Court File and Parties
COURT FILE NO.: 2245/19 (London) DATE: 20210312 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
375 Lakeshore Developments Inc. Applicant – and – Lin Tong, Tong Lin, Ning Jing, Michael Watkinson and Tarion Warranty Corporation Respondents
Counsel: Eric A.F. Grigg, for the Applicant Mitchell Wine, for the Respondents, Lin Tong, Ning Jing and Michael Watkinson Michael Owsiany, for the Respondent, Tarion Warranty Corporation
HEARD: September 3, 2020
RULING ON APPLICATION
MUNROE J. :
[1] The Defendants bring this motion for an order transferring this proceeding from Sudbury (Northeast Region) to the Toronto Region. Before me is an application for a declaration of the meaning of certain releases and for a permanent injunction enforcing same. A developer/vendor seeks to enforce releases in the new home buyer context. Broadly, the developer/vendor seeks to enjoin certain home buyers from continuing or making certain warranty claims it asserts are contrary to executed releases.
[2] Applicant developed and sold 18 new townhouses. The Personal Respondents purchased two of the new townhouses from Applicant. Respondent Tarion Warranty Corporation (“Tarion”) is the non-profit corporation designated to administer the Warranty Plan for new homes under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31 (“the Act”).
[3] In its Amended Notice of Application, Applicant seeks a permanent injunction against the Personal Respondents. More specifically, at paragraphs 1(i) and (j) of its application, Applicant seeks:
(i) … [a] permanent injunction prohibiting the [Personal Respondents] from submitting the Claims to Tarion in [any] manner or by any means whatsoever;
(j) … [a] permanent mandatory order requiring the [Personal Respondents] to withdraw, terminate, or otherwise cause Tarion to cease its investigation, prosecution, and/or adjudication of the Claims ….
[4] The Amended Notice of Application was issued on November 15, 2019 and first returnable on December 6, 2019.
[5] The suspension of normal court operations on March 17, 2020, due to the COVID-19 pandemic, took place before the hearing on the application.
[6] On September 2, 2020, a hearing was held before me, via Zoom technology, on the application. My decision was reserved.
[7] Subsequently, Applicant sought interlocutory injunctive relief before this court.
[8] On September 9, 2020, I heard submissions, via Zoom technology, on the interlocutory injunctive relief sought. My decision was reserved. On September 11, 2020, I issued my Reasons on Interlocutory Injunction: 375 Lakeshore Developments Inc. v. Tong, 2020 ONSC 5441, (September 11, 2020), London, 2245/19 (S.C.). I denied Applicant’s request for an interlocutory injunction, finding a failure to satisfy its interlocutory burden, without deciding the merits of the case now before me for decision.
[9] Following submissions and before the release of my decision, the court became aware of a new Ontario Court of Appeal decision: Deschenes v. Lalonde, 2020 ONCA 304, 447 D.L.R. (4th) 132, leave to appeal refused, 2021 CarswellOnt 1656 (SCC). Said decision addressed innocent misrepresentation in the settlement agreement context. On February 17, 2021, the court invited additional submissions on this new case. On March 3, 2021, the court received the invited written submissions from all parties.
Background
[10] The factual background is largely uncontested.
The Parties
[11] Applicant, 375 Lakeshore Developments Inc. (“Applicant” or “375”), is a single use corporation incorporated for the purpose of developing the townhouse project at issue. 375 was, at all times material to this case, a registered vendor of new homes under the Act. Tong Hahn (“Hahn”) was, at all times material to this case, the principal shareholder, director and president of Applicant. Norma Thiessen (“Thiessen”) was, at all times material to this case, Applicant’s director of customer service.
[12] Personal Respondents Tong Lin, Jing Ning [1] (“Lin” and “Ning” or collectively “Lin/Ning”) are married to each other and live together in their townhouse at issue in Mississauga, Ontario. At the time of submissions, Lin was 65 years old and a tool and die maker, and Ning was 66 years old and retired from Health Canada as a senior biologist and clinical evaluator. Both are highly educated and have lived in Canada for over 30 years.
[13] Personal Respondent Michael Watkinson (“Watkinson”) lives alone in his townhouse at issue in Mississauga, Ontario. He was, at the time of submissions, 48 years old. He earned a bachelor’s degree in engineering and works at a photography company in which he is an owner.
[14] Respondent Tarion, as stated above, is the non-profit corporation designated to administer the Warranty Plan for new homes under the Act.
The Townhouses
[15] 375 developed a parcel of land in Mississauga, Ontario on which 18 freehold townhouses (“the townhouses”) were constructed by Applicant’s general contractor.
[16] The townhouses are four stories high with no basements. The entrance to the first or ground floor faces Godfrey’s Lane, Mississauga. The first floor contains a hallway, a bedroom/den, a bathroom, a furnace room, and a two-car garage facing the rear alleyway.
[17] The townhouses were constructed, without basements, using slab-on-grade foundations.
The Sales
[18] 375 sold the 18 townhouses including one to Lin/Ning at 15 Godfrey’s Lane and one to Watkinson at 25 Godfrey’s Lane.
[19] Lin/Ning moved into 15 Godfrey’s Lane on September 30, 2016, although they did not take title until January 2017.
[20] Watkinson moved into 25 Godfrey’s Lane on September 12, 2016 but he did not take title until January 17, 2017.
The Initial Complaints
[21] During the first winter of their residency (2016-2017), both Lin/Ning and Watkinson noticed and subsequently complained about the cold temperature on the ground floor of their respective townhouse.
[22] In his Tarion First Year-End Warranty Form dated September 8, 2017, Watkinson stated, in item number 2 regarding the first floor: “Cold! 10 degrees celsius in winter!”
[23] In their Tarion First Year-End Warranty Form dated September 28, 2017, Lin/Ning stated, with regard to item number 2: the “[f]irst (ground) floor temperature control: temperature differentiates in the winter up to 10 [degrees] C between the first and second floor.”
The Second Year Complaint
[24] In their Tarion Second-Year Warranty Form dated September 28, 2018, Lin/Ning stated, “The heating system is unable to heat the whole first floor during the winter” with regard to the first floor interior item 5-1 (bathroom), item 5-2 (den/study), and item 5-3 (hallway).
The Response/Offer
[25] Beginning in or around the fall of 2017, the townhouse owners, including Lin/Ning and Watkinson, commenced communications with 375, through Thiessen, its customer service director, about the ground floor temperature complaints.
[26] In early 2018, 375 offered the townhouse owners, including Lin/Ning and Watkinson, either the installation of ground floor heaters at 375’s expense or the payment of $1,200, the anticipated cost of the heaters, to resolve the temperature complaints. In exchange, 375 wanted releases.
Acceptance and Releases
[27] Watkinson agreed to accept the $1,200 and signed a release on February 28, 2018. Subsequently, 375 paid him $1,200.
[28] Lin/Ning also decided to accept the $1,200 and signed a release on January 9, 2019.
[29] Both releases, four pages in length, entitled “Release, Waiver and Indemnity”, provided releases with regard to the “Settlement” attached as Schedule “A”.
[30] Both releases state that the Personal Respondents “will not pursue any action with Tarion … or against [375] in any manner whatsoever relating to any matter in relation to [the ground floor temperature issue].”
Tarion Involvement
[31] In or about the spring of 2019, following temperature complaints from multiple owners of the townhouses, Tarion retained an engineering firm to investigate. Said investigation revealed that there was insufficient insulation below and above the ground floor concrete slab to create a “thermal break” to prevent heat loss. Tarion considers the problem to be systemic throughout all 18 townhouses sold by 375.
[32] Tarion assesses the problem as a warranted defect which must be repaired. The appropriate remedy, according to Tarion, involves the demolition of the floor slab, the installation of proper insulation, and the reinstallation of the floor slab. The estimated cost of such a repair to each of the townhouses is $80,000 to $100,000.
Subsequent Complaints
[33] On or about May 31, 2019, Lin/Ning submitted a Major Structural Defect warranty claim to Tarion identifying one claim:
The first floor temperature has always been below the required level based on the building code (22 C) in the winter. The thermal break deficiency has been identified by multiple units in my townhouse neighborhood on Godfreys Lane.
[34] On or about October 31, 2019, Watkinson submitted a Major Structural Defect warranty claim to Tarion identifying one claim:
Lack of thermal break on ground floor. No basement[,] and foundation is cold which transfers into house. Inadequate heat on lower level as stated in 1st and 2nd year warranty claims.
[35] Tarion considers the defect as warranted and accepts the claims of the Personal Respondents as covered Major Structural Defects within the meaning of the Warranty Plan.
[36] Tarion intends to complete the necessary repairs to both townhouses at issue here unless the court orders otherwise.
The Application Record
[37] Counsel filed extensive materials, submitted comprehensive facta, and made oral arguments before me. I now summarize the materials.
Application Record (Injunction to Enforce Releases)
[38] This is 375’s application record. It includes the affidavit of Hahn, sworn November 21, 2019, with attached exhibits. His averments include the following:
- The design intention was as follows:
[T]he footprint of each of the Townhouses is formed by concrete foundation walls that extended roughly four feet below grade and a concrete slab that is poured on grade inside those foundation walls. The design intention was that the foundation walls would terminate at the same elevation as the top of the slab, insulation would be installed underneath the slab to create a thermal break between grade and the ground floor, insulation would be installed where the foundation walls met the slab to create a thermal break between the uninsulated exterior foundation walls and the insulated floor slab, and the timber framing for the above-grade construction of the Townhouses would bear on the top of the foundation walls.
- After the completion of the construction of the townhouses and people began moving in, 375 “discovered”:
that its general contractor, or one of the subcontractors, (collectively, the “Builders”) had caused the foundation walls to be constructed such that they terminated four to six inches above the top of the slab floor of the Townhouses and that the Builders’ solution was, instead of reducing the height of the foundation walls, to install shorter wood studs for the first floor and then finish the ground floor by running the drywall over the exposed foundation wall. This resulted in the Den being exposed to uninsulated foundation wall along the bottom of its exterior wall(s). This compromised the intended thermal break and, it is not disputed, resulted in the Den experiencing colder temperatures in the winter as a result of the heat transfer through the thermally unbroken four to six inches at the bottom of the exterior wall.
- Applicant negotiated with the Personal Respondents on how to resolve the ground floor temperature issues.
The applicant had offered to all the owners of the Townhouses to either install insulation along the base of the exterior wall(s) and install a convector heater in the Den or pay to the owner the applicant’s anticipated cost to perform the remedial work of $1,200.00. Several owners allowed the applicant into their units to perform the remedial work. I have been in some of those remediated units in the winter and the Den is quite comfortable and the owners were, until earlier this year, generally satisfied with the solution.
- The Personal Respondents, however, decided to take the cash settlement instead of the remedial work.
Accordingly, it was agreed that the [Personal Respondents’] claims to any further compensation from the applicant or from Tarion in respect to the Ground Floor Interior temperature … would be released in return for payment by the applicant to each of the [Personal Respondents] the sum of $1,200.00 ….
“This settlement was formalized by the execution of an agreement entitled ‘Release Waiver and Indemnity’” by Watkinson on February 18, 2018 and by Lin/Ning on January 9, 2019.
The $1,200.00 was paid to both Personal Respondents.
In or about June 2019, Applicant learned that Tarion was telling the owners of the townhouses that the ground floor temperature issue was caused by deficient under-slab insulation in addition to the wall insulation issue. Applicant immediately disputed and continues to dispute Tarion’s assessment.
In Hahn’s belief, this Tarion assessment would have been known to the Personal Respondents when they submitted a Major Structural Defect Form to Tarion.
By letter dated October 7, 2019, Applicant’s lawyers demanded that Lin/Ning advise Tarion that the matter had been resolved and that they withdraw their claim.
