Midnight Sun Management Ltd. v. Four-Way Holdings Ltd., 2012 NUCA 04

In the Court of Appeal of Nunavut Citation: Midnight Sun Management Ltd. v. Four-Way Holdings Ltd., 2012 NUCA 04 Date: 20120524 Docket: 08-11-005-CAP Registry: Iqaluit Between: Midnight Sun Management Ltd. Appellant - and - Four-Way Holdings Ltd. and Frobuild Construction Ltd. Respondents _______________________________________________________ The Court: The Honourable Madam Justice Constance Hunt The Honourable Madam Justice Louise Charbonneau The Honourable Madam Justice Marina Paperny _______________________________________________________ Memorandum of Judgment Delivered from the Bench Appeal from the Judgment by

The Honourable Mr. Justice E. Johnson Dated the 17th day of June, 2011 ( 2011 NUCJ 10 , Docket: 08-07-508-CVC) ______________________________________________________ Memorandum of Judgment Delivered from the Bench _______________________________________________________ Paperny J.A. (for the Court): Background [ 1 ] The appellant, Midnight Sun Management Ltd. (Midnight Sun), appeals the dismissal of its claim for damages arising from an Agreement of Sale between it and Frobuild Construction Ltd. (Frobuild).

In December 2002, the appellant as purchaser and the respondent Frobuild as vendor entered into an agreement for the purchase of five warehouses (the Buildings) in Iqaluit. The purchase price was $1,500,000 and was financed by way of a vendor take back mortgage (VTB) of $1,400,000. Frobuild had done the construction of the Buildings. Four Way Holdings Ltd. (Four-Way) is a holding company owned by the shareholders of Frobuild, and was the owner of the five Buildings that were purchased by the appellant. The transaction closed in February 2003. [ 2 ] The five warehouses were erected between 1989 and 2003.

Frobuild constructed the warehouse floors using a modified “Floors On Ground” method that used fill sitting on existing soil such that the floors were not a structural element of the warehouses and were not supported by piles. This method was designed to account for the permafrost in Iqaluit. During the fourteen years since the construction of the first Buildings, and at the time of closing, the floors had settled somewhat. Despite the settling, the tenants had not complained and were able to make use of the warehouses as their leases contemplated.

Although there had been some earlier damage to the floor of one of the Buildings by a tenant that damage had been repaired. The information concerning the damaged floor in that building was conveyed to the appellant prior to closing. [ 3 ] The appellant inspected the floors prior to the sale but was also assured by Four Way that there were no problems with the floors. Two years after the sale closed, the floors of two warehouses needed repair.

The appellant claimed Frobuild was negligent in the floor construction and that Four Way was in breach of warranty and liable for fraudulent and/or negligent representations. The appellant sued for the cost to repair, costs already expended and future costs to repair. [ 4 ] Four Way counterclaimed for the amount unpaid under the VTB mortgage. [ 5 ] The trial judge held that there was no negligence on the part of Frobuild in constructing the warehouses, no breach of the warranty in the Agreement of Sale and awarded Four Way the amount unpaid under its mortgage.

Grounds of Appeal [ 6 ] The appellant submits that the trial judge made the following errors: 1. Incorrectly interpreting the warranty so as to exclude the floor slabs by considering inadmissible extrinsic evidence; 2. Failing to consider the principle that if common practice fails to adopt obvious and reasonable precautions then such negligent

common practice cannot be relied upon; 3. Improperly interpreting

Part 4 of the National Building Code (the Code); and 4. Finding liability on the vendor take-back mortgage. Standard of Review [ 7 ] The appellant submits that all the errors are properly characterized as errors of law and thus reviewable on a correctness standard. That is true of the first ground of appeal, the

interpretation of the warranty. The other grounds of appeal, however, raise questions of mixed fact and law reviewable on a standard of palpable and overriding error. Analysis The

Interpretation of the Warranty [ 8 ] The appellant argues that the respondents breached a warranty contained in paragraph 12(b)(ii) of the Agreement of Sale, which provides: ... there are no structural, mechanical or other defects in the Buildings and/or the Fixtures and the Chattels (for greater certainty, such defects shall include, without limitation, defects in footings, floors, bearing walls and roofs). [ 9 ] The first issue before the trial judge was whether the warranty applied to the alleged defects in the floor slabs. He concluded that it did not.

