2013 ONSC 4339, 2013 ONSC 4339

2013-07-08 CITATION : Tarion Warranty Corporation and New Millennium Homes Inc., 2013 ONSC 4339 COURT FILE NO.: 07-33669 DATE : 2013-07-08 ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: ) ) TARION WARRANTY CORPORATION ) ) ) Andrea M. Hill, for the Plaintiff ) Plaintiff ) ) - and - ) ) ) NEW MILLENNIUM HOMES INC., FREDERICK WILLIAM SPENCER and LISA SPENCER ) ) ) Graydon Sheppard, for the Defendant Frederick William Spencer Chris Argiropoulos, for the Defendant Lisa Spencer New Millennium Homes, Not Represented ) Defendants ) ) ) ) HEARD: May 14, 15, 16 and 17, 2013 PARAYESKI, J.

Overview [ 1 ] The plaintiff seeks to recover from the defendants monies it paid out to make remedial repairs to a home built by the corporate defendant. Such recovery is based upon indemnifications allegedly given by all three defendants. The corporate defendant was not represented at trial. I was advised that it has been dissolved. It is not technically in default because a statement of defence was delivered on its behalf. The defendants dispute their liability on the basis of an expired limitation period and the monetary extent of their indemnifications.

Basic Facts [ 2 ] The plaintiff is a creature of a statute enacted to assist with resolving issues which may arise between the purchasers and builders/vendors of new homes. The corporate defendant was such a builder and vendor. If Tarion cannot resolve such issues by means of negotiation, it may undertake remedial work upon the home in question and then looks to the builder/vendor for indemnification. Registration by builders/vendors of new homes with Tarion was, and is, mandatory.

I shall refer to Tarion Warranty Corporation as “Tarion”, and include in that term any predecessor. [ 3 ] In 2000, New Millennium Homes Inc. applied for registration with “Tarion” or its predecessor, and was so registered.

As part of the initial registration process, the individual defendants Frederick William Spencer and Lisa Spencer were required to sign documents whereby they personally agreed to indemnify and save “Tarion” harmless for any loss sustained by it should the corporate defendant fail to live up to its obligations, including indemnification. [ 4 ] Registration was renewed annually through to any period relevant to this action. In 2003 the indemnities were incorporated into a single document signed by both individual defendants.

In that document, they agreed to protect “Tarion” in the event of non- performance by the corporate defendant. [ 5 ] In October of 2002, New Millennium Homes Inc. entered into an agreement of purchase and sale relative to a home it had built or was building at 94 Crook Street, Hamilton. The purchasers took possession of that home on February 28 th , 2003. In January of 2004, the purchasers wrote to “Tarion” complaining of severe structural problems. In February of 2004, the purchasers asked “Tarion” to conduct a “conciliation inspection”.

That, as I understand it, is an opportunity for both the purchasers and the builder/vendor to inspect the property together to review the alleged deficiencies with a “Tarion” representative present to facilitate negotiation and possible agreement as to who, if anyone, would be carrying out any necessary repairs and at whose expense. That inspection took place on May 11 th, 2004. It did not result in resolution. The home’s foundation appeared to be shifting causing structural damage.

On May 12 th , 2004, “Tarion” wrote to New Millennium Homes Inc. and advised that in the former’s opinion there were warranted problems at the home, and that “Tarion” expected New Millennium Homes Inc. to pay for testing and repairs. [ 6 ] Testing revealed that some or all of the home had been built by New Millennium Homes Inc. on a slope consisting of uncompacted fill. That material was not capable of providing the necessary support for the weight of the home, and its foundation had begun to shift toward the slope.

This was a significant and even potentially dangerous problem. [ 7 ] “Tarion” and New Millennium Homes Inc. both hired experts to determine the most appropriate work to be done to stabilize and repair the home. The experts did not agree. “Tarion” proceeded with testing and undertook remedial work in accordance with the recommendations of its expert.