By letter dated November 7, 2019, Applicant’s lawyers demanded that Watkinson advise Tarion that the matter had been resolved and that he withdraw his claim.
Despite said demands, the Personal Respondents have failed to withdraw their claims and continue to deal with Tarion “in the investigation, prosecution, and adjudication of the Claims in breach of the express terms of the Releases.”
The first floor temperature “variation” can be resolved either by (a) “internal measures such as the installation of convector heaters and additional insulation where the foundation wall extends above the slab,” or by (b) “external measures” namely the removal of the slab, “reinsulation” of the slab’s footprint, and reinstallation of the slab.
The payment of the settlement money was intended to provide the Personal Respondents with the funds to undertake the “Mitigation Efforts of their choosing.” Tarion takes the position that only the slab demolition resolution is acceptable. According to Tarion, that would cost between $50,000 and $70,000 per unit.
Tarion’s estimated costs does not include other necessary costs which, Hahn believes, will bring the total to at least $100,000 per unit.
In Hahn’s belief, the Tarion solution is not commercially reasonably.
The experience of other townhouse owners who accepted Applicant’s remedial work demonstrates that the temperature issue can be resolved for substantially less money.
If Personal Respondents are allowed to continue their claims with Tarion in breach of their releases, (a) Applicant will be forced to pay Tarion commercially unreasonable costs for the resolution which, Hahn believes, Applicant will not be able to recover from Personal Respondents despite the releases; and (b) Applicant, Hahn, and related companies will be negatively affected in the future with Tarion “resulting in Tarion requiring substantially larger security deposits for such future development work.”
Responding Application Record (Personal Respondents)
[39] In response, the Personal Respondents rely on the affidavits of Ning and Watkinson, with attached exhibits.
Ning
[40] Ning swore her affidavit on January 7, 2020. Her averments include the following:
The intended use for the first-floor bedroom/den was as a home office and an available bedroom for her daughter when she visited or decided to return to Toronto.
During their first winter in the townhouse (2016-2017), “the first floor was significantly colder than the other floors….” As a result they made very little use of the first floor at that time. Her daughter attempted once to use the first-floor bedroom but it was too cold so she moved upstairs.
The first-floor room was too cold for her to use it as an office so Ning used the upstairs dining room.
During the first winter, they sealed the doors and the windows in an effort to improve the temperature on the first floor but the effort made no noticeable difference.
In the fall of 2017 as the second winter approached, the owners of the townhouses began to talk about the heating problems all were experiencing.
It was at this time that she completed the Year-End Warranty Form dated September 28, 2017 (Exhibit F of the Hahn affidavit).
Her form correctly states the first-floor heating issue.
It was at this time that her neighbours and she started talking to Applicant’s representative, Norma Thiessen, about the heating problem and how to fix it. All of her interactions with Applicant about the heating problem were with Thiessen.
During this time, Thiessen arranged to inspect their townhouse to ensure that the furnace was operating properly and that there were no door or window air leaks on the first floor. “We were advised that no problems were discovered.”
On November 9, 2017, Ning received the following email from Thiessen:
I just wanted to provide you with a quick update on the ground level heating situation.
On Monday we will be testing a new ground floor heating system in one of the units. I will update you next week on our progress.
- On December 13, 2017, Ning received an email from Thiessen that stated, in pertinent part:
Further to my last email related to the heating issue, we are now at the stage where we can provide more information on the installation of the heaters, as well as timing.
We have chosen the Electronic Convector by Stelpro. …
[W]e are recommending that two heaters are installed: one in the office/bedroom and one in the foyer. …
Please confirm receipt of this email as we will begin scheduling the installations early in the new year.
Owners of the townhouses kept each other informed about the heating issue via emails from late 2017 into 2018.
“At all times before I signed the release …, I was led to believe by [Thiessen] that the heating problem stemmed from the currently installed heating system not being adequate to heat the first and second floors.”
“… I believed the Applicant when I was told that there was nothing wrong with the townhouses other than an inadequate heating system.”
In February 2018, Applicant finalized its proposed “solution” to the heating problem: either the installation of heaters or $1,200 in compensation, believed to be the approximate cost of the installed heaters.
Lin/Ning were away from Toronto which was the reason for their delay in responding to Applicant’s offer.
The Tarion Second Year Warranty Form dated September 28, 2018 (Exhibit H of the Hahn affidavit) was filed: “[t]he heating system is unable to heat the whole first floor during the winter”.
“The wording I used in [Second Year Warranty Form was] consistent with my understanding obtained from the Applicant that it was the heating system that was the problem on the first floor.”
We declined to accept the heaters option because of space and their limited areas of heating.
We decided to accept the only other option, a $1,200 payment. We received the money and signed the release dated January 9, 2019 (Exhibit J of the Hahn affidavit).
We did not obtain independent legal advice in accepting the offer.
Thiessen’s email dated December 14, 2018, includes, “The Release is only for the heating.” This is consistent with what she had been told:
[A]t all times prior to my execution of the release, I was told that the heating problem was the result of the installation of a heating system by the Applicant that was not adequate for the space it was required to heat and that the Applicant was offering the installation of heaters to deal with the problem.
Neither Thiessen nor anyone else from Applicant ever advised her that the cause of the heating problem was faulty construction as disclosed in the Hahn affidavit “even though I was having regular conversations (verbally and by email) starting in late 2017 and into January 2019 about the heating problem.”
“I do not recall ever being told that the Applicant would also install insulation along the base of the Townhouse’s exterior walls.”
“Based on the knowledge I now have, it appears the reason for the heating problem is even more serious that an inadequate furnace or even the uninsulated foundation walls ….” As a result of the neighbours’ involvement of Tarion, Tarion concluded that the first floors of the townhouses were deficiently insulated and that major repairs are required to remedy the problem.
“I am not a builder and have no construction experience but Tarion’s explanation is consistent with the fact that the floor/carpeting on the first floor is very cold in addition to the colder air temperatures.”
Once becoming aware that Tarion was of the view that the heating problem “was caused by a major structural deficiency and not an inadequate heating system,” we completed the Major Structural Defect Form dated May 31, 2019 (Exhibit M of the Hahn affidavit).
“My acceptance of the Applicant’s offer of $1,200 was based on information given to me by the Applicant that the cause of the problem was an inadequate heating system and my belief that this was the approximate amount it would cost to install heaters to deal with the problem.”
It appears Applicant did not provide them with full disclosure of the knowledge it had about the uninsulated foundation walls when it made its offer.
If they had known the heating problem was caused by uninsulated foundation walls, she would have been reluctant to accept the money offer because of a concern that the money would be insufficient to remedy the problem.
Had they been told the heating problem was a major structural defect, they never would have accepted the $1,200 because it would be obvious that amount of money would not fix the problem.
Tarion accepted out major structural defect claim notwithstanding knowledge that they received the $1,200 and executed the release.
Michael Watkinson
[41] Watkinson swore his affidavit on January 15, 2020. His averments include the following:
He intended to use the first floor bedroom/den as a home office as well as a spare bedroom for guests.
He noticed that the first floor temperature was cold during his first winter in the townhouse (2016-2017).
As the second winter approached (fall 2017), the owners of the townhouses started to talk to each other about the shared heating problems.
He completed the Year-End Warranty Form dated September 8, 2017 (Exhibit G to the Hahn affidavit).
In the fall of 2017, he had heated floors installed in the ground floor at his own expense.
During this time, he started to have discussions with Applicant about the heating problem and how to fix it. All his interactions on this issue with Applicant were with Norma Thiessen.
Thiessen’s response to his first-floor heating complaint was to state that he had installed in-floor heating.
He emailed Thiessen in response on January 15, 2018 (Exhibit C) stating,
The fact that I have installed in-floor hearing on my own does not preclude me from having additional wall mounted heaters or a cash settlement. The in-floor heating is nice and costly on my part but it does not solve the underlying issue. The room still needs additional heat to make it livable. I am interested in a proposal from [the Applicant] otherwise, I will be joining the others in getting a substantial review done.
Thiessen responded offering $1,200 as a cash settlement for the ground floor heating and advising a release would be forwarded.
On February 1, 2018, he exchanged emails with Thiessen concerning the offer.
“[A]t all times communication from and to [Thiessen] with respect to the cold temperatures on the first floor treated the problem as a result of the inability of the heating system installed in the townhouses to properly heat all four floors.”
Because of the limited space on the first floor, he was not interested in having heaters installed.
Although aware of neighbours pursuing other action through Tarion, he was concerned about its length and results since the information provided to him was that the problem was a heating issue.
He decided to take the $1,200 which was presented to him as a “take it or leave it” offer.
He was never advised by Thiessen or anyone else from Applicant that the problem was not an inadequate heating system but faulty construction of the foundation walls. He was first made aware of this problem upon receipt of a neighbour’s email on January 28, 2019 that Tarion had discovered there was no thermal break.
He is not aware of any offer to any townhouse owner in 2017 or 2018 to install insulation along base of the exterior walls.
It appears this insulation offer was made for the first time in 2019.
In May or April 2019, Tarion concluded that the heating problem was caused by a major structural defect caused by deficient insulation to the first floor.
He is not a builder and has no construction experience but Tarion’s explanation is consistent with the fact that the floor/carpeting on the first floor is very cold in addition to the colder air temperatures.
Once he became aware of the true cause of the heating issue, he completed the Major Structural Defect Form dated October 31, 2019 (Exhibit N to the Hahn affidavit).
“I accepted the Applicant’s offer of $1,200 based on information given to me by the Applicant that the cause of the heating problem on the first floor was an inadequate heating system and my belief that this was an adequate amount to defray the cost of extra heating.”
It now appears that Applicant did not provide him with full disclosure of its knowledge of the uninsulated foundation walls. Had he known this, he likely would have joined my neighbours in pursuing a Tarion claim.
“Had I been told the heating problem was a major structural defect, I would never have accepted the Applicant’s offer of $1,200. It would have been obvious [that] amount of money could not fix the problem.”
Responding Application Record (Tarion)
[42] Tarion appended the affidavit of Samantha Rieder (“Rieder”), sworn January 28, 2020, with attached exhibits. Her averments include the following:
Rieder is a Warranty Services Representative for Tarion and is directly involved in administering the ongoing statutory warranty claims at the Godfrey’s Lane townhouses.
With regard to Tarion’s role in the Act,
Tarion conciliates warranty disputes between vendors and homeowners by deciding which defects fall within the statutory warranties. Tarion also backstops the statutory warranties by resolving claims directly with homeowners in cases where vendors fail to meet their warranty obligations.
Prior registration with Tarion is necessary before building or selling new homes in Ontario.
Registered vendors, such as 375, must abide by responsibilities set forth, at least in part, in Tarion’s standard Vendor Agreement. The Vendor Agreement between Tarion and 375 was signed by Mr. Hahn, on behalf of 375, and dated February 14, 2014. The vendor’s responsibilities also are set forth in Builder Bulletins published by Tarion. Paragraph 3 of the WHEREAS section of the Vendor Agreement provides:
Tarion grants registration conditioned upon the Registrant executing this Vendor Agreement (the “Agreement”), which Agreement deals with the Registrant’s rights and obligations as a vendor under the [Ontario New Home Warranties Plan] Act, the regulations enacted thereunder, as amended from time to time (the “Regulations”) and all applicable builder bulletins issued by Tarion from time to time (the “Bulletins”).
Article 2.1 of the Vendor Agreement provides, in part,
The Registrant shall diligently perform the obligations heretofore or hereafter imposed upon the Registrant by the Act, the Regulations, this Agreement and/or the Bulletins ….