He found that the defects clause was a standard form precedent, not intended to cover the unique situation of the “Floors On Ground” construction used in these Buildings. He found that “[i]t would take much clearer drafting to turn these words into an unlimited guarantee about all the floor slabs” and concluded that “[s]ince the floor slabs do not support the building they are not caught by the defects clause”.

In other words, he concluded that the alleged defects in the floor slabs were not “defects in the buildings”, nor were they defects in the “floors” of the Buildings. [ 10 ] With respect, we have concluded that the trial judge erred in his

interpretation of the language of the warranty. That language is clear and unambiguous, and there was no need to resort to external evidence as an aid to

interpretation. There is nothing in the language of the clause that would limit the covered defects in the Buildings to defects only in those parts “that support the above ground structures”, as the trial judge concluded. As the appellant points out, the effect of the trial judge’s

interpretation is to exclude all floors in the Buildings; there is nothing in the clause to indicate that this was the intent. [ 11 ] On the plain language of the warranty, therefore, it would cover defects in the floor slabs. No finding of fact has been made as to whether there were any such defects, however. The trial judge expressly declined to make any such finding, noting that it was not necessary for him to do so, given his

interpretation of the warranty. A new trial on the applicability of the warranty will therefore be necessary. Negligent Construction [ 12 ] The trial judge concluded on the evidence that the northern version of the “Floors-On-Ground” design used on these warehouses was an acceptable method of construction. He noted that the Buildings were constructed over time and that all experienced some settlement but none caused particular problems and impacted on the use of the Buildings for the purpose of light warehousing.

To the extent there had been a problem, the respondents had discussed it, the problem had been caused by the tenant and the respondents had repaired the slab to its original condition by removing the damaged portion and slab jacking the undamaged concrete. The Buildings had been approved by the City of Iqaluit.

[13] It is argued that the trial judge applied an incorrect standard of care in his negligence analysis, in that he relied only upon localpractice as in Waldick v Malcolm, (SCC), [1991] 2 SCR 456, 3 OR (3d) 471. We do not read his reasons in this way.The trial judge found that the method of construction was acceptable, in other words, met the standard of care, having regard to theconditions in the North. Although his legal analysis could have been more detailed, there was evidence that supported his conclusion thatthis construction was not negligent. [14] This ground of appeal is dismissed.

Interpretation of the National Building Code [15] Despite failing to plead this matter, the appellant adduced evidence to suggest that the construction of the Buildings was not inaccordance with the National Building Code. As a result, says the appellant, the respondents breached a warranty in the Agreement ofSale that all construction would be completed in accordance with “all laws applicable to such construction and completion”. We disagree. [16] The trial judge considered all the evidence as to whether

Part 4 or

Part 9 of the National Building Code applied to the Buildings inquestion. He interpreted the Code as creating an exception for small buildings under 600 m2, with less expensive requirements for“floors supported on the ground ... that do not provide structural support”. He accepted the respondents’

interpretation of the Code,which, in his opinion, was consistent with the intent of the Code to create exceptions for small buildings. We see no error in the trialjudge’s application of the Code to the warehouses in this case. [17] This ground of appeal is dismissed. Conclusion [18] Accordingly the appeal is allowed and a new trial ordered on the issue of breach of warranty. Appeal heard on May 15, 2012 Memorandum filed at Iqaluit, Nunavut this 24th day of May, 2012 Paperny, J.A.

Appearances: N. Abbott for the Appellant P. Webber, Q.C. for the Respondents