BC Supreme Court dismisses proposed leaky condo class action lawsuit by McMillan and Hepner against CMHC

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

McMillan v. Canada Mortgage and Housing Corporation,

 

2007 BCSC 1475

Date: 20071001
Docket: S056412
Registry: Vancouver

Between:

Alan McMillan and Linda Hepner

Plaintiffs

And

Canada Mortgage and Housing Corporation

Defendant


Before: The Honourable Madam Justice Lynn Smith

Reasons for Judgment

Counsel for Plaintiffs

J.R. Singleton, Q.C.
W. Sun

 

Counsel for Defendant

D.R. Clark, Q.C.
R.D. Garrett

 

Date and Place of Hearing:

May 14, 15 and 16, 2007

 

Vancouver, B.C.

TABLE OF CONTENTS

PARA. NO.

I.          INTRODUCTION                                                                                           1

II.         THE PLAINTIFFS’ APPLICATION                                                               4

III.        DO THE PLAINTIFFS HAVE A CAUSE OF ACTION
            AGAINST THE DEFENDANT IN NEGLIGENCE?
                                      11

A.         STANDARD TO BE MET                                                                  11

B.         NATURE OF THE CLAIM                                                                 15

C.        APPLICABLE LEGAL PRINCIPLES                                                 16

            1. Basic propositions of negligence law                                             16

            2. Negligence claims against statutory bodies                                   20

D.        THE STATUTORY FRAMEWORK                                                   26

E.         THE SUBMISSIONS OF THE PARTIES                                          29

            1. Submissions for the Plaintiffs                                                         29

            2. Submissions for the Defendant                                                      33

F.         ANALYSIS                                                                                          37

            1. The first stage of the Cooper/Anns test                                        37

(a) Physical harm to property                                                 38

(b) Negligent Misrepresentation                                             43

(c) Duty to Warn                                                                     43

(d) Conclusion on Categories                                                 46

            2. The second stage of the Cooper/Anns test                                  47

IV.        CONCLUSION                                                                                               47

APPENDIX “A”                                                                                                          48

I. INTRODUCTION

[1]                Mr. McMillan and Ms. Hepner, the plaintiffs, own a condominium residence in the Villa Positano complex in White Rock, British Columbia.  They purchased it from a developer on October 12, 1996.  In the spring of 2000 it became known that there could be a problem with water leaks and moisture related damage to the complex.  The Strata Council retained building envelope engineers who provided a report concluding that the Villa Positano was suffering premature building envelope deterioration.

[2]                In 2003 a contractor made repairs and implemented modifications recommended by the engineers.  The plaintiffs were assessed a total of $61,795.10 to cover their share of the cost of the repairs.

[3]                The plaintiffs have commenced an action to recover damages from the defendant Canada Mortgage and Housing Corporation (“CMHC”).  They apply to have their action certified as a class action pursuant to the Class Proceedings Act, R.S.B.C. 1996, c. 50.  The defendant disputes their application for certification and also applies for summary judgment under Rule 18A of the Rules of Court, B.C. Reg. 221/90, seeking an order declaring that the defendant owes no duty of care to the plaintiffs and dismissing the plaintiffs’ action with costs.

[4]                The phenomenon of “leaky condos” (of which the plaintiffs say the Villa Positano is an example) has resulted in considerable hardship for many home owners in British Columbia, as documented in the Report of the Commission of Inquiry into the Quality of Condominium Construction in British Columbia by Dave Barrett, Commissioner (Victoria: Minister of Municipal Affairs, June 1998).

[5]                Counsel for the plaintiffs summarizes their position in his written submission as follows:

The Plaintiffs’ claim is that in the course of its investigating housing problems in Canada, CMHC learned of a fundamental flaw in the design and construction of residential dwellings on the West Coast of Canada which CMHC knew, if uncorrected, would lead to wide spread structural failure in these homes.   The Plaintiffs say that with this knowledge CMHC owed to them a private law duty of care to warn the proposed class of these known defects, or to have taken the appropriate steps to arrest further construction of these homes on the west coast of British Columbia.  Not having done so, CMHC was in breach of the duty they owed to the class and have thereby been a major contributor to the leaky condominium debacle on the west coast of British Columbia, which has lead to wide spread structural failure of thousands of homes, hundreds of millions of dollars of damages, and the disenfranchisement of thousands of homeowners.  The situation created cries out for an affordable remedy against CMHC.