It seeks to recover from the defendants some of those costs in accordance with their respective obligations under contract. [ 8 ] It is important to note that the facts I have just described are the result of admissions made and/or the evidence of witnesses called at trial by “Tarion”.

The corporate defendant did not participate at the trial at all, and the individual defendants neither testified or called defence witnesses. [ 9 ] At the risk of oversimplification, the agreement between “Tarion” and New Millennium Homes Inc. provides that the latter is to indemnify the former “from and against all losses, claims, costs, damages, and/or liabilities whatsoever heretofore or hereafter suffered or incurred by [Tarion] resulting from, (or arising out of) non-performance or inadequate performance of [warranty obligations]”.

Here the defendants did not overtly dispute that the testing and repair work carried out by “Tarion” relative to the home at 94 Crook Street, Hamilton was not part of warranted obligations, or, indeed, was unreasonable in terms of costs. [ 10 ] The relevant agreement whereby the individual defendants agreed to indemnify “Tarion” in the event of non-performance by New Millennium Homes Inc. was executed on February 3 rd , 2004.

The agreement is be found at Tab 33 of trial exhibit “1”, (Volume 1). [ 11 ] “Tarion” seeks judgment against the defendants in respect of three invoices which collectively represent only part of the expenses incurred relative to testing and repairs relating to 94 Crook Street, Hamilton. [ 12 ] Generally, each of the relevant invoices are invoices from “Tarion” sent to New Millennium Homes Inc. and to the individual defendants.

Each invoice seeks reimbursement of monies paid out by “Tarion” to third parties for work done at 94 Crook Street, Hamilton, plus a 15 % “administration charge” provided for in the documents signed by the defendants, plus GST. [ 13 ] Specifically, the invoices may be particularized as follows: 1) “Tarion” invoice dated March 29 th , 2006, numbered 27563 $9,000.00 was paid to Venditti Engineering in accordance with its invoice dated January 31 st , 2006.

That invoice describes that it was rendered for “engineering services to complete underpinning design & apply for & receive bldg permit for structural renovations of 94 Crook Street, Hamilton house to commence. Geotechnical inspections completed & ongoing.” A 15 % “administration charge” was added to the $9,000.00, as was GST, for a total of $11,074.50. This invoice was paid by “Tarion” 2) “Tarion” invoice dated January 30 th , 2006, numbered 28386 $74,900.00 was paid to EBS Engineering & Consulting Limited in full in accordance with its invoice of March 31 st , 2006 for work done at 94 Crook Street, Hamilton.

The EBS invoice is to be found at Tab 132 of trial exhibit “1”, (Volume 3). A 15% “administration charge” was added to the $74,900.00, as was GST, for a total of $97,701.70. This invoice was paid by “Tarion”.

3) “Tarion” invoice dated September 27th, 2006, numbered 29483 $135,600.00 was paid to EBS Engineering & Consulting Limited in accordance with its invoice of August 31st, 2006 for work at 94Crook Street, Hamilton. The EBS invoice is to be found at Tab 134 of trial exhibit “1”, (Volume 3). A 15% “administration charge” wasadded to the $135,600.00, as was GST, for a total of $165,296.40. This invoice was paid by “Tarion”. [14] The three invoices total $274,072.60.

Vis-à-vis the individual defendants, “Tarion” is prepared to reduce this total to$200,000.00 so as to match with the $200,000.00 personal indemnification limit contained in the document executed by those individualdefendants. [15] The 15% “administration fee” is provided for at paragraph 2.6 of the original agreement as renewed. [16] In addition, “Tarion” claims 18% per annum prejudgment interest on the amounts it claims. This is provided for at paragraph 2.7of the original agreement as renewed. [17] The statement of claim herein was issued on September 13th, 2007.

Issues [18] The defence pleadings assert a number of defence positions, included, but not limited to, allegations that documentation was notfully completed when the defendants signed it, a lack of independent legal advice, excessive payment by “Tarion”, et cetera. By the endof the trial, however, the participating defendants, i.e. Frederick William Spencer and Lisa Spencer, confined their arguments to twoissues. It is those issues upon which I shall rule. They are: 1) Is the action barred by the provisions of the Limitations Act.

