualified at trial as an expert in structural engineering, skylights, basement leaking and building envelope science.

[77] In Mr. Malo’s opinion, there were two causes of the leaks in the area of the skylight. First, the glazing seals had failed. He said that the attempted repair by caulking with silicone sealant was not a preferred method. He said that it was necessary to have qualified glazers repair glazing seals. Second, the leaking was almost entirely a design failure. Because the roof was below the skylight, with adjacent roof surfaces creating valleys through which the water must pass, Mr. Malo was of the opinion that the skylight could not have been placed in a worse location. Snow on the surface of the skylight would melt and flow down onto the cold roof below, at which point it would freeze. Further melt water would be trapped by this ice dam, giving rise to lateral flow of water which ultimately ended up under the roofing material and inside walls and ceiling. If the leaking occurred in warmer months, as it did in 2008 when Mr. and Mrs. Overacker saw water infiltration, Mr. Malo said it would likely be a failure of roofing material. In January 2009, Mr. Malo observed large expanses of ice on the roof surface which he said was indication of a problem with excessive heat loss, caused by inadequate insulation, air leakage or both.

[78] Mr. Malo recommended the complete removal of the interior sloped ceiling and removal of a vertical wall of the light well under the skylight. He suggested removal of the skylight and substitution of four smaller tube skylights or light tunnels.

[79] At the time of the leaks from the skylight in January 2009, there were heating cables on the roof that had been installed, but that had not been turned on by Mr. and Ms. Fors. Mr. Overacker testified that the heating cables were on the roof when he and Mrs. Overacker purchased the home, and that they were there when Mr. and Ms. Fors viewed the home. He said that he turned them on when it began to snow.

[80] Mr. Fors testified that he did not see any cables when he viewed the home. He said that if he had seen the cables, he would have asked why they were there. Mr. Mallon said he did not recall seeing heating cables on the roof, but that if he had seen them it would not have raised a red flag because, he said, there are cables on one-third of the roofs in Thunder Bay. Mr. Fors saw the cables after he moved into the home. Certain of the cables were activated by plugging them in. There were also cables that were hard wired and activated by a switch in the garage. When Ms. Fors telephoned Mr. Fors to tell him about the leak around the skylight, he told her to plug in the heating cables. The purpose of heating cables is to melt the snow on the roof and provide channels for melt water to run off the roof.

[81] Mr. Malo said that heating cables can be effective, depending on the area they cover and whether they are properly installed. He said that if there was no leaking when the cables were turned on, it would indicate that they do work.

[82] After January 2009, Mr. and Ms. Fors turned on the cables during the winter months. Mr. Fors also put tar around the skylight on an annual basis after the leak was discovered.

[83] Mr. Malo testified that the sloping ceiling was 280 square feet and that the vertical wall was 230 square feet. At $60 to $65 per square foot for remedial work, he estimated the cost of replacing the sloping ceiling would be $16,800 to $18,200. The cost of replacing the vertical wall would be $13,800 to $14,950. The area of the skylight was 143 square feet. If it was removed and replaced, the cost would be $50 per square foot, or $7,150. If four light tunnels were installed in place of the skylight, they would cost $600 each or $2,400 and $2,00 to install.

[84] In Mr. Malo’s opinion, removal of the skylight would be the primary focus of the remedial work. He testified that it was the root of all the problems of the roof.

[85] Mr. Malo viewed the basement in January 2009. In his opinion, judging by the deposit of salts on the floor, it appeared that the wall had been leaking for some time. However, he agreed in cross-examination that he could not say how long it had been leaking or when the leak commenced. Mr. Malo described efflorescence as a process whereby salts present in Portland cement concrete, which is quite porous, are dissolved by water passing through the wall if the wall is not properly damp proofed. Once the water has evaporated, the salts are deposited on the surfaces of the floor and walls. In his view, where the path of least resistance for the flow of ground water is through the foundation wall, a failure of the drainage system / damp proofing has clearly occurred. He said that the failure of the drainage system to function properly was most likely because the weeping tile had become clogged with silt. If the tile was clogged in just one area, it would not be a problem because the weeping tile formed a circuit around the home. However, if there was silting in more than one area, water would take the path of least resistance through the cement wall. Mr. Malo said that if water goes through the wall, this is almost “proof positive” of silting. He recommended excavation and installation of weeping tile and a fabric covering of the tile.

[86] Mr. Malo agreed in cross-examination that because he did not see evidence of leaks other than on the south wall of the basement, it may not be necessary to excavate and install weeping tile around the entire perimeter. He also said that the nature of soils is such that one should not do just one section of the tile because one cannot guarantee that it will work. He agreed that it was possible that silting could have occurred over a number of years, reached a critical mass and blockage occurred as a result.

[87] Mr. Fors said that in the Spring, if the sump pumps were not working or if there was a power outage, the basement would flood within 30 seconds to a minute. In other seasons, it would take 10 to 20 minutes before the basement flooded. In order to deal with this ever present threat of flooding because of the high water table, Mr. Fors contacted several water experts for advice.

[88] Mr. Fors approached Mr. Craig, of Craig Plumbing for advice on the high water table. As noted above, Mr. Craig had been previously contacted by Mr. Overacker on the same issue. Mr. Craig had been familiar with the home even before Mr. Overacker had contacted him. He knew that the house had excessive water problems and that there were problems with red silt.

[89] Mr. Craig recommended to Mr. Fors that he install the same external well or wells that Mr. Craig had suggested to Mr. Overacker. Mr. Craig testified that his company had installed a lot of these wells in Thunder Bay and that they had been very successful. Mr. Craig said that water would flow to the well, lowering the property’s water table, and be pumped out to the road. It would be tied into the weeping tiles at each of two corners which would allow a pumping company to access the pipes and clean the silt out of them. The well would be three to four feet below the weeping tile. If one well did not prove adequate, a second one could be put in at an opposite corner so that all four sides of the weeping tile could be pumped out.

[90] Mr. Craig quoted Mr. Fors $16,500 plus HST for installation of a well.

