Executive Summary: Key Legal and Evidentiary Issues

• Tarion proposed to revoke 498599 Ontario Limited's qualification for 16 homes and refuse 1499469 Ontario Inc.'s application for 12 homes, citing outstanding warranty debts exceeding $350,000 and poor construction practices.
• Central to the appeal was whether Tarion was entitled to consider "construction and warranty service competence" as part of a builder's "conduct" under section 10.3(4) of the Ontario New Home Warranties Plan Act.
• Both corporations were treated as "interested persons" under the Act because Paolo Cusinato directed and controlled them, making 498's conduct relevant to 149's qualification application.
• The Licence Appeal Tribunal conducted a 12-day hearing and found, on a balance of probabilities, that the appellants failed to properly construct homes and service warranties at two properties.
• Procedural fairness was challenged on the basis that the LAT's reasons were insufficient; the court found the reasons were adequate to permit appellate review.
• Appellants were barred from raising warrantability issues at the qualification hearing, as only homeowners — not builders or vendors — hold the right to appeal Tarion's warrantability decisions under section 14(14) of the Act.

Facts of the case

This case arises from a dispute between two related Ontario builders — 1499469 Ontario Inc. ("149") and 498599 Ontario Ltd. ("498") — and Tarion Warranty Corporation ("Tarion"), the body that administers mandatory new home warranty coverage in Ontario under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31 ("Warranties Act"). Under sections 10.1 and 10.2 of the Warranties Act, every new home vendor and builder in Ontario must apply to Tarion for warranty coverage for each home they construct. Both 149 and 498 submitted qualification applications to Tarion. While 498 had initially been granted qualification for 16 homes — deemed qualified as of February 1, 2021 — Tarion gave notice on June 6, 2024 of its proposal to revoke that qualification. On the same day, Tarion also gave notice of its proposal to refuse 149's application for an additional 12 homes. Both corporations were found to be "interested persons" under section 1(2) of the Warranties Act, as Paolo Cusinato directed and controlled them both.

In support of its proposals, Tarion identified that 498 owed it over $350,000 for warranty breaches as of June 6, 2024, that 498 had repeatedly failed to indemnify Tarion despite multiple requests, that 498 had in several cases made no attempts to repair defects, and that outstanding warranty claims remained against it. Tarion further noted that 498's poor workmanship — including major structural defects, building code violations, and water penetration — had caused the warranty breaches and the outstanding balances, and that these constituted a "material change" and breach of condition under the applicable regulations.

Statutory and regulatory framework

The core provision at issue was section 10.3(4) of the Warranties Act, which permits Tarion to "consider the past and present financial position or conduct of the applicant" and any "interested persons" when deciding qualification applications. Section 10.4 provided Tarion with authority to revoke a qualification prior to formal enrollment. The relevant regulatory framework, O. Reg. 638/20 (Enrolment Regulations), imposed preconditions for both initial qualification and continued qualification. For initial qualification, an applicant must be "qualified and suited for the work they will do"; for continued qualification, there must not have been a material change affecting construction, "after-sales service," or the servicing of warranties. "Material change" under section 1 of the Enrolment Regulations is defined to include a "change in operations."

Court's reasoning and analysis

The appellants raised three grounds of appeal before the Divisional Court. First, they argued the LAT erred in law by treating "construction and warranty service competence" as part of "conduct" under section 10.3(4), since competence is not an enumerated factor under section 3 of the Enrolment Regulations. The court rejected this argument, applying a plain reading of the word "conduct" and finding it broad enough to encompass both construction and warranty service competence. Citing Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, the court held that Tarion was entitled to consider such competence when deciding qualification applications, and that "material change" in the regulations — defined to include a "change in operations" — was similarly broad enough to capture changes in construction or warranty competence.

Second, the appellants argued the LAT made palpable and overriding errors in its factual findings. The court disagreed. The LAT had conducted a 12-day hearing, receiving evidence from the appellants' corporate representative, Tarion's employees, and competing construction experts, all of whom were cross-examined. The LAT found that the appellants had failed to properly construct warranted items at two properties — "Columbia Terrace" and "Royal Street" — had been unwilling or unable to remedy the defects despite multiple opportunities, that Tarion's costs in discharging the warranty obligations were reasonable, and that the appellants had failed to indemnify Tarion for those costs. The court found the Adjudicator's reasons to be detailed and free from error in the treatment of expert evidence.

Third, the appellants alleged procedural unfairness, arguing that the reasons were inadequate and that the Adjudicator failed to draw proper inferences from the evidence. The court dismissed this ground as well, finding the reasons sufficient for appellate review, citing R. v. Sheppard, 2025 SCC 29. The court further held that the LAT correctly declined to consider warrantability issues, as section 14(14) of the Warranties Act reserves that right to homeowners, not builders or vendors. Having failed to seek binding arbitration or judicial review of Tarion's warrantability decisions, the appellants were barred from raising those issues at the qualification hearing.

Ruling and overall outcome

The Divisional Court dismissed the appeal in its entirety. As the successful party, Tarion was awarded costs against the appellants. While Tarion sought full indemnity costs of $169,174 and the appellants sought to cap costs at $40,000, the court — balancing the unmeritorious nature of the appeal against Tarion's late-filed and excessive bill of costs — awarded costs of $80,000, all inclusive.