The headline is a little bit dramatic but, nonetheless, an article published on May 25, 2014 in the Vancouver Sun, written by Derrick Penner, called, Leaky condo crisis rears its head again in B.C. – Buildings that weren’t fixed earlier now face even costlier repairs is an interesting read and touches on a number of the things addressed in a few of my earlier posts.
Patty Winsa’s article Degrading condo windows expected to trigger major wave of replacements in thestar.com, published March 20, 2014, discusses the potential (and sobering) costs associated with large scale glazing (glass) replacement on high-rise condo buildings as window systems approach their expected 30-35 year lifespan.
Failure and replacement isn’t imminent for many condos but if the replacement costs approach what University of Waterloo professor Dr. John Straube predicts, this is a future problem and cost that condominium corporations are going to want to get well out in front of.
Scanning the downtown skylines of Vancouver, Calgary, Toronto, and Montreal (and so on) gives one an appreciation for the prospective magnitude of the amount of money at stake.
Construction deficiency claims and title insurance being two of my primary areas of practice and both being near and dear to my heart, I read Mike Holmes’ article “A flood of misinformation: Title insurance is not a home warranty” in the National Post with some interest.
I don’t agree with everything that Holmes says in the article but he got the title right anyway. Title insurance is a specialized insurance product and, as a very general statement, protects purchasers of real property from a long list of “title” or “ownership” related problems or “risks”. It is not, and doesn’t pretend to be, a warranty of good design and/or construction. The title of the article seems to suggest that Holmes agrees with this proposition. So far, so good.
Where Holmes really loses me, though, is when, in discussing hypothetical homeowners who discover major construction deficiencies, he writes, “Who’s at fault? Is it the homeowner who got the renovation? Is it the contractor that was hired? Is it the title insurance company, the building inspector or the government? As far as I’m concerned, it’s all of the above.” How can the title insurer be at fault?
A policy of insurance (be it title insurance or some other kind of insurance coverage) covers what it covers and doesn’t cover what it doesn’t cover. For Holmes to suggest, as he does, that the title insurer is at fault in the scenario he outlined is a bit like saying that when your house gets broken into and your auto insurer won’t pay for your stolen sofa, your auto insurer is partly at fault for your loss.
In any case – I thought the article was worth mentioning as Homes has brought some good media exposure to title insurance and cast at least a little bit of light on a common misunderstanding that I see all too often in my practice.
The Ontario Court of Appeal released Metropolitan Toronto Condominium Corporation No. 1352 v. Newport Beach Development Inc. earlier this week. It’s an interesting case and may actually provide some useful jurisprudence in litigation involving defects and claims under the Ontario New Home Warranties Plan Act (ONHWPA).
The facts are nicely summarized at the outset of the Decision as follows:
2] The respondent Metropolitan Toronto Condominium Corporation No. 1352 (“Metro 1352”) manages a luxury condominium project in Etobicoke near the shore of Lake Ontario. It alleges that the project has two major construction defects. It claims that the sanitary sewer system was not built properly, causing toilets in the condominium units to overflow and the units themselves to flood with sewage. It also claims that a systemic failure of the exterior cladding over the project, called the exterior insulated finish system (“EIFS”), has caused water penetration in the condominium units.
 Metro 1352 sought compensation for these two defects under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. 0.31 (the “Act”). The administrator of the Act, the respondent Tarion Warranty Corporation, denied compensation. Instead of appealing Tarion’s decisions to the Licence Appeal Tribunal, as it was entitled to do, Metro 1352 started this litigation. It has sued Newport, the vendor and declarant of the project; Canderel, a developer related to Newport; Spampinato, an officer of Canderel; Enersys Engineering Group Ltd. and Eric Pun, the engineers on the project; and Tarion. It has asserted causes of action for breach of statutory warranty, negligence, breach of fiduciary duty and breach of contract. The engineers have been noted in default. The other defendants have not delivered a statement of defence.
 On its Rule 21 motion Newport asked for various forms of relief, but principally for an order dismissing the action on the ground that the litigation is an abuse of process. Newport argued that Tarion’s decisions denying warranty coverage could only be reviewed by an appeal to the License Appeal Tribunal. Either the doctrine of issue estoppel or the rule against collateral attack prevented Metro 1352 from re-litigating its claim by a civil action. The motion judge, Corrick J., disagreed and dismissed the motion in its entirety.
