2011 QCCA 1851, 2011 QCCA 1851

Unofficial English Translation Construction Réal Landry inc. c. Rae 2011 QCCA 1851 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No. 500-09-019711-092 (505-17-003822-089) DATE: October 7, 2011 CORAM: THE HONOURABLE YVES-MARIE MORISSETTE, J.A. LORNE GIROUX, J.A. GUY GAGNON, J.A. CONSTRUCTION RÉAL LANDRY INC. APPELLANT - Respondent v. LISA RAE and MICHAEL NUTTER RESPONDENTS - Petitioners and LA GARANTIE DES BÂTIMENTS RÉSIDENTIELS NEUFS DE L'APCHQ INC.

RESPONDENT – Impleaded party and GROUPE D'ARBITRAGE ET DE MÉDIATION SUR MESURE (GAMM) Impleaded party JUDGMENT [ 1 ] THE COURT ; - Ruling on the appeal from a judgment rendered on April 30, 2009, by the Superior Court, District of Longueuil (the Honourable Mr. Justice Kirkland Casgrain), granting the motion for judicial review brought by the respondents Rae and Nutter, and setting aside Mtre.

Johanne Despatis' arbitration award of June 10, 2008; [ 2 ] For the reasons of Morissette J.A., with which Giroux and Gagnon JJ.A. agree, the Court: [ 3 ] ALLOWS the appeal, with costs, and [ 4 ] DISMISSES the motion for judicial review brought by the respondents Rae and Nutter, with costs. (

s) YVES-MARIE MORISSETTE, J.A. (

s) LORNE GIROUX, J.A. (

s) GUY GAGNON. J.A. Mtre Jean-Guy Lacasse LACASSE ROY & ASSOCIÉS, AVOCATS For the appellant

Mtre Catia Larose DE CHANTAL, D'AMOUR, FORTIER, S.E.N.C.R.L For the respondents Rae and Nutter Mtre Patrick Marcoux SAVOIE FOURNIER, Legal department of the A.P.C.H.Q. For the respondent La Garantie des bâtiments résidentiels neufs de l'APCHQ inc. Date of hearing: November 3, 2010 REASONS OF MORISSETTE, J.A. [ 5 ] The appellant appeals from a Superior Court judgment allowing the motion for judicial review brought by the respondents Rae et Nutter (the "respondents") and setting aside an arbitration award made under the Regulation respecting the guarantee plan for new residential buildings [1] (the "Regulation").

The award was in favour of the appellant and La Garantie des bâtiments résidentiels neufs ("La Garantie") of the Association provinciale des constructeurs d'habitations du Québec inc. (the "APCHQ"). [ 6 ] For the reasons given below, I am of the opinion that the impugned judgment should be set aside and that the arbitration award quashed in first instance should be restored. 1. CIRCUMSTANCES UNDERLYING THE CASE [ 7 ] The relevant facts are relatively straightforward. The appellant is the contractor with which the respondents entered into a contract for the construction of their residence.

The appellant poured the foundation of the building level with the water table, rather than above the table as it should have been. This resulted in a persistent water infiltration problem in the basement, which became unsanitary as a result. [ 8 ] The appellant and the respondents were bound by a standard, two-part APCHQ contract, namely, the [translation] “Business Contract and Guarantee Contract” (the "Contract"). The guarantee part of the Contract, which complies with the Regulation, was approved by the Régie du bâtiment du Québec (the "Régie") in a decision dated October 5, 1998.

The Régie thus gave effect to sections 77 to 83.1 of the Building Act [2] (the "Act") and exercised the powers conferred on it by those provisions. [ 9 ] The Contract set forth the procedure to be followed by the "beneficiary" (the respondents) in order for the "manager" (La Garantie in this case) to decide on the work required to correct poor workmanship.

That procedure was followed here. [ 10 ] La Garantie's expert considered two possible measures for solving the water infiltration problem in the respondents' basement: – evacuate the water without touching the foundation, by installing a drainage and pump system that would operate continuously; – waterproof the basement floor slab. He opted for the second measure over the first.

On his advice, La Garantie decided that the second solution was appropriate and rendered its decision accordingly. [ 11 ] Unhappy with that outcome, the respondents availed themselves of the arbitration procedure provided for in the Contract in almost the same words as in

section 19 of the Regulation: 19. A beneficiary or contractor who is dissatisfied with a decision of the manager shall, in order for the guarantee to apply, submit the dispute to arbitration within 30 days following receipt by registered mail of the manager's decision, unless the beneficiary and contractor agree to submit the dispute, within the same period, to a mediator chosen from a list established by the Minister of Labour in order to try and reach an agreement.

