CITATION: Jessco Structural Limited v. Gottardo Construction Limited, 2016 ONSC 2189

DIVISIONAL COURT FILE NO.: DC-15-0063-00 DATE: 20160524

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

IN THE MATTER OF the Construction Lien Act,

R.S.O. 1990, Chapter C.30, as amended

J. WILSON, C. HORKINS, and PERELL JJ.

BETWEEN:

JESSCO STRUCTURAL LIMITED

Plaintiff/Appellant

– and –

GOTTARDO CONSTRUCTION LIMITED

Defendant/Respondent

Adam Wainstock, for the Plaintiff/Appellant

Paul Davis, for the Defendant/ Respondent

HEARD at Brampton: March 15, 2016

REASONS FOR JUDGMENT

C. hORKINS J.

introduction

[1] The appellant, Jessco Structural Limited ("Jessco"), appeals the decision of the Honourable Mr. Justice André of the Superior Court of Justice (the motion judge), dated June 5, 2015.

[2] Jessco was a concrete forming subcontractor to Gottardo Construction Limited ("Gottardo") on two building projects on which Gottardo was general contractor: the Brampton Business Centre located at 7900-7920 Hurontario Street, Brampton, Ontario ("BBC") and Maxum Building 4 located at 3700 Midland Avenue, Scarborough, Ontario ("Maxum").

[3] Jessco performed extra work on the two building projects at the request of Gottardo’s site superintendent. Gottardo refused to pay for the extra work and relied on the contract between the parties.

[4] Jessco commenced a lien and trust action against Gottardo for payment of the extra work. Gottardo filed a defence and counterclaim seeking back charges on account of deficient work that Jessco performed.

[5] On July 21, 2014, Price J. ordered that Gottardo bring a motion on the narrow issue of whether Gottardo can rely on the contractual provisions to avoid compensating Jessco for the extra work it did on the two projects. This is the motion that came before the motion judge.

[6] The motion judge found that Gottardo “is not liable for extra charges for work performed by Jessco where such work was not performed in accordance with the contract signed by both parties.”

The decision under appeal

[7] The motion judge reviewed the following background facts.

[8] Jessco and Gottardo signed a contract that described the work to be done on the two projects. Pursuant to Article 9 of the contract, no changes to the work could be made without a written order from Gottardo. Article 9 states:

ARTICLE 9 — CHANGES IN THE WORK

9.1 [Gottardo], without invalidating this agreement, may make changes by altering, adding to, or deducting from the subcontract work. The subcontract price and the schedule or timing specified in Article 2 — SCHEDULE shall be adjusted accordingly.

9.2 If a change results in a net increase in the Contract price; an allowance for overhead (mark-up) and profit shall be included provided that such allowances shall not exceed 5% for overhead (mark-up) and 5% for profit. The subcontract price and the schedule or timing specified in Article 2 — SCHEDULE shall be adjusted accordingly.

9.3 No changes shall be made without a written order from the [Gottardo]

[9] Appendix "B" to the contract dealt with payment for “extras” that Jessco performed. It states:

No extras will be considered for any reason whatsoever unless negotiated with [Gottardo] before the work is done. Tickets [also called purchase orders] for labour, equipment, and materials signed by [Gottardo's] Site Superintendent are to confirm that the work was done and/or materials were supplied, and is not an agreement that the items signed for are additional to the contract or acceptance of labour rates or material costs.

[10] Romeo D’Angelo, the principal of Jessco, understood that Article 9.3 was a standard specification. He also understood that it was a term of the contract that no extras would be considered for any reasons whatsoever, unless negotiated with Gottardo before the work was done.