[91] Mr. Fors contacted Robert Nastor, the owner of SST Basement Systems. Mr. Nastor testified that he saw water on the basement floor and efflorescence which he attributed to the high water table and a sump pump system that could not handle it. He said that the solution was to use a sump pump system sufficiently large enough to drop the water table.

[92] Mr. Nastor recommended that commercial-industrial grade pumps be installed outside the house, lower than the foundation, pumping water from the property onto the street. He said, as did Mr. Craig, that this house is lower than the other houses in the area and that all the water ran towards it. Mr. Nastor said that slimy red iron in the water clogged everything up. Mr. Nastor suggested that a 36 inch galvanized culvert be dug down 10 feet, surrounded by crushed rock. Water would be drawn into the culvert and pumped out by a sludge pump. He said that a chemical to combat the iron in the water, “Iron Out”, would be applied monthly into the culvert. The chemical would cost $50 to $100 per application.

[93] Mr. Nastor said that the system proposed by Mr. Craig would work except for the fact of iron in the water which he said would adversely affect the ability to clean out the weeping tile through tie-ins to the wells that Mr. Craig proposed. Mr. Nastor quoted a price of $32,575, plus HST, for the system he proposed.

[94] Superior North Contracting is a general contractor, specializing in basements and septic systems. The owner of Superior North Contracting, Leo Simpson, attended at Mr. Fors’ home on two occasions – the first time in regard to water in the basement and the second time regarding the septic field.

[95] On his first visit, Mr. Simpson observed efflorescence in several areas. In his opinion, this indicated that the weeping tile was most likely plugged. Mr. Simpson knew that there was poor drainage in the area based on his experience with other houses.

[96] He recommended excavating the perimeter of the house, repairing any damage to the walls, applying a membrane to the exterior walls, installing Styrofoam over the membrane to absorb pressure against the wall, installing a drain board over the Styrofoam and then installing weeping tile covered with a filter cloth. He recommended a type of weeping tile to which iron particles were less likely to stick. His quote for this installation was $47,460, plus $4,320 for new fill if required and $1,800 for parging the basement above grade, all exclusive of HST.

[97] Mr. Simpson said that it was possible to do just the one wall where the efflorescence was observed, but that he would neither recommend it nor warranty it because it probably would not work.

[98] Mr. Simpson said that the septic field was in-ground rather than above ground. Because of the high water table, the septic field should be above ground because it would otherwise fill up with water.

[99] Mr. Simpson provided a quote of $42,500, plus HST, for installation of an above-ground septic system.

[100] He said that the average life of a septic system was 20 to 25 years, based on usage, He said that all septic fields will eventually fail.

[101] Allen Vibert of Allen’s Enterprises Services Inc. installs, maintains and repairs septic fields. He attended at the home in about August of 2010 at the request of Mr. Fors to inspect the septic field. When he saw the septic tank, it was full, overflowing the lids of the tank. The water was not going into the field. He said that at that point the water could back up into the house. He recommended a new raised system, away from the area’s high water table which he said was about twenty inches below the surface. He said that conventional septic systems have to be three and one-half feet above the water table, but that the system he recommended only had to be twenty inches above the water table. He quoted $21,400 for one system and $19,500 for an alternative system, exclusive of HST, plus $500 for a permit.

The Plaintiff’s Submissions

[102] The plaintiff submits that:

• the statements in the SPIS were false;

• the defendants knew the statements were false;

• the defendants made the statements fraudulently or negligently;

• the defendants knew that the plaintiff would rely on the false statements;

• the plaintiff relied on the false statements; and,

• the plaintiff suffered damage in reliance upon the false statements.

[103] The plaintiff submits that the SPIS was a “clean” statement that showed that this was a home with no problems. In particular, the SPIS represented that the property was not subject to flooding, that there were no moisture or water problems, that there was no damage due to water, that there was no roof leakage and that there were no problems with the plumbing system.

[104] The plaintiff submits that the defendants acknowledged at trial that there had been a flood shortly after they moved in when the sump pumps systems failed, causing $35,000 in damage, that the sump pump system required constant monitoring and maintenance, that the roof leaked in the early summer of 2008 and that they experienced problems with the septic field similar to those experienced by the plaintiff.

[105] The plaintiff submits that the defendants and Mr. Mallon acknowledged that the plaintiff should have been notified about the sump pump maintenance issues before closing. However, there was no disclosure and no meeting between Mr. Fors and Mr. Overacker before closing. The plaintiff submits that Mr. Overacker was well aware of water infiltration problems and that he was aware that the problem had not been fixed. He had, by chance, caught the failure of the sump pumps in 2007, just in time to prevent another flood. He acknowledged that the trench and weeping tile that he had installed around the perimeter of the yard did not remedy the high water table nor the need to be constantly monitoring and maintaining the sump pump system.

[106] The plaintiff submits that the evidence of leaking in the basement was confirmed by Mr. Malo and Mr. Simpson and that the likely cause was the failure of the weeping tile.

[107] The plaintiff submits that damages should be based on the solutions proposed by Mr. Nastor to deal with the high water table, by Mr. Simpson to deal with the weeping tile and the septic field, and by Mr. Malo to replace the skylight and repair the water damage from the leaking roof.

[108] The plaintiff submits that if he had known of the problems with the sump pump system, the basement, the septic field and the roof, he would not have purchased the home. He submits that having relied on the SPIS, he is now faced with significant expense to remedy the problems that he submits should have been disclosed.

[109] The plaintiff submits that he should be entitled to damages for disappointment and inconvenience and, if fraud is established, to aggravated damages.

Defendants’ Submissions

Defendants’ Submissions Re: Plaintiff’s Claim

[110] The defendants break down the claim for damages into four areas:

(1) the leaking basement along the south wall;

(2) the skylight repair;

(3) the septic field replacement; and

(4) lowering the water table.

[111] The defendants submit that there is no evidence that the basement leaked while the defendants owned the home. The defendants submit that the evidence was that the leaking and the efflorescence started to occur about two months after Mr. Fors purchased the home. The defendants point to the evidence of Mr. Malo and Mr. Simpson that the leaking along the south wall of the basement was likely a failure of the weeping tile.

