Court File and Parties

COURT FILE NO.: 2018-011 DATE: 2019 07 08

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

THIRD LINE HOMES INC., Plaintiff R. H. Thomson for the Plaintiff

- and -

PATRICIA GRANT, Defendant Stephany Mandin for the Defendant

HEARD: May 2, 2019 at Owen Sound

EMERY J.

REASONS FOR DECISION

[1] Third Line Homes Inc. is a builder of custom homes. Third Line and Patricia Grant entered an agreement of purchase and sale dated August 10, 2016 (the “Agreement”) under which Third Line agreed to sell the lot and house it would build on the lot for Mrs. Grant as the buyer. Mrs. Grant agreed to pay the purchase price in eleven payments for a total of $524,649, with each payment due at certain milestones under the Agreement pursuant to an attached payment schedule.

[2] Mrs. Grant has paid all but payment 10 in the amount of $33,786.66 and payment 11 in the amount of $17,782.45, plus related H.S.T. Third Line has commenced this action against Mrs. Grant for these payments. Third Line now brings this motion for summary judgment claiming $57,171.41, arguing there is no genuine issue requiring a trial to recover judgment for this balance.

[3] Mrs. Grant has defended the action on the basis that the house was not completed to the specifications under the Agreement. Mrs. Grant submits that the presence of moisture and mould detected in the basement of the house is evidence that either Third Line has not performed the Agreement as it is not substantially completed, or that Third Line has breached the Agreement and she is entitled to a set-off for the cost to remedy that deficiency. Mrs. Grant takes the position on the motion for summary judgment that these issues require a trial.

[4] Mrs. Grant also takes the position that water related issues with the house fall squarely within matters that are covered by warranty under the Ontario New Homes Warranties Plan Act (ONHWPA). She submits that, as a preliminary matter, the case involves warranties to which the statute applies. Consequently, section 17(4) of the ONHWPA requires the parties to submit the dispute to arbitration, and that this court has no jurisdiction to hear any part of it.

Contextual Background

[5] Third Line agreed to build, and Mrs. Grant agreed to purchase, a house based on pre-approved TerraceWood Design 6 drawings that would be constructed by Third Line in accordance with the Agreement. Third Line made the following statements as to the kind and quality of the house it would build in Schedule C to the Agreement:

Fixtures and Features Third Line’s Healthy Homes at TerraceWood, Meaford Our houses are beautiful, practical energy efficient and, above all, healthy. We are intensely proud of our unique design and construction protocol and are confident that you will experience comfort, reduced energy costs and delight in your new Third Line home. We strive for superior indoor air quality. We use non-toxic building materials, sourcing low or zero VOC paints, finishes, caulking, sealants and adhesives. For those of you with severe environmental or chemical sensitivities, we will work with you to ensure optimum livability.

[6] The payment schedule attached to the Agreement consisted of eleven payments. Each payment was linked to a specific milestone in the construction process, up to and including “final completion.”

[7] The construction of the house was delayed while the parties waited for approval from the Grey Sauble Conservation Authority.

[8] The approval from the conservation authority to commence construction was not granted until October 17, 2016. On October 24, 2016, the Municipality of Meaford issued the building permit. Therefore, construction of the Grant residence did not start until late fall 2016.

[9] Third Line has filed evidence on this motion that construction of the residence was substantially completed, and the Agreement was substantially performed by Third Line on or about July 31, 2017.

[10] On August 28, 2017, the Municipality of Meaford granted an occupancy permit. This enabled Mrs. Grant to move into the house on August 29, 2017.

[11] Bryan McClellan is the lawyer who formerly represented Mrs. Grant. Mr. McClellan wrote a letter to Third Line dated August 4, 2017 promising payments 9 and 11 totalling $53,347.35 would be made upon receipt of the occupancy permit. When the house was approved for occupancy, payment 9 was made pursuant to the payment plan. Payment 11 in the amount of $17,782.45 plus H.S.T. promised in Mr. McClellan’s letter has not been paid.