[11] At the request of Gottardo’s site superintendent, Jessco performed extra work on the two projects, beyond what it was contractually obliged to do. The motion judge described this work in para. 20(3) of the reasons as follows:

a. Extra forming work necessitated by POOR soil conditions which was completed in April 2008.

b. Providing labour to assist a different framework subtrade of Gottardo on a different building at the Maxum project. After the work was done, Jessco provided Gottardo’s site superintendent with a purchase order which he signed. The extra work was then invoiced but never paid.

c. Providing labour to assist Gottardo with general site conditions at the Maxum project. Gottardo’s site superintendent requested Jessco to keep the site clear of snow or meet winter conditions to allow work to proceed in a timely manner. Jessco provided this type of assistance to Gottardo from December 17, 2007 to February 8, 2008. Jessco provided Gottardo’s site superintendent with a purchase order setting out the dates and hours spent on this “extra” work. The order was signed by Gottardo’s site superintendent

d. Gottardo’s site superintendent requested additional work to be done by Jessco on the BBC project. Upon completion of the work, Jessco presented Gottardo’s site superintendent with purchase orders that gave a description of the work done and the number of hours spent. The site superintendent signed the purchase orders. Gottardo never provided any written change orders for any of the extras prior to the site superintendent requesting the work done

[12] The motion judge noted that under Article 9.3 no changes could be made to the contract without a written order from Gottardo. Therefore without a written order, “Jessco did not have the contractual obligation to do the work that Gottardo requested.”

[13] Turning to Appendix B, the motion judge noted that “no extras will be considered for any reason whatsoever unless negotiated with Gottardo before the work is done.” He noted that Appendix B does not require the negotiations to be in writing. The motion judge found that the extras were not “on account of any negotiations between Jessco and Gottardo; rather they were merely requests by Gottardo’s site superintendent to Jessco.” The motion judge added that pursuant to Appendix B, tickets (also referred to as purchase orders) that Gottardo’s site superintendent signed “merely confirmed that the work was done and/or materials supplied; they do not constitute an agreement that the items signed for are additional to the contract or acceptance of labour rates or material costs”.

[14] The question before the motion judge was whether Gottardo’s conduct amounted to “a waiver of the contract or its acquiescence to Jessco’s non-compliance with it.” Jessco relied on the following conduct:

(1) Gottardo’s site superintendent specifically requested Jessco to perform the work in question.

(2) Gottardo’s site superintendent signed Jessco’s purchase orders, which confirm that the work had been done and the hours required to do the work.

[15] The motion judge acknowledged that “parties to an agreement may vary the terms of a contract by their conduct, such that they cannot rely on the terms of the contract that require written authorization before any additional work is undertaken.” He reviewed relevant authorities and concluded that Gottardo’s conduct did not “constitute a waiver of the contract or its acquiescence to Jessco’s non-compliance with it.”

[16] In particular the motion judge considered the Court of Appeal’s decision in Colautti Construction Ltd. v. City of Ottawa, (1984) 1984 1969 (ON CA), 46 O.R. (2d) 236 (“Colautti”). In Colautti, the appellant signed a contract with the City to construct a sewer. The contract required that all additional costs be authorized in writing. During the construction, the City asked the appellant to perform certain extra work. It was not authorized in writing. The appellant completed the work and the City refused to pay. Prior to this specific extra work, the City had requested the appellant to perform other extra work on several occasions. This extra work involved significant changes and additions to the work in the contract. None of these changes were authorized in writing and the City had paid for all of this work. On appeal the court found that the parties, by their prior conduct, had varied the terms of the contract that required extra work to be authorized in writing. Unlike the facts in Colautti, there was no pattern of prior conduct to show that Gottardo had waived the terms of the contract.

jessco’s position

[17] Jessco argues that the motion judge erred in law because he interpreted Colautti to mean that payment for the extra work was required to demonstrate waiver of Gottardo’s intention to rely on the strict terms of the contract.

[18] Second, Jessco states that the motion judge erred in the application of the law to the facts because he did not accept that the facts were sufficient to constitute waiver. Jessco argues that because Gottardo requested the work and signed the purchase order, this amounted to waiver of its intention to rely on the strict terms of the contract.

Standard of review

[19] The standard of review on an appeal from a judge’s order is set out in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. On questions of law, the standard is correctness (at para. 8). On questions of fact, the standard is palpable and overriding error (at para. 10). On questions of mixed fact and law, the Court stated that there is a spectrum. Where there is an extricable legal principle, the standard of review is correctness. However, with respect to the application of the correct legal principles to the evidence,the standard is palpable and overriding error.

