Slevinsky v Chambul Estate, 2014 ABQB 680

Court of Queen ’ s Bench of Alberta Citation: Slevinsky v Chambul Estate, 2014 ABQB 680 Date: 20141110 Docket: 1103 08293 Registry: Edmonton Between: Corey Slevinsky Plaintiff - and – Estate of Boris Chambul Defendant _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice K.G. Nielsen _______________________________________________________ I. Introduction [ 1 ] On August 23, 2010, Corey Slevinsky (Corey) purchased a residential property located in Edmonton, Alberta from Boris Chambul.

On or about April 1, 2011, the basement of the house located on the property (the House) experienced water infiltration. Corey alleges that Mr. Chambul breached the Residential Real Estate Purchase Contract (the Contract) with respect to the sale of the property or, alternatively fraudulently misrepresented the condition of the House and seeks rescission of the Contract and ancillary damages or,

alternatively, seeks damages in relation to repairs required to the House and lost rentals. [ 2 ] Mr. Chambul passed away on May 17, 2014. On September 15, 2014 a Consent Order was filed substituting the Estate of Boris Chambul for Boris Chambul and Lynda Chambul was appointed as the litigation representative of the Estate of Boris Chambul (the Estate) for the purposes of this action. II. Plaintiff Evidence [ 3 ] Corey lived in Vancouver and was interested in buying a residence in Edmonton for investment purposes.

He attended an investment seminar in Vancouver and met a real estate agent from Edmonton, James Knull. Corey’s plan was to rent the property out with the long term view that he might live in the residence if he returned to Edmonton. Corey along with his father Michael Slevinsky (Michael) and Mr. Knull looked at a number of properties for sale.

Corey was looking for a property that would not need a lot of work and stated that if there was any evidence of water problems in a property that was “a red flag” and he would not purchase the property. [ 4 ] The MLS listing sheet (the Listing) for the House described the House as having had extensive renovations. Corey described the House as a “beautiful house with amazing renovations”. The basement was fully finished with the exterior walls being drywalled. As a result, the concrete foundation walls (the Foundation) were not visible.

Corey knew that the House was approximately 85 years and that the Foundation was not new. [ 5 ] The Contract was subject to a property inspection condition. Corey arranged for an inspection to be conducted. An Inspection Report (the Inspection Report) was received and reviewed by both Corey and Michael. Corey acknowledged on cross- examination that no steps were taken to address a low spot under the deck or exposed plywood and OSB board below the rear deck which issues had been identified in the Inspection Report.

Further, he acknowledged that the Inspection Report identified the need for positive drainage away from the House. He was satisfied that the drainage was proper. He further acknowledged that the Inspection Report identified that there could be issues with respect to foundation walls in older houses, but felt comfortable with the condition of the House as disclosed in the Inspection Report. The Inspection Report indicated that the inspector did not observe any signs of structural weakness in the Foundation and that same appeared to be in fair to good condition.

Further there was no evidence of water penetration or moisture readings on the base of the walls. The inspector was unable to inspect the Foundation as the walls were finished with drywall, insulation and vapour barrier. [ 6 ] The condition with respect to the inspection of the property was removed and as a result of issues identified in the Inspection Report, Mr. Chambul was required to undertake certain further work with respect to the House, none of which related to drainage or the Foundation.

This work was completed. [ 7 ] The purchase closed on August 23, 2010. [ 8 ] Corey then rented out the upstairs for $1,200 per month, the downstairs for $700 per month and the garage for $250 per month. [ 9 ] On April 1, 2011 the tenant in the basement reported water infiltration into the basement. The tenant moved out at that point in time and the basement has not been occupied since April 2011. [ 10 ] Eventually, the drywall was removed and cracks and openings in various locations in the Foundation were identified. Exhibit 1, Tab 5 is a series of photographs of the House.

Several of these photographs depict the cracks and holes that appear in the Foundation. The hole depicted in the photograph numbered CS000088 in this Exhibit is large enough to put a hand in and allows daylight to enter the basement. Some of the photographs depict spalling of the concrete, efflorescence on the concrete and water marks. The photographs also depict a wall consisting of two inch by six inch studs and pressure treated plywood being constructed on the interior of and adjacent to the Foundation (the Interior Wall).

The drywall covering the Foundation had been affixed to the Interior Wall prior to its removal. [ 11 ] Corey never met Mr. Chambul before the purchase. [ 12 ] Michael attended at the House when the property inspection was completed. Mr. Chambul was also present at the inspection. Mr. Chambul said nothing of note at the inspection and, specifically, did not say anything with respect to cracks in the Foundation. Michael met Mr. Chambul again when he picked up the keys for the House after the transaction closed.

When he attended to pick up the keys, Michael spoke with a neighbor who asked if there was water leakage in the basement of the House as the neighbor had experienced leaks in his basement. Michael raised this with Mr. Chambul who advised that there was a leak near some window wells, but that this had been addressed by concreting in the windows and sloping the grade away from the Foundation, putting in a sidewalk and installing eavestroughs. Mr.

Chambul never mentioned anything about cracks in the Foundation. [ 13 ] After the leakage problem on April 1, 2011 Michael was involved in steps to remove the water from the basement and dry the basement out. Eventually, he was involved in having the drywall, insulation and vapour barrier removed from the Interior Wall. [ 14 ] The tenants advised of a further water infiltration in July 2011. Michael testified that since that time there has been water infiltration on a regular basis in the spring and on several occasions after rainfalls.

Water infiltration has been an ongoing problem from the west, south and east walls. [ 15 ] Mr. Knull was the real estate agent retained by Corey with respect to the purchase of the House. He viewed numerous properties with Corey and Michael before this property was selected by Corey. Mr. Knull specializes in investment properties and has personal experience both as a real estate agent involved in the buying and selling of such properties and as the owner of rental properties. Two-thirds of the real estate transactions he was involved in, in 2010, involved basement suites.

All but one of the properties which he owns personally has a basement suite.

