2010 ONSC 2342, 2010 ONSC 2342

CITATION : Halton Condo No. 386 v. Palomino and Menkes, 2010 ONSC 2342 COURT FILE NO.: 4980/10 MOTION HEARD: 20110412 SUPERIOR COURT OF JUSTICE - ONTARIO RE: Halton Standard Condominium Corporation No. 386, Applicant AND: Palomino Hill Realty Corporation and Menkes Corporation, Respondents BEFORE: Miller, J. COUNSEL: M. Campbell, for the Applicant P.

Henderson, for the Respondents HEARD: April 12, 2011 REASONS FOR DECISION [ 1 ] Halton Standard Condominium Corporation No. 386 applies for a declaration that Palomino Hill Realty Corporation and Menkes Corporation have failed to comply with a Settlement Agreement of March 2008 and for an order directing the appointment of an independent third party engineer pursuant to the Settlement Agreement. [ 2 ] The Applicant argues that since they have given written notice of evidence that 22 of the curb stops are failing at Halton Condominium Plan No. 386, the Respondents are bound by the Settlement Agreement to agree to an independent engineer to inspect the identified curb stops and to approve and supervise all work and repairs. [ 3 ] The Respondents take the position that as there is no evidence of damages suffered as a result of a breach of warranty, as contemplated in the Ontario New Home Warranties Plan Act at section 14(3) then the conditions of clause 2 of the Settlement Agreement have not been met and the remaining clauses do not apply. [ 4 ] The Respondents concede that if the Court finds they are bound, in these circumstances, to comply with the Settlement Agreement, the Court has the authority, pursuant to Rule 14.05(3), to appoint an independent engineer for the purposes of compliance with the Settlement Agreement. [ 5 ] The Applicant is the “owner” of the common elements of a residential property legally known as Halton Condominium Plan No. 386; Palomino was the builder and Menkes its parent company. [ 6 ] The Applicant filed a claim against Tarion Warranty Corporation in relation to defects in the function of 22 (of 45) curb stops installed on the property.

Tarion disallowed the claim and the Applicant filed an appeal to the License Appeal Tribunal. The appeal was not heard as the matter settled, pursuant to the Minutes of Settlement, in March 2008. The parties herein were all parties to the settlement, as was Tarion. [ 7 ] The Minutes of Settlement provide: 2. It is understood and agreed that Palomino and/or Menkes have extended the warranty period with respect to the curb stops at the Project, until June 30, 2011 (the “Extended Warranty Period”) in accordance with the terms and conditions described herein.

It is acknowledged that this is a contractual warranty offered by Palomino and/or Menkes which is the same as the warranty set out in the Ontario New Home Warranties Plan Act ; however, it is understood and agreed that it is a contractual warranty and not a statutory warranty. 3. Any and all work and repairs, referred to herein, shall be supervised and approved by an independent third party engineer (the “Engineer”) to be agreed upon by Palomino (and/or Menkes) and HSCC 386. 4.

In the event that a curb stop at the project is determined to be failing, as confirmed by the Engineer, such that the curb stop is leaking or showing signs of deterioration, as a result of improper installation, by way of pitting on the pipe seated within the curb stop and/or as a result of improper seating/support of the curb stop, as confirmed by the Engineer, then Palomino and/or Menkes will be responsible for the full cost (including any and all fees and expenses of the Engineer) to complete the work and repairs (the “Remedial Work”) as follows: (

a) In each case, the land surrounding the curb stop will be excavated, the curb stop will be exposed, removed, fully inspected (both inside and outside), and replaced (including any adjacent portion of the water line which has been damaged as a result of improper seating of the pipe within the curb stop), and the supply of water shall be restored to any affected townhouse unit at the Project within twenty-four (24) hours; (

b) Any excavated land surrounding the curb stop shall then be backfilled with non-shrink material and topped up with gravel, and the affected portion of the driveway shall be repaved with asphalt; and

(

c) In each case, the existing water box shall be reused unless the water box is damaged as a result of the excavation and/or repair, in which case the existing water box shall be replaced. In the event that the curb stop for any unit is not failing as described above and confirmed by the Engineer, then HSCC 386 shall be responsible for the full cost of the Remedial Work for that unit. 5.

For the purposes of clause 4 above, it is understood and agreed that evidence that a curb stop at the Project is failing shall (notwithstanding the discretion of the Engineer) include, but not be limited to, water penetration on the surface of the driveway appurtenant to a unit in the vicinity of the water box and/or the formation of significant cracks and depressions on a driveway that would not normally be associated with typical settlement.

Upon delivery of written notice, from HSCC 386 to Palomino and/or Menkes, of such evidence that a curb stop is failing, the obligations under clause 4 shall be carried out by Palomino and/or Menkes within three (3) business days, save and except for the obligations under sub-clause 4(

a) which are to be carried out within twenty-four (24) hours. 6.