Analysis

[20] The motion judge did not err in law. He correctly stated that “parties to an agreement may vary the terms of a contract by their conduct, such that they cannot rely on the terms of the contract that require written authorization before any additional work is undertaken.” He reviewed relevant authorities and concluded that Gottardo’s conduct did not “constitute a waiver of the contract or its acquiescence to Jessco’s non-compliance with it.”

[21] The motion judge did not state that prior payment of extra work is required to prove waiver. He observed that this was the basis for finding waiver in Colautti and distinguished this from the facts that were before him.

[22] The motion judge also considered Triple R Contracting Ltd. v. 384848 Alberta Ltd., 2001 ABQB 52 and Michele's Landscaping Inc. v. Nicon Development Alberta Ltd. 2005 ABPC 243. In Triple R Contracting Ltd. v. 384848 Alberta Ltd., the parties signed a written contract and from the outset they completely disregarded it. The construction project proceeded on the basis of a different verbal agreement. In Michele's Landscaping Inc. v. Nicon Development Alberta Ltd., the parties ignored the written contract and developed a practice of verbally agreeing to the extra work. In each case, the court was satisfied on the facts that the parties no longer considered themselves to be bound by the strict requirements in the contract.

[23] During argument of the appeal, Jessco’s counsel referred the court to three examples of extra work and the documents that were generated by the parties as a result. As noted above, the motion judge described the extra work in para. 20(3) of the reasons. Counsel represented that the documents reflected the extra work described in para. 20(3), but it was unclear which item of extra work in para. 20(3) each document referenced. Counsel could not confirm that these were the documents that the motion judge considered. Despite this lack of clarity, the parties agree that the documents relate to the unpaid extra work. There is also no dispute about the facts that are revealed in these documents.

[24] As the motion judge stated, Gottardo’s site superintendent requested Jessco to perform the extra work. There was no evidence that the parties negotiated the extra work. It was simply a request. In the three examples, Jessco performed the extra work upon request. After the work was done Jessco invoiced the extra work. The purchase orders confirmed that the work was done, but did not state the price of the extra work.

[25] I find that the motion judge applied the correct law to the undisputed facts and in doing so he did not make a palpable and overriding error. The decision is consistent with the law of waiver. There must be “an unequivocal and conscious decision to abandon the right to rely on [the contract]” (Technicore Underground Inc. v. Toronto (City), 2012 ONCA 597 at para. 63.).

[26] The appeal is dismissed. The parties have agreed on the costs of the appeal. The appellant shall pay the respondent its costs fixed at $8148 all inclusive.

C. Horkins, J.

Perell, J.

J. Wilson J. Dissenting:

[27] I respectfully disagree with the conclusions reached by my colleagues in this appeal.

[28] As noted in Technicore Underground Inc. v. Toronto (City), 2012 ONCA 597, 354 D.L.R. (4th) 516, at paras. 66-67, adopts the principles of Colautti, the courts will order payment for extra work if there is a pattern of behaviour that had the “effect of varying the terms of the Contract”:

Colautti Construction is a very different case from the present one. In Colautti Construction, the plaintiff contractor entered into a contract with the defendant city for the construction of a sanitary sewer. The contract stipulated that written authorization was required for additional charges. Nonetheless, at various different times over the course of the project, the contractor billed the city for significant extra charges and the city paid them, despite the absence of written authorization. This court held that the parties had varied the terms of the contract by their conduct and the city could not rely on the strict provisions of the contract to escape liability for further additional costs.

In the present case, there is no pattern of conduct by the parties over the course of the Contract demonstrating that they did not intend to be bound by the Notice Provision. Far from ignoring the relevant provisions in the Contract, the parties acted in compliance with its terms….There is no pattern of conduct by the parties that had the effect of varying the terms of the Contract. [Emphasis added]

[29] The onus is upon the Appellant to prove waiver by conduct meeting the most recent enunciation of the test as “an unequivocal and conscious decision to abandon the right to rely on [the contract]”: see Technicore Underground, at para. 63.