 On its appeal Newport raises three issues, which I put in the form of questions:
(1) Did the motion judge err by failing to dismiss Metro 1352’s claims relating to defects in the sanitary sewer system and the EIFS, both against Newport and Tarion, as an abuse of process?
(2) Did the motion judge err by failing to dismiss the claim for breach of warranty for defects in the sanitary sewer system on the ground that they do not constitute a major structural defect under s. 13(1)(b) of the Act?
(3) Did the motion judge err by failing to dismiss the claim for defects in the EIFS on the ground that the claim was a new cause of action added by amendment to the statement of claim after the expiry of the limitation period?
One of Newport’s arguments in relation to the first question above was that the doctrine of “issue estoppel” should – Metro 1352 having already been provided determinations by Tarion that the defects were not compensable under the ONHWPA – prevent Metro 1352 from suing Newport in Court over those very same issues.
In analyzing Newport’s argument regarding issue estoppel, one of the things that the Court of Appeal had to consider was whether Tarion’s decisions were “judicial” decisions. To my surprise and horror (OK…not horror, near horror), the Court of Appeal disagreed with the motion judge and ruled that the decisions of Tarion’s inspectors are “judicial” in nature.
I obviously don’t know whether any of the learned judges hearing this appeal have personally gone through the process of a Tarion inspection and of finding out what Tarion deems “warranted” or “not warranted” via its Warranty Assessment Report process. I also don’t know what evidence the learned judges had before them in terms of what the inspectors do (process, rules, policies) and what sort of education and training they have. That said, in addition to representing clients involved in disputes with Tarion, I’ve been through several Tarion inspections myself and “judicial” is not a word that comes to mind when I consider how the Tarion inspectors handled my claims. In my own experience, the Tarion inspectors that determined what was deemed warranted and what was deemed not warranted:
- Communicated regularly with both me and the builder in the absence of the other before (and after) issuing the Warranty Assessment Report, making the process far from open and transparent. Both sides can feed the inspector information without the other side necessarily knowing about it and there is, therefore, no way to know what information is being provided and what sort of verification is being done.
- Did not hold anything that could reasonably be considered a “hearing”.
- Don’t allow third/non-parties to be present during the inspection. If it is “judicial” or adjudicative in nature, why wouldn’t an owner or builder be permitted to have a lawyer or an expert, for example, present?
- Adhered rigidly and inflexibly to Tarion’s “Construction Performance Guidelines” which are a useful but, in my view, imperfect and incomplete set of “guidelines”. There is not much “judicial” analysis involved in robotically applying “guidelines” as though they are infallible and carry no exceptions.
- Did not have any legal training.
- Ignored large amounts of information provided to them (such as manufacturer’s installation instructions that had not been followed by our builder). None of this showed up anywhere in our Warranty Assessment Reports and when I asked about it at the inspection, I was told by one of the inspectors that he “hadn’t looked at it”.
- Didn’t bring a ladder or binoculars or have any way of “inspecting” second story exterior deficiencies for which they had ample and complete notice were to be assessed. If the inspectors are tasked with inspecting deficiencies and then making a “judicial” determination regarding same, how can they possibly do so if they show up and don’t have any manner of even looking at the alleged deficiency?
- Didn’t take note of most things either party said during the inspection. While I don’t think a detailed transcript should be required, when few notes are taken one is left to wonder how much information is actually making it onto “the record”.
At the end of the day, I think that the outcome (and most of the analysis) in this Decision is correct so it may be that not much turns, in practice, on this aspect of the Decision. It just strikes me – as I expect it might strike many who have had the experience of actually going through the Tarion conciliation inspection and assessment process – that to call Tarion’s internal decision making process “judicial” is inaccurate and diminishes truly judicial decision making. Just because an animal has a bill, webbed feet, and lays eggs, doesn’t necessarily mean it is a platypus.