II. THE PLAINTIFFS’ APPLICATION

[6]                Mr. McMillan and Ms. Hepner assert in their pleadings that CMHC, as a result of investigations it had undertaken, knew that the design of buildings such as the Villa Positano (combining a sealed exterior face of the walls with an energy efficient interior design) would result in the trapping of moisture inside the building, the build-up of mold and fungi, and structural deterioration.  They say that CMHC was under a duty to them and to other owners and prospective purchasers of residential accommodation incorporating that design to pass on the knowledge CMHC had acquired and to take reasonable steps to ensure that design was not used in the construction of west coast residences.  They claim that CMHC was in breach of its duty and of its statutory obligations and that the plaintiffs suffered damage as a result of CMHC’s negligence. 

[7]                The pleadings in the Amended Statement of Claim include the following allegations:

7.         The exterior walls of The Villa Positano were originally designed and constructed to utilize what is commonly known as a “face-seal” assembly, which includes a sealed exterior face of the walls designed to prevent water from entering the wall (“Face Seal Design”), and an energy efficient interior design, being a sealed interior wall designed to prevent heat and vapour transmission from the interior of the building through the walls (“Energy Efficient Design”) the combination of the Face Seal Design and the Energy Efficient Design hereinafter called (the “Envelope Design”).

8.         The Envelope Design was, to the knowledge of CMHC, in wide use on the west coast of Canada and elsewhere in Canada from at least 1981 to the present time.

9.         In or around 2000, The Villa Positano began to exhibit signs of wetting, deterioration, mold and other damage which resulted from water, vapour and moisture ingress into the building envelope, brought about the following combination of events:

(a)        Wind-driven rain penetrated the exterior face of the building envelope through the stucco facing and some imperfections in construction details at wall penetrations, joints and intersections;

(b)        The Envelope Design did not provide a mechanism for water, vapour or moisture which migrated past the exterior or interior cladding into the building envelope to migrate out of the wall assembly, either through the exterior face or the inside face of the building envelope;

(c)        Heat and vapour was transmitted from the inside of the building into the building envelope and resulted in condensation in and around the components of the building envelope; and

(d)        Moisture trapped within the building envelope resulted in the build up of mold and fungi, leading to structural deterioration of the components of the wall assembly.

(collectively described as “Envelope Failure”).

10.       As a result of Envelope Failure, extensive repairs were required to The Villa Positano, as a result of which the Plaintiffs have suffered loss, expense and damage, and other compensable losses and consequences, particulars of which include:

(a)        Their proportionate share of the overall cost to investigate Envelope Failure and repair the damage to The Villa Positano;

(b)        Damage to personal property within their unit;

(c)        The cost of temporary accommodation; and

(d)        Stress and inconvenience related to the investigation and repair of the damage caused by Envelope Failure.

(collectively, the “Damage”).

11.       The business and powers of CMHC are described in section 17 of the CMHC Act as follows:

“17. Subject to section 33 of this Act and to section 100 of the National Housing Act, the Corporation shall, on behalf of Her Majesty and in the place of the Minister, have, exercise and perform all rights, powers, duties, liabilities and functions of the Minister under the Housing Acts or under any contract entered into under those Acts, except the authority of the Minister under those Acts to pay money out of the Consolidated Revenue Fund.”

12.       The powers, duties and functions of CMHC are further set out in the National Housing Act, R.S.C. 1985 c. N-11 (the “Housing Act”), as follows:

“73. It is the responsibility of [CMHC] to cause investigations to be made into housing conditions and the adequacy of existing accommodation in Canada or in any part of Canada and to cause steps to be taken for the distribution of information leading to the construction or provision of more adequate and improved accommodation and the understanding and adoption of community plans in Canada.

74. For the purpose of carrying out its responsibility under this Part, the Corporation may cause

(a) investigations to be made into housing conditions and the adequacy of existing housing accommodation in Canada or in any part of Canada and into measures that may be taken for the improvement thereof;

…”

13.       During the period between in or around 1981 and in or around 1994, CMHC undertook extensive investigation of wall assembly construction and water ingress related envelope failures on both the east coast and west coast of Canada in buildings incorporating the Envelope Design. In the course of those investigations, CMHC gained the following knowledge:

(a)        There was widespread utilization of the Envelope Design in the construction of residential occupancies on the west coast of Canada between 1981 and 1994;

(b)        Residential occupancies constructed using the Envelope Design, such as that used in The Villa Positano, was more likely than not to suffer from deterioration of the building envelope because of Envelope Failure;

(c)        The only way Envelope Failure might be avoided in buildings which utilize the Envelope Design, would be if the exterior face of the building envelope was built to a standard of perfection, and that the prospect of that occurring was remote;

(d)        There was the prospect, if not likelihood, that Envelope Failure might occur by reason of the Energy Efficient Design alone, which promoted the buildup of warm, moist air on the interior of the building which would then migrate and reside in the interior of the building envelope;

(e)        Even if the exterior face of the building envelope which utilized the Envelope Design were to be built to a standard of perfection, the in-service weather conditions and climate of the west coast of Canada would eventually lead to Envelope Failure;

(f)         Residential occupancies constructed on the west coast of Canada and elsewhere in Canada incorporating the Envelope Design were experiencing deterioration of the building envelope because of Envelope Failure; and

(g)        Without the building industry and prospective buyers of homes incorporating the Envelope Design being warned of the prospect of Envelope Failure and the knowledge CMHC had gained, it was likely that such building envelope failures would continue to mount at significant cost to homeowners on the west coast of Canada.

