How T-Rex Ate Vancouver: The Leaky Condo Problem by Mary Anne Waldron
Note: This paper has been made available for publication on the Land Centre by the author, Mary Anne Waldron, Professor of Law at the University of Victoria. A major area of Professor Waldron’s teaching and research interest is property law. The publication on the Land Centre has been assisted by the British Columbia Law Institute and the Canadian Business Law Journal. "How T-Rex Ate Vancouver" was presented by Professor Waldron at the 28th annual Workshop on Commercial and Consumer Law held at the Faculty of Law, University of Toronto on October 16-17, 1998. The paper will be published in the May 1999 issue of the Canadian Business Law Journal.
Further information regarding statutory warranties on buildings can be obtained from the British Columbia Law Institute.
I. INTRODUCTION
In the movie "Lost World", a Tyrannosaurus Rex which had been transported to civilization escaped, rampaged through a city and ate a lot of people. My teenage sons dismissed this as a completely unrealistic plot development because, in their opinion, no one would allow it to happen. At least containment facilities would have been constructed so that escape could not have occurred. I am not so certain.
Granted, the movie abbreviated the process somewhat, but the fact is that given the right combination of decisions, all interacting with one another and given the right combination of inaction, such a thing seems to me quite believable. Ignoring the processes of discovery and decision making that would lead to the T-Rex being sent to a large urban centre (both of which would have their own similarly edifying stories to be told), the containment facilities would be subject to the usual planning, regulatory and inspection procedures. One can imagine the competing demands of heritage conservationists, zoning and by-law enforcement officials, societies for the protection of gardens, animal rights activists, scientists, environmental protection lobbies and education specialists, as well as the budget planning committee of municipal council. The requirements of a cheap, beautiful, accessible structure, consistent with the topology, architectural and historical integrity of the area, providing the animal with a humane and natural environment could all be satisfied by a four foot natural cedar fence and flowering hedge. There would only be one problem.
To my knowledge, the movie did not proceed to explore the aftermath. Who sued whom and for what? Were the relatives of the people eaten ever compensated? Did the authors of the disaster have any assets available for execution proceedings? Did the government provide a relief fund? Was there a commission appointed to examine the options and allocate responsibility?
My thinking on the problem of T-Rex has, as you might suppose, been shaped by my knowledge of the so-called "leaky condo" disaster on the West Coast. Numerous systems intended to provide attractive, affordable, well-built and (especially) water-tight housing failed. They failed separately and in the synergy created by their separate failures produced a problem which cost an average of $23,000 per condominium unit affected for a total estimated cost of repair of between $500 to $800 million dollars.2 This, of course, is only a fraction of the total cost of the failures.
The construction industry, already in difficulties attributable to British Columbia's economic problems, has suffered another devastating blow. Residential unit sales have fallen in 1998 from their high of 105,910 units in 1992 to an estimated 60,000 units.3 In part, this reflects a profound lack of trust in the quality of housing in British Columbia, particularly in the heavily populated Vancouver and Victoria regions and particularly in the multiple family unit market -- the one relatively affordable type of housing available in these geographical locations. Further cost in personal financial disaster for the owners and the endless ripple effect of the bankruptcies and foreclosures that this disaster produces together with the cost in human anguish must be added to the bill.
One of the multiple systems that failed in this horror story was the legal system. In the private law area, it failed to provide any contractual protection for purchasers that their building would be leak-free. In the regulatory area, it failed to provide standards and supervision that might have averted the problems. On the remedial side, it failed to hold out the "big stick": The result, even of a finding of liability, provided little incentive for players in the system to provide structurally sound housing. Partly as a result of this fact (one may suggest), such insurance as existed for the unprotected purchaser was usually ineffective to provide compensation.
In the aftermath, the British Columbia government did take action. It appointed a commission to inquire into the problem and to make recommendations.4 Some of the recommendations have been implemented, including a new regulatory and insurance structure for the building industry found in the new Homeowner Protection Act.5 However, the $500 to $800 million repair bill and associated costs remain largely unaddressed.6 Many of the Barrett Commission's recommendations on this problem have proved unworkable. Further, serious questions exist about the likelihood that many of the provisions of the new act will be cost effective in preventing similar problems from arising. Finally, many of the legal problems that both contributed to the failure and impeded any fair and rational compensation for what had occurred still remain.
In this paper, I will briefly describe the failures that generated the leaky-condo disaster. From there, I will turn to a discussion of the system with which I am most familiar: the legal system. In this part of the paper, I will address the failures of that system which contributed to the problem and the effect those failures have had on the results. I will then briefly discuss the work of the Barrett commission and the recommendations that pertain to compensating or assisting those condominium owners affected by the disaster. Finally I will conclude with a description and critique of the
new legislation.
II. HOW THE PROBLEM OCCURRED
As I have already mentioned, no one factor or system is wholly responsible for the leaky-condo problem. Not surprisingly, disagreement abounds about the significance of various factors. Also, each condominium structure presents a different case with the factors of design, materials and execution bearing differing weights of blame for the failing structure.
As has been frequently pointed out, buildings on the West Coast had been built for more than one hundred years without significant problems from water incursion.7 However, since 1983, cultural change, the explosion of new products for building, the escalation in land costs on the West Coast and the resultant squeezing of construction profits8 all produced a change in public expectation and taste with which the science of building envelope design was unprepared to cope.
Post-modern design catered to the taste of a public that wanted (or was educated to want) exterior finishes that looked like masonry rather than wood and dispensed with eaves and eavestroughs as ugly. Unfortunately, both the use of wood as a building material and the use of systems to drain water from the structure are eminently practical in a wet, cool coastal climate. In analyzing the design elements of the condominium problem, Trevor Boddy in the Globe and Mail portrayed public demand for the new "Mondo California" architecture as fueled by popular television shows, design professors who embraced faddish and impractical designs and developers who were educated in Texas, Arizona and Nevada to adopt the new style which not only met public taste but was cheaper to build.9
Materials used in executing the design were often inadequate by themselves or inadequate in combination with other factors to prevent water damage in the West Coast environment. This is a highly technical area and obviously well beyond my knowledge in its detail. However, there are some examples which can be easily understood in retrospect.10 For example, stucco, to be applied to large projects in areas where frost was likely, was mixed with soaps and additives which also had the effect of making it more water absorbent. Insulation employed to meet increasing standards of energy conservation reduced drying potential without any corresponding allowance being made to decrease wetting potentials as well. Use of polyethylene as a vapour and air barrier also caused problems, trapping and sealing in moisture.
According to the findings of the Barrett Commission, the principles of sound building envelope design were not new and had been known for thirty years.11 However, apparently engineers, architects and builders alike were ignorant of their application in the new design and product environment. Certainly members of the public purchasing condominium units could not and could not be expected to have any comprehension of whether their building would prove to be water-tight.
The execution of design and employ of materials was also very frequently defective. The list of specific deficiencies in building which the Barrett Commission heard described was appallingly lengthy.12 Building a multiple unit structure is no simple endeavour. A multitude of detail must be translated into a multitude of specific tasks, each of which must be correctly performed, to produce a well-built product. On the whole it appears that the specific tasks were not well performed, leading to further leaks which, combined with materials to trap and hold moisture and designs which subjected the building to unprecedented water exposure added the final frame to the photographic record of condominiums covered with blue tarps and left to rot that has become familiar to many Vancouver residents.