If HSCC 386, acting reasonably and with the objective of mitigating further damage to property, determines that emergency measures are required with respect to any evidence of a curb stop failure, HSCC 386 shall be entitled to carry out such emergency measures until such time as Palomino and/or Menkes shall be responsible for the full costs of any and all such reasonable emergency measures and shall reimburse HSCC 386 accordingly within fifteen (15) days of delivery of invoices by HSCC 386 to Palomino and/or Menkes confirming the nature and cost of the emergency measures. 7.

In the event of any disagreement as to whether the curb stops at the Project is in fact failing or whether the failure is a result of a defence for which Palomino and/or Menkes is responsible, the parties agree that: (

a) the inspection and repair work will continue as provided for herein notwithstanding the dispute; and (

b) the dispute will be resolved by way of arbitration entirely in writing by an arbitrator listed in the Builder Arbitration Forum (the parties to exchange written submissions not to exceed 5 pages). The arbitration will be heard once the inspection for the unit is complete. The decision of the arbitrator will be final and binding and without appeal. The arbitrator is not to issue reasons but simply identify how the cost should be allocated between the parties.

The cost for the arbitration itself will be divided evenly by the parties regardless of the outcome. [ 8 ] The Applicant provided written notice to the Respondents December 15, 2008 of 22 apparently defective curb stops. None of the reported deficiencies are those specified in clause 5. [ 9 ] The Applicant contends that clause 5 is a non-exhaustive list of possible evidence of failure of a curb stop. [ 10 ] The Applicant consulted with an engineer who opined, in a letter dated June 23, 2010 that all but five of the noted deficiencies could be due to improper installation.

The other five could be due to normal wear and tear. [ 11 ] August 19, 2009 the Applicant wrote to the Respondents with reference to clause 3, asking that they propose three independent engineers. The Respondents did propose several engineers, all of whom had previously performed work for Menkes.

The Applicant did and does not consider these engineers to be independent and did not agree that any of the respondent’s proposed engineers should do the work. [ 12 ] The Respondents take the position that their proposals with respect to engineers were not acknowledgements that the provisions of the Settlement Agreement apply in these circumstances and were only an attempt to resolve the issues between the parties. [ 13 ] The Respondents assert that the terms of the contractual warranty, other than the duration of the warranty, which is specified in the Settlement Agreement, are the same as the warranty which would otherwise have existed pursuant to the Ontario New Home Warranties Plan Act .

Without evidence of damage resulting from deficiencies or defects in the curb stops, there is no warranty and the remaining clauses of the Settlement Agreement do not apply. [ 14 ] The Respondents point to clause 5 of the Settlement Agreement as to the type of damage that would invoke the warranty, although they acknowledge that clause 5 does not limit a “failing” to those examples. [ 15 ] The Respondents rely on evidence given at an examination by Chadwick Foreshew, manager of field claims in the condominium common element

section at Tarion, to the effect that Tarion would not provide warranty coverage to any of the conditions identified in the written notice of December 15, 2008 because they all fall within exclusions under s. 13(2) of the Ontario New Home Warranties Plan Act , namely, damage resulting from improper maintenance, subsidence of land or normal wear and tear. [ 16 ] I note that the Settlement Agreement came into existence when the Applicant appealed the decision of Tarion that these very deficiencies were not covered by warranty.

Had the Respondents had confidence in the Tarion position at that time, I anticipate the appeal would have been heard. Instead, the Respondents settled the matter before the appeal was heard, with the Settlement Agreement and all its provisions. [ 17 ] I note that clause 4 of the Settlement Agreement refers to failing “such that the curb stop is leaking or showing signs of deterioration ” [emphasis mine]. In my view the deficiencies noted in the Applicant’s written notice of December 15, 2008 are all evidence of “signs of deterioration” sufficient to amount to damage.

The fact that many of the noted curb stops were non-functioning is further evidence of damage. [ 18 ] I find the conclusions drawn by Mr. Foreshew in his evidence as to the cause of the damage to be speculative. I find that the provisions of the Settlement Agreement apply in these circumstances and that an engineer should, in accordance with the provisions of that Agreement, inspect, and if necessary, approve and supervise any repairs.

Responsibility for the cost of the work shall be determined in accordance with clause 4 and, if necessary, by way of the mechanism set out in clause 7. [ 19 ] The Application is granted. I declare that by failing to agree to an engineer to perform the work set out in the Settlement Agreement that Palomino Hill Realty Corporation and Menkes Corporation have failed to comply with a Settlement Agreement of March 2008. It is ordered that Halsall Associates Limited are appointed as the “Engineer” pursuant to the Settlement Agreement and that they

may commence excavation, inspection and repair of the subject curb stops forthwith in accordance with the proposal dated October 6, 2010. [ 20 ] The parties agreed in advance that costs should be awarded to the successful party on the application in the amount of $10,000. The Respondents are ordered to pay the Applicant’s costs of the application, fixed at $10,000, forthwith. MILLER J Date: April 13, 2011