Tuesday, August 9, 2016

Trial Judge: The Defect Was Apparent. Court Of Appeal: No, It Was Hidden

In Giagnotti et al. c. Anania et al., 2016 QCCA 914, the facts are interesting insofar as the Trial Judge dismissed the Buyers’ suit but was reversed by the Court of Appeal.

In 2011, the Buyers purchased from the Sellers a single-family home that was built in 1984 for the price of $375,000.

Prior to purchase, the Buyers visited the property three (3) times and obtained a positive inspection report. Six (6) weeks after the sale, there was water infiltration in the basement. The Buyers called an expert who, after partially dismantling the wall finishing, determined that the water infiltration was caused by cracks in the foundation. The expert also identified the presence of mold. The estimated cost of repair was $53,000.

The Trial Judge determined that the defect was apparent, i.e. that a prudent buyer should have discovered it without the assistance of a qualified inspector.

The Sellers purchased the property in 2004 after obtaining an inspection report that identified cracks in the foundation and the presence of mold. The Sellers never corrected the problems identified by their inspector.

Seven (7) years later, the Sellers listed the property for sale. They admitted that a copy of their inspector’s report was not provided to the Buyers, but they stated that the latter never requested it. The Buyers stated that they never requested it because they were informed by the Sellers that the report was unavailable.

The Trial Judge and the Court of Appeal resolved this contradiction differently and arrived at different outcomes.

The Sellers completed the prescribed form entitled “Declaration by Seller of an Immovable” and signed it on April 25, 2011. It was entered it into evidence as Exhibit D-1. In it, the Sellers declared that they were aware of the existence of the 7 year old inspection report and that the report was available upon request.

The Buyers entered into evidence a copy of Exhibit D-1 with some initialed changes, including a declaration that the Sellers’ inspection report was not available. The Sellers alleged that the Buyers had fraudulently falsified the report.

The Trial Judge did not believe the Buyers’ pretention that they never asked for a copy of the report because they were informed it was not available. Had they done so, they would have been made aware of the existence of water infiltration and mold in 2004 and could have taken steps to investigate more thoroughly.

The Court of Appeal found this conclusion on the part of the Trial Judge to be a reversible error. It concluded that the evidence, i.e. the modified Declaration, established that the Buyers had been informed that the report was not available and there was insufficient evidence to conclude that the modified Declaration was falsified by the Buyers. The Court of Appeal stated that the Trial Judge could not legally disregard the modified Declaration on the simple ground that he believed that the Buyers were being untruthful. Since the Sellers alleged that the modified Declaration had been falsified by the Buyers and the Buyers alleged that the modified Declaration emanated from the Sellers, the Trial Judge could not prefer one version over the other on the basis that the other party lacked credibility without sufficient evidence to support such a conclusion. In other words, there would have to be some additional corroborative evidence to substantiate Sellers’ claim that the modified Declaration was falsified, which was lacking in the present case.

It is very rare for the Court of Appeal to reverse a trial judge when the judgment is based on credibility since it is generally accepted that the trial judge, who heard the witnesses first hand, is usually best placed to decide who is telling the truth. However, the Court of Appeal will intervene if the trial judge’s conclusion is not supported by any evidence.

Was it significant that the Sellers’ inspection report identified the foundation cracks and mold but the Buyers’ inspection report did not?

The applicable legal standard is that the defect will be considered hidden if a prudent buyer cannot be expected to discover it without the assistance of a qualified inspector. As long as the buyer had the property inspected by someone he believed to be qualified, he could not be held responsible if the quality of the inspector’s work proves to be inadequate.

The Trial Judge criticized the Buyers’ inspector for conducting an inadequate inspection. The Court of Appeal confirmed that it is the conduct of the Buyers that is determinant and not the conduct of the inspector.

Finally, and what may be considered to be the final nail in the Sellers’ coffin, they affirmed that during the entire period that they were in possession of the property, they never had any problem with water infiltration or mold. For the Sellers who resided in the property for seven (7) years, the alleged defects did not exist and yet they argued that it should have been apparent to the Buyers who visited the property for a total of three (3) hours.