III. FAILURES OF THE LEGAL SYSTEM
The causes I have adverted to above operated within a legal environment which structures obligations between parties who are constructing, buying and selling property. It is, as we shall see, very difficult for the purchaser of a condominium which has turned out to suffer severe leaking to obtain any effective remedy against anyone despite the multiple failures at almost every step of the construction process. This absence of legal accountability no doubt contributed significantly to the problem occurring in the first place: no one had much incentive to see that construction did not leak. After the fact, it has made the problem more acute. Left without legal recourse, homeowners must bear the full cost of repair by eating into their savings, increasing their debt loads at higher rates than their mortgage loan interest rates or losing their investments. To these problems I will now turn.
1. Contractual liability for faulty new home construction
a) Contractual warranties for new homes
While a purchase of a home remains for most people their single largest financial investment, in British Columbia, it had also become, prior to 1998, perhaps their least legally protected transaction. Consumer protection and sale of goods legislation ensures that their purchases of goods carry with them promises of fitness that no vendor or manufacturer can exclude.13 When buying a home, however, no promises of fitness have been (until 1998) generally implied.
This makes some sense in the purchase and sale of pre-owned construction. As is obvious, a house is a complex item, and its soundness and structure require considerable expertise to evaluate. In some cases, evaluation is impossible without investigations that would seriously damage the structure. So why should a vendor who knows nothing about the inner and mysterious workings of his or her walls, wiring and plumbing be required to take the risk that something is wrong while the equally ignorant (and innocent) purchaser of the property is fully protected?
Clearly this same justification does not exist where a new home is being purchased from its builder/developer. However, the common law developed no general warranty of fitness or adequate construction applicable to new home purchases. Some protection was extended to the purchaser of a house which was not completed at the time of purchase,14 provided that the vendor was expected to do the work which would complete the house and that the contract between the parties did not expressly exclude the implied warranty.15 In that case, the common law implied that the house was fit for habitation and was constructed in a good and workmanlike manner using suitable materials.
Presumably, the rationale behind the courts' willingness to imply this warranty in the case of the incomplete house was that while it was reasonable to expect the purchaser of the completed house to protect himself by proper inspection, it was not reasonable to expect the same degree of self-reliance when the subject matter of the contract was not there to be inspected because it had yet to be built. However, the work covered by the warranty was not confined to the yet-to-be-finished work, but extended to the entire project,16 providing a new home purchaser a substantial benefit if she bought a house which was to any degree not yet complete.
Not surprisingly, a considerable body of case law accumulated around the question of when a house could be said to be "complete." The question was characterized as one of "fact" and was to be determined objectively. 17 Naturally, these statements of principle did not go very far towards solving the issue in specific cases. Nor did the pronouncement that a house which was 99% complete was not complete.18 Of more assistance was the determination of the courts that unfinished work must not be merely decorative, but must be structural or integral to the building's proper functioning.19 Thus the omission of gutters, downspouts and cap flashings which were included in the building plans and which served a structural purpose rendered the building incomplete, despite an occupancy permit having been obtained.20
Generally, (and unfortunately for many of the leaky condo owners described in the Barrett Commission report) shoddy workmanship does not make a house incomplete.21 However, the omission of caulking and sealant work which should have been done, presumably as opposed to caulking and sealing which had been done inadequately, did make a project incomplete.22 As well, although a particular condominium unit might appear complete, it is not so treated as a matter of law until the common elements appurtenant to the unit are complete.
Despite these technical difficulties which made the application of the warranty uncertain in many cases, the implied warranty has given at least some protection to the new home buyer. Despite the expense and delay of litigation, a number of successful actions have been brought in British Columbia based upon this warranty and, although of course no statistics are available, I am aware of some significant settlements achieved by local law firms representing purchasers of condominiums that were not built at the time of purchase.
However, for the majority of condominium purchasers, no such protection existed in the years in which the leaky condo problem was growing into its current T-Rex size. In 1979, the Supreme Court of Canada was asked in the case of Fraser-Reid v. Droumtsekas23 to eliminate the complete/incomplete distinction and provide an implied warranty of fitness for all new home purchases. It declined to do so. Speaking for the court, Dickson J. acknowledged the rigidity and irrationality of the complete/incomplete distinction. However, he took the position that any warranty of fitness in construction should be enacted in a detailed form by the legislature, not created in general terms by the courts.
In British Columbia, such a warranty was not provided. While a voluntary warranty scheme covering new home construction came into being, no legislative authority for the scheme and no guidelines to shape its provisions were enacted. I will say much more about the deficiencies of this scheme later.
In 1998, two pieces of legislation in British Columbia changed this picture substantially. The Trade Practice Act24 was amended to include residential real estate sales within its scope, providing remedies for deceptive trade practices that may be employed in selling real estate.25 The Homeowner Protection Act26 was also enacted, requiring home warranty insurance to be a feature of every new home purchase27 and providing a statutory warranty which cannot be waived for any new homes which are not covered by the mandatory insurance scheme.28 I will discuss particularly the Homeowner Protection Act29 in more detail in a later part of this paper, but it is perhaps interesting to note that the statutory warranty adopted by the Homeowner Protection Act is in general terms, modeled upon the common law warranty of fitness. It follows, at least to a significant degree, a proposal of the British Columbia Law Institute made by the Institute's Committee on New Home Warranties.30 Granted, the statutory warranty should apply only in a very few cases, since most new
construction will fall within the mandatory warranty provisions. However, neither the legislative policy makers nor the committee of the B.C.L.I. which considered the matter in some detail believed that the general common law warranty was unworkable and needed to be made more specific.
My point, of course, is that the refusal of the Supreme Court of Canada in 1979 31 to extend the common law warranty to all new home construction was a serious failure of the legal system. In my opinion, the court had no reason to believe that a warranty in general terms would be unworkable. Courts had already developed experience in applying such warranties in more limited circumstances and there was no evidence to suggest that they had done a poor job.32 Additionally, American courts had, since the 1960's, implied a general warranty of fitness into all contracts for new home sales.33 Further, the court had no reason to believe that legislatures across the country would act to protect the homebuyer until a crisis occurred.34 In British Columbia, that certainly proved true.
Had a common law warranty existed to aid the leaky condo buyer, all problems would not have miraculously disappeared. Other issues (to which I will shortly turn) would still have meant that many owners would have received no compensation. However, more would have had legal recourse. As well, and probably more significantly, the existence of such warranty would have increased the risk to the developer.
This increased risk might well have had the salutary effect of persuading developers that the voluntary insurance scheme to which many belonged ought to be effective to compensate the injured purchaser in the event of a problem arising rather than being primarily a selling ploy to persuade the nervous that they had some protection. It seems obvious that if a risk is imposed upon a particular party to a transaction, it is in their interest to ensure that any insurance schemes are effective to cover anticipated losses. If the schemes are not effective, the result will be that the loss must still be paid by the party bearing the risk: an undesirable result which, if the party at risk has the power to avoid, it will. However, where an insurance scheme is provided by and is under the control of a party which has no risk if the undesirable event occurs, that party has no incentive to make the insurance effective. Cost will be the only concern. This, it seems to me, is precisely what largely shaped the New Home Warranty Program which has been in operation in British Columbia until 1998.
b) Limited liability and the vendor
While the law of contracts is supposed to provide the fundamental rules relating to claims arising out of commercial relationships, significant problems with this theory obviously exist in the consumer environment. Although these problems have been recognized and to an extent legislatively remedied in sale of goods transactions, the same has not,35 as discussed above, been true for sales of real property.