Article 3.10 of the Vendor Agreement provides, in part,
The Registrant shall diligently comply with the provisions of the Bulletins, issued by Tarion from time to time in accordance with the Act and the Regulations, where applicable to the Registrant, provided Tarion has given the Registrant reasonable prior notice of the provisions of the Bulletins. ….
Statutory warranties are owed by the vendor to the homeowner.
These warranties include a one-year workmanship warranty, a two-year water penetration warranty, and a seven-year structural defect warranty.
To make a warranty claim, the homeowner submits a warranty claim form to Tarion which is copied to the vendor.
Before Tarion intervenes, the vendor has the first opportunity to assess and resolve the claim (“Builder Repair Period”).
After the 90-day Builder Repair Period for Major Structural Defect claims, Tarion may intervene at the homeowner’s request per Builder Bulletin 24R.
During the Builder Repair Period, the vendor’s responsibilities are identified in Builder Bulletin 20. These include assessing each homeowner claim, conducting all necessary inspections, and timely resolving each claim by repair, replacement or cash settlement.
These vendor responsibilities recognize the homeowner’s lack of construction expertise leading to, for example, the homeowner’s inability to accurately describe a defect or the reporting of a symptom of the defect and not the defect itself.
According to Tarion, if a vendor makes a cash settlement offer to resolve a defect, the vendor must a) properly inform the homeowner of the defect intended to be resolved by the settlement; b) accurately identify the defect to the homeowner; and c) pay a reasonable settlement amount.
An unsatisfied homeowner may request that Tarion initiate a conciliation process that typically includes an inspection and a written assessment.
Conciliation inspectors may retain outside consultants including engineers.
If Tarion determines there are warranted defects,
the vendor is obligated to resolve them pursuant to the procedure laid out in Builder Bulletin 24R or 42 (where applicable). If the vendor is unwilling or unable to remedy the defects, Tarion will arrange to resolve the defect with the owner directly, either by payment or by effecting repairs using money from the Guarantee Fund administered by Tarion.
In determining a homeowner’s entitlement to compensation, either from the vendor or from the Guarantee Fund, Tarion is obligated to consider any previously paid compensation to the homeowner. In practice, any such payments are deducted from the amount required to properly resolve the warranty claim.
Vendors are liable to indemnify Tarion for costs incurred by Tarion for “backstopping” the vendor’s warranty obligations.
Vendor’s who disagree with Tarion’s warranty assessment may challenge said assessment in arbitration.
Background
- Both townhouses in question were enrolled in the statutory warranty program.
15 Godfrey’s Lane [Lin/Ning townhouse]
The owners took possession of the home on September 30, 2016, which is the warranty start date.
The owners submitted a Major Structural Defect Claim to Tarion on or about May 31, 2019.
One item was identified in said claim:
the first floor temperature has always been below the required level based on the building code (22 C) in the winter. The thermal break deficiency has been identified by multiple units in my townhouse neighborhood on Godfrey’s Lane.
In or around June of 2019, 375 contacted Tarion, advising them that the claim had been resolved by settlement and included a copy of the settlement release.
After the expiry of the 90-day Builder Repair Period, the owners arranged for a Tarion-administered conciliation inspection that took place on October 9, 2019.
Tarion retained an engineering firm to investigate the cold floor defect reported in all of the townhouses. “After undertaking destructive testing (core sampling) in several units, a construction defect became apparent as laid out in A-D Engineering’s May 31, 2019 investigative report.”
Two defects were identified. First, “an absence of 3" rigid insulation below the floor slab-on-grade” thereby providing “insufficient insulation to create a ‘thermal break’ to prevent heat loss.” Second, “insufficient perimeter insulation between the concrete slab and foundation wall” presents a lack of a “thermal break” to prevent heat loss.
Tarion has determined that the appropriate remedy to resolve the lack of insulation/thermal breaks involves the demolition of the floor slab, the installation of proper insulation, and the reinstallation of the floor slab. The estimated cost is $80,000.
The state of the absence of slab insulation as reflected in the engineer’s report is assumed to be systemic and present in all of the townhouses. This assumption has proved to be correct as Tarion continues to conduct the above-noted destructive repairs. Tarion’s instruction to the repair contractor is to discontinue the slab repairs if determined that proper insulation is installed.
At the date of this affidavit, Tarion has not formally issued a Warranty Assessment Report for this townhouse.
Based on the above information, Tarion anticipates that the complaint will be warranted as a Major Structural Defect. Assuming 375 declines to resolve the warranted defect pursuant to it responsibilities in Builder Bulletin 24R, it is anticipated Tarion will resolve the claim directly with the owners.
The $1,200 paid by 375 would be deducted from any claim for indemnity made by Tarion to 375.
25 Godfrey’s Lane [Watkinson townhouse]
The owner submitted a Major Structural Defect claim to Tarion on or about October 31, 2019.
Said claim listed one item: “lack of thermal break on ground floor. No basement[,] and foundation is cold which transfer into house. Inadequate heat on lower level as stated in 1st and 2nd year warranty claims.”
375 has 90 days to assess and resolve the claim before the owner can request intervention by Tarion. At the time of this affidavit, that 90-day period has not expired.
375 provided Tarion with a copy of the settlement release.
Supplementary Application Record (Injunction to Enforce Releases)
[43] 375 filed its Supplementary Application Record on or about January 15, 2020. Said supplemental record consisted of materials from its proposed engineering expert, Gerald Genge (“Genge”), including his affidavit, reports, curriculum vitae, and acknowledgment of expert’s duty.
[44] Genge’s affidavit, sworn December 23, 2019, averred that he is the president of a consulting engineering firm that was retained by 375 regarding the townhouses.
[45] Per Genge, he was advised by Hahn:
[O]ne of the on-going complaints by homeowners has been that the interior ground floor room temperatures are difficult to adequately heat in cooler weather. The suspected cause of this heating issue was an improperly insulated portion of the exterior foundation wall adjacent to the lowest floor in each unit … which failed to create a “thermal break” that resulted in room temperatures that do not meet Tarion’s warranty requirements. Tarion and the homeowners have also subsequently alleged that insufficient or inadequate insulation was installed underneath the ground floor concrete slabs, which was alleged to have been a contributing cause to the deficient heating issues ….
I am further advised by Mr. Hahn that Tarion commenced work on a repair plan for the slab insulation issue that involved demolishing the ground floor finishes in each residence, the complete removal and replacement of the ground floor concrete slab and underlying insulation, to be followed by the reinstatement of all interior finishes and additional supplemental in-floor heating ….
[46] After Tarion granted access to observe the progress of their repair work at the townhouses, Genge generated a report with his interim findings.
[47] Genge’s interim findings include:
The reported lack of a “thermal break” at the edge of the slab is a permissible exception that complies with the Ontario Building Code;
The under the concrete slab insulation complies with the requirements of the Ontario Building Code; and
As suggested in the Air Adjustments Report, “a more thorough and non-destructive assessment of the HVAC system and internal temperatures is warranted.”
[48] More investigation and information acquisition are required, but the removal of the concrete slabs by Tarion will irreparably frustrate any such effort.
Second Supplementary Application Record (Injunction to Enforce Releases)
[49] 375 filed its Second Supplementary Application Record on or about July 31, 2020. Said second supplemental record consisted of a second Hahn affidavit, sworn February 12, 2020, in reply to the affidavits of Ning and Watkinson.
[50] Hahn’s response focused on statements by Ning and Watkinson regarding paragraph 11 of Hahn’s first affidavit that averred:
Once construction was complete and people had begun moving into the Townhouses the applicant discovered that its general contractor, or one of the subcontractors, (collectively, the “Builders”) had caused the foundation walls to be constructed such that they terminated four to six inches above the top of the slab floor of the Townhouses and that the Builders’ solution was, instead of reducing the height of the foundation walls, to install shorter wood studs for the first floor and then finish the ground floor by running the drywall over the exposed foundation wall. This resulted in the Den being exposed to uninsulated foundation wall along the bottom of its exterior wall(s). This compromised the intended thermal break and, it is not disputed, resulted in the Den experiencing colder temperatures in the winter as a result of the heat transfer through the thermally unbroken four to six inches at the bottom of the exterior wall. [Emphasis added.]
[51] According to Hahn, Ning’s and Watkinson’s assertions that Hahn had discovered the problem in the fall of 2016 are false.
[52] Hahn explained as follows:
… At the time I swore my first affidavit I did not look back in my records to confirm when I had first learned of the thermal bridging issue, but I knew that I had not been told of it by the architect, the various engineering consultants, or the construction manger [sic] hired by the applicant to design and construct the Townhouses …, or any of the trades the construction manager hired to that end.
However, I have now reviewed my records to respond to these unfounded allegations and I have confirmed that it was not until October 26, 2018 that the applicant learned of the thermal bridging issue through Tarion. I understand Tarion hired Burke’s Restoration who, in the course of removing some baseboard at both 3 Godfrey’s and 23 Godfrey’s, ultimately discovered the uninsulated foundation wall.
This was after Watkinson signed the release ….
While this was before [Ning] and her husband signed the release …, it was my belief that, given the level of information sharing going on among the owners of the Townhouses, anything that the applicant learned through Tarion, all of the owners, including [Ning] and her husband, already knew.
Which is to say, the applicant had no reason to believe either that [Ning]’s townhouse suffered from the same defect as identified by Burke’s or that [Ning] and her husband were not aware of Burke’s findings and the thermal bridging issue when it was entering into the settlement with [Ning] and her husband in December 2018 and January 2019.
Transcript Record (Injunction to Enforce Releases)
[53] 375 filed its Transcript Record on or about July 31, 2020. The transcript record consists of transcripts from the cross-examinations of Reider, Watkinson, Hahn and Ning. The pertinent portions of each, not already contained herein, are set out below.
Reider
[54] The cross-examination of Reider on her affidavit took place on February 18, 2020. The below inclusions are by question number.
Tarion has no approved form of release for use by a builder regarding warranty claims.
A major structural defect is referred to an a “MSD.”
Builders Bulletin 20 is effective July 1, 2015.
Pursuant to Builders Bulletin 20, the builder has three ways to resolve a warranty claim.
One way is to provide cash compensation.
Exhibit M of her affidavit is the Major Structural Defect Warranty Interpretation Guideline (“the Guideline”).
Footnote 1 of the Guideline provides that if there is “any conflict or inconsistency between this guideline and the [A]ct or Builder Bulletin … 24, the provisions of the [A]ct or [Builder] Bulletin 24, as applicable, shall prevail.”
Page 2 of Builder Bulletin 24 indicates three tests for an MSD.
The third test is the use test.
The use test reads,
Any defect in work and material that materially and adversely affects the use of a significant portion of the building for usual and ordinary purposes of a residential dwelling and having regard to any specific use provision set out in the purchase agreement for the home.
The warranty is only triggered under the use test when a significant portion of the home is materially and adversely affected.
The Guideline does not overrule Builder Bulletin but provides guidance on how to interpret it.
According to page 4, paragraph 2 of the use test section of the Guideline, the use test has two elements.
The two elements are 1) a material and adverse effect on use as a residential dwelling; and 2) that affects a significant portion of the home. She is not aware of any specific uses identified in the purchase agreement of either 15 or 25 Godfrey’s Lane.
Under the heading “significant portion” at page 5 of the Guideline, it provides the following guidance: “which can be determined by the size or percentage [of available area of the home or] by loss of functionality.” This is a reasonable person test that includes:
Tarion’s guideline for determining a significant portion of a building under the test is either[: (i)] an adverse impact that affects 25 percent of the total livable area [of the home (including unfinished basement);] or [(ii)] an impact that entirely deprives the homeowner of the use of an area that is required for residential occupancy.
For 15 Godfrey’s Lane to be a major structural defect, it would have to fall under the use category.