[30] I conclude that the findings of fact of the motions judge, when considered with the undisputed facts contained in the motion record, amply support the conclusion that in law Gottardo by its conduct waived the terms of the contract.

[31] The motions judge did not have the benefit of the presentation of the established case law confirming that verbal requests for extra work outside the scope of the contract establishes waiver of the strict terms of the contract. The motion judges’ statement of the law, as far as it went, was correct but was not complete.

[32] For the reasons to follow, I conclude that given the undisputed facts, the motions judge erred in his interpretation of the law of waiver by conduct when a contractor requests a subcontractor to do extra work outside the scope of the contract. I would allow the appeal by setting aside the order of the motions judge, including costs and require Gottardo to pay for the extras claimed in the amount of $32,330.47.

THIS RULE 21 MOTION

[33] Jessco was the former subcontractor performing work for Gottardo as contractor on two commercial building projects in Brampton: the BBC and Maxum projects. These contracts were for $1,428,500.00 and $140,000.00, respectively.

[34] Gottardo’s Rule 21 motion deals with extras on both the BBC and Maxum projects totalling $32,330.47.

[35] There are still two outstanding claims initiated by Jessco for the balance owing on the contracts in the amount of $194,888.91 for the BBC project and $34,028.21 on the Maxum project. Gottardo counterclaimed for damages in the amount of $662,000.00 in the BBC and Maxum actions, for alleged significant deficiencies in the work performed.

[36] The pre-trial judge set a trial date for a 7 to 10 day construction lien hearing targeted to proceed in January 2015.

[37] The pre-trial judge also ordered (rather than suggested) that Gottardo bring a motion concerning the extras for a “determination of the issue of law based on the affidavits or will say statements of the project managers and site supervisors” pursuant to Rule 21 of the Rules of Civil Procedure.

[38] Apart from the matters raised in this appeal concerning extras, the construction lien action and the breach of trust action have been stalled due to this motion and appeal.

[39] Rule 21.01(1)(a) provides that a party may move before a judge for a determination, before trial, of a question of law raised by a pleading in an action where the determination of the question may dispose of all or part of the action, substantially shorten the trial or result in a substantial saving of costs. Further, no evidence is admissible on a motion under clause (1)(a), except with leave of the judge or on consent of the parties.

[40] Hence, based upon this pre-trial order, the motion proceeded under Rule 21 to determine a question of law, rather than a Rule 20 motion for summary judgment, or at trial.

[41] A Rule 21 motion considers only facts or evidence admitted on consent by the parties. This significance of this limitation is that Gottardo’s witness refused to answer certain relevant questions, taking the position that the evidence going before a motions judge on a Rule 21 motion is only on consent. The particular refusals will be discussed when I review the evidence from the cross-examinations.

[42] I am of the view that a determination whether there has been waiver by conduct should not proceed as a Rule 21 motion, as the determination necessarily involves a close examination of the facts. Perhaps the issue could be determined in a Rule 20 motion for summary judgment with the broad powers of Rule 20 if the evidence is clear and will determine all the issues in the lawsuit. However, I note in the caselaw that the issue of waiver by conduct, involving a close examination of the facts appears always to be determined in the context of a trial.

[43] A recent example of the appropriate procedure for the determination of whether there is waiver by conduct is the decision in Kappeler Masonry Corp. (Receiver of) v. Carillion Construction Inc., 2016 ONSC 1354. In the context of the motion for summary judgment, Diamond, J. ordered a summary trial on the issue of whether there had been waiver by conduct of the terms of the contract.

[44] As a result of the pre-trial order requiring a minor aspect in the dispute to be dealt with in inappropriately as a Rule 21 motion, the parties have missed the projected trial date on the main action (which was to proceed last year), and they have spent considerable sums to determine issues that are very factually dependant, intertwined with the main action and minor compared to the outstanding dispute between the parties.

[45] As the undisputed facts as found by the motions judge and disclosed in the record clearly support a finding of waiver by conduct, notwithstanding my concern about the procedure, I will determine the issue.

CASE LAW ON EXTRAS AND WAIVER

[46] To provide context, I outline principles developed in the case law for payment of extras, which were not considered by the motions judge.

