Canada: The Defect Was Well Hidden, But Was This Enough?

In Cvesper v. Melatti, the Court of Appeal reminds us of the importance of a timely notice to the vendor in cases of latent defects as tardiness or omission to do so may fatally impact the purchaser's recourse

The facts

Essentially, in May 1980, Appellant, Mrs. Cvesper, purchased a property consisting of a multi-unit building and a small house, located in Ville LaSalle, which was then transferred to her husband in March 2003 for the sum of 1$, without legal warranty. The latter in turn sold the property with legal warranty to 6045111 Canada inc. Following this transaction, the property was unoccupied and abandoned.

On January 19, 2015, Respondent acquired the property with the legal warranty of quality from 6045111 Canada inc, for the sole purpose of building a new private residence. In the early summer of 2017, construction of the new residence began. The existing buildings were demolished and, during the excavation required for building an underground garage, an oil tank in poor condition was discovered, along with contamination. Respondent hired a consultant specializing in environmental remediation and under its supervision, the contractor proceeded to excavate and dispose of the contaminated soil. The tank was also disposed of. On July 5, 2017, the consultant confirmed that the contamination levels remaining were acceptable, and that construction could resume.

Pursuant to the realization of the extensive remedial work, Respondent claimed compensation from Appellants. The trial judge granted the claim for latent defects in part, and ordered Appellants, in solidum, to pay the sum of $195,209.18 plus legal interest and additional indemnity. The judgment was appealed from.

Ruling of the Court of Appeal

The Court of Appeal first confirmed that the contamination of the soil was clearly a latent defect which gives rise to a claim under the warranty of quality provided by section 1726 of the Civil code of Quebec (CCQ).

In this specific case, the trial judge had correctly determined that Respondent was not required to inspect the Property. In fact, the evidence establishes that not only did he intend to demolish the buildings, there was no reason to suspect the existence of an underground oil tank or to proceed to an environmental assessment of the Property prior to the purchase.

Accordingly, the buyer had the opportunity to ask for the resolution of the sale or a reduction of the purchase price. However, in order for his claim in latent defects to succeed, he had to comply with section 1739 CCQ, which provides that the buyer must notify the seller in writing of the discovery of the problem. As underlined by the Court of Appeal, the goal of such obligation is to allow the seller to ascertain the problem, to evaluate the evidence and to proceed to the repairs or at least to limit their cost. In general, the notice will only serve its purpose if it is given before remedial work is undertaken.

The Court of Appeal is clear: the tardiness of the written notice is usually fatal to a latent defect claim. However, in some circumstances, courts have recognized that a timely verbal notice may suffice and that the failure to send a notice may be justified in cases of (1) emergency, (2) where the seller clearly refuses to acknowledge any liability or (3) where the seller waives his right to such notice. The failure to send a timely notice can also only be fatal in cases where the seller suffers a real prejudice, as opposed to a simple prejudice in law.

In this specific case, the evidence clearly establishes that Appellants were only informed of the problem after the remedial work had been completed.

In fact, Appellants were contacted on July 17, 2017, nearly three weeks after the discovery of the oil tank. It was only then that they were made aware of a problem that arose during the excavation. No specific detail was provided at that time, and they agreed to meet on site three days later. On July 20, 2017, a meeting that notably included Respondent and Appellants took place next to the construction site, which consisted of a large excavation and a newly poured foundation of the residence. The tank had been disposed of.

Respondent sent a first written notice to 6045111 Canada inc. on July 21, 2017. It mentioned that the remedial work would be completed in the following weeks. Approximately one month later, 6045111 Canada inc. sent a letter to Appellants, giving them 15 days to assess the situation. However, the evidence is to the effect that the remedial work had been completed as of 2 weeks prior to the meeting of July 20, 2017.

The Court of Appeal concludes that the trial judge committed a palpable and overriding error in concluding that Appellants had suffered no real prejudice «... as they showed then, and now, no interest or belief that they needed to investigate or intervene on this matter». The reality is that Appellants were presented with a «fait accompli» as they were never given the opportunity to examine the oil tank, assess the extent of the contamination, evaluate the options for remediation or control the costs. This is not a situation where the seller denied liability or formally refused to assess the problem when it was possible to do so. In fact, once the buyer contacted them, Appellants readily agreed to a meeting three days later, only to discover then that there was nothing to see on site. Moreover, the Court of Appeal establishes that the remedial work was not urgent as the soil had apparently been contaminated for years. In addition, while the Respondent did not want to delay his construction project further, there was no reason for him not to provide Appellants with a reasonable delay to act promptly.

Consequently, the Court of Appeal is clear: the simple fact of denying Appellants the possibility to assess the situation and retain expert advice establishes, prima facie, the existence of a prejudice. In fact, there is little evidence pertaining to the situation on site. Accordingly, Appellants could not adequately ascertain if the costs claimed were limited to what was necessary. Moreover, they had no way of knowing if the contractor potentially aggravated the situation when he hit the tank or removed it from the premises.

Respondent had the burden of proving that Appellants would have been in the same situation had a timely notice been given. Such a demonstration was not made.

The Court of Appeal also distinguishes the present case from the facts in Claude Joyal inc. c. CNH Canada Ltd., 2014 QCCA . In the present case, the buyer decided to pursue the excavation despite the fact that no notice had been given whereas in Joyal, the property was destroyed for a reason that had nothing to do with the buyer.

Take away: A buyer should always send a notice as soon as he is made aware of a latent defect as the delay to inform the vendor may be fatal to its action.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.