COURT FILE NO.: CV-19-8941-00CL DATE: 2023/06/22

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

2169289 ONTARIO INC. O/A THE PLAINTIFF CONTRACTING Plaintiff – and – JAMES TUMBACK AND SUSAN TUMBACK Defendants – and – JAMES TUMBACK AND SUSAN TUMBACK Plaintiffs by Counterclaim – and – FRANK WENDORF who carries on business under the trade name and style of THE PLAINTIFF CONTRACTING Defendant by Counterclaim

Counsel: Kristina Bezprozvannykh, for the Plaintiff Nadia Condotta, for the Defendants

HEARD: April 24, 2023

CORRECTED REASONS FOR DECISION

CORRECTION NOTICE Corrected decision: The text of the original decision was corrected on October 3, 2023. The word ‘judgment’ in para. 50 was replaced with the word ‘settlement’.

M.G. Ellies R.S.J.

OVERVIEW

[1] The plaintiff seeks leave to bring this motion and, if leave is granted, moves under r. 49.09(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, for an order for judgment based on what it submits was an accepted offer to settle this proceeding.

[2] For the following reasons, leave to bring the motion is granted, but the motion is dismissed. As I will explain, although I have concluded that there was an accepted offer to settle, this is one of those rare cases in which it would not be in the interests of justice to enforce the settlement.

BACKGROUND

[3] The action within which this motion is brought relates to the construction of a home in Wahnapitae, east of Sudbury.

[4] The defendants, James and Susan Tumback, entered into a fixed-priced contract with the plaintiff, 2169289 Ontario Inc. o/a Bayview Contracting, to build a home for the price of $285,000.00. The plaintiff was registered as a builder with the Tarion Warranty Corporation ("Tarion") and the home for which the parties had contracted was insured under the Tarion New Home Warranty Program.

[5] Before the project was complete, the plaintiff began to insist that the defendants enter into another contract, this time without a fixed price. They refused to do so.

[6] In November 2019, the plaintiff discontinued its work on the home, placed a lean on it under the Construction Act, R.S.O. 1990, c. C.30 (“the Act”), and commenced this action. In the action, the plaintiff seeks damages in the amount of $408,637.00 for breach of contract, among other things. The defendants have defended the claim, in part, by alleging deficiencies in the quality of the construction. They brought a counterclaim, adding Frank Wendorf (the alleged owner of the plaintiff), as a party. However, the claim against Mr. Wendorf has now been discontinued on consent.

[7] Two pretrial conferences were held before Cullin J. The settlement at issue in this motion was purportedly reached at the second such conference held on October 24, 2022. During the conference, the defendants proposed to pay the plaintiff the all-inclusive amount of $225,000.00 and to release their Tarion claims relating to the alleged deficiencies in the home.

[8] Immediately following the pretrial conference on October 24, 2022, the lawyer for the defendants sent draft Minutes of Settlement to the plaintiff’s lawyer, in which it was proposed that:

(a) the defendants pay the sum of $225,000.00 to the plaintiff within 40 days of executing the minutes of settlement;

(b) the defendants withdraw their complaint to Tarion and release the plaintiff and Wendorf from liabilities associated with Tarion;

(c) the plaintiff remove the construction lien on the home upon receipt of the settlement funds;

(d) the parties consent to the dismissal of the plaintiff’s claim; and

(e) the parties execute an agreeable mutual release.

[9] According to Mrs. Tumback, she and her husband left the October pretrial thinking they had settled the matter by agreeing to pay the plaintiff $225,000 and releasing Tarion. Within minutes of concluding the October 24 pretrial conference, however, they began to realize the serious implications of releasing the claims they had made under the Tarion warranty. As she deposed in an affidavit dated February 3, 2023, they believed at the time that doing so would mean that they would have to bear the costs of remediating the deficiencies themselves.

[10] The defendants contacted their lawyer the next day about their concerns. On November 1, 2022, their lawyer wrote to the plaintiff’s lawyer to advise of the defendant’s concerns. She wrote that the defendants “were very uncomfortable with letting Tarion off the hook” and proposed, instead, that the defendants pay the plaintiff the sum of $250,000.00, all-inclusive, but that they not release Tarion.