[47] Responsibility for payment of extras is often contentious in construction cases. The usual fight about payment of extras is whether or not the extra as claimed by a subcontractor was included in the contract or not.

[48] The decision of Justice Pierce in Anowara Construction Ltd. v. Tom Jones Corporation (2006), 54 C.L.R. (3d) 165 (Ont. S.C.), at paras. 18 and 20, provides guidance for what is considered “extra” work. She confirms the principles outlined in the cases that payment should be made for extra work outside the scope of the contract:

18. The term, “extra” refers to extra work outside the scope of the contract, for which an additional charge is made by the contractor or sub-contractor. In Noranda Builders Ltd., Nash J. at par. 132 remarked that the court will imply a promise to pay on a quantum meruit basis where work is done at the request of the owner and for his benefit without a specific contract for payment.

19. The Noranda Builders Ltd. court adopted the following principles of Egbert J. in Chittick v. Taylor 1954 492 (AB SCTD), [1954] A.J. No. 23 (Alta. S.C.), par. 5:

Rule 1. An item specifically provided for in the contract is not an ‘extra.’

Rule 2. When the plaintiff supplied material of a better quality than the minimum quality necessary for the fulfillment of the contract, without any instructions, express or implied, from the defendant to do so, he is not entitled to charge the extra cost as an ‘extra.’

Rule 3. When the plaintiff did work or supplied materials not called for by the contract (plans or specifications) without instructions, express or implied, from the defendant, or the consent of the defendant, he is not entitled to charge this additional work or materials as an ‘extra.’

Rule 4. When the plaintiff did work or supplied materials not called for by the contract on the instructions, express or implied, of the defendant, he is entitled to charge for additional work or materials as an ‘extra.’” [Emphasis added]

[49] As is clear from the Anowara decision, there is a distinction in the case law how extra work outside the scope of the contract is to be treated, contrasted with extra work within the scope of work contemplated in the written contract.

[50] Taken together, the courts in Ontario have been clear that when additional construction work not contemplated by the contract is completed at the request of the owner, (or in this case the contractor) the party providing the additional work should be paid, as the party requesting the extra work would reasonably expect to pay for it. Requesting this extra work outside the contract is waiver by conduct. The cost for the additional work must be reasonable in the context of the construction project: see Deminico v. Earls, [1945] O.W.N. 375 (H.C.).

[51] If the extra is within the scope of the contract, a much stricter approach to secure payment applies to ensure that the owner would be aware of extra charges occurring as the work progressed and to avoid surprise demands for payment: see Vallie Construction Inc. v. Carol Minaker (2012), 21 C.L.R. (4th) 215 (Ont. Master).

[52] In this case, it is not disputed and the motions judge found that all of the extra work was outside the scope of the work contemplated in the written contract, yet in his analysis he considered the cases when extra work was within the scope of the contract. Responsibility for this lacuna lies with counsel.

[53] The factual finding that all the work being considered in this motion is outside the scope of the contract is very relevant to the question of waiver by conduct.

[54] As noted by Howard Wise in The Manual of Construction Law, loose-leaf (Toronto: Carswell, 1994), at p. 3-15, the classic statement of the law for extras in construction projects outside the scope of the contract is from Master Marriott in Deminico. This statement was recently quoted by Master Sandler in Vallie Construction, at para. 129:

Because contractors and builders have always been prone to make claims for extras, the Courts have laid down certain requirements to be met before such claims may be allowed. The ordinary law of contract does not find any place for extras, and unless the contract itself provides for it, a claim for any additional work must depend upon a new contract, either express or implied… An express contract may be either in writing or oral, but an experienced contractor will always endeavour to have the order in writing because the onus is upon him to prove it by a preponderance of evidence… An implied contract may be inferred from the conduct of the parties, but in all cases an essential element is that the owner at least knew that the work was going on an acquiesced in the contractor doing it. So that where the contractor goes ahead and does work he is not bound to do under the contract, and the owner knows nothing of it, the contractor cannot recover anything for it…In some cases it may be presumed that the owner consented to such extra work if so great that it must have been done with his knowledge or was necessary and not foreseen… Finally, in asserting a claim for extras the contractor must prove conclusively that the work done was not a part of the main contract, and for this purpose if the main contract is in writing it must be produced. [Emphasis added]

[55] Deminico applies to extra work outside the original construction contract, contrasted with the Court of Appeal of Ontario’s decision in Colautti which considers the issue of waiver by contract for additional work included in a construction contract.