[ 16 ] M. Knull was familiar with the Contract. Clause 6 of the Contract titled Warranties and Representations sets out representations and warranties by the seller. According to Mr. Knull, if any defects existed which the seller was aware of that would impact a buyer’s decision then the typical practice would be for such defects to be disclosed in writing. [ 17 ] The Listing set out detailed information with respect to the property. There is a

section of the Listing that is private to agents. In this

section the seller would put in any notes that may affect a buyer’s decision. To the extent there were any structural cracks in the foundation of a property, Mr. Knull expected that a description of the structural cracks, the location of the cracks and the extent of the cracks would be set out in this

section of the Listing. This is important because if the foundation walls are covered and, therefore, not capable of being inspected visually, there would be no way for the buyer to know that there may be issues with the foundation. [ 18 ] There was nothing with respect to the House being 85 years old and the Foundation not being new which would have led Mr. Knull to expect that there would be a structural issue with the Foundation. In doing due diligence with respect to this prospective purchase he reviewed the disclosure by the seller and recommended to the buyer that an inspection be completed. [ 19 ] Mr.

Knull was familiar with the Inspection Report. He was present for the inspection. He received a copy of the Inspection Report and reviewed it with Corey. There were no comments in the Inspection Report that caused him any concern with respect to the Foundation. The comments in the Inspection Report with respect to positive grading away from the Foundation were what he described as routine maintenance and did not raise any concerns for him. [ 20 ] Mr. Chambul was present during the property inspection. Mr. Knull did not ask any questions of Mr.

Chambul with respect to the Foundation or water problems and did not recall any discussion between Michael and Mr. Chambul with respect to water problems. [ 21 ] At no point did Mr. Chambul mention any concerns with respect to water in the basement. If any such concerns had been disclosed, Mr. Knull would have insisted on disclosure of the issue in writing and likely further inspections which would have entailed opening up the Interior Wall. [ 22 ] Mr. Knull confirmed that he had discussions with Mr. Chambul’s selling agent. Neither Mr.

Chambul nor the selling agent disclosed any issues with respect to the Foundation. [ 23 ] Corey retained Dennis Diediw to provide an expert opinion in this matter. Mr. Diediw has been a professional engineer since 1984 and is the principal of Residential Foundation Specialists Ltd. This is a company that carries on a business of repairing foundations. Mr. Diediw was qualified to give an expert opinion with respect to foundation design, construction and restoration. [ 24 ] Mr. Diediw inspected the Foundation on February 3, 2012 and prepared an expert report with respect to the Foundation.

His general impression was that the Foundation was in poor condition, was structurally compromised, and was in need of repairs. The Foundation was observed to have structural cracks and had a significant amount of lateral deflection. While Mr. Diediw did not take any measurements during his inspection of the Foundation, his recollection was that these deflections were up to as much as four inches. The Foundation was also deteriorated due to sulfate attack. Mr.

Diediw was of the opinion that the Foundation would be prone to ongoing seepage problems due to cracks in the Foundation, openings to daylight and lack of a drainage system. [ 25 ] The condition of the Foundation concerned Mr. Diediw in that ultimately the collapse of the Foundation could result as the Foundation may be unable to carry the loads placed upon it. Mr. Diediw was of the view that the Interior Wall was improperly built and was inadequate. The cracks in the Foundation which were of a structural concern would result, inevitably, in water infiltration.

While he was not an expert in mould issues, he did see evidence of mould and this could represent a safety issue. [ 26 ] Mr. Diediw was of the opinion that given what he observed as to the condition of the Foundation this was not a new problem. The condition had been there for some time and the problems would not have happened in the space of a year. [ 27 ] Mr. Diediw’s opinion was that the Foundation should be replaced in its entirety. This would entail the House being raised, the existing foundation and slab on grade being destroyed with a new foundation and slab on grade then being constructed.

He estimated that the cost of such work could be in the order of $100,000. This estimate was based on work which he had done in the past. [ 28 ] A transcript of questioning de bene esse of Richard Parrott was entered as Exhibit 5. Mr. Parrott has certain health issues and was therefore questioned de bene esse. [ 29 ] Mr. Parrott is involved in a company known as Everlast Foundation Repair which is in the business of repairing foundations. Mr. Parrott is not a structural engineer but has been in this business since 1992. [ 30 ] Michael had contacted Mr.

Parrott on April 2, 2011 to inspect the basement of the House. Mr. Parrott attended at the House and upon doing so realized that he was familiar with this property. He had been contacted in 2009 to inspect the Foundation and to provide an estimate with respect to the cost of any repairs required to the Foundation. He stated that he attended at the house in 2009 for maybe 10 minutes. When he inspected the Foundation in 2009 the concrete walls were visible. There were numerous cracks in the concrete and rotten wood and efflorescence were present.

He concluded that there had been water problems for some time in the basement. He described efflorescence as evidence of deterioration of the concrete due to salinity in the ground water. Mr. Parrott confirmed that the photographs in Exhibit 1, Tab 5 were of the Foundation and evidenced the problems with the Foundation which he had seen in 2009. [ 31 ] Mr. Parrott testified that the individual who had contacted him in 2009 had advised that there were water issues with the basement and he wanted to know how to deal with the problem. Mr.

Parrott recommended that an internal weeping tile system connected to an interior sump pump and internal wall wrap be installed and that a structural support wall be built to hold the Foundation in place. The Foundation was horizontally fractured and he considered that to be a structural failure. Mr. Parrott provided a rough estimate of $20,000 to $30,000 to carry out the necessary remedial work. Mr. Parrott testified that when he gave the rough estimate he was told that the House was not worth that kind of money. Mr. Parrott was not asked to provide a formal estimate for the work which he believed was necessary.

[ 32 ] Mr. Parrott had been unable to find his journal to confirm when he had attended at the House and with whom he had been dealing. Michael had provided the name of “Boris” but he could not be 100% certain that was who he dealt with. [ 33 ] On cross examination, Mr. Parrott acknowledged that the landscaping, drainage and grading on the exterior on the House were problems when he conducted his inspection in 2009.