[12] The Agreement required Mrs. Grant to retain a ten per cent holdback, consistent with her rights under the Construction Act. On October 12, 2017, being the 45th day after occupancy of the house had been approved by the municipality, Third Line issued an invoice for $33,786 plus HST totalling $37,077.24. This invoice has been amended to reflect the Tarion “Xactimate”, based on a warranty claim Mrs. Grant had previously made to Tarion. Third Line expected payment of this invoice as it considered occupancy of the house the equivalent to substantial completion of the house under the Agreement to trigger Mrs. Grant’s obligation to make payment 10 for the release of holdback.

[13] Third Line refers to article 1.6 of the agreement, where it specifically agrees to indemnify Mrs. Grant against any third party claims by subtrades and suppliers.

[14] Third Line has provided Mrs. Grant with a confirmation of that indemnification. This confirmation confirms that all suppliers and sub-trades have been paid in full, and in it Third Line agrees to indemnify Mrs. Grant against any claims by third parties for payment.

[15] Mrs. Grant states that Third Line has not provided a certificate of substantial performance. Third Line responds that providing a certificate of this nature is not a usual business practice in its trading area.

[16] Mrs. Grant did not pay the invoice dated October 12, 2017.

[17] Third Line submitted the final invoice for payment 11 on December 21, 2018 in the amount of $20,094.17 due on “final completion.” Mrs. Grant has not paid this invoice for payment 11.

[18] After Mrs. Grant moved into the residence, she arranged further inspections of the house and provided a list of outstanding items to be completed. This resulted in a long list of deficiencies identified on the Tarion 30 day form.

[19] Third Line addressed many of the deficiencies identified on the 30 day form, but not all of them. Mrs. Grant later delivered a Tarion One Year form listing some of those remaining deficiencies, and others detected by herself and her two sons.

[20] Mary-Jo Osborn, one of the owners of Third Line, has sworn two affidavits, one in support of Third Line’s motion for summary judgment, and another in reply after receiving the evidence of Mrs. Grant. Ms. Osborn describes the numerous steps that Third Line has taken to address the deficiencies identified. Ms. Osborn states that Mrs. Grant refused Third Line access to the home to remedy any of the remaining deficiencies, while still insisting that she need not make the payments required under the Agreement because of those deficiencies.

[21] Ms. Osborn describes some of the investigations Third Line has undertaken into the water issues, and into the complaint Mrs. Grant has made about the existence of mould. In October 2017, Mrs. Grant reported discovered that mould had been discovered in the basement, and this discovery was communicated to Third Line. Third Line immediately arranged for Garbutt Construction DKI to begin mould testing and to remediate the situation. Garbutt Constructon DKI took samples and arranged for Pinchin Environmental Microbiology Laboratory to test those samples. The evidence attached to Ms. Osborn’s affidavit indicates that Pinchin found no issues from its testing in need of remediation.

[22] Mrs. Grant also reported the moisture and mould issue to Tarion. In December 2018, Tarion retained Safetech Environmental Limited to conduct a mould and water damage report. This report confirms that there is no evidence of water penetration in the basement and there were no levels of mould were found. Safetech concluded that the conditions in the Grant basement were normal.

[23] Mrs. Grant maintains that the moisture issue remains in her basement. Third Line put forward evidence that she would not allow Third Line access to the residence to assess the issue further.

[24] Third Line states that Mrs. Grant also resists granting access to Third Line to fix a portion of the drywall in the basement that had been cut out. Third Line estimates that it will take approximately 1.5 days to complete the worklist on the Tarion one year list, including repair of the basement drywall.

[25] Mrs. Grant obtained a report on the moisture and mould issue in the basement from 360 Mould Services (“360”) that she engaged to conduct testing and to report their findings. In a letter dated January 12, 2019, 360 reported that their inspection on November 19, 2018 detected grading issues on the exterior of the house, as well as moisture and/or mould contamination on visible or accessible surfaces inside:

• The soil or grading was observed to have insufficient or substandard slope to drain run - off water away from the building perimeters along the North and West facing side(s) of the building;
• Signs of prior moisture intrusion and / or staining were observed along the West and North facing wall(s) of the basement area(s);
• Elevated moisture was observed in one or more sections of the basement floor.