[56] In Colautti the issue was were not about additional costs for an unplanned sewer line, but rather for the additional costs incurred when a planned sewer line had to be relocated (at p. 243):

Once it is determined that the City cannot rely upon the strict terms of the contract, it becomes apparent that various legal consequences may flow depending upon the factual findings that may be made. The parties are in agreement that the relocation of the line constituted a significant change in the scope of some of the major items of work. If these significant changes resulted from an error by the City then it will, in all probability, be found liable for the resulting additional costs. It has long been established in the United States that if a corporation, such as the City in this case, by its own act, causes the work to be done by its contractor to be more expensive than it otherwise would have been according to the terms of the original contract, then it is liable for those increased costs: see Charles Sundstrom et al. v. State of New York (1914), 213 N.Y. 68. The principle is sound and should be applicable in Ontario. [Emphasis added]

[57] The line of cases relevant to waiver by conduct for payment of extras outside the scope of the contract was not presented clearly by counsel to this court, or apparently to the motions judge at all.

[58] These cases confirm that an owner or contractor cannot orally request extra work be performed outside the scope of a contract, and then not pay for the work by relying on the written terms of the contract requiring confirmation of extras in writing. Orally requesting extra work outside the contract constitutes waiver by conduct. (See DIC Enterprises Ltd. v. Kosloski, [1987] C.L.D. 1211 (Sask. Q.B.), at paras. 30-32 and 34 (quoting Immanuel Goldsmith from Canadian Building Contracts, at pp. 87-88) and para. 37; 2016637 Ontario Inc. o/a Balkan Construction v. Catan Canada Inc. et al., 2013 ONSC 4727, 26 C.L.R. (4th) 84, at para. 14; Hydrastone Inc. v. Clearway Construction Inc., 2015 ONSC 2669; Domco Construction Inc. v. Aliva Holdings Inc., 2003 SKQB 506 ).

[59] In DIC Enterprises, the Court confirms that verbally requesting extra work was sufficient to waive compliance with the formal requirements for extras (at para. 37): “I find circumstances which show that the defendants requested extras which they must, as reasonable persons, have realized would involve extra expense. I am able to decide, on the facts of this case, that the operation of the paragraph [requiring confirmation of extras in writing] was waived or acquiesced in by the defendants.”

[60] Similarly, in Domco Construction, the site supervisor acknowledged at his examination for discovery that despite the contract’s formal requirements, his verbal approval of the extras was sufficient in the circumstances. The Court relied on DIC Enterprises and enforced the payment for the requested extras.

[61] In 2016637 Ontario, at para. 14, Justice Broad confirmed, in obiter, the principle from DIC Enterprises that an owner requesting extra work outside the ambit of the contract constitutes waiver by conduct, although he decided that the principle did not apply in the case before him:

A provision in a contract requiring a written order as a condition precedent to payment for extra work may be waived by the owner's conduct or acquiescence, such as where the owner requests extras which he or she must, as a reasonable person, have realized would involve extra expense (see DIC Enterprises Ltd. v. Kosloski at para. 34 (quoting Goldsmith at pp. 87-88) and para. 37.)

[62] DIC Enterprises and the principles of waiver by conduct were recently cited with approval, by Master Albert in a construction lien case in Hydrastone Inc.,. She distinguished the applicability of DIC Enterprises, as she determined that the work done was within the scope of work of the original agreement and therefore was not an extra.

[63] I find that the extras in this case based upon the uncontested facts and the findings of the motions judge fall squarely in Rule 4 of Anowara Construction, that is: “[w]hen the plaintiff did work or supplied materials not called for by the contract on the instructions, express or implied, of the defendant, he is entitled to charge for additional work or materials as an ‘extra.’” The caselaw noted above confirms in such a circumstance, the party requesting the extra work has waived reliance on the requirements of the contract.