[112] The defendants submit that the basement leak had nothing to do with any misrepresentation on the SPIS. The defendants note that Mr. Malo did not say that the failed weeping tile was related to the high water table. The defendants submit that the weeping tile failure caused the leaking, that the failure occurred two months after purchase and that the vendors had no knowledge of the impending failure.

[113] The defendant submit that the leaking skylight was not disclosed because Mr. Mallon had previously advised Mr. and Mrs. Overacker that if something was fixed, it did not have to be disclosed on the SPIS.

[114] The defendants point out that although Mr. Fors said he did not see heating cables when he viewed the home prior to his offer, he knew they were there when he moved in and left them unplugged. He did not talk to Mr. Overacker or Mr. Mallon when he discovered the cables. When the cables were plugged in the leaking stopped and it has not happened since.

[115] The defendants submit that the leaking that they experienced in the early summer of 2008 was unrelated to the leak experienced by the plaintiff in January 2009, which was a result of ice damming and the melting and freezing of snow. The defendants note that Mr. Malo testified that the heating cables could be effective and if there had been no leaking in the winter while they were used, that would indicate that they did work. The defendants submit that the leaking of the roof was unrelated to any misrepresentation in the SPIS.

[116] The defendants point to Mr. Malo’s evidence that the primary issue was the design of the roof and the skylight. The defendants state that they made no representation about the design.

[117] The defendants do not take issue with the estimates of Mr. Malo, but do contend that there is betterment because the home is 23 years old. The defendants did not have any evidence on how to calculate betterment on this issue.

[118] With respect to the septic field, the defendants note that after Mr. Fors purchased the property, Mr. Overacker told him to keep the ditch clean to prevent saturation of the septic field.

[119] The defendants note that they only pumped the septic field twice in the last 32 months that they owned the home.

[120] The defendants contend that the septic system has failed, not because of any misrepresentation on their part, but because of the age of the system. The defendants point to the evidence of Mr. Simpson that septic systems have a life of 20 to 25 years. The defendants contend that because the house is now approximately 23 years old, the septic system has reached the end of its natural life.

[121] On the issue of lowering the water table, the defendants submit that the issue was not as dire as when the plaintiff moved in because, to the plaintiff’s credit, he re-routed the exhaust lines from the sump pump to the front of the house, eliminating the situation in the back corner of the property that might compromise the septic field.

Defendants’ Submissions Re: Third Parties

[122] The defendants acknowledge that they were required to disclose the sump pump failure of 2005. However, they submit that the reason they did not disclose this and the reason they did not disclose the leak from the skylight is because Mr. Mallon told them that if the problem was fixed, they need not disclose it.

[123] The defendants submit that Mr. Mallon had a duty to properly advise them and that he failed to do so. They submit that Mr. Mallon fell below the standard of care expected of a real estate agent in these circumstances.

[124] The defendants submit that it is not necessary for them to call expert evidence as to the standard of care of a real estate agent in this particular case, citing Krawchuk v. Scherback, 2011 ONCA 352. They point to the evidence of Ms. Overacker that when Mr. Mallon brought the offer from Mr. Fors, she asked him whether Mr. Fors knew about the maintenance issues and was told that Mr. Fors knew.

[125] The defendants submit that Mr. Mallon never brought to their attention that the SPIS required them to disclose any important changes to the information prior to closing.

[126] The defendants submit that they relied upon Mr. Mallon’s advice that if a problem was fixed, it did not have to be disclosed. The defendants submit that this advice was clearly wrong and that expert opinion evidence is not necessary to establish that it was wrong.

[127] The defendants submit that the standard of care is established by the terms of the Buyer Customer Service Agreement between Mr. Mallon and Mr. Fors which set out the duty of Mr. Mallon to deal fairly, honestly, and exercising due care when answering questions and providing information and avoiding misrepresentations. The defendants submit that the standard of care that Mr. Mallon, as their agent, owed them was at least that high as the standard of care owed to a buyer.

[128] The defendants submit that Mr. Mallon set his own standard of care when he said that he would not advise vendors the same way today and that if he, himself, had been buying the house, he would have wanted to know that there had been a flood.

[129] The defendants submit that if there are any damages that flow from any misrepresentation that they made, or flow from what they failed to disclose, this misrepresentation and failure to disclose result from what Mr. Mallon said, and the defendants should be indemnified by the third parties.

Third Parties’ Submission Re: Plaintiff

[130] The third parties adopt the submissions of the defendants with respect to the main action.

[131] The third parties submit that there was no evidence that problems with the sump pit gave rise to leaking on the other side of the basement.

[132] The third parties submit that this was a 20 year old house with a septic field that was bound to fail in 20 to 25 years. They submit that if the plaintiff received a new septic field there would be considerable betterment. The third parties make a similar submission with respect to the skylight. They suggest betterment at 50% to 75%.

[133] The third parties submit that if there was a material fact that was not disclosed, Mr. Fors was contributorily negligent by not having a professional home inspection before closing. The third parties place his contributory negligence at 50%.

Third Parties’ Submissions Re: Defendants

[134] The third parties submit that Mr. Mallon was told by Mr. and Mrs. Overacker about one incident of an overflowing sump pit and that they had fixed the problem. They had installed a new exhaust line, two new pumps and a battery back-up. They had a ditch dug around the property. The third parties submit that Mr. Mallon had to make a judgment call based on the fact that what was now installed was an entirely new system in quality and kind. In the circumstances, he exercised his judgment not to disclose a one-time flood. The third parties submit that this judgment call was not negligence. They submit that Mr. Mallon’s admission that he would not do the same thing today does not mean that he was wrong in 2008. Rather, it is made from the advantage of hindsight after five years of litigation.

[135] The third parties submit that when the leak from the ceiling happened in 2008, after the SPIS was signed, Mr. and Mrs. Overacker should have called Mr. Mallon and asked him if they had to disclose the leak. The third parties point to the obligation on the vendors set out in the SPIS to disclose important changes.

[136] The third parties refer to Krawchuk and submit that it would be an error in law to review Mr. Mallon’s decision without expert evidence as to the standard of care under which he was acting. The third parties submit that this case does not fall within the exceptions set out in Krawchuk as to when expert evidence as to the standard of care of a real estate agent will not be required.