He was not cross examined on any information he may have been given in 2009 as to the basement of the House being flooded due to a broken water pipe or water infiltrating through window wells. [ 34 ] In Read-Ins from questioning for discovery, Mr. Chambul acknowledged the following. In the renovation project undertaken on the House the Foundation was exposed. Cracks were evident in the Foundation. The cracks were not new. The cracks were not fixed and when they were covered over by framing and drywall, the cracks were no longer visible. III. Defence Evidence [ 35 ] Ms. Chambul had been married to Mr.

Chambul for thirty-one years. They worked in businesses together. She described Mr. Chambul as a perfectionist. [ 36 ] Mr. Chambul and Dana McKinnon entered into an arrangement pursuant to which the House was purchased with a view to renovating same and perhaps renting it out. Ultimately it was decided to sell the House. Much of the work with respect to the renovation was carried out by Mr. McKinnon. The arrangement was that upon the sale of the House, Mr. McKinnon would receive 40% of the net sale proceeds and Mr. Chambul would receive 60% of the net sale proceeds. [ 37 ] Ms.

Chambul was involved in much of the accounting with respect to the renovation project. She estimated that the total expenses, including construction costs, utilities, taxes and carrying costs were in the order of $130,000. She believed the construction costs alone were approximately $105,000. [ 38 ] She had had no discussions with Corey or Michael and was not present when the property was inspected. She was not aware of any issues with respect to water during the renovations. She stated the basement was finished last. Ms. Chambul described the basement as being an old basement which was dark and dingy.

She did see cracks in the Foundation but she did not remember any specifics of the cracks. She did not see any holes which one could put their hands into or see daylight through. [ 39 ] Dana McKinnon is in the printing business. He had built a couple of houses for himself and had done some renovation work. He is not an engineer. Mr. McKinnon confirmed that he and Mr. Chambul had entered into an arrangement to split the net sale proceeds from the House on a 40/60 basis. His role was to do the construction work. He described Mr. Chambul as the “bank”. Mr.

McKinnon arranged for contractors to carry out the work that he was not able to do. He had someone working with him for a significant period of time. [ 40 ] The House was run down when it was purchased. The House had been left unheated for a period of time and certain pipes had broken causing flooding damage in the basement. The drywall in the basement was damaged due to this flooding and it was decided to remove the lower one foot of drywall. When that was done, a polyethylene vapor barrier was discovered on both sides of the framing on the walls next to the Foundation.

This was not appropriate construction and, therefore, it was decided to take out all of the walls constructed on the interior of the Foundation. When these walls were removed, cracks in the Foundation were discovered. [ 41 ] Mr. McKinnon phoned someone to attend at the House to inspect the Foundation. Mr. McKinnon could not remember how he got the name of the foundation specialist or who it was that he spoke to.

The foundation specialist could have said that the cracks had to be addressed with weeping tile, that a structural wall had to be built and that the horizontal cracking was a structural failure but he could not remember these details. The meeting with the foundation specialist was short, lasting perhaps ten minutes. The specialist said that there could be an issue with water because of the cracks in the Foundation and inadequate grading. The specialist made some suggestions with respect to remedial work and gave an estimate as to the costs which Mr. McKinnon thought was in the amount of $20,000.

The foundation specialist gave Mr. McKinnon no sense of urgency that any work had to be done. The specialist did not seem to be concerned about the structural integrity of the Foundation. Most of the discussion was with respect to what had to be done in relation to grading the lot. At that time all grading sloped towards the House. The specialist did not say that there was going to be a water issue or that the House was going to cave in if the Foundation was not fixed. The specialist never said the work had to be done or there was going to be water in the basement. [ 42 ] Mr.

McKinnon discussed the information received from the specialist with Mr. Chambul and it was decided that the remedial work to Foundation would not be undertaken. Mr. Chambul and he decided to keep an eye on the basement and waited to complete the renovations in the basement. No water issues were encountered. [ 43 ] The opinion from the foundation specialist was received in the summer of 2009. The renovations to the upstairs of the House then proceeded and the renovations to the basement were, virtually, the last work undertaken on the House. The basement work was completed in 2010. [ 44 ] Mr.

McKinnon testified that from the time the house was purchased in June 2009 to the time it was sold in 2010, no water problems whatsoever were experienced in the basement. [ 45 ] Grading and concrete work was undertaken on the exterior of the House to slope the grade away from the Foundation. New eavestroughs and downspouts were also installed on the house to deal with the drainage issues. It was Mr. McKinnon’s understanding that this was the work that was necessary to address any water infiltration issues. [ 46 ] While Mr.

McKinnon recalled that there were cracks in the Foundation, he could not remember the specifics of any cracks. [ 47 ] Mr. McKinnon confirmed that no building permit or engineering drawings were obtained with respect to the construction of

the Interior Wall. [ 48 ] Mr. McKinnon confirmed that the renovation took much longer than had been initially anticipated and at a much higher cost. [ 49 ] Mr. McKinnon never met Corey or Michael and had no discussions with them. The first time Mr. McKinnon was aware of a problem with water in the basement was after the action was commenced. [ 50 ] Karl MacKenzie is a carpenter who had involvement with the House. He was not part of the venture to develop the House. His role was to assist in the renovation of the House, basically undertaking carpentry work. He was asked to assist by Mr.

Chambul and got his directions from Mr. McKinnon. He was involved in the project from August 2009 to the end of February 2010. [ 51 ] When Mr. MacKenzie first became involved in the project, some of the Foundation was exposed. Cracks were visible in the Foundation. His description was an old home with a couple of cracks in the Foundation. [ 52 ] Mr. MacKenzie did not observe any water infiltration while he was at the site. His view of the structural integrity of the Foundation was that it was good. Although the Foundation had a few cracks, it looked integrally sound.

There was no evidence of movement of the Foundation. [ 53 ] Mr. MacKenzie constructed the framing of the Interior Wall. For the most part the installation of the drywall was done by others. With respect to the Interior Wall, Mr. MacKenzie stated that he preferred working with two inch by six inch lumber and it gave flexibility with respect to the construction. The construction of the Interior Wall resulted in the windowsills being in the order of 11 to 12 inches deep which he described as non-standard construction. [ 54 ] Mr.