For 25 Godfrey’s Lane to be a major structural defect, it would have to fall under the use test.
The warranty service representatives decide whether something amounts to a major structural defect.
With regard to the Guideline and the second part of the use test, one must “determine whether a reasonable person would consider the portion of the building that is affected to be significant ….”
The examples provided in the Guideline use the word “may” and are not definite.
Applying the use test, she averred,
So the main floor is where they enter the home. So they come through the foyer, they come through the garage at the back. So they have to actually enter into the home that way. So we could apply even 2 [of the use test], an impact that entirely deprives the homeowner of the use of an area of the building that is required for residential occupancy. So if it’s so cold that they can’t go through then that could also apply as well. So in any sense we’ve determined in other instances that the 25 percent is a guideline.
Something that meets neither 1 or 2 of the use test might not be an MSD.
Tarion could determine an MSD if less than 25 percent but it affects the use of a full level of the home.
That is how Tarion interprets our guideline.
With regard to 15 Godfrey’s Lane, according to the plans attached to the Hahn affidavit, the total square footage is 2,631.
The ground floor footage is 464.
Thus, the ground floor footage is 17.6 percent of the total footage.
With regard to 25 Godfrey’s Lane, according to the plans attached to the Hahn affidavit, the total square footage is 2,176.
The ground floor footage is 332.
Thus, the ground floor footage is 15 percent of the total footage.
With regard to the Major Structural Defect Form filed by 25 Godfrey’s Lane, it does say “thermal break on the ground floor” but it adds “which transfers into house.”
She has not yet made an assessment of this claim; she has not been in the home.
Consider Builder Bulletin 24, the act and the Guideline, in determining satisfaction under the use test.
Also look at construction performance guidelines when making assessments of defects.
Agrees that the construction standards don’t address use, per se.
Having a home office would not be a commercial use.
Commercial use is a storefront, a registered place of business, or use as a place of business.
Unaware that this definition of commercial use is in writing.
With regard to paragraph 18 of her affidavit concerning Tarion’s view on the requirements of a cash settlement, she was unaware of any further requirements.
Mr. Owsiany, counsel for Tarion, confirmed Tarion’s view is limited to the three items identified.
Mr. Owsiany explained the source of Tarion’s view in paragraph 18:
Tarion’s view in brief is that this paragraph 18 flows from the [Act] and just a fair and consumer protection friendly interpretation of the [Act]. So the justification for 18 is that it’s fair, reasonable and in accordance with the consumer protection of the [Act], including that prohibition [in the Act that you can’t waive or contract out of your warranty rights].
There is no Builder Bulletin or guideline on this point.
The standard of 22 degrees C is for the temperature inside the living space. It is from the Ontario Building Code and requires the maintenance of 22 degrees not just the reaching of that temperature.
The standard can be met by a combination of heating methods.
With regard to 25 Godfrey’s Lane and affidavit paragraph 43, the owner has requested an MSD claim inspection. A Tarion representative has gone to the home to meet with the homeowner.
Tarion is not able to make an official assessment before a conciliation.
Based on Tarion’s findings and the engineer’s reports received on other units, Tarion believes this is a systemic issue which will be found in 25 Godfrey’s Lane but an actual inspection of the home is necessary to rule out other potential causes.
Tarion anticipates the warranty assessment report will conclude the claim is warranted.
But that conclusion has not officially issued.
The warranty assessment report is anticipated within the next couple of weeks.
17 of the 18 townhouses have made claims but not all are MSD claims.
All claims are ongoing.
Mr. Owsiany, counsel for Tarion, explained the process when Tarion claims money from a developer for work to remedy an MSD claim: Tarion first sends invoices to the builder and if unpaid Tarion will commence a collections action against the builder.
It is possible to raise a release defence to Tarion’s collection action.
Mr. Owsiany, counsel for Tarion, asserted that “we would be within our contractual rights to realize on the security immediately before commencing the [collection] action for the possible balance.”
When asked to explain her answer in paragraph 39 of her affidavit that Tarion anticipates the complaints at 15 Godfrey’s Lane “will be warranted as a major structural defect affecting the use of [the home]”, she answered:
So based on the information that we have at the project and things I’ve seen in person. So I’ve been onsite when they’ve been demolishing these slabs. I’ve seen underneath the slab. I’ve seen the thickness of the insulation and the depth of it. And because it’s a systemic issue and based on the description of the homeowner’s issue it is most likely going to be warranted because of that.
- The significant portion of the building requirement is met
because we deem the main level as being an issue and the main level is a significant portion of the home. It might not meet the 25 percent criteria, but based on our assessment, using guidelines, it meets the criteria.
The 22 degrees Celsius requirements of both the Ontario Building Code and Tarion’s construction performance guidelines apply in Tarion’s anticipated warranty assessment.
Tarion relies on both.
Watkinson
[55] The cross-examination of Watkinson on his affidavit took place on February 18, 2020. The below inclusions are by question number.
He never worked as a builder; he is a computer guy.
Accepts the possibility that problem may have an explanation different from the position of Tarion.
He never had an HVAC technician come and rebalance the heating system.
He did not know that it was an option.
His installed in-floor heating does not include the front vestibule area or the raised stair area.
Nor does it include the bathroom.
He describes the den as his guest room.
He understood that he would not get the heaters as a result of signing the release.
Thiessen “posed the cash settlement or heaters. I did not want the heaters and I opted for a cash settlement.”
He explained:
I made a specific point that I didn’t feel the cash was sufficient. I didn’t want heaters and that was getting forced on me. An either/or. I didn’t want heaters, so I’ll take the cash. Otherwise, you’re getting heaters but I didn’t want heaters. I did not want heaters in my house. You’ve seen the floor print. It’s small. The heaters are intrusive, large. I did not want heaters in my house. I was getting forced. The only remedy was heaters in my house. I did not want them; I signed this release.
- He explained further:
When you’re in the Tarion process the whole thing feels forced. [Thiessen] was on us to get a release, to get the heaters in. That was our options. She told me we were running out of time.
He either signed the release and get $1,200.00 or the heaters. “I did not want the heaters.”
“Guess” there was a third option of pursuing a Tarion process.
He explained the third option:
I understood my third option was to get nothing. I had spent $7,000.00 on in-floor heating and this $1,200.00 was going to evaporate, at which point Tarion would come back and say, “Well, you’re going to need heaters.” I didn’t want heaters.
Thiessen said that the [$1,200] was not going to be around indefinitely as an option and time was running out. He relied on her opinion that the wall-mounted heaters were the only option and he did not want heaters. He believed the in-floor heating was a superior solution.
He believes he has complied with the release because it relates to the heat issue.
According to Mr. Wine, counsel for Watkinson, he believed he was signing off on a heating issue.
By signing the release, he did not understand that he would be limiting his rights under the Tarion program.
Mr. Wine, counsel for Watkinson explained:
Our position is that the problem is one of two things, either the lack of a thermal break, which your client has admitted to, which was never communicated to my client, or a more substantial problem which is what Tarion says it is, which was also never communicated to my client.
As a result, we take the position that any agreement that was entered into based on either a misrepresentation as to what the cause of the problem was or a mistake, whether it’s unilateral or mutual, as to what the cause of the problem is that the agreement can’t be enforced.
… If it turns out that the problem is related to inadequate heating in the premises merely as a result of the fact that the system isn’t powerful enough for the premises then my client has no claim. But if it’s for any other reason, whether it’s a major structural defect or short of a major structural defect, then our position is he’s not bound by the terms of the agreement.
He knew a number of his neighbours were starting to investigate the issue.
Mr. Wine, counsel for Watkinson, stipulates that any email that shows his client’s name, he received and reviewed at the time. He also knew, before he signed the release, that other neighbours were going in different directions.
He did not join with his neighbors because he thought the heated floors would solve the issue.
He explained:
[L]ike the information I had been given, that it was a heat issue, the offered remedies of these convection heaters was inferior. … I was going to install in-floor heating. I had it on my master bathroom, loved the feel, it makes for a warm room. Thought that was sufficient … and I was prepared to sign a release for $1,200.00 in lieu of getting heaters. Full stop. That was the whole premise.
I truly thought that the neighbors – their activity was going to result in them getting in-floor heaters. And in my mind I was foregoing three to four thousand dollars of time and effort that was going to take a couple of years. And I just circumvented it. I needed the room, I got in-floor heating, move on. Clearly not the issue.
The in-floor heating adds heat to the room.
He has the thermostat of the in-floor heating set to 22.
He measured the floor temperature as 20 during the coldest weather.
He was burning through a lot of electricity.
Conceivably the temperature could have got up to 22 if the thermostat was set higher to 24 or 25, but he wonders because it could not get up to 22.
He explained further:
I thought the heated floor was going to be the ultimate and they were trying to save a few thousand bucks by going the distance and they were crazy because I could start to use my space. And I moved forward. No idea that there were bigger issues. And that’s what was waved in front of me, heaters.
He was not aware of any other risk. “I assume they build homes well …”
He did not know there was any other possible source of the problem other than a heating issue.
In his communications with Thiessen, he did not feel the amount was sufficient but it was take it or leave it. “In fact, in her words, it was probably going to decrease the amount.”
Thiessen never suggested that he should have someone come to his home to check that the heating was properly balanced before looking to other solutions.
The in-floor heating has not solved the ground floor heating problem.
Hahn
[56] The cross-examination of Hahn on his affidavits took place on February 19, 2020. The below inclusions are by question number.
Concerning the opening sentence in paragraph 11 of his first affidavit, the stated time frame was “largely from memory” because he lived through it.
Construction was completed in late fall of 2016.
Because paragraph 11 could be interpreted as when he discovered the construction problem, he swore a new affidavit to “correct that interpretation.”
Mr. Grigg, counsel for 375, provided this explanation:
[G]iven that I drafted the language … my intention was to say “after”. Perhaps “once” was the wrong word. The intention was to say “at some point after people moved in.”
He accepts the answer of his counsel.
In his new affidavit, his evidence is that he did not discover the problem until October 2018.
His discovery was from Tarion’s discovery and its information to him.
The question posed was: “[W]hat due diligence did you or anyone at the applicant do to figure out what the problem was?”
We spoke to the HVAC contractor and the engineer who did the design drawings who indicated the system was working as per design.
They told me that everything was working according to design after installation and testing.
The question posed: after the homeowners’ complaints about cold temperatures “what due diligence, what activities, what anything did the applicant do to figure out what the problem was?”
We brought in test heaters that we tried out in multiple units that proved successful. That’s when we made the decision to offer the homeowners heaters.
“We determined that the heaters were a reasonable, affordable solution.”
“[O]ur job was to ensure that there was adequate heat on the first floor and so we determined that this would be a reasonable solution.”
We tried to access townhouses to install test temperature recording devices but were refused access.
Don’t know exactly which homeowners.
Would have to look at my notes to see if there were more steps taken.
Mr. Grigg, counsel for 375, agreed to advise counsel if there were more steps.
Reference to “the Builders’ solution” in paragraph 11 came from Tarion’s discovery.
He denied talking to any of the contractors or subcontractors.
All of the information came from Tarion.
He denies the cause of the heating problem is the lack of a thermal break.
The lack of a thermal break is not a code violation.
We do not know the cause; we are still investigating.
We are waiting for the final determination from our engineers.
Without putting words into the mouths of the engineers, he does not think the insufficiency of the heating system is the problem.
With regard to paragraph 8 of his second affidavit wherein he said, “it was my belief that, given the level of information sharing going on among the owners of the Townhouses” all the owners, including Ning, already knew Tarion’s discovery in October 2018, the basis of his belief was “chatter” his handyman heard from the homeowners according to the handyman.
He does not know if his handyman told him anything specific.
Also heard from Thiessen.
He has no recollection of any specific conversation.
