Phelan v. British Columbia Housing Management Commission

2022 BCSC 254 Phelan v. British Columbia Housing Management Commission

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Phelan v. British Columbia Housing Management Commission, 2022 BCSC 254 Date: 20220217 Docket: S129925 Registry: Kelowna Between: Timothy Phelan and Patricia Phelan Plaintiffs And Her Majesty the Queen in Right of British Columbia, British Columbia Housing Management Commission Respondents Before: The Honourable Mr. Justice Wilson Reasons for Judgment The Plaintiffs appearing in person: T. Phelan P. Phelan Counsel for the Respondent, British Columbia Housing Management Commission: J.B. Maryniuk Place and Date of Trial/Hearing: Kelowna, B.C. February 3, 2022 Place and Date of Judgment: Kelowna, B.C. February 17, 2022 [1] The defendant applies to strike the plaintiffs' amended statement of claim as disclosing no reasonable claim. Background facts [2] The British Columbia Housing Management Commission ("BC Housing") is responsible for the administration of the Homeowner Protection Act, S.B.C. 1998, c. 31 [HPA] through the Homeowner Protection Office ("HPO"). The HPA is consumer protection legislation intended to improve the quality of residential construction in British Columbia and to strengthen the consumer protection for buyers of new homes. [3] The legislative scheme under the HPA includes requirements that: a) all builders of new residential construction have a residential builder's license; and b) all new residential

construction be covered by new home warranty insurance on minimum terms prescribed in the HPA. [4] In October 2014, the plaintiffs entered into a contract with Ambrosio Construction Limited ("ACL"). At that time, ACL did not have a residential builder's license, but applied for and was issued a builder's license prior to the commencement of construction. The plaintiffs' claim is that ACL should not have been issued a builder's license, and that if the builder's licence had not been issued, their subsequent losses would have been avoided. [5] For the purposes of this application, I am prepared to accept that the fact that the builder's license was issued after the contract was entered into is immaterial because the plaintiffs would not have been able to obtain construction financing and the local municipality would not have issued a building permit had ACL not been issued a builder's license. ACL therefore would not have been able to commence construction of the plaintiffs' home without a builder's license. [6] The plaintiffs' construction experience was not a happy one. By August 8, 2015, ACL had abandoned the project, and shortly thereafter, two subcontractors filed claims of builders' lien on the plaintiffs' home. In consequence, construction financing was stalled and the plaintiffs were left to defend the two lien claims. [7] According to the notice of civil claim, the

plaintiffs were advised that the HPO, which is administered by the defendant, could provide no assistance because the home warranty insurance related solely to defective work by the contractor. In this case, the plaintiffs' problem was ACL's use of funds. Paragraph 10 of the notice of civil claim confirms that all of the outstanding litigation, which included the two lien claims and claims as between the plaintiffs and ACL, "all related to [ACL] misappropriating money from trust and not paying the subcontractors". [8] The plaintiffs brought a civil claim against ACL and its principal, Mr. Frank Ambrosio. On July 21, 2017, following trial, Mr. Justice Davies made the following orders (the "Davies Judgment"): 1. The Defendant, Ambrosio Construction Ltd., must pay the Plaintiffs damages for breach of contract in the amount $40,300.71 together with interest on that amount in accordance with the Court Ordered [sic] Interest Act, from and after September 01, 2015.

2. The Defendants, Ambrosio Construction Ltd. and Frank Ambrosio are jointly and severally liable to the Plaintiffs for fraudulent misrepresentation in the amount of $22,855, together with interest on that amount in accordance with the Court Ordered Interest Act [sic], from and after July 10, 2015.

3. The judgment against Frank Ambrosio in the amount of $22,855 shall not be released by the discharge of Frank Ambrosio from bankruptcy. [9] However, the judgment provided hollow relief for the plaintiffs. Mr. Ambrosio had assigned himself into bankruptcy some months before the trial, and ACL was dissolved a year later. To this point, the plaintiffs only recovery has been limited to payments totaling under $1000 from Mr. Ambrosio's trustee in bankruptcy. [10] The plaintiffs seek damages in an amount equal to the outstanding balance owed on the Davies Judgment in this action. Current Application [11] This application is brought pursuant to R. 9-5(1)(a) on the ground that it discloses no reasonable cause of action or reasonable claim: 9-5(1) At any stage of a proceeding, the court may order to be struck out or amended the whole or any part of a pleading, petition or other document on the ground that (a) it discloses no reasonable claim or defence, as the case may be, and the court may pronounce judgment or order the proceeding to be stayed or dismissed and may order the costs of the application to be paid as special costs. [12] The defendant says that the plaintiffs' claim lacks the necessary legal and factual elements of a claim with a reasonable prospect of success, and must fail. It says that the plaintiffs' claim must fail on the following grounds: a) the claims are barred