MacKenzie stated that it was a possibility that the cracks as depicted in some of the photographs in Exhibit 1, Tab 5 were in existence when he was at the site. He did not see anything that looked like holes in the concrete other than one hole which had been purposely constructed to gain access through the Foundation to a crawl space beyond. [ 55 ] Mr. MacKenzie had nothing to do with the grading or cement work on the exterior of the House. [ 56 ] In cross-examination, Mr. MacKenzie testified to the following.

He never saw any water infiltration in the basement and as far as he was concerned the Foundation was sound. He did recall being present when a foundation specialist had examined the Foundation. He did not recall a conversation with the specialist and said he would have remembered if the specialist had recommended an interior weeping tile system and work to the Foundation. Mr. MacKenzie acknowledged that the framing of the Interior Wall was more than was needed to allow for the installation of the drywall.

Further, the installation of drywall would not have required the installation of the pressure treated plywood sheets on the Interior Wall. Mr. MacKenzie confirmed that there were no engineering drawings for the construction of the Interior Wall. While he believed there was a building permit obtained, no building permit was ever shown to him. [ 57 ] As stated previously, Mr. Chambul passed away in May 2014. Counsel for the Estate applied pursuant to Rule 8.14 of the Alberta Rules of Court , AR 124/2010 to read in certain portions of the transcript from questioning for discovery of Mr.

Chambul conducted on January 10, 2012. Counsel for Corey did not oppose the application. The application was granted. [ 58 ] These Read-Ins from Mr. Chambul’s transcript provided the following evidence. Mr. Chambul was aware of certain water infiltration in the vicinity of window wells in the Foundation. He stated he did not see any water from cracks in the Foundation. Mr. Chambul acknowledged that Mr.

McKinnon had talked to someone with respect to the Foundation and the decision had been made to take steps to fix any problems with respect to the window wells where it was perceived water was infiltrating and once such remedial work including proper drainage was completed, the window wells never leaked again. Although the fall of 2009 was a rainy season and the eavestroughs on the House had not been replaced, once the window well problem had been corrected, the basement was dry. Mr. Chambul denied that it had ever been discussed that it would be too costly to repair the cracks in the Foundation. IV.

Positions of the Parties [ 59 ] Corey argues that the defects in the Foundation are latent defects and, therefore, the principle of caveat emptor does not apply. Alternatively, Corey argues that if the defects in the Foundation are patent defects, Mr. Chambul fraudulently failed to disclose same and, therefore, the principle of caveat emptor does not apply.

Corey seeks to rescind the Contract or, alternatively, seeks damages to correct the defects in the Foundation and in relation to lost rentals. [ 60 ] The Estate argues that the defects in the Foundation were patent defects which could have been discovered upon reasonable inspection or upon making reasonable inquiry and, therefore, the principle of caveat emptor applies. The Estate also argues that Clause 6.4 of the Contract applies and Corey is precluded from seeking a remedy. V.

The Contract [ 61 ] The Contract executed by the parties was the Alberta Real Estate Association standard form Residential Real Estate Purchase Contract (August 2008 version). The terms of the Contract include, inter alia : 6.1 The Seller represents and warrants to the Buyer that: ... (

h) except as otherwise disclosed, the Seller is not aware of any defects that are not visible and that may render the property dangerous or

potentially dangerous to occupants or unfit for habitation. 6.2 All of the warranties contained in this Contract and any attached Schedules are made as of and will be true at the Completion Day,unless otherwise agreed in writing. 6.3 The representations and warranties in this Contract may be enforced after the Completion Day, provided that any legal action iscommenced within the time limits prescribed by the Limitations Act (Alberta). 6.4 The Seller [Boris Chambul] and the Buyer [Corey Slevinsky] each acknowledge that, except as otherwise described in this Contract,there are no other warranties, representations or collateral agreements made by or with the other party, the Seller’s brokerage and theBuyer’s brokerage about the Property, any neighbouring lands, and this transaction, including any warranty, representation or collateralagreement relating to the size/measurements of the Land and the Buildings or the existence or non-existence of any environmentalcondition or problem. (The Exclusionary Clause).

VI. Issues [62] The Court must determine whether: 1. the principle of caveat emptor applies to the purchase of the House; and 2. if the principle of caveat emptor does not apply to the purchase of the House, what remedy is available to Corey. VII. The Law Caveat Emptor [63] Lefever J. (as he then was), in Beaulne v Ellenor (2000), 2000 ABPC 117 , 274 AR 286 (Alta Prov.

Ct.) outlined theprinciple of caveat emptor as it relates to real estate transactions as follows at para 22: Alessio v Jovica (1973), 1973 ALTASCAD 118 , [1974] 2 WWR 126 (Alta.C.A.) set forth the long-standing general rule of lawwhich applies to the purchase and sale of real estate is that of caveat emptor, or “let the buyer beware”. The underlying theory of this ruleis that the purchaser is able to address through warranties and conditions those special matters that are relevant to the purchaser and areessential matters of fact or quality which underlie the purchaser’s willingness to acquire the property.

Put from the vendor’s perspective,it is seen as unreasonable for the vendor to become in effect the guarantor or the insurer to the purchaser for things which were not madeknown by the purchaser to the vendor at the time of the negotiation and consummation of an agreement of purchase and sale. [64] In McCluskie v Reynolds (1997), (BC SC), 65 BCLR (3d) 191 (BCSC) the following comments withrespect to caveat emptor are made: 53 In conclusion on this point, the authorities with which I have been presented suggest that the doctrine of caveat emptor will notoperate to deny the plaintiff's recovery in the following situations: 1. where the vendor fraudulently misrepresents or conceals; 2. where the vendor knows of a latent defect rendering the house unfit for human habitation; 3. where the vendor is reckless as to the truth or falsity of statements relating to thefitness of the house for habitation; 4. where the vendor has breached his duty to disclose a latent defect which renders thepremises dangerous. 54 In conclusion, I find that although the law of vendor and purchaser has long relied on the principle of caveat emptor to distributelosses in real estate cases, the rule is not without exception.

Two major exceptions are in the case of fraud, and in cases where the vendoris aware of latent defects which he does not disclose. The law also supports the imposition of a duty to disclose latent defects on thevendor where he is not subjectively aware of those defects, but where he is reckless as to whether or not they exist.