[26] 360 also took air samples for analysis. They concluded that the air sampling results suggested that the indoor air quality is moderately impacted by the presence of mould or contamination within the basement area(s). 360 recommended that further action be taken to address possible ongoing moisture intrusion issues throughout the northeast and eastern facing exterior foundation wall(s). 360 also recommended monitoring for a possible moisture accumulation under the basement floor slab, and remediation of elevated mould spore levels within the basement and area(s) of the building.

[27] At the time, 360 offered comments on the previous assessments to the property made by Garbutt Construction DKI and Safetech Environmental.

[28] Mrs. Grant has taken the position that the contractual issues relating to payment should be resolved under the Tarion arbitration process as Part 15 of the Agreement specifies that the house will be enrolled in the ONHWPA program.

[29] Ms. Osborn states that Tarion has confirmed that this process is not for resolving issues related to payment, which must be resolved through civil court. A copy of an email from Tarion with respect to this position was attached to her affidavit. Karin Gaupholm, a senior warranty services representative at Tarion states in an email to Ms. Osborn dated March 21, 2018 as follows:

“Arbitration is only used by the builder when the builder disagrees with assessments that are made by Tarion or if there is a disagreement over chargeability. If the homeowner appeals some of the decisions of the license appeal tribunal, they can dispute individual items. They cannot work out their issues over the hold back. That has nothing to do with the tribunal and has to be resolved through civil court, through the construction lien process.”

[30] Third Line therefore claims that this court has all the evidence necessary to grant summary judgment pursuant to the invoices for each payment number 10 and payment number 11 as a fair process to determine its claims on their merits.

Issues

[31] The are four essential issues before this court:

a. Should this motion be stayed because the action is subject to arbitration pursuant to section 17 (4) of the Ontario New Home Warranties Plan Act? b. If not, is summary judgment a fair and just process to determine the claims made by Third Line in this action? c. Is there any genuine issue requiring a trial, having regard to the evidence of the parties? d. What orders should be made as a result?

Analysis

a. Arbitration

[32] Mrs. Grant relies upon section 17 (4) of the Ontario New Home Warranties Plan Act to invoke arbitration. Section 17 (4) reads as follows:

(4) Every agreement between a vendor and prospective owner shall be deemed to contain a written agreement to submit present or future differences to arbitration, subject to appeal to the Divisional Court, and the Arbitration Act, 1991 applies. R.S.O. 1990, c. O.31, s. 17 (4) ; 2019, c. 7 , Sched. 47, s. 6. (ii) the date when other preparatory or related work for the installation of portions or components of the foundation of the phase, other than prescribed work, is commenced. 2015, c. 28 , Sched. 1, s. 154 (7).

[33] The parties agree that the ONHWPA applies to the agreement of purchase and sale. They also agree that the ONHWPA would apply in any event to the construction of this home as a matter of law because Third Line is registered as a builder under the ONHWPA.

[34] Mrs. Grant has not brought a motion under section 7 of the Arbitration Act, 1991 to stay Third Line’s action. Section 7 (1) provides that the court shall, on the motion of any other party, stay an action that may be covered by arbitration, subject to enumerated exceptions.

[35] Ms. Mandin made submissions that Mrs. Grant is not required to bring a motion for this court to consider a stay of the action based for want of jurisdiction because of the applicability of section 17 (4) of the Ontario New Home Warranty Plan Act. She provided a copy of the endorsement of Justice Lax in Legacy Leather International Inc. v. Ward as authority that this court has the discretion to grant Mrs. Grant a stay of the action even though she did not bring a motion for that relief.

[36] The court in the Legacy Leather case was dealing with the ability of a plaintiff who had reconsidered its position in the litigation, and has chosen instead to proceed by arbitration. The plaintiff in that case asked the court to stay the action without bringing a separate motion.

[37] Justice Lax recognized that section 7(1) of the Arbitration Act, 1991 did not permit a party to bring a motion to stay their own action. Recognizing the primacy of the arbitration process in the face of an arbitration clause having language broad enough to apply on those facts, Justice Lax exercised her discretion under section 106 of the Courts of Justice Act to grant the stay requested.

[38] Legacy Leather stands as authority for the court to exercise the general discretion given by section 106 where a party is precluded by the Arbitration Act, 1991 from bringing a motion to stay its own proceeding. In my view, it is not authority for the court to grant the stay of an action in favour of arbitration in the absence of a motion a defendant, being another party, is expressly required by section 7(1) to bring.