Did not think applicant had an obligation to advise the homeowners of Tarion’s determination.
“Because we need to determine if this is an issue before we do anything.”
He never dealt with Lin/Ning or Watkinson on the heating issue.
He has no reason to disagree that all communications of Lin/Ning and Watkinson on the heating issue were with Thiessen.
He does not know what Thiessen said to Lin/Ning or Watkinson.
Thiessen was aware of the thermal break issue when we discovered it.
He does not believe applicant had any obligation to tell the homeowners that the lack of a thermal break may be a reason for the lack of heat on the first floor.
“Because until we determine if it is an issue I don’t think I need to tell homeowners.”
It is unnecessary to know the reason for the temperature problem. “My obligations under the construction performance guidelines is to provide adequate heat on the ground floor” which my resolution achieves.
Other litigation against Tarion is forthcoming.
Mr. Grigg, counsel for 375: “[T]here is litigation ongoing against the construction team, the builders that screwed up the foundation walls.”
With regard to paragraph 34 of his first affidavit wherein he asserts that the payment of a settlement sum was intended to provide funds to mitigate the problem, he sees no inconsistency in making an offer to people to solve a problem without knowing what the problem is.
“We tested heaters and it solved the problem.”
He is not aware that some of the owners who accepted the heaters say they are not adequate to solve the problem.
He was directed to the email of Walter Pavin, a homeowner, dated January 22, 2018 that is Exhibit D of Watkinson’s affidavit.
When directed to the sentence therein, “They placed a test heater in our unit on January 11th and it has had very little impact in remedying the problem”, he responded, “But he doesn’t say what temperature he set the heaters to.”
The offer of $1,200.00 or two heaters remains a fair resolution of the heat issue.
Mr. Grigg, counsel for 375, agreed that four homeowners accepted heaters.
Mr. Grigg, counsel for 375, confirmed that there is no record evidence of any of the four homeowners that the solution worked.
The offer to install insulation at the base of the exterior walls, as included in paragraph 19 of his affidavit, was not made to Lin/Ning or Watkinson.
Said sentence was incorrect because the insulation offer was only made after the defect was discovered.
He was not aware of the insulation issue when the offer was made to Lin/Ning or Watkinson.
He did not consider to make the insulation offer to Lin/Ning or Watkinson because “the deal had already been done. The waivers had already been signed.”
The four homeowners who accepted the heaters did not sign a release because “Tarion’s process does not allow me to ask for releases when I effect a repair.”
He did not think he should have told people that those who accept the heaters do not have to sign releases.
“I don’t think I’m under any obligation to do so.”
He has given Tarion $360,000 as security deposit for the townhouses.
Said amount is not sufficient to cover 18 units at $100,000 per unit.
He believes that any claims against him will impact his rating under Tarion’s underwriting process.
He believes that the installed heaters provide “very comfortable temperature” but does not know the temperature “off the top of [his] head.”
With regard to Tarion’s proposed repairs,
I do not know if Tarion’s solution will solve or not solve the problem. All I am saying is that what Tarion is doing is unreasonable in that there are potentially other solutions that would solve the problem.
Our proposal for perimeter insulation is to cut approximately six inches of drywall, install proper insulation, they encase with drywall.
The labour involved is not much, a couple of hours.
The new cash offer was increased by $500 to total $1,700.
This was based on “just some estimates”.
He is certain that the $500 is a fair value of the work.
Tarion has invoiced 375 for some of the unit costs regarding the townhouses.
375 has not paid the invoices.
Mr. Grigg, counsel for 375: “He’s not going to pay them.”
- Agrees that if Tarion warrants the complaint at 25 Godfrey’s Lane, 375 will have a final opportunity to resolve the defect.
Ning
[57] The cross-examination of Ning on her affidavit took place on March 3, 2020. The below inclusions are by question number.
Regarding emails, sometimes Ning sent and sometimes her husband, Lin, sent.
Whoever sent an email, they talked about it before it was sent.
Mr. Wine, counsel for Lin/Ning: her answers also bind her husband.
During the period before signing the release, Ning and Thiessen exchanged “lots of emails”, sometimes phone calls, and sometimes face-to-face conversation.
These discussions included the offers, the concerns of Lin/Ning, “and their final settlement with the two choices, either the cash settlement or the heaters.”
Mr. Wine, counsel for Lin/Ning: do not dispute square footage in plans.
Advised by Tarion inspector that there was a major structural deficiency identified with the other units of the townhouses.
The builder delivered two heaters to their townhouse but we decided they were not what we wanted because of the small size of the room and because it was not adequate - it would not heat the bathroom or the hallway.
They were wall units that had to be installed on the wall.
Not told we could install temporarily.
Thiessen told her the release was only for the heating problem.
There is an email about that.
“[W]e relied on the information provided by [Thiessen] and the builder … probably just a simple heating problem, nothing else major. Until we found out later.”
This was an ongoing problem over several winters.
Ning’s answer to question about opportunity to consult with a lawyer before signing the release:
If I knew there was some major structural defect, first of all I wouldn’t sign the release form and I would have probably go to Tarion directly and to ask the problem to be resolved by Tarion, between Tarion and the builder, I suppose. So that’s the first choice I have if I knew there was a major problem.
Found out about the major structural defect after signed release.
Think found out about MSD in spring of 2019. Neighbour in park advised that a major defect in the building caused temperature problem; it was not just a simple heating problem.
Thought everybody would sign release whether took cash or heater. Found out later from neighbours that not so.
Was not told that everyone would sign releases. That is what thought.
When took the cash settlement, did buy a floor heater but it did not work well; it only heated the bedroom and not the other rooms. From my neighbours heard that the heating cost for the installed heaters was “really, really high.”
The cold ground floor issue was a common concern among the neighbours.
She only talked to two neighbours.
Did receive “group” emails. Realized common problem with all the townhouses.
When she talked with Thiessen, Thiessen “admitted there was a problem. Just they couldn’t find out other than the heating problem, there was anything else which … include the major structural defect which caused this problem.”
She did not accept neighbour Taylor’s discussion invitation because
I think the major … reason for me is because I talked to [Thiessen] a lot. I tried to find out from her what was the problem, and she did do several things, try to identify, and she told me she couldn’t find anything wrong. And I relied on her information, so I said I thought the builder would find the final solution to resolve this problem. That’s why I did not request the conciliation. …
[W]asn’t anything indicated at this stage there was major structural defect. It just was a temperature problem or heating-system problem, possibly.
We had the information in the neighbour emails before we signed release.
With regard to paragraph 46 of her affidavit, she did have the neighbour information
[b]ut the major information and the information I believed was from the builder because they are the expert who built this building. And my neighbor, they … also recognize there was a heating problem, and at the time I didn’t think there was much difference between the information from the builder, like heating problem, and the information provided by the neighbor. They identified the heating information. … Based on what I received, nobody provide me the information, especially from the builder, about this major structural defect.
So when I signed the release, it was based majorly on the information provided by the builder, was a heating problem, nothing wrong with other things, including information for the major structural defect which they already knew before I signed the … release form.
When release signed, “nobody ever told me there was the update information which I should aware before I signed release form.”
When she asked was there any identified cause of the heating problem, Thiessen said no.
She never received or saw the Tarion October 26, 2018 email to Hahn including the site reports from the restoration firm.
She does not recall receiving any information about said reports before the release was signed.
Between when the offer was made and the release signed, she expounded
During that period, I talked to [Thiessen] a lot. I don’t think I talked to my neighbor a lot about this. I talked to [Thiessen] a lot, email conversation and telephone talk. I did ask what was wrong with the heating problem, what was the better solution or some other solution based on what we found. So I did with [Thiessen] a lot, majorly with her, not with my neighbor a lot.
- She asked for “any update information, any better solution.”
Supplementary Responding Application Record
[58] Tarion’s Supplementary Application Record consists of responses to examination undertakings. The following undertaking responses are the only ones pertinent to the issues now before me.
Undertaking Responses by 375
- Which homeowners were asked to permit 375 Lakeshore to take temperature readings of their units in the winter of 2016/17?
[W]e were not yet attempting a systematic test of the temperature of the ground floor of any units during the winter 2016/17. ….
- Which homeowners were asked to permit 375 Lakeshore to take temperature readings of their units in the winter of 2017/18?
The forms for claims under the first year warranty started arriving in the fall of 2017. This was the first time it became apparent that the temperature of the ground floor of the units was a common complaint among the homeowners. This is when the idea using a test heater to see if the temperature of the ground floor could be made comfortable with supplementary heating. The supplementary heating seemed to be a workable solution base on the subjective reports of the owner of townhouse no. 18 (43 Godfrey’s) and others who used the test heater in late 2017 and early 2018. Ultimately the supplementary convector heaters were installed in townhouse nos. 7 (17 Godfrey’s), 8 (21 Godfrey’s), 16 (39 Godfrey’s) and 18 (43 Godfrey’s). The applicant had understood that those homeowners were satisfied with the results.
- Other than asking for access to test the unit temperatures, did 375 Lakeshore take any other steps to determine the cause of the heating loss during the winters of 2016/17 and 2017/18?
Other than the use of the test heater and the actual installation of the convection heaters in townhouse nos. 7, 8, 16, and 18, steps that were taken to determine the cause of the temperature complaints during this time period included an attempt to perform systematic measurement of the temperatures of the ground floor unit no. 12 (29 Godfrey’s) in response to that homeowner’s Tarion conciliation that occurred in the summer of 2018, asking the HVAC system designer to assess whether the ground floor heating was working as designed, who concluded that the air supply on the ground floor conformed to the design after he went into several units in January 2018, and retaining Pretium in the spring of 2018 to review the heating situation. Pretium advised that they needed to get into the units to conduct some temperature monitoring. We attempted to get into TH[townhouse]12 but were refused access. At that point, and as the heating season was coming to an end, no further testing could be performed.
- To confirm if it was 4 homeowners who accepted heaters from 375 Lakeshore.
Yes, the owners of townhouse nos. 7, 8, 16 and 18.
- To advise how many of those who accepted heaters from 375 Lakeshore subsequently filed MSD claims regarding the ground floor temperature.
The owners of each townhouse nos. 7, 8, 16 and 18 have made MSD claims in respect of the ground floor temperature. However, townhouse nos. 7 & 16 had changed ownership between the time the convection heaters were installed and when the MSD claim had been filed ….
Further to its undertaking, 375 attached its notice of application issued from the Superior Court in Toronto against Tarion.
[59] The attached application is styled 375 Lakeshore Developments Inc. v. Tarion Warranty Corporation, Court File No. CV-20-637975, and was issued on March 12, 2020. It seeks, inter alia, a declaration that certain warranty claim assessments made by Tarion, with regard to the townhouses at issue here, “are incorrect, improper, insufficient, premature, without jurisdiction, and/or without basis in law or contract” and that the financial and regulatory consequences of said assessments should not be borne by 375.
[60] Paragraph 2(j) of the application grounds asserts:
Subsequent investigation revealed that in the course of the construction of the Units, the Builder [not 375] and its subtrades failed to construct the ground floor slab-on-grade foundations in the Units in accordance with the plans, in a manner that allowed for a “thermal break”, and with adequate insulation at the foundation walls and underneath the slabs. Instead, the Units appear to have been constructed with a condition known as a “thermal bridge”, which presented difficulties in maintaining an acceptable minimum temperature inside the Units. ….
[61] Paragraph 2(t) of the application grounds asserts:
The validity and sufficiency of the … releases [of certain unit owners] is the subject of a separate application … and no relief in respect of the releases is sought in this application.
