Court File and Parties
CITATION: B.C.R. Construction Incorporated v. Humphrey et al., 2014 ONSC 5576
DIVISIONAL COURT FILE NO.: C56787
DATE: 20141204
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
MATLOW, LEDERMAN & HAMBLY JJ.
BETWEEN:
B.C.R. CONSTRUCTION INCORPORATED
Plaintiff/Respondent
– and –
HOWARD ANTHONY HUMPHREY and KIMBERLY ANN AUS
Defendants/Appellants
Joseph Villeneuve, for the Plaintiff/Respondent
John W. Montgomery, for the Defendants/Appellants
HEARD: September 19, 2014 at Oshawa
LEDERMAN J.
NATURE OF APPEAL and cross-appeal
[1] This is an appeal by the defendants and cross-appeal by the plaintiff from the judgment of Mr. Justice Alexander Sosna who found that the appellants (collectively “Humphrey”) breached the construction contract dated April 30, 2007 entered into between them and the Respondent, B.C.R. Construction Incorporated (“BCR”) and awarded damages to BCR in the amount of $34,921.36. He also dismissed Humphrey’s counterclaim for damages for breach of contract, trespass and a refund of $52,545.46 for alleged overpayment to BCR.
[2] In issue before the trial judge was whether it was Humphrey who terminated the construction contract without cause or whether it was BCR who in fact abandoned the contract. The trial judge found that it was Humphrey who breached the construction contract and rejected Humphrey’s argument that BCR had exceeded the budget or provided any grounds for terminating the construction contract. The trial judge expressly found at para. 84 that it was Humphrey who “brought the construction to an end before completion.” The trial judge found no delay on the part of BCR but, rather, that it was in fact Humphrey who delayed the project and, in so doing, breached Clause 12, Schedule B of the restricted covenants to the effect that “any construction upon the Lot/Land shall be completed within one year from the commencement thereof.”
[3] The trial judge also held that the Consumer Protection Act, 2002, S.O. 2002, c. 30, Schedule A (“CPA”) did not apply because the construction contract was exempt from coverage pursuant to s. 2(2)(f) of the CPA.
[4] The trial judge further held that entry by BCR on to Humphrey’s lot after termination of the construction contract did not amount to a trespass.
[5] With respect to damages, the trial judge allowed BCR’s claim for profits up to November 7, 2008 but dismissed its claim for future profits on the grounds that it had not separated profits from revenues. This is the subject of the cross-appeal by BCR.
BACKGROUND FACTS
[6] By Agreement of Purchase and Sale dated April 7, 2007 (“APS”) Humphrey purchased a vacant lot from BCR for $225,000. Title was transferred to Humphrey on April 19, 2007.
[7] Humphrey was not bound by the APS to hire BCR to construct a home on the lot but subsequently, on April 30, 2007, Humphrey and BCR signed a contract to construct a custom built home on the purchased lot (the “Construction Contract”). It provided that Humphrey was to pay defined construction costs and an additional 20% as BCR’s fee.
[8] Prior to entering into the Construction Contract, BCR had secured blueprints in order to complete the construction as soon as possible. Actual construction activities commenced on or after April 30, 2007.
[9] Article A-1(d) of the Construction Contract, provided that BCR would “carry out work with due diligence and dispatch” and Article A-6 provided that BCR would provide estimates as required. An estimate of the cost to build the home was given to Humphrey. BCR said it provided an estimate of $1.2 to $1.5 million whereas Humphrey said it was $900,000.
[10] BCR commenced rendering invoices in September, 2007. When Humphrey made one of the payments in November, 2007, Humphrey asked BCR for an estimate to complete the construction to a capping stage (wherein the foundation and sub floor are essentially completed and covered with a plastic layer for protection) as Humphrey was considering delaying construction. At that time, BCR provided a “Stage 1” written estimate for labour and materials for this capping work of $115,000 - $125,000.
[11] In or around February 14, 2008, Humphrey contacted BCR and indicated that he was experiencing financial issues. At that time, he requested that BCR provide a second estimate in respect of finalizing the project to a lock-up of the structure stage. BCR provided an estimate of $269,800 plus 20% for that work.
[12] About a week later, on February 21, 2008, the parties created a construction budget that Humphrey provided to the bank in the amount of $1,621,932 inclusive of the purchase of the lot.
[13] By March, 2008, other than the completion of the foundation and delivery of building materials to the vacant lot, little was done to advance the construction. BCR had paid for materials and was not prepared to incur further costs, especially when it learned that Humphrey had purchased a different home elsewhere in July, 2008.