[137] The third parties submit that the defendants cannot hide behind the agent, that they are responsible for their own acts.

[138] The third parties submit that the defendants did not raise with Mr. Mallon any issues about the septic field nor of the high water table.

[139] The third parties submit that the failure to make disclosure about the sump pit was not material, because it was not related to the problems with the septic field and the basement.

Discussion

[140] Mr. Fors has pleaded fraudulent misrepresentation and, in the alternative, negligent misrepresentation. The distinction between the two types of statements is discussed by Wright J. in Usenik v. Sidorowicz, 2008 11373 (ON SC), [2008] O.J. No. 1049 (S.C.J.), at paras. 37 and 38:

[37] A fraudulent statement is a statement of fact which is false, made by a person knowing it to be false or made so recklessly that the person does not care whether he is speaking the truth or not.(Peek v. Derry (1889) 14 App. Cas. 337). Knowledge of the falsity, intent to deceive or recklessness to the extent that the person does not care whether the statement is true or not is the factor that marks the distinction between deceit, i.e. fraudulent misrepresentation, and negligent misrepresentation. …

[38] A negligent misrepresentation is a representation carelessly, not knowingly, made that is untrue, inaccurate or misleading. A person may be “misled” by a failure to divulge as much as by a statement that is inaccurate or untrue. The duty may be breached not only by positive misstatements but also by omissions, for they may be just as misleading. (Spinks v. R. (1996) 1996 4041 (FCA), 134 DLR (4th) 223 (Fed. CA))

[141] For the reasons that follow, I find that the plaintiffs made statements in the SPIS which were untrue, inaccurate or misleading. Although I do not find that the statements were made fraudulently, I do find that the statements were made negligently. I also find that Mr. Mallon was negligent in his advice to the defendants on how to answer certain questions in the SPIS.

[142] In Krawchuk, at paras. 67 – 95, Epstein J.A. set out the elements that must be proven in an action brought by a purchaser against a vendor for negligent misrepresentation arising out of an SPIS. The purchaser must prove that:

• the vendor owed the purchaser a duty of care based on a “special relationship”;

• the vendor made statement(s) to the purchaser that were untrue, inaccurate or misleading;

• the vendor acted negligently in making the statement(s);

• the purchaser reasonably relied on the statement(s); and

• the purchaser sustained damages as a result.

Mr. and Mrs. Overacker’s duty of care to Mr. Fors

[143] Epstein J.A. held that even though statements made in an SPIS are not warranties they may still be the basis of liability as representations. There is no dispute by the defendants that the representations made by Mr. and Mrs. Overacker were meant to be disclosed to prospective buyers and that it was reasonable to expect that Mr. Fors would rely on those representations. In the circumstances, that is sufficient to establish a special relationship giving rise to a duty of care.

Did Mr. and Mrs. Overacker make statements to Mr. Fors that were untrue, inaccurate or misleading?

[144] The SPIS represented to Mr. Fors that the property was not subject to flooding and that Mr. and Mrs. Overacker were not aware of any moisture or water problems, that they were not aware of any damage due to water and that they were not aware of any problems with the plumbing system. The SPIS also represented to Mr. Fors that Mr. and Mrs. Overacker would disclose any important changes to information that came to their attention after completion of the SPIS. They represented on the SPIS that they were not aware of any roof leakage. They did not disclose that they had become aware of roof leakage before the closing of the sale.

[145] These representations were untrue, inaccurate and misleading.

[146] In submissions, counsel for the defendants acknowledged that the defendants were required to disclose the failure of the sump pumps in 2005. I agree.

[147] I am unable to accept Mr. Overacker’s explanation that “flood” must be understood as being akin to a river overflowing its banks. As noted by Killeen J. in Kaufman v. Gibson 2007 26609 (Ont. S.C.J.), at para. 101, the questions in an SPIS should be given a plain, common-sense reading rather than a narrow or tortured one. A reasonable person, knowing what had occurred in the basement of the Overacker home in October 2005 when the sump pump failed, would have described it as a “flood”. The $35,000 in damage was also clearly “damage due to water”. The fact that Mr. and Mrs. Overacker had to exercise constant vigilance over the sump pumps and the drainage system to avoid further flooding, (which they narrowly and fortuitously avoided in 2007) can only reasonably be described as knowledge of a “water problem”.

[148] The defendants knew that the property’s water table was abnormally high. It was a water problem. It was Mr. Overacker who first called in Mr. Craig for advice on a possible solution to this water problem. He did not take up Mr. Craig’s proposal because of his concern that he would be faced with cleaning iron out of a pump that was 10 to 12 feet below ground. Mr. Overacker then tried, without success, to deal with the high water table by having Mr. Nichols dig a trench around his lot and install weeping tile at a cost of $6,500.

[149] During the first two months that Mr. and Mrs. Overacker owned the home, they had to pump out their septic tank seven times. They knew that the septic field would become saturated if the sump pump drainage line was plugged. It became saturated so quickly that in the Fall the drainage area had to be cleaned as much as two or three times a day. They knew that if the septic field became saturated, there was a danger that the water in the septic system would flow back into their home. Mr. Bascello testified that a septic tank such as this one would normally have to be pumped out every three to five years. In my view, the septic system issues should have been disclosed as a water problem and as a problem with the plumbing system.

[150] I also find that the leaking skylight should have been disclosed by the defendants. The question is unequivocal – “Are you aware of any roof leakage or unrepaired damage?” The SPIS obligated Mr. and Mrs. Overacker, once they knew of the leaking skylight, to advise Mr. Fors of the situation, as an “important change” to the representation they had previously given that they were not aware of any roof leakage.

[151] It was suggested by the defendants and Mr. Mallon that because the sump pump system was “fixed” and there had never been another “flood”, that the relevant questions in the SPIS could be answered “No”. A similar argument was made with respect to the roof leakage and the septic field.

[152] Firstly, in my view, the water problems stemming from the high water table were not “fixed”. The sump pumps still have to be constantly monitored. The septic system has to be pumped out frequently. The septic field needs to be replaced with a field that sits above the water table. Leaking in the area of the skylight design continues to be a threat until the concerns set out by Mr. Malo have been addressed.