In that case, the deadline to submit the dispute to arbitration is 30 days following receipt by registered mail of the mediator's advice concluding to the partial or total failure of the mediation . The purpose of the arbitration was to determine which of the various solutions proposed by the parties' experts would be implemented in order to correct the poor workmanship found in the building. Indeed, following La Garantie's decision, the respondents mandated their own expert for the arbitration.

This expert recommended raising the building so that it would be always above the water table. [ 12 ] In her award, the arbitrator upheld the decision of La Garantie and found that the second solution was appropriate. I will revisit the reasons for that award further on. Il. JUDGMENT A QUO [ 13 ] The trial judge first cited Garantie des bâtiments résidentiels neufs de l'APCHQ Inc. v. Desindes , [3] saying that, on an issue such as that raised in the case, the standard of intervention governing judicial review was necessarily [TRANSLATION] "that of reasonableness".

In other words, only an unreasonable decision by an arbitrator may be set aside by the Superior Court in exercising its power of judicial review. [ 14 ] I note in passing that it was at the judge's request that the parties filed in the Superior Court record the transcript of the testimony heard by the arbitrator.

The arbitrator herself did not have the transcript at her disposal and, as she indicated in paragraph [7] of her award, she drafted the award using her personal notes. [ 15 ] After going over the parts of the testimony and documentary evidence that seemed relevant to him, the judge explained in three terse paragraphs why, in his view, the arbitration award was unreasonable: the solution proposed by the respondents' expert was the one

the arbitrator should have chosen, because (1) it would have enabled the respondents to use their basement; (2) it would have been a permanent solution; and (3) there would not have been the inconvenience of noise from a sump pump.

The conclusions of the judgment are worded as follows: [TRANSLATION] GRANTS the motion as follows: QUASHES the following part of the reasons for the arbitration award of June 10, 2008, to wit, on page 37 the award in question: [TRANSLATION] . . . the second solution proposed by expert Bilodeau on page 7 of his report . . .; AND replaces it with the following text: . . . in expert Rodrigue's report as being " the third alternative " on the last page of his report . . .; WITH COSTS in favour of the petitioners against the impleaded party La Garantie des Bâtiments résidentiels neufs de l'APCHQ INC. III.

MERITS OF THE APPEAL A. Framework for intervention [ 16 ] Neither the Act nor, consequently, the Regulation contains a privative clause applicable to arbitration awards. Nevertheless, it is clear that the dispute resolution process introduced by the Regulation is one to which the ordinary courts owe a measure of deference. In Desindes , Rayle J.A., who penned the unanimous reasons of the Court, noted the following: [TRANSLATION] [43] . . . The arbitrator has exclusive jurisdiction.

His or her decision is binding on the parties, is final, and is not subject to appeal (sections 19, 20, 106, and 120 of the Regulation). Lastly, the arbitrator must decide "in accordance with the rules of law; [the arbitrator must] also appeal to fairness where circumstances warrant" (section 116 of the Regulation ). In addition, the Regulation explicitly states that only persons knowledgeable about such matters may become arbitrators: 111.

Only natural persons with experience in guarantee plans or having professional training in matters related to the questions raised by the arbitration, such as in finance, accounting, construction techniques or law, may be accredited as arbitrators with the arbitration body . Lastly,

section 121 of the Regulation subjects arbitration awards to the homologation process provided for in articles 946 to 946.6 CCP —another indication of the desire to preserve sufficient decision-making autonomy for arbitrators. [ 17 ] The trial judge rightly believed himself to be bound by Desindes , [4] according to which it is the reasonableness of the arbitration award that is debated in judicial review. In that regard, I wish to refer to two short passages from Dunsmuir v. New Brunswick : [5] [46] What does this revised reasonableness standard mean?

Reasonableness is one of the most widely used and yet most complex legal concepts. In any area of the law we turn our attention to, we find ourselves dealing with the reasonable, reasonableness or rationality. But what is a reasonable decision?

How are reviewing courts to identify an unreasonable decision in the context of administrative law and, especially, of judicial review? [47] Reasonableness is a deferential standard animated by the principle that underlies the development of the two previous standards of reasonableness: certain questions that come before administrative tribunals do not lend themselves to one specific, particular result. Instead, they may give rise to a number of possible, reasonable conclusions. Tribunals have a margin of appreciation within the range of acceptable and rational solutions.

A court conducting a review for reasonableness inquires into the qualities that make a decision reasonable, referring both to the process of articulating the reasons and to outcomes. In judicial review, reasonableness is concerned mostly with the existence of justification, transparency and intelligibility within the decision-making process. But it is also concerned with whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law.