by the Limitation Act, S.B.C. 2012, c. 13; b) there is no basis for a claim in negligence because BC Housing does not owe a prima facie duty of care to the plaintiffs; c) even if BC Housing did owe a prima facie duty of care, policy considerations negate the imposing of a duty of care on BC Housing; d) the defendant made no inaccurate, untrue, or misleading representations; and e) the plaintiffs' loss did not occur but for BC Housing's actions. In other words, BC Housing was not causative of the plaintiffs' losses. [13] The plaintiffs' claim is that the defendant was negligent in issuing a builder's license to ACL. The notice of civil claim alleges that by issuing a builder's license to ACL, the defendant was ostensibly certifying that ACL had the required competencies. Broadly speaking, they allege: a) the scheme for issuing residential builder's licenses in 2014 was insufficiently robust; and b) the HPO failed to follow the requirements of the Homeowner Protection Act Regulation, B.C. Reg. 29/99 [HPA Regulation] when issuing ACL a residential builder's license. [14] The plaintiffs argue that the amendments made to the HPA Regulation in 2016 are an acknowledgement of what should be the requirements for a builder's license, and that the amendments serve to confirm that the previous requirements were inadequate. They also argue that ACL should not have been issued a license

because its application for a license was not accompanied by 'a list of professional courses related to new home construction', contrary to the requirements of the HPA Regulation in place at the time of issuance. [15] To succeed in a claim for negligence, the plaintiff must prove that: a) the defendant owed a duty of care to the plaintiff; b) the defendant's conduct fell below the standard of care; c) the plaintiff suffered a loss; and d) the plaintiff's loss was caused by the defendant's breach of duty. [16] The plaintiffs' claims relate to how the defendant's conduct in issuing builder's licenses generally, and in particular in issuing a license to ACL, fell below the standard of care. However, the plaintiffs first need to establish that the defendant owed them a duty of care. [17] In my reasons that follow, I conclude that the defendant did not owe a duty of care to the plaintiffs, and the claim must therefore be dismissed. Legislative Scheme under the Homeowner Protection Act [18] I will begin by summarizing the legislative scheme that governs new home construction and residential builder's licenses in British Columbia. [19] Section 14 of the HPA mandates the licensing of builders of new residential construction, including the requirements for the issuance of a license by the registrar: 14 (1) A person must not carry on the business of a residential builder unless licensed

under this Part. (2) On application to the registrar, a person may be issued with a licence as a residential builder if (a) the registrar is satisfied that the person (i) meets the prescribed qualifications for licensing or has the experience, training or competence equivalent to the prescribed qualifications, and (ii) meets the prescribed conditions for licensing, (a.1) in the case of an application by a corporation, none of the individuals about whom disclosure is required under subsection (3) would be disqualified if the individual were an applicant, and (b) the person pays any prescribed licence fee. (2.1) For the purposes of determining whether a person has the experience, training or competence referred to in subsection (2) (a) (i), the registrar may set and administer examinations. (2.2) On application to the registrar, a person who holds a licence issued under this Part may have the licence amended if (a) the registrar is satisfied that amending the licence is appropriate in the circumstances, and (b) the person pays the prescribed fee. (3) A corporation applying for a licence or its renewal, in addition to any other disclosure required under this Act, must file with the registrar a statement disclosing, to the satisfaction of the registrar, the identity of the individuals who control or who are able to control the corporation. (4) A residential builder who is

authorized by a licence issued under this Part may use the designation "Licensed Residential Builder". (5) Unless a person is a licensed residential builder referred to in subsection (4), the person must not (a) use or display the designation "Licensed Residential Builder", or (b) imply, suggest or hold out in any manner that the person is a residential builder who is licensed under this Part. (6) A licence issued under this Part (a) is valid for one year from the date of issue, or for a shorter period as determined by the registrar, (b) may be renewed under section 14.1, and (c) is not transferable. (7) Subject to the regulations, the registrar may impose conditions on licences issued under this section. [20] In the summer of 2020, the plaintiffs discovered they had a cracked valve in their house. This led to a train of inquiry leading to the discovery that the plumbing in their home had been installed contrary to the BC Plumbing Code 2012, BC Reg. 264/2012, which in turn led the plaintiffs to inquire about ACL's application for a builder's license in 2014. As a result of those inquiries, the plaintiffs discovered that the defendant had issued a builder's license to ACL without obtaining what they say was one of the prerequisites for a license under s. 4(1)(g) of the HPA Regulation at the material time: 4(1) A person may apply to the registrar for a residential builder