However, even if contractual rights exist between the purchaser of a new home and the builder/developer (as where the home is incomplete at the time of purchase) or even if contractual rights are statutorily created by the legislature (as the Homeowner Protection Act,36 to a limited extent, does), a further and usually fatal barrier exists to recovery. Many builders in British Columbia operate through limited companies which are created to be project specific. The company is incorporated to carry out one building project and is abandoned, ultimately to be de-registered for failure to file required reports, when the project is complete.37 This procedure ensures that even a purchaser with a contractual claim will have no viable party to proceed against very quickly after the purchase of the property has been completed.
The result of this industry custom is to employ the traditional rules regarding limitation of corporate liability38 to shield the assets of the participants in the building industry from suit. This issue was addressed and discussed by the New Home Warranty Committee of the B.C.L.I., but no recommendations could be agreed upon. The Committee was unanimous in its support of a statutory warranty for new home construction. It was profoundly and (in my view as Chair) probably irreconcilably divided on the question of whether liability for such warranty should be extended to managers, officers or directors who were directly responsible for the project of the corporate builder.
The Homeowner Protection Act,39 in enacting a limited statutory warranty for new home construction, also fails to address this issue. In the process that led to the enactment of this legislation, several "stakeholders" meetings were held with representatives from the various components of the building industry as well as from consumer groups. It appears to me that industry acceptance and co-operation with the legislative program now enacted was very important to the government. Such co-operation would not likely have been forthcoming had any proposal to restrict the principle of limited liability been made.
2. The regulatory system
Building codes and municipal inspections to enforce code standard are regarded by most purchasers of new construction as their primary line of defense against serious deficiencies. The leaky-condo experience suggests that this trust is largely misplaced.
The Barrett Commission devotes many pages of its report to an analysis of the role played by the building codes and municipal inspections in permitting the current crisis to develop.40 I will not attempt to rehearse their findings here in any detail. The conclusion of the Commission was that the building codes were not responsible for causing the problems.41 While that is doubtless true in the sense that the codes did not specifically mandate the design and material flaws that are largely responsible for water incursion in many cases, the discussion of the Commission makes it clear that neither did the building codes prohibit the practices and procedures that caused the damage.
Confusion in building code definitions certainly has allowed some large buildings to be built under guidelines that only applied properly to smaller buildings.42 It appears that requirements for building envelopes for small buildings, when applied to taller, larger buildings, produced water settling within the structure. Further, other city regulations, particularly zoning requirements relating to floor space ratios, encouraged builders to eliminate various building features such as overhangs which had historically provided protection from rain.43 Finally, building inspectors who administered the code on a day-to-day basis seem to have given contradictory advice in some cases that worsened the problems.44
As to inspections, the Barrett Commission was again careful to absolve the inspectors from blame.45 Again, there appear to be certain contradictions in the report. The report states that the role of the building inspector is widely misunderstood. It is not to ensure the quality of construction, but to perform an audit at specific stages of construction to determine compliance with the code.46 This, apparently, is not expected to enforce code compliance. Further, the report states that municipal inspectors were wrongly being regarded as interpreters of the code.47 On the other hand, and in another part of the report, the Commission acknowledged that inspectors had required certain materials to be used in building the envelope which were not required under the code.48
A similar "mixed message" is given by a pamphlet prepared by the Ministry of Municipal Affairs in 1997 and quoted in the Barrett report. That pamphlet warns consumers that they should not assume that "it is government's role to ensure that houses and buildings are constructed in conformity with building codes." In the next paragraph, however, while warning that building codes are not intended to ensure overall construction quality, the pamphlet states "Local governments enforce the standard established in the Building Code."49
Obviously, the Barrett report (and the Municipal Affairs pamphlet) are written in the shadow of fear caused by potential tort claims against municipalities for deficiencies in their inspection and approval process. I will discuss this risk in some detail below. Leaving that aside for the moment, however, one can at least conclude from the confusing discussion in the Barrett report that the regulatory system did not provide the protection most new home buyers anticipated.
Framers and interpreters of building codes were also faced with a complex technical problem outside their previous experiences and with which they were neither able nor perhaps inclined to cope. Building codes simply do not say expressly that a building will be water-tight, although it is blatantly obvious that such a result should have followed had proper and adequate building standards been implemented and enforced. Some acknowledgment of this failure may be gleaned from Recommendation #20 of the Barrett Commission50 which suggests that the building permit process be reviewed to enhance the inspection of work related to building envelope design.
3. Tortious liability for faulty construction
a) Liability of municipalities
In City of Kamloops v. Nielsen et al.,51 the Supreme Court of Canada made it clear that a municipality could be held liable in negligence to home owners when a municipal building inspector failed to prevent the construction and occupation of a house with defective foundations. The liability was for the cost of repair of the defect in the property itself, notwithstanding that no damage to other property and no personal injuries occurred.
In Nielson,52 and later cases, the courts have imposed liability upon municipalities for actions of their building inspectors which would certainly seem to be similar to the actions of building inspectors in some of the leaky-condo cases. Notwithstanding the suggestions of the Ministry of Municipal Affairs that consumers ought not to expect building inspectors to enforce building codes,53 and notwithstanding the failure of building codes expressly to require a building to be water-tight, a consumer (and a court) might be pardoned for reasoning that, having passed building by-laws, adopted building codes and appointed persons called building inspectors who visit building sites and frequently impose requirements upon builders to modify work in progress, the municipality has assumed some responsibility for some parts of some construction conforming to at least some standards!
However, in British Columbia, the call of the Supreme Court of Canada to municipalities to accept responsibility for the acts of their inspectors despite the lack of any contractual privity between the municipality and the subsequent homeowner, was interpreted by the government as a call to defend the barricades. In 1987, both the Municipal Act,54 under which most British Columbia municipalities are constituted, and the Vancouver Charter were amended to limit the liability of public authorities in these cases.
The Vancouver Charter in s.294(8)55 now provides that the city and its employees have no legal duty to ensure that any building plans approved comply with any enactments, including by-laws and have no liability in damages of any nature (including economic loss) for failing to detect contraventions of the by-laws or failing to enforce any by-laws. Because the majority of leaky-condo cases occurred in Vancouver, this, it would seem, settles the matter for many of the affected owners.
Other municipalities are not quite so fortunate. The amendment to the Municipal Act56 in the same year as the amendment to the Vancouver Charter also protected the municipalities from liability for damages for failure to enforce building by-laws or standards in the building codes,57 but this protection extends only to a failure to enforce through the institution of civil proceedings or prosecution. It does not appear to have the scope of the exemption provided to Vancouver. Indeed, as the Barrett Commission reported, numerous actions are currently proceeding in which municipalities are at least one of the defendants.58 However, s.290 of the Municipal Act also provides a complete exemption for the municipality from liability when it has issued a building permit for a development that does not comply with the building code if a professional engineer or architect certified that the plans complied.
Other relevant provisions of the Municipal Act59 erect further barriers to claimants by imposing notice requirements and limitation periods. A general six month limitation period applies under s.285. Section 286 grants the municipality immunity from liability unless a written notice is delivered to the municipal clerk within two months of the date on which the damage was sustained. This section does contain an exception where the court believes there was reasonable excuse for the failure and the defense has not been prejudiced. Waiting for an expert's report to assess the damage was held in Petrie v. Groome to constitute a reasonable excuse for delay.60
Noting the discrepancies in municipal treatment, the Barrett Commission61 recommended that liability of municipalities be uniform and suggested alteration to the Vancouver Charter to achieve that result. Of more concern to the Commission was the thought that municipal liability, where it exists, is joint and several with other tortfeasors. The Commission suggested that this liability be eliminated and proportionate liability retained. To my knowledge, no legislative amendments have yet been proposed in this area. On the one hand, this is a positive development because the homeowner who recovers a judgment against a municipality and others for negligence should arguably not be deprived of normal recourse against joint tortfeasors when one or more are unable to pay simply to protect the municipal purse. On the other hand, the Homeowner Protection Act,62 in conferring a statutory warranty upon certain new home buyers, expressly states that the section imposes no greater liability upon municipalities than currently exists.
b) Liability of professionals
When the law of contract fails to provide a positive outcome for an injured party, the history of the law over the past sixty years suggests that our claimant turn to the law of torts in the hopes of recovery. The struggle to provide appropriate boundaries between liability for contractual claims and liability for tort is an ongoing one. The question, as Professor Klar has put it, is "the extent to which tort law should warrant the quality of products or the performance of services."63 Efforts to draw a crude boundary between economic loss on the one hand and damage to property or person on the other have clearly failed and we have voyaged into a much less well-defined landscape.