[39] A plaintiff, such as the plaintiff in Legacy Leather, seeking a stay without bringing a motion for that relief is in a different position than a defendant because the plaintiff is in control of the process in which it is advancing its own case. It has the choice of proceeding by action or by arbitration if circumstances permit. It has the power to terminate the action by way of discontinuance. In other words, it has the option of the forum in which to commence or withdraw from litigation. A defendant is in a different position in that he or she must respond in the forum initially chosen by the plaintiff through defending the action in the court, or utilizing any process available under the law to dispose of the action or to have the issues determined in another forum. If an arbitration clause makes arbitration that preferred forum, the defendant must bring a motion for the court to stay the action to allow that other process.

[40] I therefore conclude that Mrs. Grant cannot rely on the arbitration provisions of section 17 (4) of the ONHWPA at this motion because she has not brought a motion of her own to stay the action. Consequently, this is not an argument to impede the motion brought by Third Line in the action. I therefore find that neither section 7(1) of the Arbitration Act, 1991 or section 106 of the Courts of Justice Act applies to this motion.

b. Is Summary Judgment Appropriate?

[41] Deciding whether the claims made by Third Line in this action should be determined under summary judgment procedure depends on whether this process is fair and if it provides the parties with access to the affordable, timely and just adjudication of those claims. To be fair, the process must also be proportionate to what is at stake on the motion, and to the resources of the parties. In Hryniak v. Mauldin, 2014 SCC 7, Justice Karakatsanis explained that the standard for determining whether summary judgment will provide a fair and just adjudication is not whether the procedure is as exhaustive as a conventional trial, but rather “whether it gives the judge the confidence that [the judge] can find the necessary facts and apply the relevant legal principles so as to resolve the dispute.”

[42] Shortly after Hryniak was released, Corbett J. set out the critical path for the hearing of a motion for summary judgment in Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200 (affirmed at 2014 ONCA 878). At para. 33 Corbett J. observed that:

As I read Hryniak, the court on a motion for summary judgment should undertake the following analysis:

1. The court will assume that the parties have placed before it, in some form, all of the evidence that will be available for trial;
2. On the basis of this record, the court decides whether it can make the necessary findings of fact, apply the law to the facts, and thereby achieve a fair and just adjudication of the case on the merits;
3. If the court cannot grant judgment on the motion, the court should: a. Decide those issues that can be decided in accordance with the principles described in 2), above; b. Identify the additional steps that will be required to complete the record to enable the court to decide any remaining issues; c. In the absence of compelling reasons to the contrary, the court should seize itself of the further steps required to bring the matter to a conclusion. (footnotes omitted)

[43] Recent decisions from the Court of Appeal have made it known that summary judgment should not be employed as the preferred delivery system for civil justice in this province, but rather in cases appropriate for summary judgment under Rule 20.04. The trial process remains the standard forum for the trial of civil disputes in Ontario. A motions judge, confronted with an insufficient record to make findings of fact on central issues, may dismiss the motion because a conventional trial is the more appropriate forum for the court to hear evidence in order to reach a just determination of the case on its merits: Swampillai v. Royal Sun, 2019 ONCA 201 (Ont.C.A.). The Court of Appeal made it clear in Mason v. Perras Mongenais, 2018 ONCA 978 that summary judgment is appropriate where it would lead to a fair and just adjudication. At paragraph 44, Justice Nordheimer took the opportunity to explain that:

[44] With respect, the culture shift referenced in Hryniak is not as dramatic or as radical as the motion judge would have it. The shift recommended by Hryniak was away from the very restrictive use of summary judgment, that had developed, to a more expansive application of the summary judgment procedure. However, nothing in Hryniak detracts from the overriding principle that summary judgment is only appropriate where it leads to “a fair process and just adjudication”: Hryniak at para. 33. Certainly there is nothing in Hryniak that suggests that trials are now to be viewed as the resolution option of last resort. Put simply, summary judgment remains the exception, not the rule.