[64] The case law not brought to the attention of the motions judge and hence not considered, is that extra work requested by a party outside the scope of the contract that is performed, constitutes waiver by conduct of the strict terms of the contract, and should be paid for.

ADDITIONAL FACTS RELEVANT TO WAIVER

[65] The additional, undisputed facts in the motion record not specifically considered by the motions judge provide cogent evidence of a course of conduct over time that constitutes waiver by conduct.

[66] I note that the contract for the Maxum project has been lost, and the parties proceeded on the basis that the same contract was signed by the parties as for the BBC project.

[67] Gottardo asserted that it was relying on the strict terms of the written agreement between the parties that extras had to be “negotiated” in accordance with Appendix B of the contracts.

[68] Alex Kowalenko swore the affidavit for Gottardo and was cross-examined. He was a senior estimator/senior project manager for both projects. He did not have hands-on involvement with the disputed extra work conducted on the two work sites in issue. He did sign one change order and confirmed one of the more major extra items in dispute should be paid.

[69] The site supervisors of Gottardo who had requested that extra work be performed by Jessco and who had signed the purchase orders prepared by Jessco, Simon Przybysz (Ziggy) and Tom Patrief, were not available to testify.

[70] The motions judge appropriately drew the inference that the Gottardo site supervisors had requested the extra work outside the contract to be performed and accepted the evidence of the Jessco witnesses on this issue.

[71] Tony Frazer swore an affidavit, but was not involved with the projects when the extra work was done. He did sign some purchase orders prepared by Jessco after he came on the job for work that was done at the request of the previous site supervisor.

[72] There is a distinction in the evidence given by Kowalenko on changes during the construction of the project, which are not the subject matter of this motion (and which he steadfastly confirmed had to be in writing following the procedure in the contract), and extras such as providing extra help or labour on the site on a day-to-day basis to ensure that operations run smoothly.

[73] Kowalenko confirmed that, for day-to-day extras for labour needs, the site supervisors had the authority to authorize the work, but they were supposed to issue a “site instruction slip” when such a request was made. It appears clear that the site supervisors exercised their authority to request extra work, but without filling out the site instruction slips:

A. It also should be taken into account that some changes have to be done immediately so as not to slow down the job. My superintendents, my project managers have a site instruction book that they carry with them, and if a trade wants to change something, they will authorize the change via site instruction; they will hand them a copy; a copy comes back to the office.

What that site instruction says basically is that it’s a change that’s required to be made right away. We can’t wait for it. So he’s given the subcontractor direction to proceed, and then we’ll deal with the monies after the subcontractor gives us the price.

Q. Where does the standard form of subcontract speak to site instruction?

A. Site instruction is a standard procedure. I don’t think any contract speaks specifically to them…..

Q. Were site instructions issued on either of these two jobs we are dealing with?

Yes.

Q. Can I get an undertaking to provide them?

Counsel for Gottardo: What is the relevance counsel?

Counsel for Jessco: The relevance is Gottardo’s practice on the site as far as changes and extras is the issue. So I’m trying to determine what Gottardo’s practice was on each of these projects.

Counsel for Gottardo: I’ll take it under advisement.

[74] In his cross-examination, Kowalenko, through counsel, declined to disclose site instructions for extras or changes provided to site supervisors related to these projects. This is an important gap in the evidence in the context of this motion.

[75] Further, counsel for Gottardo refused to provide documentation for how extras were handled for other subcontractors, as this was a Rule 21 motion with evidence admitted only on consent:

Counsel for Jessco … I want to see how Gottardo dealt with changes on each of these projects. So I want to see all the paperwork to support each of the changes whether it was an actual change order that was issued or whether it was a site instruction or whether it was simply do something on a time-material basis and an invoice was actually paid or not or whether there were changes that weren’t issued, but they were requested by a change, invoices rendered and denied. I want to see how all of these were dealt with on each of these projects.

Counsel for Gottardo: I think your request is overly broad particularly on a motion, a Rule 21 motion where no evidence is admissible without consent of the parties or leave of the judge.

