Courts taking consumers out of consumer protection

Monday, May 07, 2018 

Two recent decisions from B.C. and Ontario have seen consumers getting the wrong end of the stick from the courts.

Forjay Management Ltd. v. 0981478 B.C. Ltd. 2018 BCSC 527 is the more egregious of the two, evidencing a judicial disdain from B.C.’s Supreme Court for one of Canadian society’s most pressing problems: the rising cost of housing.

The twin cases of Schnarr v. Blue Mountain Resorts 2017 ONSC 114 and Woodhouse v. Snow Valley Resorts (1987) Ltd. 2017 ONSC 222 from the Ontario Court of Appeal, aren’t quite as bad. Although they severely limit the scope of the Consumer Protection Act, 2002, they at least do so in the name of what is — at least arguably — a competing public interest.

Forjay arose in the context of a real estate receivership that involved a 92-unit strata development in Langley. The creditors faced a $30 million shortfall.

At the time of the receivership order, the development was substantially complete, subject only to deficiency and exterior work. All the units had been subject to presale agreements made with individual purchasers many years before the insolvency.

In the interim, however, real estate prices rose some 46 per cent, creating a $5.5 million increase in the collective value of the units. The receiver asked the court whether it ought to complete the presales or disclaim and remarket the units.

Essentially, the court had to choose between the secured mortgagees and the purchaser consumers. Although the secured mortgagees had legal priority, Justice Shelley Fitzpatrick still had to decide whether the equities supported an override of that priority in favour of the consumer purchasers.

Despite expressing sympathy for the purchasers, citing the public policy objective of consumer protection, and noting that a decision against the purchasers probably meant that many would be priced out of the market, Justice Fitzpatrick ruled in favour of the mortgagees and ordered the receiver to disclaim the presale agreements.

A finding in favour of the purchasers, Justice Fitzpatrick reasoned, would have give them a “preference that they would not otherwise enjoy.”

“At the end of the day, the question is really which party will bear less of a loss,” said Matthew Nied in Cassels Brock & Blackwell LLP’s Vancouver office, who represented one of the mortgagees. “In this case, the facts and law meant that it was the mortgagees.”

A legally sound conclusion, perhaps, but ultimately one with blinders on. In point of fact, consumers — particularly those in the housing market — enjoy little in the way of “preference” in the law or in the marketplace.

Consider the situation when the tables are turned and the market declines between the execution of the presale and the date of completion. That’s exactly what’s happening in the detached home segment of Toronto market, where some homebuyers purchased during the frenzy in 2017 only to find that their houses had depreciated by 10 per cent or more a year later. According to media reports, some purchasers of Mattamy Homes saw their values fall by $100,000.

Pity also the individuals who bought condos on a presale basis in Toronto. As the Toronto Star reported on May 2, a significant number look to be out in the cold as builders, faced with rising development costs, turn “cautious” and cancel projects.

The upshot is that — be the market hot or cold — consumers are for the most part screwed relative to developers and financiers.

“This decision sets out a precedential analytical framework and comes from a leading judge in the area,” Nied said. “The law in this area also isn’t generally specific to any given province — the decisions often have applicability nationwide. So, other courts that are faced with similar decisions in the future are likely to rely on this precedent.”

The purchasers are appealing, however, so all hope may not be lost.

Unfortunately, the same can’t be said of the Ontario Court of Appeal’s decisions in the Blue Mountain and Woodhouse cases. It’s unlikely the cases will make their way to a full hearing before the Supreme Court of Canada.

“The Court of Appeal decision restores the law on waivers to what it was before the lower courts in these cases tried to use the Consumer Protection Act to strike them down,” said John Olah of Toronto’s Beard Winter LLP, who represented Blue Mountain.

The cases arose after David Schnarr was injured at Blue Mountain when he hit some debris on the ski hill and Elizabeth Woodhouse was hurt while using a tow rope at Snow Valley. Both had purchased ski passes that incorporated waivers of liability.

As it turned out, the defendants were “occupiers” under the Occupiers Liability Act (OLA), which expressly permits the use of waivers to limit liability. But they were also “suppliers” under the Consumer Protection Act (CPA), which requires suppliers to provide consumers with services of a reasonably acceptable quality.

The CPA also gives consumers a mechanism to void terms that do not comply with the Act. The plaintiffs argued that the waivers were not legally binding because the services provided were not of the mandated quality.

The Court of Appeal ruled that the statutes did indeed conflict. But the more specific provision in the OLA prevailed over the general provision in the CPA. Impliedly, the court gave priority to the specific public policy behind the OLA, which was to allow landlords to make their land available for recreational use, over the CPA’s general intent aimed at protecting consumers.

“A lot of these extreme sports that are popular these days wouldn’t survive if landlords didn’t have the protection from liability afforded under the Occupiers Liability Act,” Olah said. “It’s also a fundamental principle of contract law that people can make their own decisions about risk management. It’s not like skiing is a necessity of life.”

But the purchasers in Forjay and homebuyers generally can’t find similar solace in Forjay, where shelter is a necessity of life and Justice Fitzpatrick had a wide discretion in dealing with a receivership.

In the end, then, it seems that the real policy driving the ruling in favour of the mortgagees was an undue sensitivity to commercial rights ahead of the rights of consumers.


  1. Please explain, when you say

    “Justice Fitzpatrick ruled in favour of the mortgagees and ordered the receiver to disclaim the presale agreements.”

    Does this mean the ‘presale agreements’ have no value, the purchasers have no status as creditors in the bankruptcy and their deposits are not retrievable?

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