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Consumer - 'Integrity and Honesty' Licensing Criteria. Yarco Developments Inc. v. Home Construction Regulatory Authority (Registrar)
In Yarco Developments Inc. v. Home Construction Regulatory Authority (Registrar) (Div Court, 2023) the Divisional Court considered (and allowed) an appeal reversing an earlier LAT decision granting the respondent a 'New Home Construction Licensing Act, 2017' (NHCLA) license to build and sell new homes.
In these quotes, the court considers key NHCLA 'integrity and honesty' licensing criteria phrasing [here, from NHCLA s.38(1)(b)(iii)], which the AG notes is also used in 70 similar licensing statutes and regulations for various "professions, trades, or activities" in Ontario. The material statutory phrasing here is:"(iii) the past and present conduct of its officers and directors, of all interested persons in respect of its officers and directors and of all interested persons in respect of the corporation affords reasonable grounds for belief that its business will be carried on in accordance with the law and with integrity and honesty, ..." The court continues:[4] The Attorney General of Ontario obtained leave to intervene on the appeal. It points out that 70 statutes and regulations in Ontario contain similar integrity and honesty provisions. It contends that the Tribunal’s interpretation in this case is inconsistent with how other gatekeeping legislation has been interpreted and that it will have serious consequences for the regulation of a wide range of professions, businesses, and products.
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What is the proper interpretation of s. 38(1)(b)(iii)?
[53] When s. 38(1)(b)(iii) is read taking into account its wording, its purpose, the surrounding statutory framework, and the legislative intent of the New Licensing Act, I find that it allows the Registrar to deny registration when it believes, based on objective, compelling and credible information about the applicant’s past and present conduct of officers, directors, and other interested parties, that the applicant will not conduct itself in accordance with the law and with integrity and honesty. Where put on notice that the Registrar intends to deny registration based on s. 38(1)(b)(iii), an applicant may seek a hearing for the purpose of presenting evidence that establishes otherwise. This does not impose an onus on the Registrar to prove ineligibility on a balance of probabilities standard. The onus is on the applicant to prove the non-existence of reasonable grounds for belief supporting a denial of licensure.
[54] The analysis of s. 38(1)(b)(iii) begins with the text itself, which I reproduce again here for convenience:38 (1) An applicant is entitled to a licence or a renewal of a licence by the registrar if, in the registrar’s opinion,
(...)
(b) the applicant is a corporation and,
(...)
(iii) the past and present conduct of its officers and directors, of all interested persons in respect of its officers and directors and of all interested persons in respect of the corporation affords reasonable grounds for belief that its business will be carried on in accordance with the law and with integrity and honesty. [55] As already seen, the Adjudicator interpreted this provision to place on the Registrar the onus to disprove an applicant’s entitlement to a licence if there is some evidence that its business will be carried on in accordance with the law and with integrity and honesty. To read the provision this way ignores the language in s. 38(1)(b)(iii) that shows that the legislator intended the Registrar to play a meaningful gatekeeper role.
[56] First, whether an applicant meets the criterion in s. 38(1)(b)(iii) is explicitly a matter of the Registrar’s opinion. This is inconsistent with a reading that places a significant evidentiary onus on the Registrar. Second, the standard for that opinion is “reasonable grounds for belief”. In Mugesera v. Canada (Minister of Citizenship and Immigration), 2005 SCC 40 (CanLII), [2005] 2 S.C.R. 100, [2005] S.C.J. No. 39, at para. 114, the Supreme Court of Canada held that the "reasonable grounds for belief" standard:[R]equires something more than mere suspicion, but less than the standard applicable in civil matters of proof on the balance of probabilities… .In essence, reasonable grounds will exist where there is an objective basis for the belief which is based on compelling and credible information… . [Citations omitted.] [57] In the Court of Appeal’s decision in Ontario Alcohol and Gaming Commission, it cited this passage in the context of an appeal on the integrity and honesty criteria for obtaining a liquor licence. At para. 19 it held that the standard required the registrar “simply to show that [the applicant’s] past or present conduct provides reasonable grounds for belief that he will not carry on business in accordance with the law and integrity and honour. The registrar does not have to go so far as to show that [the applicant’s] past or present conduct make it more likely than not that he will not carry on business as required” [emphasis in the original text].