S.O. 2002, c.24? and 2) Should the applicable limit on the indemnifications be $20,000.00 or $200,000.00? Issue number 1 [19] The relevant sections of the Limitations Act read as follows: 4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the dayon which the claim was discovered. Pursuant to s. 5(1) a claim is discovered on the earlier of, (

a) the day on which the person with the claim first knew, (

i) the injury, loss or damage had occurred, (ii) that the jury, loss or damage was caused by or contributed to by

an act or omission, (iii) that the act or omission was that of the person against whom the claim was made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek remedy to it; and (

b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to haveknown of the matters referred to in clause (a). [20] In the present case, the statement of claim was issued on September 13th, 2007. The participating defendants argue that thewarranty issues became known to some degree and that “Tarion” had started to ask the defendants for reimbursement of monies it hadpaid out in 2004, all of which plainly predates the issuance of the statement of claim by more than two years.

The same defendantsaccurately cited case law which stands for the proposition that, generally at least, the limitation period commences as soon as theplaintiff has discovered that the defendant has caused loss or injury, and that neither the extent of the damages nor even the type ofdamage need to be known in order for time to begin to run: see Hamilton (City) v. Metcalfe & Mansfield Capital Corp., 2012 CarswellOnt. 2578, at paras 61 and 62, O.C.A. They also cite the Ontario Court of Appeal case of Kowal et al. v. Shyiak et al., 2012 ONCA 512, 2012 Carswell Ont. 9202, at para 18.

That case indicates that the limitation period starts to run notwithstanding the fact thatcertainty of the defendant’s responsibility for the act or omission that caused or contributed to the loss is not present. Rather, it isenough for the plaintiff to have prima facie grounds to infer that the acts or omissions were caused by the defendant. [21] If the plaintiff’s case as presented at trial was based upon negligence, I should agree that the action would be statute-barred. However, that is not the basis of the claim.

Instead, the claim seeks payment under contractual terms of indemnification entered into bythe defendants, and only relates to the three 2006 invoices described in detail above. [22] It appears to be settled law that the limitation period for an indemnification claim does not commence to run until the plaintiffactually suffers the loss, i.e. pays out money to a third party, and not from the time when the event which causes the loss happens. Thisis discussed at paragraphs 20 to 24 of the decision of Philp, J. in Ontario New Home Warranty Program v. 567292 Ontario Ltd., reported

at (ON SC), [1990] O.J. No. 7. Each payment has its own limitation period. [23] The rationale for this appears to me to be that recovery under an indemnification is in the nature of redressing an unjustenrichment to the defendant. That unjust enrichment occurs when the plaintiff actually pays out monies in respect of a wrong againstwhich the defendant has provided indemnification.

Here, the plaintiff made three payments out to Venditti Engineering and EBSEngineering & Consulting Limited for services in regard to investigation and remedial work at the subject home in 2006, each suchpayment occurring within the two year shadow cast by the statement of claim issued in 2007. The claim is in respect of those payoutsonly, and not earlier ones which could be caught by expiry of the limitation period. [24] Another way to approach this is analogize the indemnifications of the individual defendants at least to guarantees provided bythem. As P.M. Perell, J. in his decision of Skuy v.

Greenough Harbour Corp. 2012 ONSC 6998 , [2012] O.J. No. 5841 pointsout, the limitation period in respect of a guarantee begins to run when the guarantor receives demand that he make payment in theabsence of an expressed date for payment. Here, again in respect of the claims actually being advanced, the demands were all made in2006, and thus are “caught” by the statement of claim. Claims based on earlier payouts and/or demands might not be so “caught”. They,of course, are not being claimed. [25] I conclude, therefore, that the action as advanced is not statute-barred.

