Accredit Mortgage Ltd. Claimant And: District of Ucluelet Respondent, 2013 BCSC 86

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Accredit Mortgage Ltd. v. Ucluelet (District), 2013 BCSC 86 Date: 20130122 Docket: 11-4995 Registry: Victoria Between: Accredit Mortgage Ltd. Claimant And: District of Ucluelet Respondent Before: The Honourable Mr. Justice Macaulay Reasons for Judgment Agent for Counsel for the Claimant: W. Johnson Counsel for the Respondent: A.M. Bookman and C. Alexander Counsel for Proposed Third Party: British Columbia Housing Management Commission K.L. Boonstra Agent for Counsel for Proposed Third Party: Reef Point Cottages Ltd. C.

McCool Place and Date of Hearing: Victoria, B.C. November 29, 2012 Place and Date of Judgment: Victoria, B.C. January 22, 2013 [ 1 ] At issue is whether the respondent, District of Ucluelet’s (the “District”), proposed Third Party Notice against the British Columbia Housing Management Commission and Reef Point Cottages Ltd. (“Reef Point”) discloses reasonable causes of action. The District applies for leave to issue the Third Party Notice but the proposed third parties resist the application on the basis that the District’s proposed claims have no reasonable prospect of success.

I accept that I should only deny leave if the proposed claims have no reasonable prospect of success; otherwise, the matters should proceed to trial in the usual way. [ 2 ] I conclude that the proposed claim against Reef Point discloses a reasonable cause of action but the proposed claim against the British Columbia Housing Management Commission does not. Below, I set out the reasons for my conclusions, commencing with the latter. [ 3 ] The Commission is the statutory successor to the Homeowner Protection Office (the “HPO”).

The HPO first came into existence pursuant to the Homeowner Protection Act, S.B.C. 1998, c. 31 (the “ HPA ”). Pursuant to the Budget Measures Implementation Act, 2010, S.B.C. 2010, c. 2, the Commission and the registrar, appointed under s. 7, took over responsibility for the administration of the HPA. Accordingly, since April 1, 2010, the Commission has assumed all obligations and liabilities of the HPO .

As the timeframe to which Accredit Mortgage Ltd.’s (“Accredit”) claims against the District relate was before the transfer to the Commission, I will, for the most part, refer to the HPO instead of the Commission in these reasons. [ 4 ] In general terms, in 2006, the HPA required residential builders to be licensed under the Act and to arrange home warranty insurance coverage for all “new homes” as defined in the Act.

Section 1 states, in part: “new home” means a building, or portion of a building, that is newly constructed and intended for residential occupancy, and includes (

a) a self-contained dwelling unit that is (

i) detached, or (ii) attached to one or more other self-contained dwelling units, (

b) a building having 2 or more self-contained dwelling units under one ownership, (

c) common property, common facilities and other assets of a strata corporation, and

(

d) any building or portion of a building of a class prescribed by the regulations as a new home to which this Act applies, but does not include a manufactured home unless otherwise prescribed; I will refer to other specific provisions later in my reasons. [ 5 ] As background, it is necessary to describe Accredit’s claims set out in its Notice of Civil Claim against the District. Accredit alleges that in December 2006 the District issued a building permit to Reef Point for the construction of a multi-unit building containing four residential rental units.

Accredit provided financing for the construction of the project. In February 2010, the HPO issued a compliance letter to the builder directing compliance with the HPA because the builder was not licensed under the HPA and home warranty insurance had not been obtained. In the result, Accredit alleges future sales of the project were no longer possible; the construction financing went into default; and Accredit foreclosed.

Although Accredit has an order for conduct of sale of the property, it is not able to sell because of the non-compliance with the HPA. [ 6 ] The specific Accredit claims against the District sound in negligence and misrepresentation. The alleged duty of care is as follows: 20. The District owed a duty of care to Accredit to ensure that the District, Owner and McCool [the builder] adhered to the terms of the HPA and the [Building Bylaw] when it issued Permits with respect to the Project and to ensure that the Permits were not issued unless it was lawful to do so.