[153] Secondly, and leaving aside the leaking basement, even if matters are temporarily under control, the argument that because they had been “fixed” they did not need to be disclosed, was squarely addressed and rejected by Killeen J. in Kaufman. In Kaufman, the vendor argued that the questions in the SPIS spoke to the present tense and called for answers about the condition of the home only as of the date the SPIS was signed. Killeen J., at para. 99, stated that he could not see how a rational argument could be made for a “present tense” or “current” interpretation of the particular questions in the SPIS in issue in that case. He found that questions that asked “Are you aware …” could not be realistically limited to problems on the day the form was signed. He stated:

106 Question 7 asks about awareness of moisture or water problems; question 8 about damage due to water or other things; question 9 about roof leakage or unrepaired damage. In other words, there are no suggestions in any of those questions about exact current conditions alone and they all speak of concerns about water problems in one way or another.

107 To me it is patently impossible to give the narrow reading to those questions which the plaintiffs’ (vendors’) argument presents.

108 What if the plaintiffs had a flood in their basement through a cracked basement wall one month before July 8 and had had the entire basement repaired and cleaned up so that the damage problem was concealed? On the plaintiffs’ approach, disclosure would not be needed. The mere asking of such a question, or a similar one, shows how wrong-headed the interpretive approach of the plaintiff is.

[154] In Usenik, Wright J., at para. 47, came to a similar conclusion. The questions were phrased in the present tense. “Is the property subject to flooding?” The vendors interpreted this to mean “Is the property NOW subject to flooding?” Wright J. held that while the property may not now be flooding, it was subject to flooding in the sense that it was “liable or exposed or prone to” [Concise Oxford Dictionary] flooding unless one took precautionary steps. He held that a misrepresentation can consist of a failure to divulge needed information, citing Spinks v. R. (1996), 1996 4041 (FCA), 134 D.L.R. (4th) 223 (Fed Ct.).

[155] I adopt the reasoning in Kaufman and Usenik on this issue.

Were Mr. and Mrs. Overacker negligent as to the truth of the statements?

[156] In my opinion, Mr. and Mrs. Overacker were negligent when they completed the SPIS and, subsequently, when they failed to disclose the roof leakage. A reasonably prudent person in those circumstances would have realized that the material questions should have been answered “Yes” and that the roof leakage should have been disclosed. Mr. Overacker agreed that this was information that he, himself, would have wanted when he was buying the house. Mr. and Mrs. Overacker, through their counsel, accepted that the sump pump issues should have been disclosed. The water problems were a major issue for them during the entire time that they resided in the home. They constantly attended to the sump pump system and its drainage. They attempted to deal with the high water table with a trench and weeping tile. They experienced a saturated septic field on numerous occasions. They experienced a flood in their basement and were only just able to prevent a second flood by chance. They saw water leaking from the skylight into their home. They must have, or they reasonably should have, expected that these water problems would remain issues for whomever bought the home and that their answers on the SPIS, which were wrong, would be relied upon by Mr. Fors to his detriment.

[157] Although Mr. and Mrs. Overacker were advised by Mr. Mallon that if a problem was fixed, it need not be disclosed, this does not shield them from liability to Mr. Fors for their inaccurate answers. Firstly, as I have found, the problems were not fixed. Secondly, even if Mr. and Mrs. Overacker honestly believed that the problems had been fixed and therefore relied upon Mr. Mallon’s advice not to disclose the problems, the standard of care which was required of them went beyond honest intentions. Their obligation was to provide, to the extent possible, accurate and complete information. (Krawchuk, at para. 79) The information contained in the SPIS was neither accurate nor complete.

[158] Although I have found that Mr. and Mrs. Overacker were negligent in completing the SPIS, I do not find that they acted fraudulently. I am prepared to accept that they did not intend to deceive prospective purchasers. They were advised by Mr. Mallon that if the sump pump system had been fixed, they did not have to disclose it. They took this advice to apply to all of the problems that they had experienced in giving their answers on the SPIS and, later, in failing to disclose the leaking roof. I accept that Mr. Mallon’s advice was given honestly, albeit it was the wrong advice.

Did Mr. Fors reasonably rely on the statements in the SPIS?

[159] In Krawchuk, Epstein J.A. observed that in examining the issue of a purchaser’s reliance on the statements in an SPIS, one must distinguish between patent defects, which are obvious, and latent defects, which are not readily apparent to someone exercising reasonable care in their inspection of the property.

[160] Mr. Fors testified that when he viewed the home, he examined the sump pump pit and the sump pumps He said that there was no water in the pit and no water coming in. He said that looking at the pit, he would never have thought that water would run into it 24 hours a day. He said that the basement looked very good and there were no stains or deposits on the floor. He said that overall the 17 year old house appeared spotless and well-maintained. He testified that he asked Mr. Mallon several times if there were any maintenance problems and was told that there were none and that he would have no troubles with the house. Ms. Fors testified that she was told the same thing by Mr. Mallon.

[161] Mr. Fors testified that he relied on the “clean” SPIS in deciding to purchase the home. Mr. Fors said that based on the SPIS, together with what he was told by Mr. Mallon and the appearance of the home, he decided that he did not require a home inspection. Mr. Fors said that if he had known that the sump pumps had failed and that water had flowed into the basement, he would not have purchased the home.

[162] I am satisfied that the water problems were latent defects that were not readily apparent to someone exercising reasonable care inspecting the house. There was nothing to alert a buyer to those defects.

[163] I also accept that Mr. Fors would not have bought the house if he had been made aware of the water problems by an accurate and complete SPIS. A maintenance free house was a priority for Mr. and Mrs. Fors because of Mr. Fors’ work schedule out of town. Mr. Fors’ evidence that he would not have purchased the home if he had known what he was facing is, in my opinion, credible.

[164] It was argued that Mr. Fors should have had a professional home inspection. Although the SPIS states that buyers must still make their own inquiries, Epstein J.A. held, at paras. 85 – 90 of Krawchuk, that this warning does not absolve the seller of liability for misstatements, that the waiver of a home inspection clause does not waive the right to rely on representations in an SPIS and does not require a purchaser to investigate the honesty of the vendor.