[58] A reading that requires the Registrar to have only reasonable grounds for belief is furthermore consistent with the history of s. 38(1)(b)(iii) and the New Licensing Act more generally, as well as a comparison of the entire scheme to regulate licences under the ONHWPA and the scheme under the New Licensing Act.
[59] The New Licensing Act was enacted based on recommendations made by the Honourable Douglas Cunningham, who was appointed as a special advisor to review the ONHWPA and Tarion in November 2015. According to an Ontario government press release on the appointment, his mandate was to “review protections for owners of new homes and identify opportunities to improve consumer protection measures”. In his final report released in December 2016, the Honourable Cunningham recommended that an overriding objective of new licensing legislation should be consumer protection. To achieve this goal, he proposed the creation of a new regulator with strong compliance and enforcement tools and practices to regulate the new home sector. Recognizing the importance of examining the past conduct of individuals when assessing eligibility for licensing, he recommended that the new regulator be given a broader mandate.
[60] Following these recommendations, the New Licensing Act was enacted and came into force in February 2021 through Bill 166, Strengthening Protection for Ontario Consumers Act. Among other things, the Act transferred the responsibility for regulating new home builders and vendors to the newly created Home Construction Regulatory Authority.
[61] Under s. 3(3) of the New Licensing Act, the Home Construction Regulatory Authority is required to “comply with the principles of … promoting the protection of the public interest”. The Registrar was empowered to review not just the past conduct of officers and directors, but the past and present conduct of directors, officers and “all interested persons in respect of the corporation”. It was also empowered to obtain a broader scope of information about applications for licence and licence renewal, and to deny applications if information it requests is not provided. All the criteria in 38(1), unlike those in s. 7(1) of the ONHWPA, are subject to the Registrar’s opinion.
[62] In short, the text, history, purpose, and statutory context of s. 38(1)(b)(iii) all indicate a legislative intent to increase the consumer protection. This supports an interpretation that gives the Registrar the ability to deny a licence or licence renewal where it believes, on some objective basis based on compelling and credible information, that the applicant will not conduct itself with integrity and honesty. The legislative intent is inconsistent with an interpretation that assumes that an applicant will conduct itself appropriately, unless the Registrar can prove otherwise.
[63] An interpretation of s. 38(1)(b)(iii) that gives the Registrar robust gatekeeping powers is supported by the interpretation given to similar integrity and honesty provisions in other regulatory legislation. In Chauhan v. Health Professions Appeal and Review Board and The College of Physicians and Surgeons of Ontario, 2013 ONSC 1621 (Div. Ct.), the Divisional Court considered a registration requirement for medical residents established by way of a regulation to the Health Professions Procedure Code, Schedule 2 to the Regulated Health Professions Act, 1991, S.O. 1991, c. 18. Under the regulation, it was a “non-exemptible standard and qualification for a certificate of registration that the applicant’s past and present conduct afford reasonable grounds for belief that the applicant…will practise medicine with decency, integrity and honesty and in accordance with the law”. Having completed his first year of residency, Dr. Chauhan applied for a certificate for his second year. The application was denied by a registration committee because Dr. Chauhan had been charged, but not convicted, of several serious crimes. The refusal was upheld by the Health Professions Appeal and Review Board, which held that the information about the criminal investigations and charges against Dr. Chauhan justified the committee’s determination that he did not meet the registration requirement and that Dr. Chauhan had not tendered evidence at the registration committee hearing that would prove his qualification under the integrity and honesty provision.