The alleged duty is important because the District argues that there are parallels between the claims that Accredit advances against it and those that the District proposes to advance against the HPO. [ 7 ] In its Response to Civil Claim, the District, among other things, denies that the HPA applies to the project and that it owed any duty of care to Accredit.

In support of the latter, the District also denied that there was “a relationship of proximity” between it and Accredit “sufficient to create a duty of care” but, if there was, such duty “ought to be negated by reason of the policy consideration of indeterminate liability in the circumstances”. [ 8 ] By the foregoing, the District is apparently adverting to the two stage Anns test ( Anns v. Merton London Borough Council , [1978] A.C. 728 ), as reformulated by the Supreme Court of Canada in Cooper v. Hobart, 2001 SCC 79 (“ Hobart ”), and applied recently in R. v.

Imperial Tobacco Canada Ltd., 2011 SCC 42 (“ Imperial Tobacco ”). The reformulated Anns test applies, where there is no settled category giving rise to a duty of care, to determine whether the pleaded facts give rise to a prima facie duty of care and, if so, whether policy considerations negate or limit the prima facie duty. The District has never, however, applied to strike out Accredit’s claims. [ 9 ] Apart from both the Accredit and the proposed third party claims against the HPO being novel, there are few, if any, other parallels, as I will later discuss.

In particular, I do not accept that the alleged duty of care on the part of the HPO, as set out in the proposed Third Party Notice, parallels Accredit’s allegation against the District. The reformulated Anns test will not necessarily lead to the same conclusion in each case.

Accordingly, my decision respecting the present application is not, in any way, a determination whether the pleaded facts in Accredit’s claims give rise to a prima facie duty of care, and, if so, whether policy considerations negate or limit the duty. [ 10 ] The additional factual allegations of significance in the proposed Third Party Notice are as follows: 13. The HPO is responsible for ensuring that new construction falling within the scope of the HPA complies with both the HPA and the Regulations thereto.

The HPO employs Compliance Officers to monitor construction projects in specific regions across British Columbia and provide education and advice to local municipalities pertaining to the

interpretation and application of the HPA. 14. In or about April 2003, the HPO advised the District that the Ravens Motel, a hotel/motel construction project on Peninsula Road in Ucluelet, was exempt from the requirements of the HPA because it was not strata titled and no licensed builder or other HPO forms were needed. 15.

In or about June 2006, the HPO advised the District that a planned project on Reef Point Road in Ucluelet which would result in the construction of an Inn with four detached cottages on a single non strata titled lot, like the Project, was exempt from the HPA and no licensed builder or other forms were needed. 16.

On or about December 14, 2006, the District issued a building permit (the "Building Permit") for the Project which was to consist of one building with four vacation rental suites consistent with the District's CS-5 zoning requirements on the basis of its understanding that the Project was exempt from the requirements of the HPA . 17. Prior to commencement of construction of the Project, Clifford McCool and/or Reef Point had licensed residential builder status. Pursuant to the HPA , Clifford McCool and/or Reef Point were not a licensed residential builder when construction of the Project was commenced. 18.

Reef Point commenced construction of the Project without the Project having new home warranty insurance in place. 19. The Building Permit and accompanying Building Permit application constitute a contract in writing between the District and Reef Point. In consideration of issuing the Building Permit: a.

Reef Point agreed to release and indemnify the District, its board members, employees and agents from and against all liability, demands, claims and actions, suits judgments, losses, damages, costs, expenses of whatever kind which Reef Point or any other person, partnership or corporation or its respective heirs, successors, administrators or assignees may have or incur in consequence of or incidental to the granting of the Building Permit, or any inspection, failure to inspect, certification, approval, enforcement, or failure to enforce the Building Bylaw of the District or the British Columbia Building Code (the "the Agreement, Release and Indemnity"); and

b. Reef Point covenanted and agreed that the District owed Reef Point no duty of care in respect of the matters referenced in the Agreement, Release and Indemnity. 20. In issuing the Building Permit, the District relied on the representations and assurances (collectively, the "Assurances") of the HPO that: a.