licence, or renewal of a residential builder licence, by providing, in a form acceptable to the registrar, all of the following: . . . (g) a list of professional courses related to new home construction taken by the applicant and, if applicable, by each partner of the applicant or by each individual about whom disclosure is required under section 14 (3) of the Act; . . . [21] In 2015, HPA Regulation 4(1)(g) was repealed and replaced with more stringent requirements. The new regulations required that an applicant demonstrate proficiency and competence in the following seven areas: a) relevant enactments; b) construction management and supervision; c) construction technology; d) customer service and home warranty insurance; e) financial planning and budget management; f) legal issues; and g) business planning, management, and administration. [22] The 2015 amendments also required that a licensee demonstrate: a) at least 24 months of experience in managing or supervising residential construction, obtained within the last five years; and b) successfully demonstrated competency in the seven areas by coursework or equivalent experience. Legal Test - Application to Strike [23] There is no particular dispute as to the appropriate test to be applied on an application to strike a claim. Per Knight v. Imperial Tobacco Canada Ltd., 2011 SCC 42 at para. 17 [Knight], the question is whether

it is plain and obvious that a pleading discloses no reasonable cause of action or no prospect of success. The analysis is undertaken on the assumption that the facts plead in the notice of civil claim are true, and the court is to assess the claim based upon those facts and it is seldom that evidence is properly adduced on such an application. [24] The Supreme Court of Canada recently affirmed the importance of striking claims that have no reasonable prospect of success. In Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19 at para. 19, the Court held the following: It is beneficial, and indeed critical to the viability of civil justice and public access thereto that claims, including novel claims, which are doomed to fail be disposed of at an early stage in the proceedings. This is because such claims present "no legal justification for a protracted and expensive trial" (Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83, at para. 19). If a court would not recognize a novel claim when the facts as pleaded are taken to be true, the claim is plainly doomed to fail and should be struck. In making this determination, it is not uncommon for courts to resolve complex questions of law and policy [citations omitted]. [25] A claim that is doomed to fail should be dismissed for reasons of judicial efficiency and proportionality. However, the fact that a claim

is novel does not necessarily mean it should be struck without giving the plaintiff an opportunity to persuade a court of the merits of its claim. Discussion [26] In the analysis of whether or not the plaintiffs have a reasonable chance of success in a claim for negligence against the defendant, the first question is whether the relationship between the parties gives rise to a duty of care. If no duty of care is owed, there can be no legal basis for liability. [27] In Knight, the Supreme Court of Canada confirmed that the first question is whether there is a reasonable prospect that the relationship alleged in the pleadings would give rise to liability for negligence. At the first step, the court must consider whether the relationship is one that falls within a settled category that gives rise to such a duty. If not, the court must then go further and analyse whether a new duty of care should be recognized. [28] I am satisfied that the plaintiffs' allegation that the defendant was negligent in issuing a builder's license to ACL and by so doing, caused a loss to the plaintiffs, is not a claim that falls within a settled category. [29] To establish a duty of care in the absence of there being a settled category that would apply to the circumstances, the court must determine: a) whether the circumstances disclose reasonably foreseeable harm and proximity sufficient to establish a

prima facie duty of care; and b) whether there are any policy considerations that ought to negate imposing a duty of care. [30] As the Supreme Court of Canada said in Knight, at para. 42: "[p]roximity and foreseeability are heightened concerns in claims for economic loss, such as negligent misrepresentation". [31] In this case, the only source of duty that is alleged is the statute, the HPA. The defendant had no other involvement with the plaintiffs and it is not alleged that there was any interaction between the parties during any relevant time period. [32] The Supreme Court of Canada discussed imposing a duty of care that could only arise under statute in Cooper v. Hobart, 2001 SCC 79 [Hobart]. In Hobart, the registrar of mortgage brokers suspended the license of a broker and notified investors that the broker was under investigation when it became aware of impropriety. The claim advanced was that the registrar had sufficient information in hand such that he was obligated to act earlier, and that had he done so, the losses suffered by the plaintiffs could have been avoided. The Court said the following at para. 44: In this case, the statute does not impose a duty of care on the Registrar to investors with mortgage brokers regulated by the Act. The Registrar's duty is rather to the public as a whole. Indeed, a duty to individual investors would potentially conflict with the