That being the case, it is not surprising that leaky-condo owners continue to explore potential causes of action against participants in the construction process with whom they had no contractual relationship but whose role as architect or engineer may have contributed to the losses suffered. It is far beyond the scope of this paper to investigate in any detail the law regarding recovery of pure economic loss in tort. As with claims against builders and against municipalities, the only clear conclusion appears to be that the condominium owner's road will be a long and arduous one with an uncertain destination.
In Winnipeg Condominium Construction Corporation No. 36 v. Bird,64 the Supreme Court of Canada allowed a claim for damages against a builder made by a remote party. The damages awarded was the cost of repair of a defect. The court stated that liability could extend to subcontractors, architects and engineers participating in the construction process when their failure to execute their role in the process with reasonable care creates a substantial danger to health and safety.
A significant problem in many of the leaky-condo cases will be the question of how far a court is prepared to extend the concept of a substantial danger to health and safety. In some leaky-condo cases, mold and rot in the walls can produce health risks.65 In a number of the more serious cases, however, the result of the problem has been that the unit can no longer be lived in because it is not sufficiently water-tight. This is particularly true once repair has started and, in some situations, walls and roofs have had to be dismantled to gain access to the affected areas for repair. The units are not fit for habitation. Will the courts interpret the principle in Bird to apply?
Professor Rafferty,66 in a comment on the Bird decision, notes that LaForest J. seems to have been sympathetic to liability for lack of fitness for habitation. Certainly, in his critique of the Fraser-Reid decision, LaForest J. might be taken to imply that the purchaser ought not to be required to bear the costs of latent defects in construction. However, he appears to try at least to maintain a firm distinction between "dangerous defects" and defects which "bring into play the questions of quality of workmanship and fitness for purpose."67 Whether in practice that distinction can be maintained remains to be seen.68
4. The voluntary home warranty scheme
At this point in our review of the inadequacy of the legal system either to prevent the sale and construction of leaky condominiums or to compensate innocent purchasers of them, the reader may be pardoned for hoping that I will soon turn to the obvious solution: some form of insurance. If neither tort nor contract law had motivated the builder or others involved in the process to produce good buildings; if the regulation of construction has failed to ensure water-tight construction; if loss is likely and the costs in the individual case will be great, then the solution is surely to spread that loss over a large population and deal with the matter through an insurance scheme.
Alberta was the first province to introduce new homeowner protection in 1974. By 1976, all provinces had some warranty coverage for purchasers of new construction. Only Ontario had a mandatory program.69 British Columbia's New Home Warranty Program came into effect in 1976. Its implementation was probably triggered by a report of a panel on new home warranties which was presented to the government in 1975.70 That report persuaded the government of the day to produce legislation imposing regulations on the construction industry. The industry responded by producing the New Home Warranty Program. The legislation was never introduced.
The type of protection under the New Home Warranty Program was provision of a limited contractual warranty from the builder backed by the resources of the Program if the builder failed to remedy the defects. The existence of this third-party guarantee was designed to assure the public that their claims against a builder would be met. They would not have to put up with the recalcitrant builder who refused to acknowledge deficiencies or "dragged its heels" in making needed repairs. Further, they would be protected against finding that their builder had no assets to pay the claim. The resources of the Program, of course, were provided by builder enrolment fees and the purchase price of the coverage. In this regard, the scheme appeared to be something in the nature of an insurance program.
However, the voluntary warranty scheme failed to assist condominium owners in this crisis. The representations before the Barrett Commission from members of the public told of the failure of the Program to remedy the problems or provide compensation for what had occurred.71 In this section, I will discuss some of the reasons why homeowners who had relied upon the new home warranty plan were so disappointed.
a) The coverage
The New Home Warranty Program72 provided coverage for latent defects in materials and workmanship occurring within the first year of ownership. It was the builder's responsibility to repair such defects, but, if it failed to do so, the NHW Program paid for the problem.
The definitions were crucial.73 "Latent defects" meant defects that could not be revealed by prudent and reasonable inspection. "Defects in workmanship and materials" was more strictly limited to mean construction carried out by the builder below standards prescribed by the authorities issuing the building permit or by the Program. In other words, if the construction met code (and Program) standards, the defect was not covered, whatever the result. Further, the Program gave to itself sole discretion to determine what was or was not covered during the conciliation process. As well, the time from which the warranty began to run was confusing to most purchasers.
The other coverage of the Program for defective construction74 was a liability to repair "major structural defects." Despite what an ordinary person might think, "major structural defects" was confined by the definitions in the Limited Warranty Certificate to defects resulting in failure of the Load Bearing Portions of the structure which, in turn, were defined only to include foundations systems and other walls, beams and posts providing support to an integral part of the Residential Unit. In other words, if the walls rot, as long as the support beams stand up, no coverage is available. This warranty extended for five years.
Numerous other problems existed to limit the Program's coverage. Purchaser obligations, the right of the Program to make crucial determinations about correction of defects, uncertainty as to the time limits75 and a long list of exclusions contributed to the difficulties faced by a purchaser wishing to make a claim under her home warranty program. One clause in the policy allowed the Program to defer correction of defects until actual material loss, damage or adverse effect had occurred. This was subject to the provision that "the occurrence takes place within five years from the date of possession."
The result of this limitation, arguably, was that if a purchaser was aware of defects which would lead to water damage, but no water damage had occurred, the Program had no obligation to pay for repairs until actual damage resulted. If the damage was not classed as "structural", an argument existed to say that, once the one-year period had passed, no claim could be allowed. If the damage was "structural," within the meaning of the Warranty Certificate, (unlikely), but did not occur until after the five year limitation, again arguably, the Program was relieved of liability.
Typically, water damage is not observable until between three and five years. Even then, the first signs are likely to be cracks and leaks. The Limited Warranty Certificate expressly excluded "normal" cracks in plaster. What is a "normal" crack can not always be determined easily or immediately. Further, another exclusion exempted the Program from repair of damage caused by "dampness or condensation due to failure of the Purchaser to maintain adequate heat and/or ventilation", thereby providing another potential source of argument between the builder and the Purchaser over availability of coverage.
b) The process
Claims under the New Home Warranty Program were required to be submitted for conciliation. The conciliation process was said to be "mandatory" but the Limited Warranty Certificate was unclear as to the procedure if the conciliation process failed to produce a result satisfactory to either party. The Warranty Certificate referred to the finality of the conciliation but made that finality subject (in some unspecified way) to variation or revocation by a court of competent jurisdiction.76 Further the Program could appoint an arbitrator pursuant to the Commercial Arbitration Act of British Columbia, but only upon the joint submission by both parties.