While Desindes predates Dunsmuir , it has not lost any of its relevance in the present case, [6] and effectively highlights the distinctive but compulsory [7] nature of the arbitration provided for in the Regulation. B. Reasons of the arbitration award [ 18 ] Now is an appropriate time for a close examination of the reasons why the arbitrator granted the award she did.

In my examination, I propose to quote rather extensively from the passages that appear to have been key to the arbitrator's reasoning, the reasonableness or unreasonableness of her decision being the only matter we are called on to resolve in this appeal. [ 19 ] The arbitrator's award—her second in the record, since she had previously ruled on the inadmissibility of an application by the appellant that had been filed late—is comprised of 165 paragraphs totalling 37 pages. [ 20 ] After reviewing the evidence at length (paragraphs [8] to [53]) and presenting the parties' contentions (paragraphs [54] to [83]), the arbitrator analyzed the issues raised by the respondents, starting with poor workmanship that is not relevant to this appeal.

In paragraph [94], she began her examination of the main issue before her—the one that is relevant here. First, she explained her thinking on an aspect of the case that, in her view, had no bearing on the arbitration under way:

[TRANSLATION] [96] The evidence shows that the height of the mat foundation is lower than the standard of elevation of 18.3 m prescribed by the Ville de Carignan. It should be pointed out that non-compliance with that municipal construction standard, which was apparently brought to light in Mr. Rodrigue's expert report, did not lead to the filing of a claim with, or, consequently, to a decision by, the manager. As I understand things, that non-compliance did not cause the infiltrations or humidity the beneficiaries have had to contend with.

According to the evidence, even had the by-law been complied with, the residence as it stands may still have had the problems at issue here. Later on, she stated the type of demonstration required of the respondents in order to win their case before her: [TRANSLATION] [130] Concretely here, to win their case the beneficiaries had to establish on a balance of probabilities that the solutions advocated by the manager do not comply with the Plan and in all likelihood would not have the desired corrective effect of ensuring, per

section 10 of the Plan, repairs to poor workmanship or defects—in this case, the elimination of water infiltrations and condensation caused by the excessive level of humidity affecting the slab, and its finish , in the beneficiaries' residence. [Bold and italics in the original.] Finally, she spoke of her role in arbitration such as this, governed by the Regulation: [TRANSLATION] [135] Under the Plan, it is not a matter of the manager's adopting the ideal solution, be it called permanent or otherwise; rather, the manager must ensure that the solution adopted complies with the Plan, in that it will repair the poor workmanship or defect.

Concretely, then, it is not a question of looking for and choosing the perfect solution or the one that would seem perfectly satisfactory, but, rather, the one that will ensure the poor workmanship or defect discovered is repaired.

That is the meaning and scope of the guarantee respecting poor workmanship and defects under the Plan. [136] Thus, what the beneficiaries had to show was that the solutions proposed by the manager do not meet those expectations in the Plan. [137] I have already indicated that the arbitrator's role is to ensure the compliance of the manager's decisions, not to replace them with his or her own.

To intervene, the arbitrator must first be convinced of the appropriateness, under the Plan, of setting aside the manager's decision as ill founded. [138] Concretely here, this means that the arbitrator must be convinced on a balance of probabilities that the solutions proposed by the manager do not comply with the Plan, because they would not eliminate the defect or poor workmanship in the immovable. Nothing in the foregoing could be called an unreasonable

interpretation of the Contract or Regulation. On the contrary, these remarks are in line with previous arbitration decisions enforcing the Guarantee plan for new residential buildings. [ 21 ] The arbitrator then addressed the substantive issue. The purpose of the debate before her was to enable her to choose one of the three solutions envisioned by the experts: the first two were described by the expert consulted by La Garantie, and the third, by the expert called before her by the respondents.

She wrote the following about the solutions: [TRANSLATION] "The first two solutions were found to comply with the Plan and were accepted by the manager. The third one, which the manager never considered, sets aside the preceding ones in favour of another".

The decisive elements of her analysis for each solution are as follows. [ 22 ] As regards the first solution, which consisted in lowering the level of water around the building by adding a French drain system under the immovable and pumping the water accumulated into the municipality's storm sewer, the arbitrator concluded that it had to be rejected as unsatisfactory, and did so in the following terms: [TRANSLATION] [142] Commenting on the first solution, expert Rodrigue opined that even though the installation of a drain equipped with a pump could in theory prevent water from being drawn by capillarity into the slab, there would still be a big risk because of the residence's elevation in relation to the discharge pipe of the city's retention pond.