(“CMHC’s Knowledge”)

14.       By reason of its statutory obligations and the knowledge it obtained through its involvement in research into the prospective problems of the Envelope Design, CMHC owed a common law duty to the Plaintiffs, other owners and prospective purchasers of residential accommodation incorporating the Envelope Design to pass on to them most or all of CMHC’s Knowledge and to take reasonable steps to ensure that residential occupancies incorporating the Envelope Design were not built on the west coast of Canada.

15.       Notwithstanding CMHC’s Knowledge, CMHC failed to take the appropriate steps to ensure that its knowledge was passed on to the housing industry or to homeowners or to prospective purchasers of homes and was thereby in breach of its statutory obligations and the common law duty it owed to owners of multi-family dwellings, including the Plaintiffs, and to prospective owners, of homes incorporating the Envelope Design.

16.       As a result of the negligence of CMHC, the Plaintiffs have suffered the Damage.

17.       CMHC’s conduct amounted to a wanton and reckless disregard for the lives and safety of occupants and prospective occupants, including the Plaintiffs, of residential occupancies constructed on the west coast of Canada incorporating the Envelope Design.

18.       The Plaintiffs waive any and all right to recover from CMHC, in this Action, any portion of their loss or damage for which CMHC might reasonably be entitled to claim contribution, indemnity or apportionment, either at common law or pursuant to the Negligence Act, R.S.B.C. 1996. c. 333.

THE CLASS

19.       The Plaintiffs bring this action on behalf of all those persons who purchased a residential occupancy, or unit or interest in a residential occupancy located on the west coast of Canada, which was built between January 1, 1982 and December 1, 2005, which incorporated the Envelope Design and which exhibits or has exhibited signs of Envelope Failure.

20.       The Plaintiffs plead and rely on the provisions of the CMHC Act, the Housing Act, the Class Proceedings Act R.S.B.C. 1996, c. 50 and the Negligence Act, R.S.B.C., 1996, c. 333.

[8]                The relief the plaintiffs seek against CMHC is:

(a)        Judgment with respect to the common issue of liability with damages to be assessed as between individual condominium owners and CMHC pursuant to section 27 of the Class Proceedings Act;

(b)        Directions pursuant to section 27 of the Class Proceedings Act for the assessment of individual damage claims;

(c)        Damages for the Plaintiffs against CMHC, including punitive, exemplary and aggravated damages;

(d)        In the event that this action is not certified as a class action, costs on a solicitor and own client basis; and

(e)        Such further and other relief as is necessary.

[9]                The plaintiffs seek to be appointed as representative plaintiffs and to bring this action on behalf of a class of persons which is described in the proposed “class definition” attached to these Reasons as Appendix “A”.

[10]            The requirements to be met by the plaintiffs in their application for an order certifying this as a class proceeding are set out in s. 4 of the Class Proceedings Act:

Class certification

4 (1)     The court must certify a proceeding as a class proceeding on an application under section 2 or 3 if all of the following requirements are met:

(a)        the pleadings disclose a cause of action;

(b)        there is an identifiable class of 2 or more persons;

(c)        the claims of the class members raise common issues, whether or not those common issues predominate over issues affecting only individual members;

(d)        a class proceeding would be the preferable procedure for the fair and efficient resolution of the common issues;

(e)        there is a representative plaintiff who

(i)         would fairly and adequately represent the interests of the class,

(ii)        has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and

(iii)       does not have, on the common issues, an interest that is in conflict with the interests of other class members.

(2)        In determining whether a class proceeding would be the preferable procedure for the fair and efficient resolution of the common issues, the court must consider all relevant matters including the following:

(a)        whether questions of fact or law common to the members of the class predominate over any questions affecting only individual members;

(b)        whether a significant number of the members of the class have a valid interest in individually controlling the prosecution of separate actions;

(c)        whether the class proceeding would involve claims that are or have been the subject of any other proceedings;

(d)        whether other means of resolving the claims are less practical or less efficient;

(e)        whether the administration of the class proceeding would create greater difficulties than those likely to be experienced if relief were sought by other means.