Before the leaky-condo crisis hit the headlines, doubts had been expressed to the British Columbia Law Reform Commission about the efficacy of the process for dispute settlement. Despite substantial similarity among all provincial programs, the British Columbia experience produced more claims, fewer conciliations, fewer claims allowed and a lower dollar pay out than the median figure for those categories in the other provinces, based on claims, conciliations and pay outs per 1000 enrollments in the plan.77
Anecdotally, the cumulative impression produced by reporting these statistics has been confirmed by frustrated owners. One property manager quoted in the Barrett Commission report stated "The mere fact that they [the New Home Warranty Program] use an umbrella in their logo is a joke."78
Of course, the reasons for this discrepancy must be a matter of speculation. It is conceivable that purchasers in British Columbia are less well informed about their coverage and bring more frivolous claims than do purchasers in other provinces. However, this seems unlikely. A major difference in the programs of British Columbia and Ontario, for example, where pay outs and the ratio of claims allowed were significantly higher, is that in Ontario, the process of dispute resolution is under the control of an independent third party arbitrator.79 In British Columbia, the process was managed and controlled by the Program and its officials.
c) Who was being protected by the New Home Warranty Program?
The exact legal relationship among the Program, the builder and the purchaser was a complex one. The main contract was between the Program and the builder enrolling in it. By that contract, the builder agreed to build according to required standards, to pay a fee to the Program and to remedy defects. The purchaser did not deal directly with the Program and did not pay a fee, although no doubt the builder was including the fee in the price of its services and as part of the purchase price of the property. The purchaser was simply provided with a document called the Limited Warranty Certificate at the time of purchase. The legal question of whether the purchaser had any enforceable rights against the Program was always open to question, based on general contract theory and the doctrine of privity of contract.80
Although we can suggest that some form of insurance against serious construction problems would have been desirable to deal with the complex liability issues arising from new home construction, the home warranty scheme arguably could not be properly characterized as such. Insurance contemplates an agreement to compensate a party for loss suffered if an uncertain future event occurs. In this case, however, the Program retained wide discretion with respect to compensation, including the exclusive right to determine whether or not an item of damage fell within the coverage and the right to defer for five years the correction of any defect which did not cause loss, arguably, as was suggested above, "deferring" their liability beyond the limits of the Program.81 Apparently, the Director of the Financial Institutions Commission decided that the NHWP was not insurance and was therefore not subject to regulation by that body.
One might think that the builder was the party who was "insured" by the Program because it was the builder who was protected by this process which pre-empted at least initially the role of the courts to determine and impose liability upon a builder for faulty construction. However, there are several problems with this theory. First, as we have seen, the liability of the builder would not arise in every case absent the new home warranty. There was no general warranty of fitness attached to the building82 and while doctrines of misrepresentation or fraud might be successfully used to impose liability upon a builder, this would be no means be the usual case.83 Further, as a practical matter, limited liability protected most builders from liability arising from specific projects.
A further difficulty arises with regarding the builder as the insured party because the Program required the builder to remedy any claims made within the first year and approved through the conciliation process. Moreover, if a claim for structural damage was allowed, the agreement with the builder required the builder to indemnify the Program for amounts that the Program was obliged to expend remedying the deficiency. As well as requiring the builder to pick up the tab for problems, arguably this could in fact impose on the builder a liability that it was not exposed to at common law in the absence of the New Home Warranty Program. This does not reflect the common understanding of the role of insurance.
This analysis may lead to what, I suggest, is a key concept in the determination of why the New Home Warranty program failed to protect purchasers. The purchaser did not bargain with or directly pay the Program. Of course, typical insurance contracts for most common events are not, in one sense, bargained for either, but this is not completely true. The purchaser of common types of insurance can choose from several insurance products. The price, specific exclusions and specific items of coverage can vary among plans. The Program offered a "one size fits all" plan with some optional extended coverage. However, because the purchaser simply received the plan ready-purchased by the builder, few Limited Warranty Certificates included the optional (and more expensive) extended coverage. The purchaser certainly had no choice. Further, the Program had no incentive to offer a variety of plans with differing features: the builders with whom the Program dealt did not care and did not encourage product diversity.
The failure of the Program to compensate new home purchasers was (or should have been) predictable from these facts. If not even the builder, who was the only party to whom the Program might have been responsive in extending, varying or altering coverage to suit different needs and different budgets, was actually being protected by the plan, it was in the builders' interests to see that the plan remained as narrow in its scope as possible. For one thing, the fewer claims conciliated or accepted, the less costly the Program. With cost of land rising on the Coast, the need to keep down construction costs was crucial. Further, it was in the builders' interests to see that the Program allowed as few claims as possible in the category of structural defects, because for these claims, the Program had the potential to increase rather than decrease the liability exposure of the builder.
In retrospect, one can say that insurance against serious defects in the design and construction of buildings would have made good sense. The problem that occurred was produced by a complex array of factors and was certainly not one that an average purchaser could protect herself against by means easily within her reach. The result of the problem occurring was a devastating loss for many home purchasers who had bought in the multiple-family market precisely because their resources were limited and their assets few. And the party poorly able to bear the loss was the one upon whom it would most likely fall as a matter of law.
The reason why, despite these sound reasons for using insurance as a means of protecting these parties, insurance failed to perform that role is simple: there was none available.
Despite what many new home purchasers believed and despite the intervention of a third party to provide funds, the New Home Warranty Program was really a much more modest scheme. It provided a limited back up system to purchasers for builders who failed to remedy certain latent defects which quickly emerged; it provided a source of funds for a small category of serious defects over the longer term. Primarily, it provided a mandatory dispute resolution process, operated by the Program, which could be limited and controlled to keep costs down.
IV. THE HOMEOWNER PROTECTION ACT
Arising from numerous recommendations in the Barrett Commission Report, the government introduced and passed Bill 46, the Homeowner Protection Act.84 In this section of the paper, I will briefly describe and discuss the significant provisions of this enactment.
The key to the legislation is the establishment of a Homeowner Protection Office which will be charged with the responsibility of administering the act. That Office has a chief executive officer, a Board and is operated under the supervision of the Minister of Finance and Corporate Relations.85 It employs a registrar of residential builders;86 contains a research and education division;87 and administers a fund to help homeowners affected by the current problems.88 It has little, apparently, to say about home warranties. To a further description of the Act, I will now turn.
1. The compensation scheme
The Act establishes a Reconstruction Program. Little more may be said about it, because virtually the entire substance of this program is to be contained in regulation. The idea, obviously, is to collect and administer funds to "provid[e] financial assistance to eligible homeowners for home reconstruction."89
The funding of the program is apparently to come from grants, assessments and donations. Of course, the seed of the fund has been provided by a grant from the B.C. government.90 The Barrett Commission suggested that the Federal government and financial institutions should also provide substantial amounts. The exposure of the Federal level of government, of course, is considerable through potential losses to CMHC which insured many mortgages of affected units. If purchasers default on their mortgages due to the inability to raise funds for repair, the cost to CMHC will be great.91
The Barrett Commission further suggested that financial institutions should bear some cost of the repair.92 This was founded, in part, on the theory that inspection for mortgage purposes may have lead homeowners to believe their property had been "approved" in a sense that assured them of structural soundness. This seems, I would suggest from personal experience, unlikely. Certainly, financial institutions may bear some risks of loss if their customers default on mortgages that were used to purchase properties now unsaleable because unfit to live in. Widespread default is not a prospect that comforts any loans officer. However, one may predict that financial institutions will be more likely to make case by case accommodations to borrowers who they feel may ultimately pay mortgages if repairs can be made than they will be to provide any grand philanthropic gesture.93
Prescribed categories of residential builders will be required to pay an annual assessment to assist in funding the reconstruction program.94 The wisdom of imposing additional cost on a depressed industry is questionable. However, the funds to assist in reconstruction, if they are to come from anywhere, will apparently have to be borne in large part by the industry that created the problem. No such assessments are, however, apparently to be made upon architects or engineers who certainly also must bear some of the blame.