In his view, for the process to be effective, the pump would practically have to be in quasi-permanent operation. In other words, there would be an ongoing risk of water infiltration because the pumping system could fail—a possibility that cannot be completely ruled out. That assertion was not really contradicted. [143] It seems to me that this solution would not eliminate the likelihood of future infiltrations, in the sense that it would not ensure greater waterproofness, it would require increased monitoring and its relative success would depend on a reliable electricity supply.

In short, as I understand it, the first solution would reduce the risks involved without ensuring that the immovable itself would be more waterproof. [144] In addition, both of the experts heard agreed that, while the solution would be viable in theory, it is not generally implemented in the residential sector.

According to expert Rodrigue, whose statement was not contradicted, to opt for it in the circumstances would be to play with fire. [ 23 ] The second solution consisted in tanking the concrete slab with waterproofing membranes and pouring a steel-reinforced slab in order to build a waterproof reinforced concrete mat foundation. The arbitrator had this to say: [TRANSLATION] [146] What about the second solution?

[147] While advocating that it be set aside on the basis that the solution is non-permanent, the expert Rodrigue recognized in his report that it would be technically feasible and would likely produce the desired effect. True, it would require a pump, upkeep, and a smaller living space in the basement, but, as a whole, the solution would in all probability render the residence waterproof.

In my view, the evidence shows, on a balance of probabilities, that this solution, although definitely more expensive than the previous one, would ensure the actual waterproofness of the structure, which is currently not waterproof, and thus non-compliant. [ 24 ] The arbitrator then moved on to the third solution and explained why she felt compelled to rule it out in favour of the second one: [TRANSLATION] [148] The beneficiaries advocate another solution, which they believe is better than those accepted by the manager. On the basis of the evidence, their solution is not risk free itself.

Not only would it waterproof the immovable, but it would also remove it from the water table almost completely. [149] Perhaps it is an approach that the manager could have theoretically chosen itself under the Plan, but, unless I am mistaken, it was never suggested to the manager. [150] In the present case, I determined that the manager's first solution does not comply with the Plan. Conversely, there is no evidence to show that the second solution accepted by the manager does not comply.. [151] Remedies under the Plan are limited.

They do not include an action to set aside a sale or an action for a price reduction.

That being so, the authorities invoked by counsel for the beneficiaries . . . are not relevant here, the remedy under the Plan being of a different nature. [152] It is clear that the correction or repair, like the very presence, of a defect or poor workmanship can cause the beneficiaries inconvenience and trouble that any buyer of a new home would obviously want to avoid. [153] However, the repair of possible damage stemming from the correction of problems covered by the Plan is not a matter under the jurisdiction of a Plan arbitrator.

It could well have been otherwise, but that was not what the legislator wanted. [154] This leads me to discuss the fact that, in the present case, a pump would have to be in operation more frequently than originally anticipated or the living space would have to be reduced. In my opinion, if contractual or quasi-contractual damage not covered by the Plan results from situations that otherwise comply with the Plan, arbitration is not the forum for deciding the matter.

Participation in the Plan does not deprive anyone of these possible recourses, any more than the possibility of those remedies invalidates in and of itself a solution that otherwise complies with the Plan. [155] In the circumstances, I therefore believe, given the role of the arbitrator and the evidence heard, that the second solution, accepted by the manager, should not be set aside in favour of the one advocated by the beneficiaries. The above paragraphs express the substance of the reasons for which their author concluded as she did in arbitrating the dispute.

It must be determined whether the decision she rendered on the basis of her

interpretation of the evidence and of the Guarantee plan for new residential buildings is unreasonable. C. Appropriateness of judicial review in this case [ 25 ] To rule on this issue, the terms of the guarantee in question must be taken into account. The arbitrator herself pointed this out in paragraph [122] of her reasons. The guarantee, which must obligatorily comply with

section 10 of the Regulation, "shall cover . . . (3) repairs to non-apparent poor workmanship existing at the time of acceptance . . . (4) repairs to latent defects within the meaning of

article 1726 or 2103 of the Civil Code . . . (5) repairs to faulty design, construction or production . . .". Thus, regardless of the way in which the situation at issue here is characterized, there is no doubt that it was covered by the guarantee, up to the maximum stipulated in subsection (3) of

section 13 of the Regulation ($200 000, as stated in clause 5.4 of the Contract itself). [ 26 ] First, I note that there is abundant support in the evidence for the arbitrator's observations, quoted in paragraph [20] above, concerning the geodesic-elevation standard of 18.3 m prescribed by the Ville de Carignan.