[45] Third Line brought this motion for summary judgment on its claim believing it would provide a fair and just process to adjudicate its claim on the merits. It also brought this motion for summary judgment as a process proportionate to the amount involved, the subject matter of the claim and the resources of the parties. However, the evidence given by Ms. Osborn in support of the motion, the affidavit of Mrs. Grant filed in response, and Ms. Osborn’s affidavit in reply raise evidentiary that put in question whether there is sufficient evidence for the court to conclude there is no genuine issue requiring a trial. Given the defences in the statement of defence raised by Mrs. Grant and the evidentiary record filed to challenge the claims made by Third Line, the summary judgment procedure may not be a fair and just process to adjudicate this case on its merits.

c. Is there a genuine issue requiring a trial?

[46] The action Third line has brought is contractual in nature. It is framed as a claim for entitlement to payment from Mrs. Grant under the Agreement, and not for the value of the work and materials actually provided. In order to succeed on this motion or at trial, Third Line must prove on the balance of probabilities that it has satisfied the contractual requirements to trigger each payment 10 and payment 11. This may also require proof of the contracting intentions of the parties, if that intent cannot be answered fully by the language they employed in the Agreement.

[47] The defences that Mrs. Grant relies upon are also contractual in nature. Fundamentally, she is holding Third Line to the strict proof of its claims. She has provided evidence to argue that Third Line has not satisfied the language of the payment schedule by reaching either the level of “substantial completion” required for payment 9, or “substantial performance” as that term is used under the Construction Act, to calculate the time for the holdback period to run, or the amount of any holdback a trade or material supplier could possibly claim against a holdback, to trigger an entitlement to payment 10. Mrs. Grant additionally relies upon the language Third Line used in Schedule C as a representation of the kind and quality of house it would build under the Agreement for her. The deficiencies she alleges, and the dispute about moisture and mould presence in the basement, are facts she advances to support paragraph 36 in the statement of defence that the house remains in an unfinished state. Therefore, the house has not reached the state of final completion to trigger payment 11.

[48] In the alternative, Mrs. Grant takes the position that Third Line has breached the Agreement because it has not performed it’s obligations under it. As a result, Mrs. Grant pleads that Third Line is liable to indemnify her under paragraph 20.1 of the Agreement, and seeks a set-off she estimates at $20,000 as of the date of her pleading.

[49] The central question on any motion for summary judgment is whether there is a genuine issue requiring a trial having regard to all of the evidence filed.

[50] The evidentiary requirements on one party or the other on a motion for summary judgment were clearly described by Corbett J. in Sweda Farms. The court will assume the parties have placed evidence before the court on the motion that would be available at trial. The law requires that each party put all evidence forward to make their best case on a motion for summary judgment. This requirement applies equally to the moving party and to the party responding to the motion (see also Mazza v. Ornge Corporate Services Inc., 2016 ONCA 753).

[51] The burden of satisfying the court that there is no genuine issue requiring a trial with respect to a claim or defence is initially on the shoulders of Third Line as the moving party. In Sanzone v. Schecter, 2016 ONCA 566, Justice D.M. Brown explained that the evidentiary burden shifts to the responding party, which would be to Mrs. Grant, if and when Third Line has satisfied the court there is no genuine issue requiring a trial. In Sanzone, Brown J.A. also explained the proper way to introduce any evidence from an expert on a motion to meet that evidentiary burden, and the proper manner of putting expert evidence before the court through an affidavit.

[52] While Mrs. Grant has made the prospect of expert evidence an issue because of her reliance on water and mold reports, the reports and letters filed by those companies as exhibits to the various affidavits before the court cannot be accepted for the truth of their contents, but only for the fact that each party has received those documents. Since moisture and mould in Mrs. Grant’s house is an issue that each party has addressed in affidavits filed for and in response to the motion, the parties have made it an issue requiring expert evidence.

[53] Neither party filed an affidavit sworn by an expert in the water and mould field. There was no affidavit before the court where an expert set out the substance of any work done or the taking of tests and those results, where the author described him or herself, his or her qualifications, or where the expert attached a report he or she had written on this house. The rules of evidence apply as much to motions as to the evidence at trial: a party must ensure compliance with Rule 53.03 in each respect if relying on a litigation expert in support of, or in response to, a motion for summary judgment.