It is up to the plaintiffto prove this degree of knowledge or recklessness. [65] Sullivan, J. in Temple v Thomas, 2007 ABQB 316 , 2007 AB QB 316 carried out an extensive review of theauthorities in the area and commented as follows as to caveat emptor and the exceptions thereto: 39 In the context of real estate transactions it generally is accepted that the closing of the transaction extinguishes contractual rightswhich may exist prior to closing and the principle of caveat emptor applies. There are however limited exceptions to this rule: Di CenzoConstruction Co. Ltd. v.

Glassco et al. (1978), (ON CA), 21 O.R. (2d) 186 (Ont. C.A.) leave to appeal to the S.C.C.

refused [1978] 1 S.C.R. vii at 199: After the closing of the transaction, a purchaser is generally restricted to the covenants, conditions and warranties set forth in theconveyance.

Apart from the conveyance, relief can only be obtained in the case of (1) fraud, (2) a mutual mistake resulting in a totalfailure of consideration or a deficiency in the land conveyed amounting to error in substantialibus, (3) a contractual condition, or (4) awarranty collateral to the contract which survives the closing: … 47 ...I find there is ample support for the proposition that a vendor who has knowledge of, or who is unaware of latent defects on hisproperty but for his own recklessness, has a duty to disclose them during the sale of that property.

The cases also indicate that silence asto the existence of those defects amounts to a misrepresentation such that the principle of caveat emptor would not apply.

Patent and Latent Defects [66] Andrekson, J. in Nash v McMillan, (AB KB), [1997] 222 A.R. 4 provided the following analysis withrespect to patent and latent defects: 26 When a purchaser alleges that misrepresentations made by a vendor have induced him to buy real property containing defects aboutwhich he was unaware, the law of both contract and tort draw a distinction, when determining whether or not a remedy will be given,between defects which are patent and those which are latent. 27 There are two passages in Halsburys Laws of England which are so commonly quoted in the case law relating to patent and latentdefects that they are effectively a codification of the common law relating to this area.

In this jurisdiction, the excerpts were lastapproved and applied in a reported decision in 1994 by Rawlins, J in MacDonald v. Gerristen (1994), (AB KB), 156A.R. 219 (Alta. Q.B.). Justice Rawlins cites the excerpts as being at 42 Hals. (4th) at para. 51 p. 47 and para. 52 p. 48, respectively, and Icopy his [sic] quotation of those sources (which excludes the English footnoted citations which occur in the original) (at p. 228): Defects of quality may be either patent or latent.

Patent defects are such as are discoverable by inspection and ordinary vigilance on thepart of a purchaser and latent defects are such as would not be revealed by any inquiry which a purchaser is in a position to make beforeentering into the contract for purchase. The vendor is not bound to call attention to patent defects; the rule is caveat emptor. Therefore a purchaser should make inspection andinquiry as to what he is proposing to buy.

If he omits to ascertain whether the land is such as he desires to acquire, he cannot complainafterwards on discovering defects of which he would have been aware if he had taken ordinary steps to ascertain its physical condition,and, although as a general rule a vendor must deliver property corresponding to the description contained in the contract, yet an error inthe particulars or description of the property in the contract is not a ground of objection if it is readily corrected on inspection. 28 And the second excerpt (at p. 228): Concealment by the Vendor.

A representation as to the property which is contradicted by its obvious physical condition does not enablethe purchaser to repudiate the contract or obtain compensation, unless, in reliance on the representation, he abstain from inspecting it.However, any active concealment by the vendor of defects which would otherwise be patent is treated as fraudulent, and the contract isvoidable by the purchaser if he has been deceived by it.

Any conduct calculated to mislead a purchaser or lull his suspicions with regardto a defect known to the vendor has the same effect. [67] Discerning between a patent defect and a latent defect is of critical importance. Manderscheid, J. in Gibb v Sprague, 2008ABQB 298 stated: 19 The distinction between what constitutes a patent or a latent defect is a prerequisite to determining the extent of a vendor'sobligation of disclosure under the principle of caveat emptor.

Patent defects are those that can be discovered by conducting a reasonableinspection of the property and making reasonable inquiries into its qualities. The vendor is not obliged to call patent defects to thepurchaser's attention. In the case of patent defects, the purchaser must rely upon their own personal inspection. Accordingly, absentconcealment of such defects by the vendor, the purchaser cannot complain of such defects and caveat emptor will apply. On the otherhand, a latent defect is one that could not have been identified by a purchaser upon a reasonable inspection of the property.

For thatreason, a latent defect known to a vendor must be disclosed to the purchaser. Should a vendor fail to disclose to a purchaser a knownlatent defect, caveat emptor will not bar a purchaser's claim for damages resulting from such failure to disclose. [68] Marceau, J. in Palmer v Van Keulen, 2005 ABQB 239 dealt with the matter of latent defects and fraudulent misrepresentationin the context of a real estate purchase contract. He stated as follows: 23 The test to determine whether a defect is latent was set out by LaForme J. in Swayze v. Robertson (2001), 39 R.P.R. (3d) 114 (Ont.Sup. Ct.

Just.) at para. 27: A "latent defect" as it relates to the case at bar is in effect some fault in the structure that is not readily apparent to an ordinary purchaserduring a routine inspection. In a situation where a vendor actively conceals a latent defect, the rule of caveat emptor no longer applies and the purchaser is entitled torescind the contract or seek damages: Gronau v. Schlamp Investments Ltd. (1974), (MB KB), 52 D.L.R. (3d) 631(Man. Q.B.) at 636. However, a claim for fraudulent misrepresentation does not require that an overt misrepresentation be made.

Thelaw is clear that silence and half-truths can amount to a fraudulent misrepresentation: Alevizos v. Nirula (2003), 180 Man.R. (2d) 186,2003 MBCA 148 at para. 24. In a residential conveyancing context, fraud can arise where there is an active concealment or silence about

a known major latent defect: Lerke v. Brear et al. (1990), (AB KB), 112 A.R. 1 at 10 (Q.B.). The Exclusionary Clause [69] Manderscheid, J. in Gibb v Sprague considered the matter of exclusionary clauses in real estate purchase contracts. Hecommented as follows: 51 It is trite law that the finding of a fraudulent misrepresentation on the part of a vendor of real property, will vitiate anyexclusionary clause in the applicable sale agreement. This conclusion was succinctly confirmed by Burnyeat J., in 444601 B.C. Ltd. v.Ashcroft (Village), [1998] B.C.J.