Undertaking Responses by Tarion
[62] An email dated February 27, 2020, listed the Godfrey’s Lane townhouses with MSD claims related to the ground floor temperature:
15 Godfrey’s Lane,
25 Godfrey’s Lane,
39 Godfrey’s Lane,
43 Godfrey’s Lane,
21 Godfrey’s Lane, and
37 Godfrey’s Lane.
[63] I have read, heard and considered all.
Issues
[64] 375 seeks permanent injunctive relief to enforce releases executed in the new home buyer context. The determination of this relief request is a two-step process: whether these releases are enforceable; and, if so, whether a permanent injunction is an appropriate remedy. In my view, the issues necessary to resolve this application are three: [2]
Does the Act’s s. 13(6) foreclose the enforceability of the releases?
Should the releases be rescinded on the basis of innocent misrepresentation? and
Is a permanent injunction an appropriate remedy?
[65] But, before addressing these substantive issues, I first direct myself to the assessment of the record evidence, the factual underpinning of my determination, and then to the resulting factual context.
Assessment of the Record Evidence
[66] This is an effort by a developer/vendor to enforce releases executed by home buyers thus halting certain further warranty claims by the home buyers. There are few, if any, direct factual conflicts in the record evidence before me. I do have, however, some factual assertions that may be important to certain issues herein but are not directly contradicted by the opposing party. Do I accept them? Most often, when uncontradicted and there being no other reason to reject such evidence, I will accept it. When, however, the evidence of a witness before me is internally inconsistent, when it is replete with inconsistent statements, I must assess whether to believe such a witness. I fully appreciate that receipt of oral evidence is available to me, but, in the circumstances of this case, I find it unnecessary. In my view, oral evidence will not assist me here. The inconsistencies that vex me, as well as their explanations, will remain present in a viva voce forum. As a consequence, I am comfortable making the assessment on the record evidence before me.
Ning and Watkinson
[67] Ning and Watkinson, the Personal Respondent home buyers, submitted sworn affidavits and were cross-examined on their affidavits. Their evidence has not been seriously challenged. I see no reason to reject it.
[68] Of perhaps particular importance is their evidence that 375’s representative, Thiessen, repeatedly advised them that the temperature problem was caused by the inadequacy of the currently installed heating system that could be resolved by added heaters.
[69] The Applicant does not challenge this evidence. 375 never submitted an affidavit from Thiessen. [3] Hahn gave evidence that he never spoke with the Personal Respondents about the temperature issue and does not know what Thiessen told them.
[70] After consideration of all the record evidence, I believe the sworn statements of Ning and Watkinson.
Hahn
[71] Hahn, owner/president of 375, the developer/vendor, submitted sworn affidavits and was cross-examined on his affidavits. Although not directly contradicted by affidavit evidence, his evidence has been challenged. The challenges arise from Hahn’s inconsistencies. Thus, it is incumbent upon me to review the inconsistencies.
1. When learned of construction problem
[72] In his affidavit sworn November 21, 2019, Hahn averred:
Once construction was complete and people had begun moving into the Townhouses the applicant discovered that its general contractor, or one of the subcontractors, (collectively, the “Builders”) had caused the foundation walls to be constructed such that they terminated four to six inches above the top of the slab floor of the Townhouses and that the Builders’ solution was, instead of reducing the height of the foundation walls, to install shorter wood studs for the first floor and then finish the ground floor by running the drywall over the exposed foundation wall. This resulted in the Den being exposed to uninsulated foundation wall along the bottom of its exterior wall(s). This compromised the intended thermal break and, it is not disputed, resulted in the Den experiencing colder temperatures in the winter as a result of the heat transfer through the thermally unbroken four to six inches at the bottom of the exterior wall. [Emphasis added.]
[73] It is undisputed that construction was complete and the Personal Respondents moved in during the fall of 2016.
[74] In his second affidavit sworn February 20, 2020, Hahn asserted that the affidavit statements of Ning and Watkinson, that he (Hahn) discovered the problem in the fall of 2016, were “false”. Under oath, he explained:
… At the time I swore my first affidavit I did not look back in my records to confirm when I had first learned of the thermal bridging issue, but I knew that I had not been told of it by the architect, the various engineering consultants, or the construction manger [sic] hired by the applicant to design and construct the Townhouses …, or any of the trades the construction manager hired to that end.
However, I have now reviewed my records to respond to these unfounded allegations and I have confirmed that it was not until October 26, 2018 that the applicant learned of the thermal bridging issue through Tarion. I understand Tarion hired Burke’s Restoration who, in the course of removing some baseboard at both 3 Godfrey’s and 23 Godfrey’s, ultimately discovered the uninsulated foundation wall.
[75] Hahn was cross-examined on his affidavits on February 19, 2020. With regard to the time of discovery, Hahn testified that when preparing his initial affidavit, the time of events “was largely through memory, just because I lived through the whole thing ….” [4] Hahn characterized the fall 2016 discovery time as an incorrect interpretation of his initial averment that he subsequently corrected. [5] Hahn then agreed with his counsel that the cause of the incorrect interpretation was poor lawyer drafting. [6] Hahn testified that he first learned in October 2018 when Tarion discovered the problem. [7]
2. Offer to all owners to install insulation
[76] In his first affidavit, Hahn swore:
The applicant had offered to all the owners of the Townhouses to either install insulation along the base of the exterior wall(s) and install a convector heater in the Den or pay to the owner the applicant’s anticipated cost to perform the remedial work of $1,200.00.
[77] During his cross-examination, Hahn admitted that it was “probably correct” that he did not offer to install insulation to all the owners and agreed that he did not make such an offer to the Personal Respondents. [8] His only explanation was that “the installation of the insulation was offered once the defect of the baseboard was discovered.” [9]
3. Cause of cold temperature
[78] In his affidavit sworn November 21, 2019, Hahn averred:
Once construction was complete and people had begun moving into the Townhouses the applicant discovered that its general contractor, or one of the subcontractors, (collectively, the “Builders”) had caused the foundation walls to be constructed such that they terminated four to six inches above the top of the slab floor of the Townhouses and that the Builders’ solution was, instead of reducing the height of the foundation walls, to install shorter wood studs for the first floor and then finish the ground floor by running the drywall over the exposed foundation wall. This resulted in the Den being exposed to uninsulated foundation wall along the bottom of its exterior wall(s). This compromised the intended thermal break and, it is not disputed, resulted in the Den experiencing colder temperatures in the winter as a result of the heat transfer through the thermally unbroken four to six inches at the bottom of the exterior wall. [Emphasis added.]
[79] During his cross-examination, Hahn disavowed this averment. At Questions 69-72, Hahn testified as follows:
Q. [I]t’s your position … that the lack of a thermal break is the cause of the heating problem on the ground floor of these units?
A. No.
Q. What’s your position?
A. There is no code violation with regards to the thermal break
Q. I don’t think I asked that. … Do you agree today that the lack of a thermal break is the cause of the heating problem or the lack of proper heat on the ground floor of these units?
A. No.
Q. So what’s the cause?
A. We do not know. We do not know, we’re investigating still.
[80] When a witness says different things at different times about the same matter, common sense tells you that the fact that the witness has given different versions may be important in deciding whether or how much you believe of or rely upon the witness’ testimony.
[81] The three above examples are material and thus disturbing to me. At the very least they show a witness who is careless about his oath to tell the truth, who is cavalier about telling the truth. Once established, this conclusion permeates throughout the witness’ evidence. And I do not accept casting blame on the lawyer. It is the affiant who has the knowledge, not the lawyer. It is the affiant who swears to tell the truth, not the lawyer. Thus, it is the affiant, not the lawyer, who bears the responsibility to tell the truth.
[82] As stated earlier, there are virtually no factual conflicts between the parties. That said, when reliance is on the word of Hahn alone, without supporting evidence that I do accept, I decline to accept his evidence for the foregoing reasons. Absent confirmatory evidence, I am not comfortable accepting the bare evidence of Hahn.
Context
[83] Both Personal Respondents moved into their respective townhouses in September 2016. During every winter thereafter, they experienced cold temperatures in their first floors. In 2017 and 2018, both made first year warranty claims about the first floor cold temperatures. Lin/Ning made a second year warranty claim about the same problem.
[84] In response, 375 determined that the heating systems installed were working in accordance with their design. 375 also provided additional “test heaters” to receptive townhouse owners. Hahn averred that the added heaters solved the problem although counsel for 375 conceded, during Hahn’s cross-examination, that 375 has no record evidence, from the four homeowners who accepted the heaters, that the heaters solved the problem. In addition, those four homeowners have made MSD warranty claims with regard to the ground floor temperature.
[85] Through and including the times of the execution of the releases, Thiessen, 375’s customer service director, repeatedly advised the Personal Respondents that an inadequate heating system was the cause of the cold first floor temperature. There was no mention of faulty construction or any other problem except the current inadequate heating system. Thus, according to the advisement of 375 to the Personal Respondents, the solution to the problem was the installation of two additional heaters on the first floor.
[86] The problem, as framed by 375, led to their resolution offer to the townhouse owners including the Personal Respondents: either the installation of two heaters on the ground floor of the townhouse at the expense of 375, or acceptance of $1,200, the approximate cost of the installed heaters.
[87] Although the Personal Respondents are intelligent and educated, none have construction expertise. The Personal Respondents accepted the resolution offer, took the $1,200, and signed the releases. In doing so, the Personal Respondents relied on 375’s representations that the problem was the inadequacy of the currently installed heating system that could be resolved by adding heaters.
[88] I now turn to the specific wording of the releases.
[89] With regard to Watkinson:
Description of Settlement
IN CONSIDERATION of the Purchaser’s [Watkinson’s] agreement to provide the herein release relating in any manner whatsoever to:
(1) Item Number 2 on the Year End Form – Level 1 – Ground Floor – “Cold! 10 degrees Celsius in winter!”
then upon full execution of this Release, Waiver and Indemnity, the Vendor [375] shall provide the following to the Purchaser [Watkinson]:
(1) The amount of $1,200.00 by cheque or bank draft payable to the Purchaser [Watkinson].
IN CONSIDERATION of the Vendor’s [375’s] satisfaction of the Settlement terms, the Purchaser [Watkinson] hereby agrees that it will not pursue any action with Tarion Warranty Corporation or against the Vendor [375] in any manner whatsoever relating to any matter in relation to Item Number 2 on the Year-End Form.
[90] With regard to Lin/Ning:
Description of Settlement
IN CONSIDERATION of the Purchaser’s [Lin/Ning’s] agreement to provide the herein release relating in any manner whatsoever to the windows in the Potl and specifically including:
(1) Item Number 2 on the First Year End Form and item numbers 5-1, 5-2 and 5-3 on Second Year End Form
then upon full execution of this Release, Waiver and Indemnity, the Vendor [375] shall provide the following to the Purchaser [Lin/Ning]:
(2) The amount of One Thousand, Two Hundred Dollars ($1,200.00) by cheque or bank draft payable to the Purchaser [Lin/Ning].
IN CONSIDERATION of the Vendor’s [375’s] satisfaction of the Settlement terms, the Purchaser [Lin/Ning] hereby agrees that it will not pursue any action with Tarion Warranty Corporation or against the Vendor [375] in any manner whatsoever relating to any matter in relation to the above noted items.
[91] Because the object of the above-reproduced Lin/Ning release only includes a reference to their first- and second-year warranty claims, I repeat the wording of said claims. In their first-year warranty claim with regard to claim item number 2, Lin/Ning stated, the “[f]irst (ground) floor temperature control: temperature differentiates in the winter up to 10 [degrees] C between the first and second floor.” In their second-year warranty claim with regard to the first floor interior items 5-1 (bathroom), 5-2 (den/study), and 5-3 (hallway), Lin/Ning stated, “The heating system is unable to heat the whole first floor during the winter.”