There’s nothing particularly new or ground-breaking about the recent Ontario Superior Court Decision in Sierra Excavating v. Olszewski and TD Bank, 2012 ONSC 2271 (CanLII) but it is an interesting little case that highlights the importance of seeing the forest for the trees early in the litigation process. What forest? The legal costs. What trees? The legal principles at play and the parties’ perceived rights.
The facts are a bit lengthy but not complicated and are, in summary form, as follows:
- As a result of water intrusion into their basement, the owners of a single family house in Caledon, Ontario hired an excavation contractor to excavate around portions of the foundation of their home and carry out some work to waterproof the foundation and stop the leaks.
- The contract price was $19,576.13.
- The contractor carried out the work but leaks persisted.
- A couple of subsequent attempts by the contractor to repair the leaks failed, the owners refused to pay, and the contractor registered a construction lien and sued for the $14,576.23 claimed to be owing under the contract.
- The owners had another contractor remove and re-do the work (successfully – the leaks were fixed) and the owners counterclaimed for $40,000 for the higher cost of the second repair.
- The Judge found largely in favour of the owners, ruling that the contractor had not done what it was hired to do and so was not entitled to a lien (or further payment) and would have to pay the owners $21,466.20 in damages for their cost to have the work re-done and done properly.
What I find important enough about this case to write this little blurb has almost nothing to do with the facts or the Judge’s decision – it has to do with highlighting how easy it can be for litigants to end up in a four-ish year legal battle (capped off with a three-ish day trial) that must have cost tens-ish of thousands of dollars in litigation costs (lawyers and experts) over what was never realistically more than a $20,000-ish fight, regardless of which side won or lost. That is not, in my opinion, a happy outcome, even for the “victorious” owners. At the end of the day, I would imagine that most, if not all, of what the owners were awarded will probably be gone in litigation costs and, between paying the Judgment, its own lawyer and expert, and some amount of the owners’ legal costs, the contractor is probably out somewhere north of $40,000 (on a $14,000 claim!). Would either side have predicted its financial outcome in 2008 when the lawsuit was commenced? I don’t know for sure but I doubt it.
This case, and countless others like it, exemplifies the need for both prospective Plaintiffs and Defendants in construction litigation to think very hard before they “dig in” for a long fight over what is, in the context of litigation, not a lot of money. Some people and companies are rich enough to have the privilege of throwing economics out the window in favour of principle – most, however, are not.
From a lawyer’s perspective, this case bolds, underlines, and then highlights the need to have very frank and very clear discussions with our clients about the potential course and costs of litigation – particularly when there are relatively small amounts of money is dispute – so that our clients can make informed decisions about how they want to proceed and how aggressive they want to be in trying to settle their disputes. Sometimes “small money” litigation will still go the long, expensive distance but at least the end result will then be no surprise to our clients.
On a closing note: I am not being in any way critical of the parties’ lawyers in this case – I don’t know either of them and obviously have no idea about how the litigation proceeded, whether there were attempts at settlement, or as to the overall dynamics of the litigation over its four year course. To the contrary, my point is that the economics of virtually any “small money” construction litigation has the potential to get away from the parties over time and this case is just yet another example of this all too common problem.
I watched an interesting little piece on CTV’s W5 last night that dealt with several Ontario homeowners’ difficulties surrounding the heating systems installed in their new homes and their frustration in dealing with Tarion. Click here for a link to the online article on the same piece.
Tarion provides and administers Ontario’s mandatory new home warranty program under the Ontario New Home Warranties Plan Act (“ONHWPA”) and its regulations. Based on the W5 story and others I’ve seen, Tarion still seems to be really struggling with the concept that the ONHWPA is consumer protection legislation and that, as such, protecting homeowners is Tarion’s primary (if not sole) mandate. There have been at least a couple of cases decided by the Ontario Courts where the Court has expressly stated that the ONHWPA is consumer protection legislation and yet the piece on W5 is just the most recent of many, many stories and articles in the media telling a very similar story. The message – even when delivered by the Courts – just doesn’t seem to be getting through.