[11] Between November 2 and November 11, 2022, the lawyers exchanged emails in which the plaintiff’s lawyer sought to clarify the defendants’ proposal.

[12] On November 11, 2022, the plaintiff’s lawyer advised the defendants’ lawyer that by the terms of the settlement agreed upon earlier, the defendants were bound to release the existing Tarion claims. However, the plaintiff’s lawyer also wrote that he would seek the plaintiff’s instructions to allow the defendants to retain the ability to make three- to seven-year claims under the Tarion warranty (which were not raised in the litigation).

[13] On November 16, 2022, the plaintiff’s lawyer confirmed his client’s willingness to settle on the basis referred to above and provided the defendants’ lawyer with a draft mutual release, carving out the three- to seven-year claims. However, he also wrote that, if the defendants were not prepared to agree to the new terms, he would be seeking to bring a motion to enforce the earlier settlement.

[14] Although further emails were exchanged between the lawyers, new terms of settlement were never reached. The Minutes of Settlement that had been sent on October 24, 2022, were never signed by any party.

THE MOTION

[15] Under s. 13 of O. Reg. 302/18 (made under the Act), the plaintiff must obtain leave to bring this motion. The section provides that:

Interlocutory steps, other than those provided for under the Act, shall not be taken without the consent of the court on proof that the steps are necessary or would expedite the resolution of the issues in dispute.

[16] If leave is granted, the plaintiff relies on r. 49.09(a) of the Rules of Civil Procedure, which provides:

49.09 Where a party to an accepted offer to settle fails to comply with the terms of the offer, the other party may,

(a) make a motion to a judge for judgment in the terms of the accepted offer, and the judge may grant judgment accordingly;

[17] The plaintiff submits that, although the minutes were never signed, the parties had reached an agreement to settle this action at the October 24 pretrial conference. It argues that the evidence shows that the parties intended to reach an agreement and reached an agreement on all the essential terms. It submits that there is no legal reason to set the agreement aside and that enforcing the agreement will not result in any injustice. For these reasons, it submits that leave to bring the motion should be granted and the motion should be allowed.

[18] In resisting the motion, the defendants seek to rely on a supplementary affidavit sworn by Mrs. Tumback on April 21, 2023. In her affidavit, Mrs. Tumback deposes that since swearing her affidavit of February 3, 2023, engineers from a firm retained by the defendants and an engineer retained by Tarion have attended at the defendants’ home, conducted intrusive inspections, uncovered serious deficiencies, and, in the case of Tarion's engineer, required that immediate steps be taken to remediate one such deficiency.

[19] The plaintiff objects to the admission of this evidence on the basis that it has not been provided with an opportunity to have its own expert attend the home for the purpose of preparing a competing affidavit, among other things.

THE ISSUES

[20] The issues to be determined are:

(1) Should the plaintiff be granted leave to bring the motion?

(2) If so, should the defendants be permitted to rely on Mrs. Tumback’s supplementary affidavit?

(3) Was there a settlement?

(4) If so, should the settlement be enforced?

ANALYSIS

Should the plaintiff be granted leave to bring the motion?

[21] This issue can be dealt with quickly.

[22] Although the defendants have not conceded this point, it cannot be seriously contested that, if the plaintiff's motion succeeds, it will not only expedite resolution of the issues in dispute, it will resolve them entirely.

[23] Therefore, in my view, there is no question that leave should be granted. The defendants' failure to concede such an obvious point will be mentioned again when I deal with the issue of costs.

Should the defendants be permitted to rely on Mrs. Tumback’s supplementary affidavit?

[24] The events referred to by Mrs. Tumback in her supplementary affidavit of April 21, 2023, relate both to the alleged deficiencies in the defendants' home and to information obtained from Tarion.

[25] With respect to the home, Mrs. Tumback deposes that, in a report dated March 23, 2023, an engineer with the Tulloch firm provided “additional observations and conclusions” beyond those contained in an earlier report dated November 16, 2021, which report had already been served on the plaintiff.

[26] The March 23 report includes photos taken from a site visit on February 13, 2023. According to the author of the Tulloch report, the areas examined on February 13, 2023, were not accessible during the site visit that led to the November 2021 report because they were covered at the time by the original finishes, namely the walls and ceilings. Those finishes were later removed in certain areas by contractors to permit more intrusive inspection of the areas underneath. In addition, holes were drilled through the defendants’ concrete floor.