[165] It was also argued that the strip of drywall along the wall of the basement should have alerted Mr. Fors to the fact that there had been a flood. It do not agree. Firstly, the SPIS stated that the property was not subject to flooding and that the Overackers were unaware of any damage due to water or of any water problems. Secondly, although Mr. Simpson, with a construction background, said the strip of drywall would have alerted him to water damage, he also said that it could have instead been a decision on how to hang drywall. Mr. Malo said that it appeared to him, as an engineer, to be an unusual place for a joint in the wall board. However, the most that he said was that it could “perhaps” be indicative of remedial work. There was no evidence that Mr. Fors knew that the drywall strip meant that there had been remedial work related to water damage.

[166] In the face of the clear representations in the SPIS that there was no water damage, I am not prepared to find that the joint in the drywall, although perhaps meaningful to someone with expertise in dealing with water damage, such as a contractor, engineer or experienced realtor, should have alerted Mr. Fors as a reasonable, ordinary purchaser to go behind those clear answers and investigate whether what he was being told by Mr. and Mrs. Overacker in the SPIS was in fact correct. Mr. Fors was entitled to rely on the representations that Mr. and Mrs. Overacker made in the SPIS.

[167] Mr. Malo also testified that the problem of the skylight and the roof was a design flaw that an average person would not be aware of. I consider this to be a latent defect. The septic field problem was not apparent. It, too, was a latent defect.

Did Mr. Fors sustain damages as a result?

[168] I accept that Mr. Fors would not have purchased the home if he had known of the water problems he was going to experience. He relied on the representations in the SPIS in deciding to buy the house. The representations were made negligently. Mr. Fors has suffered damages because of that negligence. He is entitled to be restored to the position he would have been in if Mr. and Mrs. Overacker had not breached their duty of care.

[169] I deal firstly with the leaking roof. All parties agree with Mr. Malo’s calculations although the defendants and the third parties dispute liability.

[170] Mr. Malo’s opinion was that the leaking skylight was not a problem of installation or materials but rather it was a design failure. He said that sealants were not an effective repair and that tarring was a temporary solution. Although Mr. Malo agreed that properly installed heating cables may alleviate the problem and that with proper glazing and a proper sealant, the skylight may last a long time, the design problem remains. Mr. Malo said that removal of the skylight was the primary focus of the remedial work that he recommended. Mr. Malo counselled the complete removal of the sloped ceiling and the vertical wall of the light well and replacement of the skylight with no less than four light tunnels to capture a fraction of the light of the existing installation. I accept Mr. Malo’s recommendation. I take the mid-point of his estimates for the costs of the sloping ceiling and vertical light well:

• sloping ceiling – 280 square feet $17,500.00

• vertical light well – 230 square feet $14,375.00

• 4 light tunnels @ $600 each $2,400.00

• light tunnel installation $2,000.00

TOTAL $36,275.00

[171] The issue with the sump pumps is related to the high water table. In my view, although Mr. Fors has not experienced a flood, it is only because of the exercise of a level of vigilance and maintenance that no purchaser should reasonably be expected to have to follow. It is simply unacceptable that Mr. Fors and his wife have to organize their lives around the constant threat that their home may flood. Of the solutions proposed by Mr. Nastor and Mr. Craig, I find that Mr. Nastor’s proposal is preferable. Mr. Craig stated that his proposal of one well might not be sufficient and that a second well might be required. His proposal did not address the problem of accumulation of iron in the pumps. Mr. Overacker, himself, had rejected Mr. Craig’s proposal when he investigated solutions to the high water table, because of the problems that he would have had cleaning the pumps, especially in winter.

[172] Mr. Nastor has been involved with basements and water issues for 40 to 45 years. He observed efflorescence on the basement floor, as shown in the photograph at Exhibit 11(d), and he saw moisture on the floor. In his opinion, water leaking into the basement was due to the high water table that the sump pump system, which is tied into the weeping tile around the basement perimeter, could not handle.

[173] He said that “slimy red iron” clogs everything up, that it is “death” to pumps. He said that sump pumps in that situation, which should last years, would hardly last one year. Mr. Fors testified that he had replaced four or five sump pumps after he moved into the home; notwithstanding that the pumps were cleaned regularly.

[174] Mr. Nastor’s proposal called for an industrial strength pump, outside the house, below the foundation, pumping groundwater onto the street, with “Iron Out” added to the system on what would probably be a monthly basis. Mr. Nastor said that the system proposed by Mr. Craig would work, but not if iron was not present.

[175] Mr. Overacker’s unsuccessful attempt to deal with the high water table by installing a trench and weeping tile around the property indicates that a solution is required. In my view, Mr. Nastor’s proposal is a reasonable solution. I accept his quote of $32,575. Mr. Nastor said that his system would require a monthly application of “Iron Out”, at $50 to $100 per application. In my view damages of $5,000 for the costs of this chemical would be reasonable.

[176] I am of the view that it is appropriate to award damages for the septic system. Mr. and Mrs. Overacker knew that there were problems with the septic system. They pumped out the septic tank on seven occasions during the first two months that they lived in the home. Any reasonable buyer would want to know this.

[177] Mr. and Mrs. Fors have continued to have problems with the septic system similar to those experienced by Mr. and Mrs. Overacker. Ms. Fors testified that there have been many times when, after coming home from work, she has lifted the lid of the tank to check the water level and had to call a pumping service to come immediately. As she described it, “It’s too much!”

[178] The solution is to have a septic field that is above the water table. Mr. Simpson of Superior North Contracting quoted $42,500 for an appropriate septic system. Mr. Vibert, of Allen’s Enterprises Services Inc. quoted $21,500 for a raised septic system, and $19,500 for an alternative raised system. His quote was dated January 3, 2011. He estimated that his quote would have increased by about $3,000 as of the date of trial. A permit would cost an additional $750. Mr. Fors would be responsible for a hydro hook up and grass to cover the filed.

[179] I estimate that Mr. Vibert’s proposed septic system would cost approximately $26,000, compared to Mr. Simpson’s quote of $47,460. Mr. Vibert’s quote provides a reasonable measure of damages for the costs of installation of a properly functioning septic system.