No. 1964 at para. 61 as: It is clear that an exclusionary clause such as "representations, warranties, guaranties, promises or agreements" will not bar a claim forfraudulent misrepresentation: Davis v. Moranis, (ON CA), [1949] 4 D.L.R. 433 (Ont. C.A.), Domokos v. Phillips(1996), 5 R.P.R. (3d) 33 (N.B. Q.B.), Rawson v. Hammer (1982), (AB KB), 23 R.P.R. 239 (Alta. Q.B.), Pearce v.Chacon (January 10, 1997), Doc. Vancouver C956467 (B.C. S.C.) and Turner v. Visscher Holdings Inc. (1996), (BCCA), 23 B.C.L.R. (3d) 303 (B.C. C.A.); Turner v. Visscher Holdings Inc.

May 7, 1996, Vancouver CA017834, Finch J.A. [reported(1996), 23 B.C.L.R. (3d) 303 (B.C. C.A.)]. 52 Furthermore, in Belzil v. Bain, 2001 ABQB 890, Kenny J. at paras. 38 to 40, in discussing the protection afforded a vendor ofreal property under an exclusionary clause, in the face of a proven fraudulent misrepresentation stated: The following standard clause appears in the Contract between Mr. and Mrs. Bain and Mr. and Mrs. Belzil:

(4.5) The Seller [Mr. and Mrs. Bain] and the Buyer [Mr. and Mrs. Belzil] each acknowledge that, except as otherwise describedin this Contract, there are no other warranties, representations or collateral agreements made by or with the other party, the Seller'sAgent, the Buyer's Agent and their sales people about the Property, any neighbouring lands and this transaction, including any warranty,representation or collateral agreement relating to the size/measurements of the Land and buildings or the existence or non-existence ofany environmental condition or problem. In light of this clause, Mr. and Mrs.

Belzil cannot claim a mere misrepresentation. The contract excludes liability on the part of Mr. andMrs. Bain for such representations: caveat emptor applies. However, this does not end the matter. Although the contractual provision excludes liability for negligent misrepresentations, any fraudon the part of Mr. and Mrs. Bain vitiates the contract. Therefore, the claim of Mr. and Mrs. Belzil must rest upon the alleged fraudulentconduct of Mr. and Mrs. Bain. The law as it relates to this area is succinctly stated in Lerke v. Brear (1990), (AB KB),112 A.R. 1 (Alta.

Q.B.), at 10: "It is clear that caveat emptor does not apply to fraud, and fraud can arise where there is an activeconcealment or silence about a known major latent defect." Rescission [70] Mitchell McInnes, The Canadian Law of Unjust Enrichment and Restitution (Markham, Ont.: LexisNexis 2014) sets out thefollowing with respect to the remedy of rescission. At p 1406: The concept of rescission has existed for centuries and it is applied daily in Canadian Courts. Moreover, the basic concept is simpleenough: a presumptively valid transaction is set aside ab initio and the parties are restored to the status quo ante.

At p 430: ... Rescission presumes the parties’ ability to both “get back” and “give back”. ... At p 434: Perhaps the most consistent observation in Canadian courts is that restitutio is a flexible doctrine. That is true in several respects. First, “[t]he tendency of modern decisions is to relax the strictness of the doctrine of restitutio in integrum”. ... Second, the idea of restoration is liberally defined. Courts routinely emphasize that the “principle of restitutio in integrum ... does not

require that a person be put into the same position as before” the impugned transaction took place; it is enough “that the person be put into as good a position as they were before” the disposition occurred. Accordingly, the defendant “need not be given back the precise property that changed hands if he can be restored to an equivalent position in some other way, for instance by the payment of money”.

And third, in the pursuit of the type of “practical justice” that is required for restitutio, the courts are able to invoke a range of ancillary doctrines by way of “allowances” and “adjustments”: compensation, indemnification, restitution, account of profits, reconveyance and so on. ... [ 71 ] G.H.L. Friedman, The Law of Contract in Canada 6 th ed. (Toronto, Carswell 2011) at p 769: Since the remedy of rescission is equitable, it is discretionary in nature.

Hence, if there are equitable grounds for refusing a plaintiff this remedy, it will be denied even though a prima facie case for rescission has been established. They were summarized by McLachlin, J.A in Kingu v Walmar Ventures Ltd. , as (

i) lack of prompt action by the plaintiff; (ii) the acquisition of rights by innocent third parties; and (iii) the impossibility of restoring the partiers to their pre-contractual position. VIII. Analysis Nature of Defects [ 72 ] The Estate argues that any defects in the Foundation could have been discovered upon a reasonable inspection of the property and Corey, Michael or Mr. Knull could have and should have made further inquiries into the quality of the Foundation.

Specifically, the Estate points to the following: 1. the Foundation was not new; 2. the windowsills in the basement were deep thereby indicating a thicker than normal wall construction; 3. the content of the Inspection Report indicating that foundation walls leak and that grading is important; and 4. the advice of Mr. Chambul to Michael that there had been a water leakage issue near a window well. [ 73 ] In my view, none of these matters were such as to constitute the defects in the Foundation as patent defects. [ 74 ] Corey arranged for a property inspection.

It is clear from the Inspection Report that the inspector was unable to visually inspect the Foundation or undertake other tests on the Foundation. The efforts undertaken by the inspector were appropriate given that the Interior Wall had been constructed. Further, the notes in the Inspection Report are notes that would be expected when the Foundation was not capable of inspection or testing.

That is, it would be expected that there would be notes that foundation walls may leak and that proper grading and drainage is important to attempt to ensure that water does not infiltrate a basement. [ 75 ] The fact that the basement was not new and the depth of the windowsills in the basement, in my view, would not be sufficient to put Corey on notice that he should be making further inquiries as to the condition of the Foundation. Many older foundations are structurally sound and watertight. There could be any number of reasons why the windowsills in the basement may have been wider than normal.