[92] Subsequent to the execution of these releases, the Personal Respondents submitted Major Structural Defect warranty claims to Tarion. On or about May 31, 2019, Lin/Ning identified their one claim:
The first floor temperature has always been below the required level based on the building code (22 C) in the winter. The thermal break deficiency has been identified by multiple units in my townhouse neighborhood on Godfreys Lane.
[93] On or about October 31, 2019, Watkinson submitted a Major Structural Defect warranty claim to Tarion identifying one claim:
Lack of thermal break on ground floor. No basement[,] and foundation is cold which transfers into house. Inadequate heat on lower level as stated in 1st and 2nd year warranty claims.
[94] Tarion considers the defects submitted as warranted and accepted the claims.
ISSUE ONE: Does the Act’s s. 13(6) foreclose the enforceability of the releases?
Legal Principles
Illegality
[95] “It is settled law that for a contract to be capable of enforcement by a court it must not be prohibited.” Field v. McLaren, 2009 MBQB 118, 239 Man.R. (2d) 156, at para. 75. As stated in Fridman, The Law of Contract in Canada, 6th ed (Toronto: Carswell 2011), at p. 338:
A contract for an illegal purpose, i.e., a purpose regarded by the law as improper, though it conforms to all other requirements of a valid transaction, will … be void. Invalidity through illegality refers to the infringement by a contract of some statute or doctrine of the common law relating to the purpose or object to be achieved by such contract. The term “illegality”, in this sense, does not mean “criminal”. … [Such contracts] are void to the extent of their illegality, but may be enforced as to the rest, if the illegal part can be severed from the legal.
Ontario New Home Warranties Plan Act
[96] The Court of Appeal in Metropolitan Toronto Condominium Corp. No. 1352 v. Newport Beach Development Inc., 2012 ONCA 850, 113 O.R. (3d) 673, at para. 7, identified the purpose of the Act:
The purpose of the Act is to protect the owners of new homes. One way the legislature sought to accomplish this was to stipulate certain warranties deemed to be given by vendors to homeowners, and to provide compensation for breach of these warranties out of a statutorily created guarantee fund.
[97] The Act is consumer protection legislation: Newport Beach Development Inc., at para. 67. It should be given a broad and liberal interpretation to give effect to the purpose of the legislation which is to provide protection to purchasers of new homes: Liddiard v. Tarion Warranty Corp., 2009 ONSCDC 65801, 99 O.R. (3d) 656 (Div. Ct.), at para. 59.
[98] Section 13(1) of the Act identifies the statutory warranties:
Every vendor of a home warrants to the owner,
(a) that the home,
(i) is constructed in a workmanlike manner and is free from defects in material,
(ii) is fit for habitation, and
(iii) is constructed in accordance with the Ontario Building Code;
(b) that the home is free of major structural defects as defined by the regulations; and
(c) such other warranties as are prescribed by the regulations.
[99] Section 13(6) of the Act provides:
The warranties set out in subsection (1) apply despite any agreement or waiver to the contrary and are in addition to any other rights the owner may have and to any other warranty agreed upon.
[100] Releases purporting to contract out of the statutory warranties have been viewed strictly: Mandos v. Ontario New Home Warranty Program (1993), 1993 ONSCDC 9350, 33 R.P.R. (2d) 298, 67 O.A.C. 247 (Div. Ct.), aff’d (1995) 1995 ONCA 3158, 49 R.P.R. (2d) 1, 86 O.A.C. 382 (Ont. C.A.). Indeed, in affirming the Divisional Court decision, the Court of Appeal stated,
The Ontario New Home Warranties Plan Act … is remedial legislation and should be given a fair and liberal interpretation. Subsection 13(6) of the Act is a difficult subsection to construe. However, we believe that the interpretation given … that the warranties contained in s. 13(1) continue in force, irrespective of any agreement by the parties to the contrary. This interpretation, in our opinion, achieves a fair and just result. … When a mutual release is executed between an owner and a builder, it is quite possible, as in the present case, that there may be defects which could not be discovered by reasonable inspection. If it is the intention of the legislature that a release should be a bar to any action by an owner for breach of the warranties in s. 13(1), then, in our opinion, the legislation should clearly so provide and owners should be warned of the dangers of entering into a release. [Emphasis added.]
Positions of the Parties
Applicant
[101] According to 375, the executed releases are valid, enforceable settlement contracts. Vendor/homeowner resolutions are contemplated and appropriate under the Act. These releases are appropriate and enforceable.
Personal Respondents
[102] The Personal Respondents assert that the releases are unenforceable because they contracted out of the statutory warranty protection contrary to s. 13(6).
Tarion
[103] Tarion argues that the releases do not bar the Personal Respondents from proceeding with their MSD claims. Pursuant to the Act, 375 is responsible to provide seven years of statutory warranty protection. 375 cannot contract out of this statutory obligation. To be enforceable, a settlement under the Act requires: 1) a properly informed homeowner aware of the defect intended to be resolved by the settlement; 2) the defect must be accurately identified by the vendor; and 3) the settlement must be reasonable. None of these essential requirements are met in this case. 375 failed to adequately investigate the problem and erroneously identified the problem as an inadequate heating system. The Personal Respondents were not aware that the defect was a lack of insulation. And the settlement was grossly unreasonable – the payment of $1,200 for the resolution of a defect that is estimated to cost $80,000.
[104] According to Tarion, injunctive relief in this case would have “problematic policy implications.”
It would stand for the proposition that vendors of new homes, who are tasked with the burden of assessing construction defects for their comparatively unsophisticated customers, can ignore that burden by failing to properly assess a construction defect. The vendor can then represent that the defect is less severe than it is and settle for a fraction of what it costs to resolve the true defect, leaving homeowners to deal with costly construction defects that the vendor ought to be responsible for.
Principles Applied
[105] I agree with Tarion on this issue. As consumer protection legislation, the Act should be given a broad and liberal interpretation to provide protection to new home buyers thereby giving effect to the purpose of the legislation. In my view, the words of the statute – “[t]he warranties … apply despite any … waiver to the contrary….” – resolve this application. To construe releases less rigorously would functionally negate the protection of s. 13(6), and, frankly, make no sense. An incorrect defect assessment leading to a modest resolution and release is exactly the type of circumstance that s. 13(6) is designed to prevent. To rule otherwise would gut the protection.
[106] With regard to the particulars of this case, 375, relying on the releases, seeks to stop the Personal Respondents from continuing with their Major Structural Defect Warranty Claims for the ground floor temperature problem. The record evidence before me is clear and I find: 375 did not accurately identify the cause of the defect and so incorrectly advised the Personal Respondents. 375 advised them that it was a heating problem caused by the inadequate heating system currently installed. That simply was incorrect. From the record evidence before me, I find the cause is a lack of insulation at least along the lower part of the foundation walls and possibly below the slab as well. This inaccurate assessment and representation alone renders the releases contrary to s. 13(6) and unenforceable.
[107] In addition, the lack of reasonableness of the settlement amount also renders the releases contrary to the statute. The disparity between the settlement amount and the cost of resolution is significant. If the problem is limited to the insulation of the foundation walls, the disparity is large ($1,200 vs. $1,700 [10] – over 40%). If it includes below slab insulation, the disparity becomes mind-numbing ($1,200 vs. $80,000 plus).
[108] 375 also argues that the releases are perfectly reasonable because the problem, properly characterized, is heating and additional heaters solve the problem. Without hesitation, I reject this position. I do not question that adding enough heaters, maybe even an industrial plant heater, will make the ground floors comfortable and even hot. But this is a remedy for a symptom, not a solution to a problem. Prescribing more and more pain medication to mask the pain does not resolve a ruptured appendix. The Act is designed to enforce the repairs of warranted defects – not to provide masking remedies to the symptoms of the defects.
[109] During oral submissions, 375 advanced the position that Tarion’s acceptance of these Major Structural Defect Warranties is incorrect both legally and factually. [11] Further, according to 375, the correctness of Tarion’s characterization resolves this release issue. I disagree. First, the issue before me concerns the making of a warranty claim, not the correctness of that warranty claim. 375 seeks, by this application, to bar the Personal Respondents from making a claim. Indeed, 375 in its Toronto action against Tarion, challenges the validity of Tarion’s warranty assessments with regard to the same issues in the same townhouse development. Second, I neither must, nor will, make any findings regarding the validity of these claims. Making findings about the cause of the problem does not reach any conclusion on whether said cause is a warranted defect. All that is before me, and is undisputed, is that Tarion has assessed the claims as warranted. Whether that assessment is or is not the correct conclusion is an issue for another day before a different court.
[110] In sum, I find the releases before me are unenforceable because they are contrary to s. 13(6) of the Act.
ISSUE TWO: Should the releases be rescinded on the basis of innocent misrepresentation?
Legal Principles
[111] Very recently, the Court of Appeal, in Deschenes v. Lalonde, 2020 ONCA 304, 447 D.L.R. (4th) 132, leave to appeal refused, 2021 CarswellOnt 1656 (SCC), addressed innocent misrepresentation in the context of a settlement agreement.
[112] In its legal principles section, at para. 27, the Court, after affirming “a strong presumption in favour of the finality of settlements” stated:
A settlement agreement will not be rescinded on the basis of information that has come to light following the settlement that indicates that a party has entered into an improvident settlement.
[113] In the next paragraph, para. 28, the Court stated:
A settlement agreement, as a contract, may be rescinded on the basis of misrepresentation. The interest of the finality of settlements will not “trump” the need to rescind a settlement agreement in such cases. [Emphasis added.]
[114] The Court further explained, at para. 29:
The equitable remedy of rescission is available for a false or misleading representation that induces a contract: [citation omitted.] Rescission requires proof that the misrepresentation was material and was relied on by the party seeking to rescind the contract: [citations omitted.] To be material, a misrepresentation must relate to a matter that would be considered by a reasonable person to be relevant to the decision to enter the agreement, but it need not be the sole inducement for acting: [citations omitted.] Whether a contracting party did in fact rely on the misrepresentation, at least in part, to enter into the agreement is a “question of fact to be inferred from all the circumstances of the case and evidence at trial”: [citation omitted.]
[115] “The remedy of rescission is available even if the misrepresentation was made innocently … by a party who believed it was true”: Deschenes, at para. 30. The core elements [12] are: 1) whether the opposing contracting party made a misrepresentation; 2) whether the misrepresentation was material to the settlement; and 3) whether the challenging contracting party relied on the misrepresentation in settling the matter: Deschenes, at para. 31.
[116] Finally, and because rescission is a discretionary remedy, a court must address all equitable considerations of whether such a remedy is fair and just in the circumstances including the importance of the finality of settlements: Deschenes, at paras. 57-58.
Positions of the Parties
Applicant
[117] 375 argues there is no basis for rescission for innocent misrepresentation. Deschenes is distinguishable on its facts: in that case, but not here, there was a clear and positive representation of present fact; and the context of that case presented a far different assessment picture in arriving at the discretionary remedy to rescind a settlement agreement.
[118] 375 asserts that there is no evidence of “a positive representation of an existing fact” or “that the representation was false.” Instead, according to 375, the Personal Respondents complained of the timing of the discovery of the insulation problem and sought an adverse inference for the failure of 375 to call Thiessen while not tendering the evidence of Thiessen themselves. 375 argues:
There is no evidence of a representation that the temperature issues were not caused by a structural issue. Nor was it untrue that additional heating capacity would lead to warmer first floor temperatures.
[119] With regard to the reliance element, 375 refers back to certain paragraphs in its original factum. Therein 375 asserts that Watkinson could not have relied upon a representation by 375 about the absence of insulation when Watkinson executed his release because 375 did not learn of the insulation problem until after the release was signed. With regard to Lin/Ning, they could not have relied on 375’s representations because they knew, or should have known, from their neighbours, that the cold temperature problem was beyond a heating problem.