HPO documentation including new home warranty insurance was not required for non-strata titled hotel/motel construction (the "Exemption"); b. the Exemption extended to vacation rental suites or cottages such as those within the District's commercial GH and CS-5 zones; c. accordingly, the HPA did not apply to the Project as the Project consisted of a building with four vacation rental suites on land zoned for commercial uses only; and d. no licensed builder or other HPO forms were required for buildings subject to the Exemption. 21.

The HPO was in a relationship of proximity to the District and it expected and intended that the District would rely on the Assurances when deciding whether or not to issue the Building Permit and, as such owed the District a duty of care to exercise reasonable professional judgment when giving the Assurances, such that harm would not come to the District. 22. On or about February 10, 2010, by way of letter (the "Alleged Compliance Direction"), the HPO took the position that the Project and a number of other structures within the District's CS-5 zone are subject to the HPA .

The Alleged Compliance Direction directed that McCool and/or Reef Point a. comply with the HPA ; b . obtain a residential builder license from the HPO; and c. obtain new home warranty insurance for the Project in accordance with the HPA . The Claims against Reef Point and the HPO are set out in

Part 3 as follows: 2. The District claims indemnity from Reef Point pursuant to the provisions of the Agreement, Release and Indemnity. Claim against the HPO 3. While denying the Plaintiff has sustained any damage, loss or expense as claimed in the Notice of Civil Claim, if the District is found liable to the Plaintiff, then: a. the District relied to its detriment on the Assurances; and b. such liability on the part of the District was caused or contributed to by, the negligence and negligent misrepresentations of the HPO. 4.

The particulars of the negligence and negligent misrepresentations of the HPO include the following: a. failing to educate and properly advise the District as to the application of the Exemption; b. misrepresenting through implication or otherwise that the HPA and Regulations thereto did not apply to the Project; c. misrepresenting that new home warranty insurance for the Project was not necessary; d. misrepresenting that the builder of the Project was not required to obtain a residential builder license; and e. such further and other particulars as may become known to the District. 5.

The District claims indemnity or, in the alternative, contribution from BC Housing pursuant to the provisions of the Negligence Act , and shall at the trial of this action seek apportionment. [ 11 ] The importance of the pleadings is addressed in the extracts from Imperial Tobacco referred to immediately below. New developments in the law often surface for the first time on applications to strike so it is not determinative that the law has not previously recognized the particular claim.

Instead, as set out in Imperial Tobacco , at para. 21 : [21] … The court must rather ask whether, assuming the facts pleaded are true, there is a reasonable prospect that the claim will succeed. The approach must be generous and err on the side of permitting a novel but arguable claim to proceed to trial. The focus on the pleadings necessitates that they be prepared with care because there will not be another chance. As further set out: [22] … A claimant is not entitled to rely on the possibility that new facts may turn up as the case progresses.

The claimant may not be in a position to prove the facts pleaded at the time of the motion. It may only hope to be able to prove them. But plead them it must. The facts pleaded are the firm basis upon which the possibility of success of the claim must be evaluated. If they are not pleaded, the exercise cannot be properly conducted. In the result, the question on an application to strike, and, by extension, on the present application to issue the proposed Third Party

Notice, is “whether, considered in the context of the law and the litigation process, the claim has no reasonable chance of succeeding” [emphasis in original] (para. 25). [ 12 ] According to the District’s submission, Accredit’s claims against the District are also novel but the District accepts that those claims “require a full evidentiary determination before a Court can assess whether a duty of care exists.” The District goes on to say that if it should not have issued the building permit, the compliance officer of the HPO “who provided advice to the District about the applicability of the HPA to construction within the District” is blameworthy.

The District further submits that if it failed to adhere to the HPA, “such failure was the direct result of the actions of the HPO.” [ 13 ] On the fundamental question whether the claims have a reasonable prospect of success, the District attempts to answer the contention of the HPO that there is no duty of care in its submission, as follows: The District has sympathy for the HPO’s position.