[180] The plaintiff seeks damages to install a new weeping tile system to deal with the leaking in the basement. However, I have determined that it would not be appropriate to award damages in this regard.

[181] Firstly, I have accepted, as damages, the costs of Mr. Nastor’s proposal to lower the water table. This is to deal with the constant running of the sump pumps related to the high water table. Mr. Nastor said that the high water table was also responsible for the leaking in the basement. He was called in because of the wet basement. He said that the solution to the leaking basement was to drop the water table and draw water away from the house with high volume pumps.. He did not say that both a well and a new weeping tile system were required to deal with the wet basement. He made no reference to a new weeping tile system. In my view, if damages are awarded to drop the water table to deal with the constant running of the sump pumps, which Mr. Nastor said will also deal with the leaking basement, there would be duplication if I awarded damages for a second method of dealing with the leaking basement, that is, a new weeping tile system.

[182] Secondly, the evidence is that the existing weeping tile system has become clogged with silt, although water is still flowing from the weeping tile at a very significant rate into the sump put. No witness testified that the silting was a product of the high water table. Mr. Malo could not say how long the basement had leaked. Mr. and Mrs. Overacker testified that they had not observed any leaking or efflorescence in the basement while they lived in the home. The first evidence of leaking is approximately two months after Mr. and Mrs. Fors moved into the home, during a rainstorm. Mr. Malo agreed that it was possible that silting could have occurred over a number of years and then reached a critical mass blocking the weeping tile. The plaintiff has not established that Mr. and Mrs. Overacker knew or should have known of the leaking in the basement and the efflorescence before the sale of the home closed.

[183] The costs of the proposals that I have accepted are:

Mr. Malo’s proposal $36,275.00

Mr. Nastors proposal - $32,575.00

plus Iron Out - $5,000.00 $37,575.00

Mr. Vibert’s proposal $26,000.00

TOTAL $99,850.00

[184] These proposals were all exclusive of the Harmonized Sales Tax of 13%. That percentage should be added to each of the three proposals.

[185] Mr. Fors also claims damages for disappointment and inconvenience. There is precedent for awarding damages to a purchaser for disappointment and inconvenience arising out of the sale of a home. See, for example, Krawchuk, at para. 45; Somerville et al. v. Ashcroft Development Inc. et al, [2005] O.J. No. 3361 (S.C.J.), at para. 80; Fitzhenry v. Vaccaro, 2009 MBQB 97, [2009] M.J. No. 140, (Q.B.), at para. 174.

[186] In this case, the bulk of the inconvenience was borne by Mrs. Fors, who has had to deal with the problems of the house while Mr. Fors was out of town in the course of his employment. However, Mrs. Fors is not a plaintiff and I cannot award damages for her considerable inconvenience. I award Mr. Fors $5,000 for his disappointment and inconvenience arising out of the negligent misrepresentations.

Betterment

[187] The defendants and the third parties argued that the plaintiff would get considerable betterment if he received repairs to his roof which resulted in a new design and if he received a new septic system to replace a septic system that had a life span of only several more years. The defendants had no figure for betterment. The third parties suggested betterment of 50% to 75%.

[188] The remedial work related to the skylight was both for repairs caused by the water damage and to prevent future water damage by removing the skylight and replacing it with four light tunnels. There was no evidence led by the defendants or the third parties that this would do anything more than indemnify Mr. Fors for the expense that he must incur to be put in the same position he would have been if the defendants had not been negligent.

[189] I also do not accept the submission that there should be a deduction for betterment related to the costs of a proper septic field. Although Mr. Simpson did testify that the expected life of a septic field could be 20 to 25 years, he said it was related to what extent it was used, to the numbers of occupants of the home and to what was put into the system. He referred to a septic field that he knew had lasted for 75 years. When Mr. Fors purchased the home, he did so with the expectation that there were no problems with the system. He in fact acquired a septic system that has repeatedly failed to an extent that no reasonable purchaser would have expected it to fail. If a deduction for betterment was taken, the plaintiff would suffer a loss because he would have no way to recover the cost of replacing this inadequate system. This expense is the result of the misrepresentation by the defendants and it would be, in my view, inequitable to reduce damages for this expense by some amount for betterment that, with respect, would be speculative. See DeBattista Gambin Developments Ltd. v. Niran Construction Ltd. 2013 ONCA 161.

[190] There is no evidence that the value of the house would be enhanced if the skylight and septic system problems were remediated or that if the remedial work had been done before Mr. Fors purchased the home that he would have paid a higher price. The price he paid was reflective of a house with no such problems.

Contributory Negligence

[191] The third parties argue that because the SPIS states that buyers must still make their own inquiries, notwithstanding the information contained in the statement, and that buyers can hire an independent inspector to examine the property for defects, Mr. Fors was contributorily negligent.

[192] As noted at paragraph 163 of these Reasons, this warning does not absolve the seller of liability for misstatements or require the purchaser to investigate the honesty of the vendor. I do not find contributory negligence in the face of Mr. Fors’ reasonable reliance on the misrepresentations.

The Defendants’ Claim Against the Third Parties

[193] The defendants submit that they are entitled to judgment against the third parties for any damages that may be awarded against them because Mr. Mallon was negligent in advising them how to complete the SPIS.

[194] The third parties submit that Mr. Mallon made a judgment call that was not negligent. They also submit that it would be an error in law to determine the standard of care expected of a reasonable and prudent real estate agent in these circumstances without expert evidence.

[195] In Krawchuk, Epstein J.A. stated, at para. 125:

“When a debate arises as to how a reasonable agent would have conducted himself or herself, recourse should generally be made to expert evidence.”

[196] And at para. 130:

“The jurisprudence indicates that in general, it is inappropriate for a trial court to determine the standard of care in a professional negligence case in the absence of expert evidence.”

[197] However, Epstein J.A. reviewed the authorities and found that they indicate two exceptions to this general rule:

133. The first exception applies to cases in which it is possible to reliably determine the standard of care without the assistance of expert evidence. As explained by Southen J.A. at para. 44 of Zink, this will be the case only where the court is faced with “nontechnical matters or those of which an ordinary person may be expected to have knowledge.”