[27] With respect to the Tarion warranty, Mrs. Tumback deposes that a meeting took place in Parry Sound with representatives from Tarion on March 28, 2023. During the meeting, she and her husband were advised that Tarion warranty coverage can only be waived by a home owner and a builder if the terms of settlement between the parties contain details specifying:

(1) which Tarion claims are being settled;

(2) the amount for which each item is being settled;

(3) the purchase or contract price of the home as agreed upon between the parties; and

(4) how much of the purchase or contract price will remain outstanding after the settlement.

[28] The defendants take the position that the terms of the settlement at issue do not meet Tarion's requirements.

[29] Finally, Mrs. Tumback deposes that representatives of Tarion attended the defendants' home on April 19, 2023, accompanied by a contractor and a professional engineer. During the visit, the engineer insisted that the contractor install temporary shoring in the basement to ensure that a load-bearing beam under the first floor would not fail in the event there were more than two people on the floor it was designed to support.

[30] As mentioned, the plaintiff's main objection to the admission of Mrs. Tumback's supplementary affidavit is that it has not been provided with an opportunity to have its own engineer attend the defendants' home to view the alleged deficiencies now that the wall and ceiling finishes have been removed. It submits that the defendants have failed to comply with an order made by Cullin J. on February 15, 2023, by virtue of which the defendants were required to advise the plaintiff within 45 days whether they would consent to allowing the plaintiff's engineer to conduct an inspection. The plaintiff alleges that it never received notice of either the Tulloch or the Tarion visits to the home.

[31] The plaintiff also objects to the supplementary affidavit on the basis that it fails to comply with r. 39.01(4) because it contains hearsay evidence on contentious issues without providing the source of the information and because the affidavit was served so late that it was unable to exercise its right to cross-examine Mrs. Tumback under r. 39.03.

[32] In my view, these objections are insufficient to justify excluding the supplementary affidavit. As the defendants submit, all of the events referred to in the supplementary affidavit occurred after Mrs. Tumback's February 3, 2023, affidavit was sworn. The information could not have been obtained earlier. Contrary to the plaintiff's submission, the sources of the information contained in the affidavit are all identified. Indeed, copies of the letters from Tullock and Tarion are attached as exhibits to the affidavit with respect to all of the events occurring after the February affidavit was sworn and all confirm Mrs. Tumback's sworn information.

[33] The complaint that the plaintiff did not have an opportunity to inspect the home and have its own expert evidence available for the hearing of this motion loses sight of the purpose of this motion. As I will explain, one of the issues in this motion is the injustice that might result if the settlement is enforced. The purpose of the supplementary affidavit is not to allow the court to arrive at a final determination on the question of deficiencies, but to determine whether, if the settlement is enforced, it could result in an injustice. In other words, the question on the motion is what potential injustice might result if the settlement is enforced. The question is not who will win and who will lose if the settlement is not enforced.

[34] For this reason, I conclude that the supplementary affidavit should be admitted on the motion.

Was there a settlement?

[35] As the Court of Appeal held in Olivieri v. Sherman (2007), 2007 ONCA 491, 86 O.R. (3d) 778, at para. 41, a settlement agreement is a contract. For a concluded contract to exist, the court must find that the parties: (1) had a mutual intention to create a legally binding contract; and (2) reached agreement on all of the essential terms of the settlement: Olivieri, at para. 44, citing Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991), 79 D.L.R. (4th) 97 (Ont. C.A.), at pp. 103-104.

[36] Where the agreement is in writing, as it is here, the existence of both of these prerequisites must be determined from an objective reading of the language chosen by the parties and from the circumstances surrounding the agreement: Olivieri, at para. 44. For this reason, I do not give much weight to the admission in Mrs. Tumback's February 3, 2023, affidavit that she and her husband left the October 24, 2022, pretrial conference believing that they had settled the lawsuit. Rather, I have focused on the emails exchanged between the lawyers after the October pretrial conference and the terms of the draft Minutes of Settlement that accompanied them.