Registrar's overarching duty to the public. [33] While the case is factually somewhat different to the extent that the plaintiffs are arguing that ACL should never have been issued a license as opposed to intervening to suspend a license, the general principles of what is being alleged in this case are not significantly different. In Hobart, the Supreme Court of Canada concluded that there was insufficient proximity between the registrar of mortgages and the various investors, and the Court held the following at para. 50: Accordingly, we agree with the Court of Appeal per Newbury J.A.: even though the Registrar might reasonably have foreseen that losses to investors in Eron would result if he was careless in carrying out his duties under the Act, there was insufficient proximity between the Registrar and the investors to ground a prima facie duty of care. The statute cannot be construed to impose a duty of care on the Registrar specific to investments with mortgage brokers. Such a duty would no doubt come at the expense of other important interests, of efficiency and finally at the expense of public confidence in the system as a whole. [34] Similar to Hobart, I do not read the HPA as creating a positive duty on the registrar to ensure that a builder with a builder's license will comply with the provisions of the Builders Lien Act, S.B.C. 1997, c.

45. I conclude that there was no relationship of proximity sufficient to form the basis of a prima facie duty of care. [35] In Accredit Mortgage Ltd. v. Ucluelet (District), 2013 BCSC 86, this Court addressed the question of whether a duty of care was owed by the HPO. The case was factually different because a duty was alleged to be owed to a municipality as opposed to members of the public, but the analysis is informative. Mr. Justice Macaulay described the purposes of the HPA before concluding that the HPA does not create a relationship of sufficient proximity that would give rise to a duty of care: [20] The purposes of the HPA are set out in s. 2 and include strengthening consumer protection for buyers of new homes; improving the quality of residential construction; and supporting research and education respecting residential construction in British Columbia. More specifically, the purposes of the HPO, according to s. 3(2), are to license residential builders and other persons required to be licensed under the HPA; carry out research and education respecting residential construction in British Columbia; and to administer the reconstruction program established for the purpose of providing financial assistance to eligible homeowners for home reconstruction. [21] None of the provisions in s. 3(2) support the District's assertion that the HPO ought reasonably to foresee that the

District would rely on the HPO's representations. In my view, there is nothing in the HPA that creates a private relationship of proximity that gives rise to a prima facie duty of care. [36] The Legislature decided when enacting the HPA to impose a regulatory scheme designed to protect homeowners. A significant part of the consumer protection aspect of the legislation is a requirement that every new home be covered by a warranty, the minimum requirements for which are set out in s. 22 of the HPA. The warranty providers are private insurance companies. Presumably it is the warranty providers who would be the subject of claims in the event of faulty construction. [37] At para. 30, Justice Macaulay went on to conclude that even if a prima facie duty of care had been established, policy reasons militate heavily against imposing a duty of care. After referring to Hobart, he concluded there were three such policy reasons in the case before him. The first related specifically to municipalities and has no application here. But his concerns about indeterminate liability, and overarching concerns about imposing a private law duty in the face of obligations to the public generally, which can give rise to competing duties, are apposite: [33] Second, indeterminate liability would result. The HPO does not have any control over the number of building permit applications or the extent of

economic loss associated with failure by municipalities or districts to meet their statutory obligations under the HPA. In Imperial Tobacco, at paras. 100-101, the Supreme Court of Canada concluded that if the Government of Canada owed a duty to consumers of light cigarettes, the potential class of plaintiffs and the amount of liability would be indeterminate, and, as a result, the claims should fail because Canada was not in control of the extent of its potential liability. [34] The District acknowledged in argument that there is a potential for indeterminate liability and stated that it had similar concerns respecting Accredit's claims against it. The District suggests, as I understand it, that the court should simply treat the potential as an issue to be determined after a full trial. For the reasons already expressed, I do not accept that as a valid approach. [35] Finally, where a statutory duty is predominantly owed to the public generally, the court should not find proximity to individuals. In determining a lack of proximity in a statutory context, in Fullowka v. Pinkerton's of Canada Ltd., 2010 SCC 5, at para. 39, the Supreme Court of Canada re-affirmed the following as first articulated in B.D. (Litigation guardian of) v. Halton Region Children's Aid Society, 2007 SCC 38: The statute is the foundation of the proximity analysis and policy considerations arising from the