In this case and in the Whiskey Dock proceedings [where comparable issues are raised as between Accredit and the District], a lender is seeking to impose a duty of care on the District for its alleged failure to adhere to the HPA at the building permit stage. The District views Accredit’s claims in these actions as attempts to establish a novel duty of care. However, the District has concluded that a motion to strike is not appropriate and instead the cases must be assessed on the basis of the applicable common law.

In this case, where the District alleges that its actions resulted from information received from the HPO, it is the District’s position that if the circumstances at issue give rise to the District owing a duty of care to Accredit, then the same circumstances will give rise to the HPO owing the District a duty of care. And later in its submission: The District anticipates that the HPO’s argument regarding its liability, or lack thereof, to Accredit is the same argument the District will make at the trial of these proceedings.

The District supplemented these submissions by focusing on the perceived need for evidence to address the policy issues that must be addressed in both stages of the reformulated Anns test. [ 14 ] In my view, the District’s analysis is illogical and results in an approach that is inconsistent with the passages in Imperial Tobacco to which I have referred.

The narrow question on the present application is whether, assuming the facts pleaded are true, there is any reasonable chance of success of the claims set out in the proposed Third Party Notice. [ 15 ] Whether or not Accredit’s claims against the District have any reasonable prospect of success is not at issue here.

Nor, as I have already stated, would the outcome of an application to strike Accredit’s claims necessarily determine the outcome of the present application for the simple reason that the parties and pleadings are not mirror images. [ 16 ] I accept the HPO submission that requiring it to wait until trial to address whether the claim has any reasonable prospect of success would render meaningless the District’s obligation to properly plead a cause of action against it. [ 17 ] The HPO reasonably characterizes the four claims against it as: 1.

Negligent failure to educate and properly advise the District as to the application of an exemption; 2. Negligent misrepresentation “through implication” that the HPA did not apply to the project; 3. Negligent misrepresentation that new home warranty insurance for the project was not necessary; and 4. Negligent misrepresentation that the builder of the project was not required to obtain a residential builder license. I agree with the HPO that the last two are, in effect, subsets of the second claim because they relate to the specific statutory requirements if the HPA did apply to the project.

Accordingly, my focus will be on the first two claims. [ 18 ] The District agrees with the HPO that its proposed claims do not fall within a settled category. The first question under the reformulated Anns test is whether or not the alleged facts disclose a relationship of proximity in which a failure to take reasonable care might foreseeably cause loss to the District. If so, a prima facie duty of care arises. As set out in Imperial Tobacco , at para. 41 : ...

Foreseeability must be grounded in a relationship of sufficient closeness, or proximity, to make it just and reasonable to impose an obligation on one party to take reasonable care not to injure the other.

Proximity and foreseeability give rise to “heightened concerns” when the claim is for economic loss attributable to negligent misrepresentation, as here (para. 42). [ 19 ] To establish a duty of care with respect to its claim of negligent misrepresentation, the District must demonstrate a special relationship where the HPO ought reasonably to foresee that the District would rely on the HPO’s representation and that the reliance would, in the particular circumstances of the case, be reasonable (para. 52).

The provisions of the HPA are an important consideration in this regard. [ 20 ] The purposes of the HPA are set out in s. 2 and include strengthening consumer protection for buyers of new homes; improving the quality of residential construction; and supporting research and education respecting residential construction in British Columbia.

More specifically, the purposes of the HPO, according to s. 3(2), are to license residential builders and other persons required to be licensed under the HPA; carry out research and education respecting residential construction in British Columbia; and to administer the reconstruction program established for the purpose of providing financial assistance to eligible homeowners for home reconstruction. [ 21 ] None of the provisions in s. 3(2) support the District’s assertion that the HPO ought reasonably to foresee that the District would rely on the HPO’s representations.