I’m skeptical by nature and, a few years ago, I might have chalked these media stories about problems with Tarion up to whiny homeowners and/or overzealous reporters. However, as the purchaser of two (consecutive) new homes in the last four years, I’ve had the personal displeasure of tangling with Tarion not once, but twice. I won’t bore you with the details but I will tell you that, with both houses, I had several substantial and legitimate deficiencies that Tarion deemed “Not Warranted”. If you’ve ever received a Warranty Assessment Report from Tarion, you will be entirely too familiar with these two words. I’ve been litigating construction deficiency claims for more than a decade and I have a pretty good sense for what should be covered by a warranty and what probably isn’t. Tarion knew I was a construction lawyer and I was still treated by Tarion as though I had no idea what I was talking about and would just placidly accept its patently wrong decisions. It was a real eye-opener and I remember feeling extremely sympathetic to folks that are trying in vain to get help from Tarion and don’t have the skills or resources to take Tarion to task when it determines some of their very legitimate complaints to be “Not Warranted”.
Seeing this W5 story has renewed my interest in trying to help to educate homeowners and I will, in the near future, post some information here that Ontario homeowners dealing with Tarion might find helpful.
For most people, long gone are the days where a house is purchased in early adulthood and is lived in, virtually unchanged, for 20, 30, even 40, years. We are, more and more, a society and culture that encourages “upgrading” and “improvement”. Many of us will, at some point, hire a contractor to carry out some kind of construction project – whether for a small bathroom renovation all the way up to a large six figure renovation.
There are a lot of fantastic contractors and builders out there that do excellent work and this article is, in no way, a slag on contractors generally. Unfortunately, when trying to tell the good from the bad, one thing you can count on is that they will all – good ones and bad ones – tell you how skilled, professional, and “detail” and “quality” oriented they are. However, another thing you can count on is that, when it’s your home and hard earned money is at risk, a two month delay, a 30% or 40% budget overrun, or an un-level floor/poor paint job/etc. (you get the idea), will test your anger management limits. If the contractor then refuses to acknowledge the problem and stops communicating with you, you’ll quickly see those limits as little dots in your rear-view mirror.
Seasoned and experienced owners or developers undertaking large construction projects or working in new construction usually take steps to get the proper “legalities” taken care of – they negotiate contracts that are either standard form or are drafted by their lawyers, they hire consultants to oversee and review the work as it progresses, they make sure they are complying (more or less) with the Construction Lien Act, and so on. However, on smaller projects and renovations, and for less experienced homeowners, these safeguards and up-front precautions are far too often overlooked and it amazes me how little legal protection and planning many people seek even when there are tens or hundreds of thousands of dollars at stake.
Sometimes a project goes well and the homeowner gets what he or she bargained for without any conflict. These are the happy stories. However, too often, homeowners are getting into costly disputes with their contractors and either get a poor finished product or spend a small fortune in legal fees fighting for what they feel they are entitled to. Fortunately, while construction can be a risky game for the uninformed and uninitiated, there are some things that homeowners can do to reduce the chances of things going sideways and improve their position if they do.
If you are a homeowner and are considering embarking on a renovation or construction project, the following are a few things you should think about before you sign on the so-called “dotted line”:
- Budget some amount of money for legal advice and assistance when you are in the early stages of planning your project. The amount of your budget will probably depend on the overall cost and nature of the project. You should consider this as part of the actual construction budget. If things go well (the happy story) and some of this money doesn’t get used, great! However, if things begin to capsize (the unhappy story), you’ll be glad to have the funds available to deal with the problem.
- Research the contractor(s) you are considering using. The internet is a great resource for this (Google, chat rooms, the Better Business Bureau, etc) and your lawyer can also carry out searches to investigate whether there has been past litigation involving the contractor. Ask the contractor for two or three references for previous clients and call them (before agreeing to anything) – if people were unhappy, they’ll be eager to tell you about it. If the contractor can’t (or won’t) give you a reference, run, don’t walk.
- Make sure that you have a well drafted contract in place that clearly sets out each party’s rights and obligations. There are many different project delivery methods available (fixed price, cost plus, project management, and so on), each with its own advantages and disadvantages. Regardless of which delivery method you choose, it should be clear as to who does what and when and for how much, and what the consequences will be if things that have been agreed upon do not happen. Note: “well drafted” does not necessarily mean “long” or “complicated”. Depending on the type and size of the project, an adequate contract might only be a page or two long.