Suggestions by the Barrett Commission that affected homeowners be given some tax relief for needed repairs, particularly rebates on PST or GST on repair materials and services have not produced results.95 Certainly, the cost of administering such exemptions might have been substantial. In any event, neither the provincial nor the Federal government was apparently persuaded to implement this recommendation.
2. The licensing scheme
"Residential builders", who are defined by the Act to include developers and general contractors as well as builders of residential premises, are required to be licensed.96 Licensing will be supervised by the registrar employed by the Homeowner Protection Office. Builders will be required to meet qualifications set by regulation and pay fees. "Owner builders", defined as builders who build for their own use and have not done so previously within 18 months, are exempt, as may be other defined classes of persons.97 Residential subcontractors or renovators may also be required to hold licenses.98 Designated trades or occupations may be required to be certified pursuant to the Industry Training and Apprenticeship Act.99 Again, all the substance of the provisions will be contained in regulation.
Certainly, the Barrett Commission received many complaints about "fly-by-night" builders, unqualified tradespeople and shoddy workmanship. It is probably impossible to tell whether the extensive regulatory powers under the Homeowner Protection Act are justified in reaction to this problem. It is also impossible to tell whether they will solve the problem: poor work does not always result only from lack of formal training nor is it always prevented by formal qualifications. What is certain is that the system will be expensive and that this expense will be carried first by the builders themselves, potentially eliminating some small builders from competition with the large providers. Ultimately, of course, the cost will be reflected in the cost of housing.
3. The insurance scheme
Mandatory home warranty insurance is required for all new homes sold by residential builders (although not by owner builders).100 Building permits are not to be issued unless and until evidence of this state of affairs is provided. The program is to be operated within the purview of the Insurance Act,101 hopefully providing a system of control and regulation that may assist homeowners to have effective protection.102
The mechanism for resolving disputes under home warranty insurance is removed from the control of the warranty provider.103 It is to be set up by regulation. However, although the legislation contemplates mediation and arbitration procedures, again the regulations will define how the scheme will operate. At least, however, a degree of independence may be introduced through the regulatory power to determine who may be mediators and when arbitration will be available.
The content of the home warranty insurance plan is left to private invention, subject to potential regulation under the Insurance Act104 and subject to three qualifications contained in the Homeowner Protection Act. That Act requires the insurance to provide coverage for defects in materials and labour for at least two years; defects in the building envelope, including defects leading to water incursion, for at least five years; and structural defects for at least ten years.105 The longer periods of coverage are certainly welcome, although the five year limit on building envelope defects appears to be marginal, since three to five years is the typical period for such problems to occur.
However, none of the required items of coverage is defined by the legislation. Similarly, no permitted limitations or exceptions are contained in the legislation. Obviously, definition, limitation and exception are the meat and drink of insurance policies and will have to be provided for. The Insurance Act now provides for the creation of regulations to limit market freedom in these areas and may prescribe mandatory conditions, minimum standards for coverage and permitted exclusions of coverage.106 How extensively this regulatory power will be exercised is unknown. Private warranty providers will be allowed to compete for the business, provided they maintain the standards of the legislation.
Pressure by the industry to keep regulation of these aspects of the insurance contract to a minimum is likely to be great. The very experience which this mandatory scheme seeks to avoid illustrates the problem. Had the current warranty program covered the losses that were suffered by purchasers of homes within the Program, the Program would have been bankrupted. Without substantial freedom to restrict coverage and limit claims, private warranty providers will likely find themselves unable to provide insurance for a price that the market can bear.
Additionally, I would suggest that the Act is missing a key concept: no attention has been paid to how market competition to provide diversified and desirable products for the best price will be developed. Since a building permit cannot be issued until proof of new home warranty insurance is provided,107 one would assume that once again, the warranty insurance will be bargained for, arranged for and cater to the needs of the builder. While regulation may control the extent to which this ignores the needs of the homebuyer, one would expect substantial influence to be exercised on the regulatory process by both the current warranty providers operating in the market and the building industry who will have to pay for the results. In such circumstances, how loudly will the voice of the homebuyer be heard?
4. The provision of statutory warranty
Will the builder have any greater stake in the need to provide proper insurance coverage for persons who buy its products and may be seriously injured if those products are defective? The answer, found in the provision of a statutory warranty for new home construction, is still a clear "no."
The Homeowner Protection Act imposes a general warranty of fitness for habitation, quality and fitness of material and competence, skill and care in construction and design on the sale contract. The warranty is deemed to have been made by both the builder and the vendor and the doctrine of privity of contract is abrogated in favour of rights of the owner of the new home for ten years after the date of first occupancy.108
However, the warranty only applies to new homes which are not covered by new home warranty insurance.109 This may seem reasonable since, where insurance exists, it is to the insurance that the owner will presumably look to recover his costs of defective construction. Indeed, a statutory warranty may be quite difficult to enforce, considering the expense of litigation and the delays attendant thereto. But this is not the point.
The Committee on New Home Warranties, which recommended the inclusion of a statutory warranty, saw the warranty as a companion, not alternative, to an insurance scheme. If it is the builder who will still influence the scope of the insurance, then the builder should have an incentive to ensure that insurance is adequate. A statutory warranty that applied to all new home construction would impose liability on builders for defective construction. It would therefore be in their interests to see that the insurance paid the purchaser who experienced problems with their home because otherwise the risk of liability would fall upon the builder.
Of course, this risk would even so be avoidable for builders unless some provisions imposed liability upon active principals in the vendor company, not only upon the corporate party. Not all builders incorporate project specific companies, but, as noted above, many (especially small builders) do. The legislation does not address this problem of dealing with shell companies. But considering that the limited application of the warranty destroys the primary utility of the warranty, perhaps that controversial topic did not need to be addressed.
As the Homeowner Protection Act now stands, the major class of construction that will fall within the statutory warranty will be that built by the owner builder, although it will also apply to new homes built by yet-to-be-created classes of builders exempted from registration in the regulations.110 This latter group is likely (if exists at all) to be a small one. Builder owners, on the other hand, are likely to have taken pains to ensure that construction was sound (since the definition contemplates that they were initially building for their own use) and, if they failed, are likely to be individuals without substantial assets.
5. The research and education branch
This feature of the legislation has at least the potential to create some real improvement in the lot of purchasers of residential construction. Ambiguities and gaps in the building codes were, as discussed above, major contributing factors to the problems that occurred, as were uninformed enforcement of those codes. The Research and Education Division of the Homeowner Protection Office is charged with the responsibility of establishing and maintaining expertise in building science, as it applies to B.C., and with advising as to amendments to building by-laws and the B.C. Building Code.111 If the Division is funded adequately and if it takes these functions seriously, some needed improvements may be made.
The Division is also charged with the function of supporting consumer education.112 It is to be hoped that little of the Division's resources will be spent on pamphlets advising consumers that they cannot expect building inspectors to ensure their homes are well constructed. Consumer education can only play a limited role in preventing what has occurred in the B.C. construction industry from happening again in another guise. If we have learned anything from this disaster, it surely should have been at least that the consumer will always be ill prepared to protect herself in the highly technical, complex environment of the construction industry.