This would not automatically lead one to conclude that there may be some construction of a structural wall on the interior of the Foundation due to difficulties with the Foundation. As well, there is no evidence to suggest that the depth of the windowsills came to the attention of Corey, Michael or Mr. Knull. [ 76 ] Finally, the discussion between Mr. Chambul and Michael with respect to water infiltration in the basement would not reasonably have led to further inquiries. Mr. Chambul and Mr.

McKinnon, clearly, believed that water had infiltrated at the window wells only and that there were no other issues with the Foundation. They believed the steps taken at the window wells had addressed the problem. Therefore, any explanation given by My Chambul to Michael would not have reasonably led to further inquiries as to the status of the Foundation. In any event, this discussion took place after the transaction had closed when Michael was picking up the keys for the House. [ 77 ] Therefore, the defects in the Foundation were latent defects and caveat emptor would not bar Corey’s claim.

Disclosure of Latent Defects [ 78 ] I find that Mr. Chambul had knowledge of, or at a minimum, was reckless, as to the latent defects in the Foundation. He admitted on questioning that he was aware of the cracks in the Foundation and Mr. McKinnon testified to discussions which he had had with Mr. Chambul with respect to the cracks in the Foundation. I find that Mr. Parrott had attended at the House in 2009, inspected the Foundation and that he had discussed matters with Mr. McKinnon. Mr. Parrott clearly conveyed to Mr. McKinnon that there were serious problems with the Foundation.

The photographs in Exhibit 1, Tab 5 indicate the extent of the defects in the Foundation. Water infiltration is obvious from the cracks and the Foundation has been subject to attack from the sulfides in the groundwater. The cracking is extensive and in one location daylight is visible through a hole in the Foundation. Mr. Diediw stated as follows in his report: The cracking and the related issues have developed over an extended period of time. This is not a new problem. [ 79 ] In my view this is obvious from the photographs in the subject Exhibit.

[ 80 ] Further, Mr. Parrott testified that at the time he inspected the Foundation in 2009 he considered the horizontal fractures to be a structural failure and that he had advised that significant work was required to deal with the water infiltration and to provide structural support for the House. [ 81 ] Mr. McKinnon advised Mr. Chambul that the Foundation had been inspected by a specialist. I accept that Mr. McKinnon may have concluded that there was no immediate urgency to the problem. However even on his recollection Mr.

Parrott recommended remedial work that would cost in the order of $20,000. [ 82 ] Based on the foregoing, I conclude that Mr. Chambul was reckless in believing that the defects in the Foundation could be addressed by concreting in windows where the water was infiltrating through the window wells and by undertaking grading and eavestroughing work on the exterior of the House. Having seen the extent of the defects in the Foundation, having asked a foundation specialist to inspect the Foundation and having carried out minimal work with respect to the Foundation and the lot grading, Mr.

Chambul had a duty to disclose the condition of the Foundation upon the sale of the property and his failure to do so was reckless. [ 83 ] Corey, Michael and Mr. Knull all believed that the Foundation was sound and expected that if there were defects in same Mr. Chambul would have disclosed such defects. Given that the Interior Wall was in place and the Foundation was not capable of inspection short of opening up the Interior Wall and given that Mr. Chambul did not disclose any defects in the Foundation, Corey reasonably concluded that there were no defects in the Foundation.

In the circumstances a reasonable purchaser would rely on the representations by Mr. Chambul as to the condition of the Foundation. Concealment [ 84 ] Even if it could be said that the defects in the Foundation were patent, the same were concealed by Mr. Chambul in having the Interior Wall constructed. The defects in the Foundation would have been discoverable only upon conducting destructive testing by opening up the Interior Wall. Without some basis for pursuing such destructive testing a purchaser and any building inspector retained by the purchaser would not normally insist that such testing be conducted. Mr.

Chambul and his agents who were working on the basement were possessed of knowledge of the potential problems with the Foundation and took no steps to bring such problems to Corey’s attention but rather, simply covered same. [ 85 ] Therefore, even if it could be said that the defects in the Foundation were patent, caveat emptor would not apply. [ 86 ] Furthermore, if I am incorrect as to the nature of the defects (i.e. whether they were latent or patent), I nonetheless find that Mr. Chambul breached Clause 6.1(

h) in that the defects in the Foundation were not visible and they render the House dangerous or potentially dangerous to occupants. This was confirmed in the report of Mr. Diediw, which I accept: The photos show some significant structural issues affecting the house. The overall condition of the existing foundation wall is very poor. The concrete was observed to be cracked through out [sic] and in a deteriorated condition. A significant amount of deflection in the wall was observed.

The Exclusionary Clause [ 87 ] Fraudulent misrepresentation on the part of a vendor of real property vitiates exclusionary clauses such as Clause 6.4 of the Contract. [ 88 ] In the case before the Court, Mr. Chambul may not have made an overt misrepresentation. As I have found previously, however, there was active concealment of a major defect in the Foundation which was known, or should have been known but for Mr. Chambul’s recklessness. Such conduct on the part of Mr. Chambul constitutes a fraudulent misrepresentation and, therefore, the Estate is precluded from relying upon the Exclusionary Clause.

Moreover, failure to disclose the defects in the Foundation is a breach of the warranty contained in Clause 6.1(

h) of the Contract. IX. Remedy [ 89 ] Corey seeks recession of the Contract as well as damages for the lost rentals in relation to the basement of the House since April 2011. Alternatively, Corey seeks damages to repair the Foundation plus lost rentals to date, as well as further lost rentals while the repairs are being carried out. Corey argues that the only evidence before the Court as to the cost of repairs is Mr. Diediw’s estimate of $100,000. [ 90 ] While rescission may be a remedy available in cases such as this, in my view, such a remedy is not appropriate in this case.

I make this finding for several reasons. [ 91 ] First, Corey failed to promptly bring this action to trial. While it is true that the Statement of Claim was issued less than two months after water was first encountered in the basement, it was over three years before the matter was brought to trial. There was a brief delay from May to September of 2014 in the action due to the death of Mr. Chambul. This accounted for some three months delay in bringing the matter to trial. No other explanation has been given as to why it took in excess of three years to bring the matter to trial.