[37] In my view, this evidence shows that the parties reached an agreement at the October 2022 pretrial conference that included terms whereby the defendants would waive the claims they had made to Tarion that formed the basis of their defence.

[38] The defendants rely on two aspects of the evidence to suggest that there was no enforceable settlement despite the October 24 email from the defendants' lawyer. The first is the fact that the plaintiff's lawyer, once he was advised of the defendants' concerns about releasing Tarion, continued to attempt to negotiate a resolution before insisting on compliance with the terms proposed by the defendants at and immediately after the October 2022 pretrial conference. The second is that the terms of settlement do not comply with Tarion's requirements and cannot, therefore, result in a settlement of those claims. In my view, neither argument is sufficient to overcome the conclusion that the parties had reached a settlement at the October 24, 2022, pretrial conference.

[39] With respect to the first argument, in her endorsement of October 24, the pretrial judge wrote:

Following negotiations, the parties were able to reach an agreement in principle to resolve the matter in its totality. Counsel will take the necessary steps to finalize the matter.

[40] The wording of this endorsement is clear: an agreement was reached that settled not only the plaintiff's claim for payment, but also the defendants' Tarion warranty claims.

[41] What happened immediately after the pretrial conference confirms that an agreement had been reached and makes the terms of the agreement clear. The defendants' lawyer wrote to the plaintiff's lawyer, attaching Minutes of Settlement and advising that her clients had already spoken to a mortgage broker about complying with the term that they pay the settlement funds within 40 days.

[42] It is true that, after the defendants' lawyer wrote on November 1, 2022, to express her clients' concern about letting Tarion off the hook, the plaintiff's lawyer proposed a different settlement; one in which the defendants would still be able to make Tarion claims which were not the subject of the litigation. However, he continued to insist that the parties had reached an agreement earlier and, on November 16, 2022, wrote to the defendants' lawyer to advise her that, if the defendants did not wish to enter into a different agreement, he would seek instructions to move to enforce the one in place. The efforts on behalf of the plaintiff to reach a new agreement are not sufficient to overcome the evidence that an agreement had been reached earlier, nor do they amount to evidence of an agreement to rescind the earlier agreement.

[43] I am also not persuaded by the defendants' argument that, because of Tarion's requirements, there cannot be any settlement of the Tarion claims. That outcome remains to be seen. There is no evidence that Tarion has actually rejected the settlement as it is currently proposed. Further, based on the decision in Ahmed and Riar v. Tarion Warranty Corporation, Dali Homes Inc., 2021 ONLAT 13026, it appears that Tarion has in the past accepted the terms of a general release such as that proposed in this case as a waiver of the defendants' right to coverage.

[44] For these reasons, I find that the parties intended to reach an agreement to settle this matter and that they agreed on the essential terms of that settlement. Therefore, I find that there was a valid settlement agreement in place. That, however, does not end the matter. I must now go on to decide whether it should be enforced.

Should the settlement be enforced?

[45] Recent cases have emphasized the strong presumption in favour of the finality of settlements: Deschesnes v. Lalonde, 2020 ONCA 304, at para. 27. In Deschenes, our Court of Appeal referred with approval to the decision in Radhakrishnan v. University of Calgary Faculty Assn., 2002 ABCA, in which that Alberta Court of Appeal held that: “[t]he recognized ways to upset a settlement contract are the same as those to upset any other contract”, and that “[in a settlement] [i]nterests of finality prevail, unless there are contractual problems such as fraud, misrepresentation, duress, undue influence, unconscionability, or mutual or unilateral mistake”: Deschenes, at para. 28.

[46] I am not satisfied that any of these reasons for setting aside the settlement in this case exist. While Mrs. Tumback deposes that she and her husband "feel they were pressured into agreeing" to releasing Tarion, this evidence is not sufficient to justify setting the agreement aside on the basis of duress. This was not the first such pretrial conference they had been involved in, they were familiar with the judge, there is no evidence that the judge or anyone else exerted any pressure on them, and they were represented by counsel. Being anxious to resolve a case does not amount to duress.