V. CONCLUSIONS: WHAT (IF ANYTHING) HAVE WE LEARNED
"God doesn't learn from experience, does He; or how could He hope anything of man?"113
The Homeowner Protection Act,114 which is the chief response to the problems of leaky-condo construction, suggests that we may have learned some lessons, at least, from experience. The primary lessons can be found in the significant constraints upon new home warranty insurance coverage; the removal of the adjudication process from the influence of the provider of the warranty; and the designation of the warranty plans as insurance with the potential to regulate them as to their terms. Further positive results can be hoped for from the apparent realization that building codes must be vigilantly assessed and amended to keep up with new techniques and that some entity must have the responsibility to investigate and understand the interplay among such competing requirements as water-tight structures; environmentally efficient structures; and trends in design.
But I must confess to some discouragement when I consider the constraints under which the formation of remedial legislation has had to labour, constraints which seem to be imposed by the very nature, one might theorize, of the players in the legislative game. Government responded to the crisis once public outcry had reached a sufficient level by what has become standard government technique: appoint a commission; find something to regulate that has not yet been regulated; and pass legislation to regulate it. Industry responded to the inevitability (given public pressure) of regulation by attempting to shape the process so that the big companies would suffer little and costs would be controllable.115 None of this is necessarily bad, nor does it mean that good results will not be produced. In fact, I have already described several of those results.
But for these reasons, no systemic and reliable solution has been achieved to the problem. The warranty situation for new homes is still irrational. For example, the section imposing a statutory warranty on new homes not covered by home warranty insurance says nothing about the current uncompleted home already covered by an implied common law warranty. Since the section expressly states that it does not relieve any person of liability to which they would otherwise be subject, such implied warranties may still exist in concert with the new home warranty plan, although those plans could expressly exclude the common law.116 This is all unclear.
The liability of architects, engineers and other professionals to purchasers of homes for negligent construction is still uncertain and in a state of flux. All that perhaps can be said is that the liability of persons in tort for pure economic loss will probably continue to expand under pressure from litigants. But the path of such expansion will be uncertain because of a lack of any coherent theoretical base that would allow courts to limit or expand the doctrines in a way that appeals to both economic concerns and the public (and thus judicial) sense of what is fair.
Municipal authorities, their liability more clearly delineated by the same judicial trends, continue to enjoy statutory protection in a wide variety of circumstances even in face of the most blatant errors. Homeowners who have been injured by the disaster can find little hope in litigation and have been given little help by the government. To the extent that the barn door is being closed at last, they must feel that the horse has long been gone.
Finally, as a result of these problems just noted, how effective the privately provided insurance schemes will prove to be is debatable. The absence of consistent and predictable liability for poor construction and the ease with which limited liability permits such risk as exists to be minimized would seem to suggest that the insurance will not be as extensive or as useful as homeowners might hope. While the most obvious abuses may be remedied by regulation, the regulatory scheme is likely to be influenced substantially by current warranty providers and builders.117 It is unlikely to provide much choice or many options for consumers. This, in my opinion, is the most serious shortcoming of the legislation.
People need to learn from experience because our minds generalize from events to patterns, from patterns to causes and from causes to solutions. It is the only way we have of solving problems that might arise again in the future. Perhaps it is as well for humanity, as the above quotation suggests, that God does not have to think like this. We do. But unfortunately, even learning from experience does not guarantee that this learning will be translated into effective mechanisms for preventing similar occurrences. Organizational inflexibility, self-interest, rigid ideological perspectives, competing values and claims may all prevent a workable solution from being employed. In light of all this, I suggest that problems will remain in the residential construction industry. It is not that we have learned nothing; rather, it is that we have been only partly able to apply what we have learned.
Will what has been done be enough? As already noted, it is probably not enough to meet the needs of the homeowner of a currently leaking structure. It may be enough to ensure that such a convergence of circumstances will never again occur to produce widespread damage to one
segment of the construction market. But, if so, that will be primarily attributable, I speculate, to the research division of the Homeowner Protection Office rather than to the other administrative functions which it will perform. It may be enough to ensure that if such widespread problems should ever again occur, the results will not be so severe. If so, that will be attributable to the coverage of the new insurance programs which will develop under the legislation. Unfortunately, both these aspects of the reform are very vulnerable. Underfunding may destroy the usefulness of the research division; the building industry may not provide effective insurance coverage. If these two programs are not successful, we may yet see a sequel to the leaky-condo saga. Perhaps we can call it "T-Rex Meets Godzilla."
1. Of the Faculty of Law, University of Victoria. This paper was presented to the 28th Annual Workshop on Commercial and Consumer Law (Toronto; October 16-17, 1998)
2. The Renewal of Trust in Residential Construction, Commission of Inquiry into the Quality of Condominium Construction in British Columbia, Dave Barrett, Commissioner. Submitted to The Honourable Jenny Kwan, Minister of Municipal Affairs, June 16, 1998 (hereafter cited as "the Barrett Commission Report), Chapter One, Part V, p. 1.
3. Ibid., Chapter One, Part III, p. 1.
4. The Barrett Commission, appointed April 17, 1998.
5. Bill 46, Third Session, Thirty-sixth Parliament, 1998.
6. See Ron Howard, "B.C. Bails out owners of leaky condominiums," The Globe and Mail, Tuesday, July 14, 1998.
7. The Barrett Commission Report, supra, note 1, Chapter II, Part II, p. 3.
8. Ibid., Chapter One, Part VI, p. 1.
9. Trevor Boddy, "Fear and post-Modernism in Vancouver", The Globe and Mail, July 27, 1998.
10. These examples are all taken from the Barrett Commission Report, supra, note 1, Chapter Two, Part II.
11. Supra, note 6.
12. The Barrett Commission Report, supra, note 1, Chapter Two, Part VII.
13. Sale of Good Act, R.S.B.C. 1996, c. 410; Consumer Protection Act, R.S.B.C. 1996, c. 69.
14. Perry v. Sharon Development Co. Ltd., [1937] 4 All E.R. 390 (C.A.).
15. Strata Pln NW2294 v. Oak Tree Construction Inc., [1994] 8 W.W.R. 49 at 54.
16. Stange v. Mankes (1982), 46 B.C.L.R. 361 (S.C.); Strata Plan NW2294 v. Oak Tree Construction, ibid.
17. Trimble Hill Properties Ltd. v. Zaharko (1994) 38 R.P.R. (2d) 300 (B.C.S.C.); appeal dismissed [1996] 8 W.W.R. 542 (B.C.C.A.).
18. Perry v. Sharon Development, supra, note 13.
19. Trimble Hill Properties Ltd., supra, note 16.
20. Ibid.
21. Fraser-Reid et al. v. Droumtsekas et al. (1979), 103 D.L.R. (3d) 385 (S.C.C.); Wong v. Ng, [1998] B.C.J. No. 124 (S.C.).
22. Strata Plan NW 2294 v. Oak Tree Construction, supra, note 14.
23. Supra, note 19.
24. R.S.B.C. 1996, c. 457.
25. Attorney General Statutes Amendment Act, S.B.C. 1998, c. 23, s. 17. However, it should be noted that this Act will not assist a purchaser who simply bought a defective product. Some deceptive or misleading description must be found.
26. Supra, note 4.
27. Ibid., s. 22.
28. Ibid., s. 23.
29. Supra, note 4.
30. This Committee was established in June, 1997. The Committee members were as follows:
Professor Mary Anne Waldron (Chair)
Hon. Martin Taylor, Q.C.
Arthur Close, Q.C.
John Fraser
Glen Urquhart, Q.C.