In my view, there is nothing in the HPA that creates a private relationship of proximity that

gives rise to a prima facie duty of care. [22] Nor, upon considering the provisions of the HPA, does proximity arise from the alleged specific interactions between the HPOand the District. [23] There is not, in my view, any potential source of duty independent of the HPA. Paraphrasing paragraphs 13 to 15 of theStatement of Facts in the proposed Third Party Notice, the full text of which is set out earlier in my reasons, the District alleges that theHPO: 1. Has a statutory duty to monitor construction projects and provide education and advice to local municipalities, includingthe District, respecting the

interpretation and application of the HPA; 2. Advised the District that a particular project was exempt from the requirements of the HPA because it was not strata titled;and 3. Advised the District that another planned project for an Inn with four detached cottages on a single non-strata titled lot,similar to the Reef Point project, was exempt from the requirements of the HPA.

I observe that the District does not allege that the advice respecting either of the two projects was incorrect; nor does the District allegethat the HPO provided any advice respecting the Reef Point project. [24] At the material time, s. 11 of the HPA established a research and education division. The purposes of the division were set out ins. 12, as follows: 12 The purposes of the division established under

section 11 are as follows: (

a) to establish and maintain expertise in building science, especially as it applies to British Columbia and the BritishColumbia Building Code; (

b) to advise on necessary and appropriate amendments to the British Columbia Building Code; (

c) to advise the City of Vancouver on necessary and appropriate amendments to the City of Vancouver building by-laws; (

d) to provide advice and assistance to those charged with the responsibility of preparing periodic revisions of the NationalBuilding Code of Canada; (

e) to conduct research into cost effective building techniques, processes and materials appropriate for use in BritishColumbia; (

f) to cooperate with other organizations to establish what constitutes the best practice for building and retrofitting housing inBritish Columbia; (

g) to support consumer education; (

h) to perform other functions consistent with this Part. The education function identified in subsection (

g) is specifically for consumers and obviously flows from one of the purposes of thelegislation, namely to strengthen consumer protection for buyers of new homes (s. 2(1)(a)). [25] Even if the obligation to support consumer education for the public could be transposed into an obligation to advise the District,on the second stage of the reformulated Anns test, policy considerations would strongly militate against a finding of sufficient proximitybetween the HPO and individual local governments. I will return to this later. [26] I conclude that s. 12(

g) does not provide any statutory foundation for the alleged duty to advise the District respecting theinterpretation and application of the HPA to specific projects. The District did not identify, and I do not see, any other arguable statutorysupport in the section, or elsewhere, for the alleged duty. [27] As to the allegations that the HPO provided advice respecting two other projects, there is no allegation that the advice waserroneous.

Even if the advice rendered was erroneous, the courts have consistently declined to recognize that public officials owe a dutyto interpret or apply the law correctly so long as the official has not acted carelessly or in bad faith. This is aptly illustrated by InlandFeeders Ltd. v.

Virdi (1981), (BC CA), 129 D.L.R. (3d) 685 (B.C.C.A.), in which the Court of Appeal reversed the trialjudge’s finding that the municipality should be liable for damages sustained by a citizen who relied to his detriment on a municipalemployee’s erroneous assurance, given within the scope of his responsibilities. [28] The pleadings in the present case do not provide a sufficient basis for concluding that it would be just and reasonable to imposean obligation on the HPO to take reasonable care not to injure the District in making its statements respecting other projects. [29] Under s. 30 of the HPA, the District had independent statutory duties to fulfill.

Absent evidence that the project complied withthe statute, the District was bound not to issue a building permit for the Reef Point project. It is not reasonable for the District to rely onprevious statements respecting other projects in order to meet its own statutory obligation respecting the Reef Point project. [30] I am not persuaded that the District established a prima facie duty of care. Even if it has, policy reasons militate heavily againstimposing a duty of care on the HPO in the circumstances.

As stated in Hobart, at para. 37, broad policy reasons may suggest that thecourt should not recognize a duty of care. There are three such reasons in the case at bar.