- Consider having a schedule to the contract (unless it is set out right in the body of the contract) that clearly expresses exactly what is (and is not) included in the price. Too frequently, disputes arise because the homeowner thinks she is getting, for example, premium quality paint in an eggshell finish and the contractor plans on using standard builders’ grade flat paint. If the contract is silent on this, the contractor is going to charge the homeowner more to use the paint that she thought was included. A contract that sets these sorts of things out in detail can avoid this very, very common problem.
- Once you have that well drafted contract in place, follow it! If a dispute arises, it is more difficult to earn the sympathy of the court if the other party is not the only one that has not abided by the agreed terms. More than one lawsuit has been lost because both parties completely disregarded the terms of their contract.
- Get some advice on your rights and obligations under the Construction Lien Act. In many cases, knowing (and following) what the Construction Lien Act says about what you have to do (i.e. retaining a proper holdback for the appropriate amount of time and performing some due diligence searches before releasing the money) can save you from significant liability at the end of the project if workers, suppliers, or trades are not paid (whether directly by you or by your contractor). This legislation is there, in part, to protect owners.
- If the size of the project warrants it, either work some terms into your contract(s) for third party reviews of the work and spend a bit of money on a consultant (i.e. an architect or engineer) to do periodic reviews to point out any deviations from the specifications, design, or the Building Code, or hire someone to do this outside the contract but for your own benefit and protection. If a dispute arises, this third party can provide valuable evidence. If no dispute arises, the third party reviews can provide you with almost as valuable peace of mind
- Make sure that either you or the contractor is taking care of whatever permits are required. building permits add to the cost and “red tape” of the project but for many projects they are required and, for the most part, they are there to protect you. That said, do not assume that the building permit or inspection process will act as a general quality control for the work being done. Inspectors are generally only inspecting for general compliance with the Building Code’s minimum standards – not to ensure that everything is being done properly or in accordance with the contract. There’s a big difference.
- Consider whether you want a dispute resolution clause in your contract. Sometimes there is no such clause, sometimes there is a mandatory mediation or arbitration clause, and sometimes there is a clause making mediation or arbitration optional. I am generally not a fan of mandatory arbitration clauses for smaller projects primarily because of the potential cost involved, but there are times where it might be appropriate. This is something to raise and discuss with your lawyer.
- If you have a lawyer retained from the outset of the project, he or she will be familiar with the project and contract and, in the event that a dispute arises, will be able to jump right in without nearly as much briefing to assist in resolving things. Let your lawyer know if you sense that a problem might be on the horizon (i.e. if your contractor seems to be falling behind, the materials on site don’t match what you requested, etc). Sometimes an early letter can help keep things on the rails when they might otherwise go off (potentially saving you a lot of money if a full-scale dispute can be averted).
- Most construction litigation is won and lost on the “paper trail”. Keep a very accurate and complete project file where you keep everything to do with the project (i.e. contracts, drawings, quotes, documents supporting agreed changes to the scope of work, etc). Where things are discussed orally on site or in meetings, confirm what was discussed or agreed in writing (the speed and ease of e-mail makes this a no brainer). Keeping a comprehensive project file will:
- keep you better organized in dealing with the contractor(s) and other involved parties throughout the project (never a bad thing);
- only take a little more time than not doing it; and
- if a dispute arises during the course of the project and arbitration or litigation is required, possibly mean the difference between winning or losing the dispute and will invariably save you money in legal fees because your lawyer will have better evidence to work with.
While I strongly believe that the above suggestions can go a long way toward reducing problems and putting you in a better position if problems arise, they will not guarantee you 100% protection. Even where sophisticated owners and contractors make heroic efforts to protect themselves and negotiate detailed contracts believed by everyone to be clear and bullet-proof, long and costly litigation can still occur.
Taking the time to follow the above suggestions and, perhaps, investing couple of thousand dollars for legal advice and services at the outset of a smaller project may be a hard pill to swallow for the eternal optimist who can’t imagine that a serious dispute could arise on his or her project (“My contractor seems like a really nice guy. I trust him.”), but most clients that I’ve represented over the years, after things went wrong and where they didn’t exercise this sort of up front effort and diligence, would almost certainly say that, with the benefit of hindsight, they would have done things differently.