[54] Since no evidence on the water, moisture and mould issue was filed by either party to assist this court as the trier of fact, that issue therefore constitutes a genuine issue requiring a trial.

[55] There was no affidavit sworn by any one at Tarion describing the involvement of Tarion with respect to this house, or how the Ontario New Home Warranties Plan Act applies on the facts.

[56] There will be issues of credibility between Third Line and Mrs. Grant and her two sons about the deficiencies, and any dispute about access prevented or permitted to Third Line to fix those remedies that the court will require viva voce evidence from witnesses to assess. The court will have to hear evidence from experts on the moisture and mould issues. It will be necessary for the court to take a holistic approach in receiving evidence to make the necessary findings about the rights and obligations of the parties to make or receive further payments under the Agreement. These findings include a determination of whether Third Line proves its entitlement to payments 10 and 11 having regard to the language used in Schedule C to the Agreement, and if Mrs. Grant is entitled to claim indemnification if the court finds that Third Line has fallen short of performing its part of the Agreement.

[57] I do not consider it appropriate to determine whether there is a genuine issue requiring a trial by using the enhanced powers available to the court under Rule 20.04(2.1). To the contrary, I find that it would be in the interests of justice for the court to exercise those enhanced powers only at a trial. I have taken the comparative approach directed by the court in Hryniak to reach this conclusion. The requirement of expert evidence that was found lacking on this motion, further evidence of final completion of the house and the credibility of the witnesses that cannot be determined on this evidentiary record are facts more readily ascertained at a conventional trial.

[58] The power to order oral evidence under subrule (2.2) has limited utility here. A mini-trial in this case may ultimately take on the full dimensions of a conventional trial in form and duration. There are too many parts of the claim and defence that require further evidence to determine the substantial or final completion for the construction of this house. Evidence from the parties, contractors, and municipal authorities may be required in addition to expert evidence to make the necessary findings of fact. There are witnesses from Tarion that may be called to give evidence on matters at issue between the parties with respect to the application of the ONHWPA.

[59] A mini trial would not be proportionate to the adjudication of the outstanding issues. The time and expense for the parties to prepare for and to secure a date for a mini-trial in Owen Sound may be the same as proceeding to a full trial on the numerous issues between them, with greater benefit available through the latter.

d. Orders

[60] Third Line as the moving party has not satisfied this court that there is no genuine issue requiring a trial to prove that it has met the requirements to trigger payments 10 and 11 under the Agreement.

[61] As Third Line has not met that standard on this motion, the evidentiary burden did not shift to Mrs. Grant to show there is a genuine requiring a trial after all. Substantial completion has not been proven. Whether the obligation of Mrs. Grant to pay either payment 10 or 11 has been triggered remains a genuine issue requiring a trial.

[62] The motion that Third Line has brought for summary judgment is therefore dismissed.

[63] I recognize that Justice Karakatsanis in Hryniak expressed that the judge who hears the motion for summary judgment should consider seizing him or herself for the balance of the action. I routinely sit in Brampton. I heard this motion for summary judgment when I was sitting in Owen Sound as one of the court locations in Central West Region. I do not know when I would be assigned to sit Owen Sound to hear the trial of this matter. I do not know if the parties, their witnesses or counsel might be available on a specific date when I could be assigned to hear the trial in Owen Sound. In my view, I do not think it wise or fair to the parties to delay having this action tried in a timely fashion because of scheduling issues beyond their control. There is no benefit to having me hear the trial of this action to justify that delay or inconvenience. I am therefore not seized of this action.

[64] The parties are encouraged to resolve the issue of costs for this motion between them. If the involvement of the court to set costs is requested, the following terms shall apply:

1. Mrs. Grant shall file written submissions by July 19, 2019;
2. Third Line shall then have until July 31, 2019 to file responding submissions;
3. Written submissions shall consist of no more than two double spaced typewritten pages, not including offers to settle or a bill of costs.

[65] No submissions in reply shall be permitted without leave. All written submissions shall be sent by fax or by email to my judicial assistant at 905-456-4834 or melanie.powers@ontario.ca in Brampton.

Emery J. Released: July 8, 2019