[64] Writing for a unanimous panel, Harvison Young J. (as she then was) concluded that Dr. Chauhan’s application for judicial review of the Board’s decision should be dismissed. At para. 40 of Chauhan, she described the scheme in the regulation as one which “clearly sets the process of registration as part of a gatekeeping function regulating entry to the profession”. At para. 37, she agreed with the Board that, pursuant to the regulation, the onus was on the applicant to satisfy the integrity and honesty requirement in the regulation; there is no presumption of good character. Harvison Young J. noted at para. 52 that practising medicine in Ontario is a privilege, not a right, and that the “application process serves the role of ensuring that there is a reasonable basis that those who are granted this privilege do so with honesty, integrity, and in accordance with the law, so as to not violate that essential position of trust”.
[65] The analysis in Chauhan has been applied in other cases involving integrity and honesty thresholds for registration that are expressed in positive terms; see, for example, J.A. v Ontario (College of Massage Therapists), 2019 CanLII 3032 (ON HPARB), at para. 69; F.E. v College of Nurses of Ontario, 2019 CanLII 29058 (ON HPARB), at para. 44; and I.M. v College of Physiotherapists of Ontario, 2017 CanLII 4198 (ON HPARB), at para. 38. These cases involve the licensing or registration of health care professionals. There is no reason, however, why the Chauhan analysis would not apply to the other gatekeeping schemes such as s. 38(1)(b)(iii) of the New Licensing Act. In all these cases, the overarching purpose of the gatekeeping —protection of the public and ensuring public confidence in a regulated industry — are essential to the regulatory scheme. Being licensed to build and sell new homes in Ontario is a privilege, not a right.
[66] Finally, in the only other case put before the court involving s. 38(1)(b)(iii), the Tribunal held that the integrity and honesty provision in the New Licensing Act should be interpreted consistent with past caselaw under the ONHWPA. In 1957922 Ontario Ltd. v. Registrar, New Home Construction Licencing Act, 2017, 2022 CanLII 49929 (ON LAT), the Registrar issued a notice advising that the applicant would not be granted a licence. The notice was sent before the New Licensing Act came into force, but transitional rules provided that the applicant’s appeal to the Tribunal was subject to the Act’s provisions. At para. 25 of 1957922 Ontario, adjudicator Kevin Lundy made the following comments about s. 38(1)(b)(iii):With respect to the ground of honesty, integrity and compliance with the law, in Ontario (Alcohol and Gaming Commission of Ontario) v. 751809 Ontario Inc., the Ontario Court of Appeal found that as a standard of proof, “reasonable grounds for belief” is lower than the “balance of probabilities.” It requires more than mere suspicion and an objective basis for the belief based upon compelling and credible information. The Court of Appeal also noted that when examining past conduct, the Registrar is not limited to the operation of licensee’s business and may consider both criminal and noncriminal conduct. Further, according to CS v. Registrar, Real Estate and Business Brokers Act, 2002, there must be a nexus between the Appellant’s past conduct and its ability to conduct business under the Act serving the interests of the public. [Citations omitted.] [67] In his Reconsideration Decision, the Adjudicator in the case at bar found 1957922 Ontario irrelevant because, in his view, the integrity and honesty standard ultimately applied was that at 7(1) of the ONHWPA. I agree that the Tribunal’s conclusions in 1957922 Ontario are expressed using the wording of the older legislation. Adjudicator Lundy’s comments are nonetheless relevant since they show that his reading of s. 38(1)(b)(iii) is consistent with my interpretation of it.
[68] For all of these reasons, I conclude that s. 38(1)(b)(iii) of the New Licensing Act confers on the Registrar the power to deny a builders’ licence to a company where the Registrar has reasonable grounds for belief, based on the past and present conduct of the company’s officers, directors, and other interested parties, that it will not conduct itself in accordance with the law and with integrity and honesty. The question that the Tribunal should have addressed is not whether the Registrar could disprove Yarco’s eligibility, but whether the evidence supported the Registrar’s Notice of Proposal.
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