[14] Humphrey formally terminated the Construction Contract in August, 2008. His lawyer wrote to BCR as follows:
We are counsel to Howard Humphrey and Kimberley Aus with respect to the Construction Contract dated April 30, 2007 for Lot 18 in the Westlake Estates. As you are certainly aware, our clients have terminated the contract as a result of your various breaches of the contract, not the least of which is the exorbitant cost overruns and the overcharging. At this point in time, there are various options available for resolution of this problem.
[15] By this letter, Humphrey took the position that he anticipatorily terminated the contract due to what he perceived to be cost over runs and over billing by BCR.
[16] At the time of the termination of the contract, BCR contended that Humphrey owed it $42,171.36, notwithstanding that this amount was admittedly not invoiced until later in or around November, 2008.
WHO BREACHED THE CONTRACT?
[17] The conclusion of the trial judge that it was Humphrey and not BCR who breached the Construction Contract is based on findings of fact for which the standard of review is whether the trial judge made any palpable and overriding error in so doing.
[18] Counsel for Humphrey argued before the trial judge that when he formally terminated the Construction Contract in August, 2008, 16 months had elapsed since construction began in April, 2007. By that time, only the foundation had been completed and thus BCR was in breach of Article A-1(d) which provided that BCR was to carry out the work with due diligence and dispatch and Humphrey submitted that BCR’s breach of this provision provided him with grounds to terminate the Construction Contract.
[19] On this appeal, Humphrey argued that the trial judge made a palpable and overriding error in finding that BCR was not the cause of delay in the construction of the home but rather, that it was Humphrey that brought the construction to an end before completion.
[20] In this regard, we note the following:
(a) between the cessation of construction in March, 2008 and the termination of the contract by Humphrey in August, 2008, he made no mention or complained to BCR about delay;
(b) the letter of termination sent by Humphreys’ lawyer to BCR makes no mention of delay. Rather, it refers to cost over runs and over billings as constituting the basis for terminating the contract;
(c) even after BCR commenced its action against Humphrey, nowhere in the statement of defence and counterclaim, is there any assertion that BCR was responsible for delay in the completion of the contract.
[21] In fact, there is no evidence, let alone any assertion by Humphrey, that BCR was the cause of any delay in the construction.
[22] We find no palpable or overriding error by the trial judge in concluding that there was no delay on the part of BCR and, therefore, there is no merit to this ground of appeal.
APPLICATION OF THE CONSUMER PROTECTION ACT
[23] Humphrey alleged in his counterclaim that BCR had breached the CPA, specifically, section 10(1) which provides as follows:
“If a consumer agreement includes an estimate, the supplier shall not charge the consumer an amount that exceeds the estimate by more than 10 per cent.”
[24] Humphrey had argued that BCR breached that section by rendering interim accounts on a calculation of cost plus 20% which exceeded the 10% maximum on the Stage 1 estimate that BCR provided for capping the foundation.
[25] Section 2(2)(f) provides that the CPA does not apply in respect of “consumer transactions for the purchase, sale or lease of real property, except transactions with respect to time share agreements as defined in section 20.”
[26] Of particular importance is the anti-avoidance provision in section 3 which provides as follows:
Anti avoidance
- In determining whether this Act applies to an entity or transaction, a court or other tribunal shall consider the real substance of the entity or transaction and in so doing may disregard the outward form.
[27] The trial judge found that the Construction Contract was not independent of the APS, and although the two contracts were formalized on separate dates, that the “real substance” of the parties’ “transaction” was one ongoing agreement for the purchase and sale of the lot and construction of the custom built home. He concluded that as a result, the CPA was not applicable.
[28] The standard of review for this finding is reasonableness. It involves a question of mixed fact and law; namely, whether an interpretation of the two contracts and an assessment of the relevant facts would lead to the conclusion that the real substance of the transaction was the purchase of real property. In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, Rothstein J. stated as para. 50:
I am of the opinion that the historical approach should be abandoned. Contractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix.
(See also Amex Bank of Canada v. Adams, 2014 SCC 56 at para. 26 in which the Supreme Court of Canada held that findings by the trial judge in respect of the application of the Quebec Consumer Protection Act engaged determinations of fact, or at most of mixed fact and law, and should not be disturbed unless there was palpable and overriding error.)
[29] The conclusion of the trial judge that the CPA did not apply was supported by the following evidence:
(a) BCR led evidence at trial that Humphrey decided to build on lot 18 and liked the home owned and built by the principal of BCR which was situated immediately next door. Humphrey wanted to ensure that the quality matched the home. Modifications were discussed and Humphrey was advised that their custom home built by BCR would cost about $1.2-$1.5 Million in addition to the cost of land.
(b) This was discussed “really early” in the proceedings when Humphrey bought the lot. Humphrey wanted building to commence right away.