It is true that the appellant did not comply with the standard in the municipal by-law, but the reason for that rule has nothing to do with constructability; rather, it concerns the risk of sewer backups, as explained by building inspector Bergeron and as shown in the printout of the note accompanying the building permit.

Since the depth of the building does not affect its safety, quality, or use, this irregularity is distinct from the poor workmanship itself; rather, the waterproofness problem constitutes the original poor workmanship. [ 27 ] Can it be said that, from the viewpoint of a reasonable person, the solution adopted by La Garantie and contested by the respondents before the arbitrator is not enough to guarantee [TRANSLATION] "repairs to the poor workmanship, etc."—the inadequate waterproofness of the mat foundation—on the respondent's residence?

I do not see how that conclusion can be drawn from the record as constituted. Although the solution criticized by the respondents is not the one they prefer, substantial and costly corrective measures are involved. This was recognized by the respondents' expert in his written report when he pointed out that it would be necessary to perform underpinning work in order to implement the measures in question. The arbitrator gave explicit reasons for her finding on this point. Her reasons are not only intelligible but coherent.

Moreover, they are in fact considerably more substantial than those in the Superior Court judgment. [ 28 ] The predictable decrease in living space (that is, the ceiling height) in the respondents' basement is not poor workmanship. At the appeal hearing, and in a mailing subsequent to the hearing, counsel for the respondents contended that the decreased living space violated the National Building Code and a Ville de Carignan zoning by-law. That argument, of which there is no trace in the arbitration award or the judgment, is unpersuasive. The National Building Code does not apply in the present case because

section 3.3(3)( a )(

i) of the Regulation respecting the application of the Building Act [8] provides that buildings used for housing having no more than two storeys [9]

are "exempted from the application of

Chapter 1 of the Building Code . . . (O.C. 953-2000)". The respondents' house has a basement andtwo storeys. Decreased living space in the basement would in no way violate any of these standards, and it has not been shown that itwould violate standard practice. This side effect of the solution accepted by the arbitrator is therefore not poor workmanship within themeaning of

section 10 of the Regulation respecting the application of the Building Act. Furthermore, the respondents may exercise anyresidual rights before a court of law if they feel that the value of their house or the enjoyment they are able to derive from it has beenadversely affected by this situation. [29] As for Ville de Carignan's zoning by-law,

section 57 thereof, which the respondents sent to the panel after the hearing of theappeal, concerns the [TRANSLATION] "creation of a complementary living space or a two-generation house". This appeal concerns theconstruction of a new house, not the conversion of an existing dwelling.

Elements of information as sparse and likely incomplete as these—elements about which neither the trial judge nor the arbitrator said a word—cannot be used as a new basis for the conclusions of thejudgment, one separate from the sole basis the judge considered worth mentioning. [30] True, the solution recommended by the respondents' expert would be a more permanent one than that favoured by La Garantieand the arbitrator.

However, it bears repeating that the arbitrator's role was not to verify whether the manager had opted for[TRANSLATION] "the best possible solution", but only to ensure that the accepted solution was in accordance with the Plan.Furthermore, the evidence on the longevity of the waterproofing membrane is incomplete. [31] In short, nothing in the respondents' position warrants concluding that the arbitration award is tainted by a serious error of law orof fact that would justify characterizing the award as being unreasonable. [32] As we have seen, the trial judge expressed in three paragraphs the reasons why he reached the opposite conclusion.

The reasonshe gives concern exclusively the merits of the issue discussed before the arbitrator. It appears from his judgment that he merelysubstituted his assessment of the evidence (of which he requested and obtained the transcript) for the arbitrator's and that he preferred thesolution proposed by expert Rodrigue to that which the manager and the arbitrator considered appropriate.

That is not the role of theSuperior Court in judicial review when it must rule on the reasonableness of an award granted under the Regulation. [33] For these reasons, I would allow the appeal, with costs, and I would restore the arbitration award of June 10, 2008. (

s) YVES-MARIE MORISSETTE, J.A. [2] RSQ, c B-1.1. [3] (QC CA), J.E. 2005-132 (CA). [4] Ibid. [6] The only nuance to be made is that the adverb "manifestement" [patently] in paragraphs [44] and [47] of the judgment has sincebecome superfluous. [8] RRQ, c B-1.1, r 0.01. [9] This regulation refers to the definition of the phrase "building height" in

section 1.1.3.2 of the Building Code: "number of storeysbetween the floor of the first storey and the roof". Definition of first storey: "the highest storey having its floor not more than 2 m aboveaverage ground level".