[ 31 ] First, the imposition of a duty of care on the HPO to correctly advise the District might permit recovery against the HPO for losses attributable to the failure of the District to meet its own statutory obligations. The HPO has no means of educating or advising municipalities, in general, or the District, in particular, so as to prevent them breaching their obligations with respect to building permit applications. [ 32 ] Under s. 30(2) of the HPA , municipalities are immune from lawsuits for damages resulting from issuing a building permit in good faith on evidence that the applicant provides.

Accordingly, municipalities are protected from liability so long as they exercise their statutory obligations in good faith. It should not be the obligation of the HPO to indemnify or contribute if a municipality does not act in good faith or otherwise fails to meet its statutory obligations. In general, a person under a legal duty to use care should not be permitted to rid himself or herself of responsibility by delegating performance of the duty to another. See Cassidy v. Ministry of Health (1951), 2 K.B.Y. 3 at 363. [ 33 ] Second, indeterminate liability would result.

The HPO does not have any control over the number of building permit applications or the extent of economic loss associated with failure by municipalities or districts to meet their statutory obligations under the HPA .

In Imperial Tobacco , at paras. 100-101 , the Supreme Court of Canada concluded that if the Government of Canada owed a duty to consumers of light cigarettes, the potential class of plaintiffs and the amount of liability would be indeterminate, and, as a result, the claims should fail because Canada was not in control of the extent of its potential liability. [ 34 ] The District acknowledged in argument that there is a potential for indeterminate liability and stated that it had similar concerns respecting Accredit’s claims against it.

The District suggests, as I understand it, that the court should simply treat the potential as an issue to be determined after a full trial. For the reasons already expressed, I do not accept that as a valid approach. [ 35 ] Finally, where a statutory duty is predominantly owed to the public generally, the court should not find proximity to individuals. In determining a lack of proximity in a statutory context, in Fullowka v. Pinkerton’s of Canada Ltd., 2010 SCC 5 , at para. 39 , the Supreme Court of Canada re-affirmed the following as first articulated in B.D. (Litigation guardian of) v.

Halton Region Children’s Aid Society, 2007 SCC 38 : The statute is the foundation of the proximity analysis and policy considerations arising from the particular relationship between the plaintiff and the defendant must be considered. The fact that an alleged duty of care is found to conflict with an overarching statutory or public duty may provide a policy reason for refusing to find proximity. Both Cooper and Edwards are examples.

In Cooper , a duty to individual investors on the part of the Registrar of Mortgage Brokers potentially conflicted with the Registrar's overarching public duty; in Edwards , the proposed private law duty to the victim of a dishonest lawyer potentially conflicted with the Law Society's obligation to exercise its discretion to meet a myriad of objectives. Those extracts are apposite here. [ 36 ] I agree with the HPO that the proposed claims against it have no reasonable prospect of success. Accordingly, the application to add the HPO as a third party is dismissed.

The District shall pay costs on Scale B to the HPO. [ 37 ] The proposed claims against Reef Point do not present the same problems as above.

In short, the District alleges that the building permit application and ensuing building permit created a contract between the District and Reef Point. [ 38 ] For present purposes, the terms of the alleged contract require Reef Point to indemnify the District for all liability for any “losses” which any “corporation” may incur “in consequence of or incidental to the granting of the building permit.” Accordingly, the District seeks indemnification from Reef Point in the event that Accredit, a corporation, succeeds on its claim for damages attributable to the alleged negligent issuing of the building permit. [ 39 ] Contractual claims for indemnification do not raise novel issues respecting the owing of a duty of care.

Reef Point’s opposition to the application is, with respect, based entirely on its opposition to the claim on its merits and does not address, as it should, that the claim against it, even if true, has no reasonable prospect of success. [ 40 ] For the limited purpose of the present application, I must assume that all the District’s pleadings of fact are true. If they are eventually established on the evidence, the claim for indemnification, as pleaded, has a reasonable prospect of success. [ 41 ] Accordingly, I grant the application to issue the Third Party Notice against Reef Point.

The costs of the application in that regard will be in the cause. “M.D. Macaulay, J.” The Honourable Mr. Justice Macaulay