(c) Thus,* when the APS was signed April 7, 2007, BCR immediately took steps to secure blueprints for construction. The parties sat down and sketched out a ‘wish list’ for Humphrey’s home on velum paper in order to get something to Ray Abbott (BCR’s draftsperson). At that time Humphrey had a copy of the Construction Contract.
[30] Given this evidence, the trial judge’s conclusion as to the real substance of the transaction was within a range of reasonable outcomes and we find that he made no palpable and overriding error in so finding.
[31] Furthermore, even if he did, we are of the view that the Stage 1 estimate is not one contemplated by the CPA. It was an estimate given for the limited purpose of the project being capped. No instructions were ever given to go ahead and cap the foundation. Although aspects of the estimate were performed such as excavation and constructing the sub floor, the estimate was given for the sole purpose of capping the project which was never done. Although parts of the estimate were performed, it was in respect of the estimate given for the entire project, namely, $1.2 -$1.5 million.
[32] An estimate that was never acted upon for the purpose for which it was given cannot fall within the CPA.
[33] Accordingly, this ground of appeal fails as well.
TRESPASS
[34] There was no palpable or overriding error made by the trial judge in finding that BCR did not commit trespass. BCR merely exercised its contractual rights in entering upon Humphrey’s lot. Clause 22 in Schedule B of the APS permitted a right of entry to BCR to clean up debris on the lot if not attended to by Humphrey. The trial judge found that BCR came on to the property in the need to keep the site clean and it did not dump any material not intended for construction on the home.
[35] On the evidence before him, such findings by the trial judge were reasonable.
THE CROSS-APPEAL
[36] BCR submits that the trial judge erred in not awarding damages for a loss of future profits as a result of Humphrey’s breach of contract.
[37] Lost profit was submitted by BCR to be 20% of the total estimated costs (less the amount paid to date on previously paid invoices totaling $189,956.46 which included the 20% markup).
[38] BCR led evidence that it lost opportunities to build homes for others by committing itself to the construction of Humphrey’s home.
[39] The trial judge made a distinction between revenues and profits. He was of the view that profit is some lesser amount that is arrived at after deducting from the revenue amount BCR’s non-project related operating expenses, such as overhead, employee salaries, office expenses, etc. The trial judge accordingly held that damages for loss of profit for the balance of the contract could not be awarded because the plaintiff failed to adduce any evidence on which its profit on the work remaining to be done could be calculated.
[40] The general rule of common law is that in giving damages for breach of contract to a party, as far as it can be done by money, that party should be placed in the same situation as if the contract had been performed. (see S.M. Waddams, The Law of Damages, Canada Law Book, 2009, at s.30).
[41] The proper measure and assessment of damages is a question of mixed fact and law, and therefore, the standard of review is whether the trial judge made a palpable and overriding error.
[42] We are of the view that the trial judge did make such an error in reaching his conclusion. The 20% was simply the profit accrued to BCR in this cost plus 20% Construction Contract. The 20% was pure profit and it was up to BCR to decide how it would expend or allocate it, whether it be on overhead expenses or any other way that it saw fit.
[43] The cross-appeal is therefore allowed and the judgment is varied to award damages in the amount of $162,008.71 for loss of profit arising from Humphrey’s breach of the contract, plus pre-judgment interest in accordance with the Courts of Justice Act. The loss is calculated as follows:
(a) If the Construction Contract had been performed to completion at a total price of $1.2 million, BCR would have received a total fee of $200,000, representing the 20% included in the $1.2 million.
(b) Up to the date of terminating the Construction Contract, Humphrey had paid $189,956.46. That amount included the 20% markup, i.e. $37,991.29.
(c) The balance of profit foregone had the contract been completed would have been $162,008.71 (i.e. $200,000 less the $37,991.29 profit already paid.)
COSTS
[44] Counsel advised that they could come to an agreement as to costs of the appeal and cross-appeal. If, however, they are unable to do so, they may make written submissions, in triplicate, by leaving them with the Registrar of the Divisional Court, the Respondent within 15 days of the release of this decision, the Appellant within 15 days thereafter and reply, if any, within 10 days thereafter.
Lederman J.
Matlow J.
Hambly J.
Released: December 4, 2014
CITATION: B.C.R. Construction Incorporated v. Humphrey et al., 2014 ONSC 5576
DIVISIONAL COURT FILE NO.: C56787
DATE: 20141204
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
MATLOW, LEDERMAN & HAMBLY JJ.
BETWEEN:
B.C.R CONSTRUCTION INCORPORATED
Plaintiff/Respondent
– and –
HOWARD ANTHONY HUMPHREY and KIMBERLY ANN AUS
Defendants/Appellants
REASONS FOR JUDGMENT
Lederman J.
Released: December 4, 2014