Personal Respondents
[120] The Personal Respondents assert that all elements of innocent misrepresentation are satisfied. Indeed, say the Personal Respondents, innocent misrepresentation presents a lower bar than negligent misrepresentation that, as previously argued, also is satisfied. The misrepresentations are identical to those before asserted, they are material, and there was reliance. Consequently, per the Personal Respondents, the releases should not be enforced.
Tarion
[121] Tarion accepts the submissions of the Personal Respondents.
Principles Applied
[122] It is clear that a settlement release, as a contract, may be rescinded on the basis of innocent misrepresentation. Our Court of Appeal very recently in Deschenes, at para. 31, identified three core elements: [13]
A misrepresentation by the opposing contracting party;
The misrepresentation was material to the settlement; and
Reliance.
[123] I find that all of these elements are satisfied on the record evidence before me: 375 made misrepresentations to both of the Personal Respondents; the misrepresentations were material to the settlement and the releases; and both of the Personal Respondents relied upon the misrepresentations in settling as they did.
Misrepresentations
[124] 375 made two misrepresentations. It repeatedly told both of the Personal Respondents that the cause of the ground floor temperature problem was the inadequacy of the currently installed heating system and that additional heaters would solve the problem. I find these representations were false: the cause was the lack of insulation at least to the foundation walls; and the solution was added insulation not added heaters.
[125] I disagree with 375’s position. These were clear and positive representations of existing facts. They were unequivocal. They were also false when made. They were made by Thiessen, the agent of 375 who dealt with the homeowners, including the Personal Respondents. 375’s representations to both Personal Respondents are proven from the evidence of the Personal Respondents themselves; evidence that I accept as true. Said evidence was unchallenged by 375 or Hahn. The falsity of the representations are proven from the record evidence. Indeed, at least as to the lack of insulation on the foundation walls, 375 does not challenge this as a cause of the cold temperatures.
[126] Whether or not 375, Hahn, or Thiessen knew of the falsity of the representations at the time they were made is not a required finding for innocent misrepresentation.
Material
[127] I find these misrepresentations were clearly material to the settlement and the releases. Indeed, they were the entire basis for the settlement of the ground floor temperature problem. I make this finding from an objective, reasonable person basis. A reasonable person would consider the misrepresentations, noted above, to be relevant to the decision to enter into the settlement and to sign the releases. The ongoing problem was cold temperatures in the ground floor level. 375 advised that the problem was caused by the inadequate heating system currently installed. To solve this problem, and in exchange for releases, 375 would install additional heaters at its own expense, or pay $1,200, the estimated cost of the installed heaters.
Reliance
[128] Finally, after consideration of all the circumstances of this case, I find there was reliance on the part of each of the Personal Respondents – Lin/Ning and Watkinson – to enter into the settlement and sign the releases. 375’s misrepresentations to both of the Personal Respondents were made repeatedly.
[129] Each of the Personal Respondents succinctly summarized their reliance in their respective affidavits. At paragraph 46, Ning swore:
My acceptance of the Applicant’s offer of $1,200 was based on information given to me by the Applicant that the cause of the problem was an inadequate heating system and my belief that this was the approximate amount it would cost to install heaters to deal with the problem.
At paragraph 47, Watkinson swore:
I accepted the Applicant’s offer of $1,200 based on information given to me by the Applicant that the cause of the heating problem on the first floor was an inadequate heating system and my belief that this was an adequate amount to defray the cost of extra heating.
I accept these averments as true.
[130] I reject 375’s positions on reliance. With regard to its position on Watkinson, knowledge of 375 at the time simply is not relevant to this issue. The focus here is the mental state of the challenging contracting party, in this case Watkinson. With regard to Lin/Ning, I accept Ning’s averments on reliance, including as quoted above, and add that satisfactory reliance need only be partial: Deschenes, at para. 29.
Fair and Just
[131] I certainly recognize that all settlements are compromises made on the basis of information known to the parties at the time. I agree with and accept the importance of the finality of settlements. But in the circumstances of this case, I cannot ignore the imbalance of power and knowledge between 375 and the Personal Respondents. I cannot ignore the new home buyer context of the case. I cannot ignore the repeated material misrepresentations that induced the releases here. I cannot ignore the wholly inadequate settlement amount. And I cannot ignore Hahn’s conduct in this case, as reviewed above. Taking everything into consideration, any interest in the finality of this case does not “trump” the need to rescind these releases based on the record evidence before me. The interests of fairness and justice favour the equitable remedy of rescission in this case.
[132] Accordingly, on this separate ground, I find the releases are unenforceable. The releases are rescinded on the basis of innocent misrepresentation.
ISSUE THREE: Is a permanent injunction an appropriate remedy?
Legal Principles
[133] The tests for interlocutory and permanent injunctions are different: 1711811 Ontario Ltd. v. Buckley Insurance Brokers Ltd., 2014 ONCA 125, 371 D.L.R. (4th) 643, at paras. 76-80. The Court of Appeal, in Buckley, at para. 79, adopted the reasoning of the British Columbia Court of Appeal in Cambie Surgeries Corp. v. British Columbia (Medical Services Commission), 2010 BCCA 396, 323 D.L.R. (4th) 680, at para. 28:
In order to obtain final injunctive relief, a party is required to establish its legal rights. The court must then determine whether an injunction is an appropriate remedy. Irreparable harm and balance of convenience are not, per se, relevant to the granting of a final injunction, though some of the evidence that a court would use to evaluate those issues on an interlocutory injunction application might also be considered in evaluating whether the court ought to exercise its discretion to grant final injunctive relief.
[134] More recently, in Labourers’ International Union of North America, Local 183, v. Castellano, 2020 ONCA 71, 444 D.L.R. (4th) 183, at paras. 24, 25, the Court of Appeal again addressed the area, stating,
We reiterate that permanent injunctions constitute extraordinary relief that must be granted sparingly. A different test applies for a permanent injunction than for an interlocutory injunction. A different test is required because, in considering an application for a permanent injunction, the court has the ability to finally determine the merits of the case and fully evaluate the legal rights of the parties. [Buckley, at paras. 76-80.]
As referenced in Robert J. Sharpe, Injunctions and Specific Performance, loose-leaf, (Toronto: Canada Law Book, 2019), at para. 1.45, in Nalcor Energy v. NunatuKavut Community Council Inc., 2014 NLCA 46, 358 Nfld. & P.E.I.R. 123 (N.L.C.A.) at para. 72, the Court of Appeal of Newfoundland and Labrador summarized the approach to be applied in deciding whether to grant a permanent injunction:
(i) Has the claimant proven that all the elements of a cause of action have been established or threatened? (If not, the claimant’s suit should be dismissed);
(ii) Has the claimant established to the satisfaction of the court that the wrong(s) that have been proven are sufficiently likely to occur or recur in the future that it is appropriate for the court to exercise the equitable jurisdiction of the court to grant an injunction? (If not, the injunction claim should be dismissed);
(iii) Is there an adequate alternate remedy, other than an injunction, that will provide reasonably sufficient protection against the threat of the continued occurrence of the wrong? (If yes, the claimant should be left to reliance on that alternate remedy);
(iv) If not, are there any applicable equitable discretionary considerations (such as clean hands, laches, acquiescence or hardship) affecting the claimant’s prima facie entitlement to an injunction that would justify nevertheless denying that remedy? (if yes, those considerations, if more than one, should be weighed against one another to inform the court’s discretion as to whether to deny the injunctive remedy);
(v) If not (or the identified discretionary considerations are not sufficient to justify denial of the remedy), are there any terms that should be imposed on the claimant as a condition of being granted the injunction?
(vi) In any event, where an injunction has been determined to be justified, what should the scope of the terms of the injunction be so as to ensure that only actions or persons are enjoined that are necessary to provide an adequate remedy for the wrong that has been proven or threatened or to effect compliance with its intent? [Emphasis omitted.]
[135] A permanent injunction remedy may be granted only when a legal right or cause of action has been proven on a balance of probabilities: Castellano, at para. 31.
[136] Where damages are an adequate remedy, equitable remedies, including injunctive relief, are not available. Damages typically are ordered for a breach of contract. Only where damages do not provide an adequate relief for a breach of contract, then equitable relief may be available: see Pointe East Windsor Ltd. v. Windsor (City), 2014 ONCA 467, 374 D.L.R. (4th) 380, at para. 17, citing UBS Securities Canada Inc. v. Sands Brothers Canada Ltd., 2009 ONCA 328, [2009] O.J. No. 1606 (C.A.), at para. 96.
Positions of the Parties
Applicant
[137] 375 argues that it is important and consistent with Ontario law to hold parties to their settlements.
Personal Respondents
[138] The Personal Respondents did not directly address the appropriateness of a permanent injunction remedy.
Tarion
[139] Tarion argues that damages is an adequate remedy if 375 prevails. As a consequence, the remedy of a permanent injunction is inappropriate and should not be granted.
Principles Applied
[140] Because I have found that there is no legal right for 375 to enforce the releases, a permanent injunction cannot be granted.
[141] However, even assuming the enforceability of the releases, the court must determine whether a permanent injunction is an appropriate remedy. In breach of contract cases the relief typically is for damages. It is only where money damages do not provide adequate relief that injunction relief may be available: Pointe East Windsor Ltd., at para. 17. In this case, I find damages will provide adequate relief if 375 prevails. It is easily quantifiable. Accordingly, even if the releases were enforceable, I would deny the requested injunctive relief as inappropriate in this case.
Conclusion
[142] For the above reasons, the application is dismissed.
Costs
[143] If the parties are unable to resolve the issue of costs, the respondents shall provide me with their bill of costs, costs outline, and submissions (no longer than three pages) within 15 days of the date of the release of these reasons. The applicant shall respond in 15 days of service of the costs submissions with the same page limit.
Original signed by Justice Kirk W. Munroe
Kirk W. Munroe Justice
Date: March 12, 2021
COURT FILE NO.: 2245/19 DATE: 20210312 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: 375 Lakeshore Developments Inc. Applicant – and – Lin Tong, Tong Lin, Ning Jing, Michael Watkinson and Tarion Warranty Corporation Respondents RULING ON application Kirk W. Munroe Justice
Released: March 12, 2021
Footnotes:
[1] In the style of the case, two of the Personal Respondents are misidentified as Lin Tong, Tong Lin, and Ning Jing. During submissions, their counsel clarified that these respondents are two people, not three; they are a married couple who bought one townhouse; and their correct names are Tong Lin and Jing Ning.
[2] I recognize that the Personal Respondents raise seven issues each, they argue, lead to the negation of any enforcement of the releases. In light of my conclusions, I respectfully decline to address each. The application is completely addressed making it unnecessary to proceed further.
[3] Counsel for the Personal Respondents asks me to draw a negative inference from 375’s failure to produce evidence from Thiessen. Without addressing the merits of such a request, I decline to do so because it is unnecessary in the circumstances.
[4] Question 27
[5] Question 30
[6] Question 31
[7] Questions 37 and 39
[8] Questions 190-191
[9] Question 192
[10] This amount is from 375’s subsequent offer to include insulation of the foundation walls.
[11] I note the irony of this position. In essence, 375 says that if the problem is a Major Structural Defect then the validity of the releases is questionable.
[12] In addition, and in order for a rescission, the plaintiff must have acted promptly on the discovery of the misrepresentation, no third party may have acquired rights for value as a result of the contract, and restoration to pre-settlement positions is possible: Deschenes, at para. 30.
[13] Other elements must be satisfied: prompt action, no impact to third party rights, and restoration possible: Deschenes, at para. 30. None of these elements were challenged before me nor do I see any issue concerning same in the record evidence.