David Morris
Derek Neale
31. Fraser-Reid v. Droumtsekas, supra, note 20.
32. In the implied warranty introduced in Perry v. Sharon, supra, note 13.
33. Schipper v. Levitt & Sons Inc. 207 A.2d 314 (1965); Bearman, "Caveat Emptor in Sales of Realty - Recent Assaults Upon the Rule" (1960-61) 14 Vanderbilt L.T. 541.
34. The decision may have been influenced by Ontario's then-recent legislation, supra, note 20.
35. Supra, note 12.
36. Supra, note 4.
37. The Barrett Commission Report, supra, note 1, Chapter Two, Part IV, p. 1.
38. The traditional rule, rarely abrogated in Canada, is found in Salomon v. Salomon, [1897] A.C. 22 (H.L.).
39. Supra, note 4.
40. The Barrett Commission Report, supra, note 1, Chapter Two, Parts II and III.
41. Ibid., Part II, p. 4.
42. Ibid., p. 1.
43. Ibid., p. 4.
44. Ibid., p. 3.
45. Ibid., Part III.
46. Taken from a quotation from the submission of the Richmond City Council, ibid., p. 2.
47. Ibid.
48. Supra, note 42.
49. Ibid., p. 2.
50. Ibid., p. 3; See also Chapter One, Part II, p. 4.
51. [1984] 10 D.L.R. (4th) 641 (S.C.C.).
52. Ibid.
53. Supra, note 44.
54. R.S.B.C. 1996, c. 323.
55. S.B.C. 1953, c. 55.
56. Supra, note 53.
57. Ibid., s. 289
58. The Barrett Commission Report, supra, note 1, Chapter Two, Part III, p. 2.
59. Supra, note 53.
60. [1991] 45 C.L.R. 132 and 152 (B.C.S.C.).
61. Supra, note 1, Chapter Two, Part III, p. 2-3.
62. Supra, note 4, s. 23(6).
63. Lewis N. Klar, "Recent Developments in Canadian Law: Tort Law" (1991) 23 Ottawa L. Rev. 177, at p. 196.
64. [1995] 1 S.C.R. 85.
65. The Barrett Commission Report, supra, note 1, Chapter One, Part I, p. 2 describes some of the testimony on this issue during the public hearings.
66. Nicolas Rafferty, "Case Comment: Winnipeg Condominium v. Bird", (1996) 34 Alta. L. Rev. (No. 2) 472.
67. Supra, note 63 at p. 120.
68. Jost Blom, "Tort Recovery for Economic Loss and the Intersection Between Tort and Contract" (1996), 54 The Advocate 367 at p. 387 where he refers to Mr. Justice LaForest's "musings as a virtual invitation to further litigation." See also Bryan v. Maloney (1995), 128 A.L.R. 163 (H.C.).
69. Lois Patterson, "New Home Warranty Program in British Columbia", Law Reform Commission of British Columbia, June 21, 1994.
70. Recommendations of Panel concerning Warranties to Purchasers of New Homes, Department of Consumer Services, February 28, 1975, George P. Reilly (Chair).
71. Supra, note 1, Chapter Two, Part VIII.
72. The New Home Warranty Program was incorporated in 1975 by the Canadian Home Builders Association of B.C. as a not-for-profit company, pursuant to the Companies Act.
73. New Home Warranty was the only provider of warranties in the province until 1995. The definitions quoted below are all taken from the Limited Warranty Certificate of the Program in 1995.
74. The Program also provided some pre-closing protection which I have ignored for purposes of this paper.
75. "Date of Possession" which triggered the warranty time limits was defined in a complex way, being the "earlier" (sic) of three dates and, in any event, was subject to determination by the Program as to the "Date of Possession."
76. Section 8 of the Limited Warranty Certificate states that determinations of the Program are "final and binding on both the Purchaser and the Builder unless varied revoked or altered by an order or judgment of a court of competent jurisdiction."
77. Lois Patterson, "New Home Warranty: Statistical Comparisons Between Provinces and Various Concerns", Law Reform Commission of British Columbia, August 12, 1994.
78. The Barrett Commission Report, supra, note 1, Chapter Two, Part VIII, p. 2.
79. The Commercial Registration Appeal Tribunal. Its decisions maybe appealed to the Ont. S.C.
80. The basic problem, of course, is with privity of contract established by Tweddle v. Atkinson, [1861] 1 B. & S. 393, 121 E.R. 762. Whether any of the exceptions to the doctrine of privity would apply here seems questionable, apart from the law of insurance. A detailed discussion is beyond the scope of this paper.
81. Arguably, this discretion undermines the requirement of the common law that insurance indemnify a party against the happening of an event that has an element of uncertainty. See Medical Defence Union v. Dept. of Trade, [1980] Ch. 82.
82. As discussed above, the doctrine of caveat emptor applied. See Megarry, Law of Real Property, 4th ed., p. 602.
83. And, in general, there is no duty to disclose latent defeats unless they make the property dangerous (McGrath v. McLean [1979] 22 O.R. (2d) 784
(C.A.).
84. Supra, note 4.
85. Ibid., s. 3-6.
86. Ibid., s. 7.
87. Ibid., s. 11.
88. Ibid., Part 9.
89. Ibid., s. 24.
90. The government has provided $75,000,000. For discussion, see supra, note 5.
91. The Barrett Commission Report, supra note 1, Chapter Two, Part IX. CMHC has agreed to provide $75 million in bridge financing for the Reconstruction Fund.
92. Ibid., Chapter Two, Part X.
93. The Canadian Bankers Association and B.C. Central Credit Union did not appear before the Commission. The Report criticized the lenders for refusing to provide funds at low interest mortgage rates rather than at personal loan rates. However, given policies of financial institutions on value to loan ratios on mortgages, it is not highly surprising that the owner of a leaky condo often can not increase her mortgage loan balance.
94. Homeowner Protection Act, supra, note 4, s. 26.
95. The Barrett Commission Report, supra, note 1, Chapter Three, Part I, p. 4.
96. Homeowner Protection Act, supra note 4, Part 5.
97. Ibid., s. 20.
98. Ibid., s. 18.
99. Ibid., s. 19.
100. Ibid., s. 23.
101. R.S.B.C. 1996, c. 226.
102. Ibid., s. 189.1 as amended by the Homeowner Protection Act, supra, note 4, s. 39.
103. Homeowner Protection Act, supra, note 4, Part 10.
104. Supra, note 100.
105. Supra, note 4, s. 22(2).
106. Supra, note 99, s. 192.
107. Homeowner Protection Act, supra, note 4, s. 30.
108. Ibid., 23.
109. Ibid., s. 23(7).
110. Ibid., s. 20, s. 30 and s. 32(2)(f).
111. Ibid., Part 4.
112. Ibid., s. 12(g).
113. Graham Greene, Our Man in Havana, Penguin Books, 1969, p. 32.
114. Supra, note 4.
115. And, given the significance of the regulations in defining the substance of the Act in almost all spheres, but particularly in the crucial area of insurance, this process is not over yet.
116. The doctrine of privity might have prevented this exclusion under the old home warranty scheme. But the Insurance Act, s. 189.1(6) expressly provides for enforceability between the owner and the insurer. While no doubt this was intended to give rights to the owner, it may cut both ways.
117. This analysis does not completely, however, take account of the pressures on the building industry to restore public confidence. I recently received as a newspaper supplement a multi-page glossy advertisement for a new Vancouver condominium development. The ad contained a full page (newspaper size) detailing the developer's warranty and profiling the building envelope specialist who worked on the project. However, whatever large developers are prepared to do, it seems likely still that their approach to the regulatory system will be minimalist.