This is a straightforward action which took less than three trial days. With due diligence, the trial could have been heard on a much more expeditious basis. [ 92 ] Second, and related to the above, is the fact that it may be impossible to restore the parties to their pre-contractual positions.

While it is not necessary to put both Corey and the Estate into the exact same positions they were in as before the Contract, I do not believe it would be possible to put both parties into as good a position as they were in prior to entering into the Contract. Corey has done nothing since determining the condition of the Foundation to ensure that the House does not deteriorate further during the course of this litigation. There was some evidence that mould may now be present in the basement.

Further, given the condition of the Foundation it may also be that the House has deteriorated structurally since the action was commenced due to Corey’s failure to take any steps to stabilize and remediate the Foundation. Given the potential for such deterioration, I am not satisfied on the evidence before me, that it would be possible to place the Estate in as good a position as it was prior to the closing of the transaction. [ 93 ] Third, while ancillary remedies can be awarded in conjunction with rescission, Corey has failed to provide evidence with respect to such ancillary remedies.

In his Written Brief, Corey refers to losses which he has suffered, the specifics of which “do not yet form part of the evidence before the Court”. These losses relate to such things as expenses incurred with respect to the mortgage, insurance and property taxes on the House and the income tax paid on the income generated on the rental of the House and garage. The trial has concluded and if Corey wished to pursue such ancillary remedies in conjunction with rescission, evidence should have been called in relation to such ancillary remedies.

Therefore, the Court is not in a position to provide for allowances, adjustments, accounting of profits or compensation in conjunction with an order for rescission. [ 94 ] As rescission is not an available remedy in this case, I turn to the damages claimed by Corey. As stated previously, Corey seeks damages in relation to the repair of the Foundation as well as lost rentals. [ 95 ] As to the cost of repairs to the Foundation, I find that the only reliable evidence before the Court is from Mr. Diediw, the expert called by Corey. I say this for several reasons. First, Mr.

Diediw provided an estimate in his report and then provided testimony on his estimate. Second, while Michael had obtained a Contract Proposal from Abarent Construction Ltd. with respect to the repair of the Foundation, no one testified as to the contents of the Contract Proposal as to the work required or the cost of same. The Contract Proposal estimated the cost of certain aspects of the proposed repairs. The amounts indicated were budget amounts only and were not fixed prices. The Contract Proposal provide that a management fee would be added to all trade and material costs.

Therefore, the Contract Proposal was an incomplete estimate of the cost of repairs and no one testified to the preparation of the Contract Proposal. Third, the Estate did not call any evidence as to the remedial work required or the cost thereof. Finally, the Estate did not challenge Mr. Diediw on his estimate as to the cost of repairs. [ 96 ] Mr. Diediw testified that the remedial work would entail raising the House, removing the Foundation and existing slab on grade and constructing a new foundation and slab on grade. Based on his experience and expertise he estimated the cost of the remedial work at $100,000.

I accept this evidence. [ 97 ] Therefore, Corey is awarded $100,000 in relation to the removal and replacement of the Foundation. [ 98 ] As to the past lost rentals claimed, same relates to Corey’s inability to rent the basement at $700 per month since April of 2011.

To the date of this Memorandum of Decision, this is a total of 44 months resulting in a total past lost rental claim of $30,800. [ 99 ] While it was not raised in argument on behalf of the Estate, it is necessary to address whether Corey has failed to mitigate the damages claimed for lost rentals in that had remedial work to the Foundation been carried out prior to trial, the basement could have been rented out upon completion of the remedial work and, therefore, some of the lost rentals would have been avoided. [ 100 ] I find that Corey has not failed to mitigate his claim for lost rentals.

Corey was seeking rescission of the Contract. Had he been successful in obtaining rescission he would not have been obliged to carry out any remedial work. In the circumstances, it was reasonable for him to await the decision in this matter prior to carrying out any remedial work. [ 101 ] Having said that, given that a decision has now been rendered, Corey has an obligation to mitigate any future claims for lost rentals. That is, he is not entitled to delay the carrying out of the remedial work and seek lost rentals for the further period of time that the basement remains unoccupied.

While no evidence was called as to the time required to complete the remedial work as recommended by Mr. Diediw, such work is, in my view, not complicated and could be carried out in a relatively short period of time. I therefore award Corey a further six months from the date of this Memorandum of Decision for lost rentals due to the basement being unoccupied. Thereafter, Corey is entitled to no further lost rentals. This would be an additional $4,200 for total damages for lost rentals in relation to the basement of the House of $35,000.

Corey is entitled to interest in accordance with the Judgment Interest Act , RSA 2000 c J-1 on the damages for such lost rentals. [ 102 ] In addition, given the nature of the remedial work required, I find it unlikely that the upstairs of the House could remain occupied during the time that the remedial work is carried out. As set out previously, the remedial work is capable of being carried out in six months. The upstairs will be unoccupied for that six month period. Corey is therefore awarded the further sum of $7,200 for lost rentals in relation to the upstairs of the House. X.

Conclusion [ 103 ] The defects in the Foundation were latent defects or, alternatively, were patent defects which were concealed by Boris Chambul. Caveat Emptor does not apply to this transaction. Rescission is not an appropriate remedy in this case. Corey is entitled to damages in the sum of $100,000 to remove and replace the Foundation. Corey is also entitled to lost rentals in relation to the basement for 50 months for a total of $35,000 and in relation to the upstairs for six months for a total of $7,200. Corey is entitled to interest pursuant to the Judgment Interest Act in relation to the lost rentals. XI.

Costs

[ 104 ] The parties may speak to me within 30 days of the date of this Memorandum of Decision if they are otherwise unable to agree on the matter of costs. Heard on the 15 th , 16 th and 18 th days of September, 2014. Dated at the City of Edmonton, Alberta this 10 th day of November, 2014. K.G. Nielsen J.C.Q.B.A. Appearances: James Thorlakson for the Plaintiff Kevin I. Peddie for the Defendant