[47] However, a judge's discretion under r. 49.09(a) not to enforce a settlement agreement is not restricted only to those cases in which there is a basis in contract law to set the agreement aside. In a line of cases beginning with Milios v. Zagas (1998), 38 O.R. (3d) 218 (Ont. C.A.), courts have recognized the existence of a discretion on the part of a judge under r. 49.09(a) not to enforce a settlement agreement where to do so would not be in the interests of justice.

[48] In the more recent case of Srebot v. Srebot Farms Ltd., 2013 ONCA 84 the Court of Appeal clarified that a judge's discretion under r. 49.09 is not confined by the constraints of contract law. At para. 10, the court wrote:

At the end of the day, the critical issue in this case was whether, on consideration of all the relevant factors disclosed by the evidence, the enforcement of the settlement would lead to clear injustice: see for example, Royal Bank v. Central Canadian Industrial Inc., 2003 CarswellOnt 5214 (Ont. C.A.); Milios v. Zagas [citation omitted].

[49] In Milios, the Court of Appeal set out the following non-exhaustive list of factors to be considered when determining whether enforcing a settlement would be contrary to the interests of justice, at p. 224:

• whether the parties' pre-settlement positions remain intact;
• whether the other party to the settlement will be prejudiced if the settlement is not enforced, apart from losing the benefit of the settlement itself;
• the degree to which the party seeking to set aside the settlement will be prejudiced if judgment is granted as compared to the prejudice the other party will suffer if the settlement is not enforced; and
• whether any third parties will be affected if the settlement is not enforced.

[50] All of these factors weigh against enforcing the settlement in this case. There is no evidence that the plaintiff would suffer any prejudice apart from losing the benefit of the settlement. Indeed, there is a possibility that it would not even have had the benefit of the settlement, given the information that Tarion might not have released the plaintiff based on the Minutes of Settlement. If the settlement is not enforced, both sides will simply be put back in the position they were before October 24, 2022. Further, refusing to enforce the settlement will not affect the only additional party, Mr. Wendorf, against whom the counterclaim remains dismissed.

[51] On the other hand, the potential prejudice to the defendants of enforcing the settlement is significant. Based on the information contained in the supplementary affidavit and the reports and photos attached to it, there are serious deficiencies going to the very structure of the defendants' home. For example, it appears that no footings were poured under areas of the basement concrete floor to help support load-bearing walls. Although there is no evidence yet as to the cost of repairing some of these deficiencies, it is not mere speculation to conclude that, given their nature, they will be costly to repair. Although it may be that Tarion would have completed the necessary repairs in any event, the mere possibility that the defendants would have to bear these costs makes it unjust to enforce the settlement agreement, in my opinion.

[52] A court should not lend itself to this kind of injustice.

CONCLUSION

[53] In Srebot, the Court of Appeal was careful to set the bar high when it comes to a judge's discretion under r. 49.09(a). At para. 6, the court wrote:

The discretionary decision not to enforce a concluded settlement … should be reserved for those rare cases where compelling circumstances establish that the enforcement of the settlement is not in the interests of justice.

[54] In my view, this is one of those rare cases. It could not be in the interests of justice to enforce the terms of a settlement arrived at prior to the discovery of such serious structural defects in the home that is the subject of this action, whether they would permit the agreement to be set aside on the basis of contract law or not.

COSTS

[55] Ordinarily, costs follow the event, meaning that the successful parties are awarded their costs. The defendants have filed a costs outline in which they seek costs in the amount of $15,971.99 on a substantial indemnity scale or $10,647.99 on a partial indemnity scale. To begin with, I find these costs to be too high. The plaintiff has filed a costs outline in which it seeks substantial indemnity costs of only $11,603.41 or partial indemnity costs of only $7,750.25. The amount sought by the plaintiff is more in line with what would be reasonable.

[56] However, even these amounts would be too high to award the defendants in this motion. As I said above, the defendants failed to concede even the obvious point that the motion had the potential to resolve the issues between the parties. I would add that, while again refusing to concede the point, the defendants also failed to put forward much of a case on the issue of whether there was a settlement. Had the defendants admitted the merits of the plaintiff's position on these points, the motion would have been more focused and there would have been less work for everyone involved in it.

[57] For this reason, I would award the defendants only nominal costs in the all-inclusive amount of $1,500.

M.G. Ellies R.S.J.

Released: June 22, 2023