134. The second exception applies to cases in which the impugned actions of the defendant are so egregious that it is obvious that his or her conduct has fallen short of the standard of care, even without knowing precisely the parameters of that standard: see Cosway v. Boorman’s Investment Co., 2008 BCSC 1492, at para. 35. As can be seen, this second exception involves circumstances where negligence can be determined without first identifying the parameters of the standard of care rather than identifying a standard of care without the assistance of expert evidence.

[198] Although there was no expert evidence led to identify the specific standard of care that Mr. Mallon, as a real estate agent advising the Overackers, was bound to exercise, I am satisfied that this case falls within the two exceptions.

[199] In Krawchuk, Epstein J.A., at para. 164, endorsed the proposition that a real estate agent has a duty to provide a certain level of guidance when a client is filling out an SPIS, and a duty to provide specific warnings of the importance of ensuring completed and accurate answers to the questions posed in an SPIS:

[165] If the seller’s agent plays a role in the completion of the SPIS, as was found to be the case here, he or she must exercise reasonable care and skill in ensuring its accuracy: (citations omitted)

[200] Mr. Mallon was expressly advised by Mr. and Mrs. Overacker that the basement had flooded, with extensive damage, when the sump pumps failed in 2005. It was Mr. Mallon who told Mr. and Mrs. Overacker that if the water problems had been “fixed”, they did not have to disclose the problems and the flood. An expert is not required to assist the court in determining that this advice was wrong. As noted in Sopinka, Lederman, Bryant The Law of Evidence in Canada (Markham, Ontario: Butterworths), 2nd edition, at para. 12.36:

If the trier of fact is able to reach a conclusion without the assistance of experts, the opinion evidence is superfluous and thus is unnecessary.

[201] This is another way of stating the first exception.

[202] Reference has previously been made in these Reasons to the observations of Killeen J. in Kaufman and Wright J. in Usenik that the questions in an SPIS must be read in a plain and common sense manner. No tenable argument could be made that the questions were limited to problems on the day the form was signed. An ordinary person would be expected to have known this.

[203] The second exception also applies. Mr. Mallon’s advice was so egregiously wrong that it is obvious that it fell short of the standard of care that would be expected of him. Mr. Mallon, himself, agreed that this would be information that he would want if he had been buying the home. He, himself, acknowledged that Mr. Fors should have been notified about the sump pump maintenance issues before the closing.

[204] I agree with the submission of the defendants that the standard of care required of Mr. Mallon towards the Overackers, as their agent, was, at a minimum, as high as the standard of care that he was required to exercise towards Mr. Fors, as a purchaser, under the Buyer Customer Service Agreement. The standard of care in regard to Mr. Fors was described in the Buyer Customer Service Agreement was a legal duty to exercise due care where answering questions and providing information. Mr. and Mrs. Overacker sought Mr. Mallon’s advice on how to complete the SPIS as regards water problems and the flood and relied on that advice. The discussions with Mr. and Mrs. Overacker went beyond putting Mr. Mallon on his inquiry about possible water problems. He was expressly told of those problems, following which he advised Mr. and Mrs. Overacker not to disclose those problems. Mr. Mallon did not exercise due care when telling Mr. and Mrs. Overacker how to answer the questions.

[205] Although Mr. Mallon was told of the sump pump maintenance issues and the flooding, he was not told about the septic field nor was he later told about the leaking skylight.

[206] Mr. and Mrs. Overacker may have assumed from their discussions with Mr. Mallon about the sump pumps and the flood that they did not have to disclose the leakage from the skylight because, in their minds, it had been fixed. However, in my view, that is not sufficient to hold Mr. Mallon liable for an issue that was never raised with him and on which he gave no advice. Mr. and Mrs. Overacker had a duty under the SPIS to disclose important changes in the information set out in the form. They should have contacted Mr. Mallon. If he had given them the same advice about the skylight as he did about the sump pump system, then he would be liable. However, it would be speculative to conclude that he would have given the same advice.

[207] The same reasoning applies to the issue with the septic system. Mr. Mallon was unaware of those problems. Moreover, unlike the sump pumps which had been replaced, and new lines installed, it is difficult to understand how Mr. and Mrs. Overacker could have believed that the septic system had been fixed, when the “fix” required them to regularly clean out the sump drainage ditch, sometimes two or three times a day, de-thatch the lawn and reduce watering the lawn. They knew, after their disappointment with the work that Mr. Nichols had done, that the high water table, which was the effective cause of the saturation of the septic field, had not been solved. Again, it would be speculative to assume that Mr. Mallon would have told Mr. and Mrs. Overacker not to disclose the septic problems if he had been made aware of them.

[208] I therefore conclude that Mr. Mallon and Royal LePage, as third parties, are liable to Mr. and Mrs. Overacker, as defendants, for that part of the claim of Mr. Fors, as plaintiff, for the costs of Mr. Nastor’s proposal, but not for the costs of the proposals related to the skylight and the septic system.

Conclusion

[209] For the reasons given, Mr. Fors shall have judgment in the main action against Mr. and Mrs. Overacker for the following damages:

(a) i. Mr. Malo’s proposal $36,275.00

ii. Mr. Nastor’s proposal - $32,575

plus Iron Out $5,000 $37,575.00

iii. Mr. Vibert’s proposal $26,000.00

$99,850.00

Plus HST at 13% $12,980.50

SUB-TOTAL $112,830.50

(b) Damages for disappointment and inconvenience $5,000.00

TOTAL $117,830.50

[210] Mr. and Mrs. Overacker shall have judgment against the third parties in the third party claim for the amount of Mr. Nastor’s proposal, inclusive of Iron Out, namely $37,575, plus HST of 13%, namely $4,884.75, for a total of $42,459.75.

Costs

[211] If the parties are unable to agree on costs, they shall contact the Trial Co-ordinator within 30 days to set a date to speak to the issue, failing which, costs shall be deemed to have been settled by the parties.

___”original signed by”

The Hon. Mr. Justice D. C. Shaw

Released: May 26, 2014