particular relationship between the plaintiff and the defendant must be considered. The fact that an alleged duty of care is found to conflict with an overarching statutory or public duty may provide a policy reason for refusing to find proximity. Both Cooper and Edwards are examples. In Cooper, a duty to individual investors on the part of the Registrar of Mortgage Brokers potentially conflicted with the Registrar's overarching public duty; in Edwards, the proposed private law duty to the victim of a dishonest lawyer potentially conflicted with the Law Society's obligation to exercise its discretion to meet a myriad of objectives. [38] Indeterminate liability is a concern if the defendant were to owe a duty. As the defendant suggests, it could potentially render BC Housing liable for all losses caused by substandard builders. Indeed, the plaintiffs' allegation in this matter illustrates the very concern of indeterminate liability because the plaintiffs' claim in this case is not that ACL did not possess the requisite skills with regard to construction, but rather flow from ACL's failure to comply with the financial terms of the building contract and the statutory requirements of the Builders Lien Act as it relates to trust funds. The HPO cannot be expected to monitor the financial affairs of residential builders, nor is it reasonable to expect that disappointed owners would be

indemnified for a builder's failings. [39] I find that imposing a duty of care in this case would give rise to indeterminate liability, both in terms of the broad class of potential claimants and also with regard to the different types of claims, as illustrated by the plaintiffs' claim in this case. [40] The plaintiffs argue that although the decision to license residential builders was a policy decision made by the legislature, and therefore that decision is immune from liability, the implementation and issuing of licenses is an operational decision. Liability can attach for an operational decision: see Brown v. British Columbia (Minister of Transportation and Highways), 1994 CanLII 121, [1994] 1 S.C.R. 420 at 441: . . . True policy decisions will usually be dictated by financial, economic, social and political factors or constraints. The operational area is concerned with the practical implementation of the formulated policies, it mainly covers the performance or carrying out of a policy. Operational decisions will usually be made on the basis of administrative direction, expert or professional opinion, technical standards or general standards of reasonableness. [41] However, s. 15 of the HPA provides the registrar under the HPA with a significant amount of discretion, both with regard to the issuing of licenses in the first instance and for suspending, terminating, or

refusing to renew a license when one has already been issued: 15 The registrar may suspend or cancel the licence of a residential builder (a) for any reason that would disqualify a residential builder from eligibility for a licence under section 14 if the residential builder were an applicant under that section, (b) if the residential builder has made a false statement on a material matter in the application or refuses to provide information on a material matter when requested to do so by the registrar, (c) if the residential builder is in breach of a condition of, or restriction on, the licence or is convicted of an offence under this Act, or (d) if the licence was issued in error. [42] If the registrar refuses to issue a license or to renew one, or suspends or cancels a license, the registrar is obligated to include written reasons for the decision under s. 16(1)(a). It follows that the registrar must act fairly when exercising those rights and obligations under the HPA. I am satisfied that the registrar's decisions as to whether to issue, suspend, or terminate builder's licenses are matters of discretion, and are not operational in nature. [43] It follows that the registrar's role in making licensing decisions is inconsistent with a duty of care to members of the public. Comparably, in Hobart, the Supreme Court of Canada found at para. 52 that: . . . The Registrar must act

fairly or judicially in removing a broker's license. These requirements are inconsistent with a duty of care to investors. Such a duty would undermine these obligations, imposed by the Legislature on the Registrar. Thus even if a prima facie duty of care could be posited, it would be negated by other overriding policy considerations. [44] Concerns about protection of the public on the one hand and the rights of builders on the other illustrate the sorts of competing interests to be weighed by the registrar, and militate against finding that the registrar owed a duty of care to members of the public. [45] I am also mindful of the possible financial considerations to taxpayers, which were referred to by the Supreme Court of Canada in Hobart at para. 55: Finally, we must consider the impact of a duty of care on the taxpayers, who did not agree to assume the risk of private loss to persons in the situation of the investors. To impose a duty of care in these circumstances would be to effectively create an insurance scheme for investors at great cost to the taxpaying public. There is no indication that the Legislature intended that result. [46] These comments apply equally in this case. By enacting the HPA, the legislature mandated that builders of new homes needed to be licensed, and that each new home must be accompanied by a warranty providing prescribed minimum coverages. I do not accept that the legislature intended that taxpayers insure homeowners from loss. [47] For all these reasons, I am satisfied that the defendant did not owe a duty of care to the plaintiffs. [48] The defendant's application is granted, and the plaintiffs' claim is dismissed. The defendant is entitled to its costs. "Wilson J."