Issue number 2 [26] The indemnification provided by the corporate defendant does not have a monetary limit upon it expressed in the relevant articlesof agreement. The 2003 indemnifications provided by the individual defendants are described at subparagraph (

d) of paragraph 3 of the agreement executed by them on February 3rd, 2003. The relevant excerpt reads as follows: “…the maximum liability of the Indemnitor(

s) to ONHWP [Tarion’s predecessor] arising under this Indemnity, shall not exceed the sumof $200,000.00 in Canadian funds in the aggregate, such figure being predicated on the Registrant [New Millennium Homes Inc.]constructing and/or selling no more than 10 homes during the term of this capitalized indemnity in any annual registration period of theRegistrant (herein referred to as the “Unit Limit”), on the express understanding that in the event the Registrant constructs and/or sellsany home in excess of the capitalized Unit Limit, then the maximum liability of the Indemnitor(

s) hereunder shall increase by$30,000.00 increments in Canadian Funds for each home constructed and/or sold in excess of the Unit Limit.” [27] The defence argument on this issue appears to be that because the agreement contemplates up to 10 homes being built and/orsold, the limit on indemnification should be $20,000.00 per home or the stated aggregate limit of $200,000.00 divided by 10. Defencecounsel point to the stated increase of the limit by $30,000.00 for each home built and/or sold in excess of the projected 10. I reject thisargument on the following bases:

a) It flies in the face of the plain wording of the contract. The contract does not give a “per home” limit of exposure. What it isdoes do is provide an aggregate limit so that no more than $200,000.00 can be claimed no matter how many of the 10 homes in questionrequire remediation or the cost thereof;

b) It does not make commercial sense given the cost of home repairs, especially since the repairs can include, as they did here,major structural work; and

c) The $30,000.00 per home increment to the $200,000.00 in the event that more than the anticipated 10 homes were built and/orsold only provides a method of calculation for the increased limit, and does not address a per home cap on exposure. [28] The indemnifications provided by the individual defendants are limited in this case to $200,000.00 on a joint and several basis. Conclusion [29] The plaintiff is entitled to judgment against the defendants in the following terms: 1) As against New Millennium Homes Inc., judgment for $274,072.60. Dissolution does not protect this party from judgment: see s.242(1)(

c) of the Business Corporations Act, R.S.O. 1990 c.

B16, as amended; 2) As against each of the defendants Frederick William Spencer and Lisa Spencer, judgment for $200,000.00; 3) Liability is joint and several, with the liability of the individual defendants being limited to $200,000.00 in respect of principal; 4) The plaintiff is entitled to prejudgment interest on the three separate amounts set out in the invoices described in detail above fromthe date upon which notice or demand was sent at the rate of 18% per annum, calculated on the simple basis; 5) The plaintiff is entitled to post judgment interest at the rate prescribed by the Courts of the Justice Act; and 6) The counterclaim of the defendant Lisa Spencer, which was not addressed in any way at the trial, is dismissed. [30] If the parties cannot agree upon costs, they may make brief written submissions to me in regard to the same.

Each set ofsubmissions is to be no more than three pages in length, not including a costs outline. There shall be no attachments to the submissions,

other than the costs outline and any relevant Rule 49 offers to settle. The plaintiff shall have until July 31 st , 2013 to make its costs submissions, if any. The defendants shall have a further 20 days to make their submissions, if any. Those submissions should be sent to my attention at the John Sopinka Court House at Hamilton. ___________________________ Parayeski, J. Released: July 8, 2013 CITATION : Tarion Warranty Corporation and New Millennium Homes Inc., 2013 ONSC 4339 COURT FILE NO.: 07-33669 DATE: 2013-07-08

ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: TARION WARRANTY CORPORATION Plaintiff - and – NEW MILLENNIUM HOMES INC., FREDERICK WILLIAM SPENCER and LISA SPENCER Defendants REASONS FOR JUDGMENT PARAYESKI, J. MDP:mw Released: July 8, 2013