[11]            The first requirement listed, that the pleadings disclose a cause of action, was predominant in the arguments made before me in three days of hearing.  Mr. Singleton accurately describes it as the “eye of the storm” in this case.  I will therefore address that major issue first.

[...] 

[104]        The defendant CMHC did not manufacture any item used in construction, nor did it have a statutory responsibility to authorize the use of materials, to prescribe construction methods, or to play any direct role in the construction of housing in British Columbia.

[105]        I find that this case does not fall within the category of cases in which a duty to warn has been found, nor is this case analogous to cases under that category.

(d) Conclusion on Categories

[106]        I conclude that the claim by the plaintiffs does not fall into any category of cases where a duty of care has previously been recognized, nor is it analogous to any of those categories.

[107]        Therefore, I must consider whether this is a situation in which a new duty of care should be recognized.

[108]        If there are any factors giving rise to proximity, they must arise from the statutes which create the CMHC and provide its mandate.

[109]        The statutes under which the defendant exists and operates give it no regulatory responsibility with respect to the construction of housing in British Columbia.  There is nothing in either the CMHC Act or the Housing Act which creates a duty of care on the CMHC to individual homeowners.  The legislation is comparable to that in Kimpton, where no duty of care was found.

[110]        The relationship between the defendant and the plaintiffs is far from the close and direct relationship envisioned in Donoghue v. Stevenson.  There is insufficient proximity between the parties to create a duty on the part of the defendant.

[111]        I find it plain and obvious that on the facts pleaded there is no proximity between the plaintiffs and the defendant sufficient to give rise to a prima facie duty of care under the first stage of the Cooper/Anns test.

2. The second stage of the Cooper/Anns test

[112]        If I am wrong that it is plain and obvious that on the facts pleaded there is no proximity, I would find under the second stage of the Cooper/Anns test that there are residual policy considerations (as described in Cooper at para. 37) outside the relationship of the parties that negative the imposition of a duty.  Those residual policy considerations include the likelihood that imposing on CMHC a private law duty of care to individual homeowners would interfere with CMHC’s ability to carry out its responsibility to investigate and publish its findings, and the possibility of indeterminate liability.

IV. CONCLUSION

[113]        I have concluded that the plaintiffs’ application to certify this action as a class proceeding under the Class Proceeding Act must be dismissed because the pleadings fail to disclose a cause of action.

[114]        It is therefore unnecessary to address the other issues regarding certification.

[115]        The defendant applied for summary judgment dismissing the plaintiffs’ action under Rule 18A.  For the reasons I have given with respect to the plaintiffs’ application, the defendant’s application for summary judgment is allowed because the pleadings fail to disclose a cause of action.

“The Honourable Madam Justice Lynn Smith”

APPENDIX “A”

CLASS DEFINITION

The definition of the Class in these proceedings is proposed as follows:

“AII persons who purchased a residential occupancy, unit or interest in a multiple- family, building located on the West Coast of Canada (more particularly described by the municipalities and regional districts listed in Appendix A) which was built between January 1, 1982 and the date of the Certification Order, and which utilized a Face-Sealed or Concealed-Barrier wall assembly, incorporating Stucco Cladding, a Wood Frame and Air Barrier (“the Envelope Design”). and which persons were required to pay or have been assessed to pay for all or a portion of the costs associated with repairing any such wall assembly as a result of water or moisture ingress into the wall assembly.

“Face-Sealed” refers to a design strategy for rain penetration control that relies on the exterior layer (the wall cladding) of the building envelope assembly to resist all rain penetration.

“Concealed-Barrier” refers to a design strategy for rain penetration control here a sheathing membrane located to the interior of the exterior surface of the wall cladding provides a barrier to resist the penetration of rain water further into the assembly.

“Stucco Cladding” refers to a layer or layers of stucco and related materials or components of a building envelope assembly that constitute the outermost surface of the wall assembly such that it is fully exposed to the exterior environment.

“Wood Frame” refers to a wall, the structural components of which are comprised mainly of wood.

“Air Barrier” refers to one or more layers of materials and components that together control the flow of air across layers of a wall assembly for the purpose of limiting the potential for heat loss / gain, and interstitial water vapour transfer and condensation, due to air movement.

 

READ THE ENTIRE REASONS FOR JUDGMENT AT

2007 BCSC 1475 McMillan v. Canada Mortgage and Housing Corporation

Judge reserves decision regarding certification of latest proposed leaky condo class action lawsuit


From The Richmond Review:



Judge reserves decision on leaky condo class-action
Leaky condo owners will have to wait as long as two months before the B.C. Supreme Court rules on whether to certify as a class action a lawsuit stemming from the billion-dollar construction crisis. details