[76] Romeo D’Angelo, a principal of Jessco, filed an affidavit and was cross-examined. He has 21 years’ experience in construction concrete work. He confirmed that Gottardo never issued a change order prior to requesting/requiring Jessco to do the extra work. He acknowledged in his evidence that he was aware of the terms of the contract that changes were to be in writing. This acknowledgement is referred to in the reasons of the motions judge.

[77] He spoke, however, of the practicalities of what happens in real life on construction sites as work progresses. That is, what may be in the contract, and what happens on the building site, are often two different things. For day-to-day matters requiring immediate action the terms of written contract are often not followed by either party.

My answer is still stating, though, that it is a standard stipulation on all contracts, and I would say probably 99 percent of the time it’s not followed, being in the industry for 21 years. That’s why I put very little weight on it.

I don’t believe it was my choice. I mean, things are done on site on a whim a lot of times on the direction of the superintendent. And at the end of the day, if I do not proceed even though sometimes I don’t agree, if I don’t proceed, I’m the one who stands to lose.

Can I give an example?

… The super will say yes, please, help me clear the snow so I do. My foreman is instructed to sign the hours.

And you know what? I guess it’s in good faith, and it’s a little bit ignorant on my part to hope that it’s common sense. Like, I give you this; so pay me that. It’s that easy. It’s requested of me by the super; I do it; I get it signed, and I should get paid like I do with everyone else out there.

Counsel for Gottardo

Q. And I understand ideally that that is how things should work.

A. That’s how it worked in Gottardo on their sites as well because the paperwork was never there. It’s impossible. Because if we wait for paperwork to come around – like even that casson one for $5,000. It was discussed the day they negotiated it. Tom brought it to my attention, and I got the paperwork a year and a half later. Why? Why couldn’t it have been given to me at the time I got the contract? I don’t know why. I’m not in their office. I’m not in anyone’s office.

[78] James White, the foreman on the BBC project, also filed an affidavit. White had direct dealings with Gottardo’s project manager, Patrief, and site superintendent, Ziggy, for the BBC project. He confirmed that the Gottardo site supervisors requested the extra work and that he provided purchase orders to the supervisors to sign confirming extra work was done.

[79] The evidence of witnesses confirms that the strict terms of the contract and practical reality on the job site may be two things.

[80] In reaching its decision and recognizing waiver by conduct in Colautti, the Court of Appeal recognized the problem of the rigidity of contracts stipulating all changes are to be in writing contrasted with the practical reality of what happens on the job site (at pp. 242-243):

The City relies upon the provisions of the contract which require all additional costs to be duly authorized in writing. It is true that the contract imposes heavy burdens on the contractor.

…The problem with contracts such as these is that they are so rigid and so restricting that the parties tend to amend them by their actions during the course of the contract. That was the situation in this case. There were several significant changes and additions as to the work ordered by the City during the contract. None of these were in writing. All but the items in dispute in this case were paid for by the City.

In these circumstances the parties, by their conduct, have varied the terms of the contract which require extra costs to be authorized in writing. As a result, the City cannot rely on its strict provisions to escape liability to pay for the additional costs authorized by it and incurred as a result of its errors. [Emphasis added]

[81] I review in some detail the undisputed evidence about the various extras items claimed which confirm a course of conduct of waiver that Gottardo did not follow the terms of the contract.

The First Extra: Work Arising from Poor Soil Conditions

[82] The first change on the Maxum project came in the spring of 2008 as a result of unexpectedly poor soil conditions. [Referred to in para 2a of the motion judge’s reasons.] Jessco was instructed to do extra work in light of the unforeseen circumstances.

[83] Jessco was required to dig deeper than originally anticipated, and had to add 28 steps in the footings, as well as higher walls. Jessco invoiced for this extra work on April 2, 2008 in the amount of $9,434.41.

[84] A change order was finally signed by Kowalenko, on behalf of Gottardo, on November 25, 2008 in the amount of $6,673.37 (after Jessco processed a credit on the original invoice of $2,427.37, as they had made an error as pointed out by Gottardo and double counted payment for one wall).

[85] A subcontract change order was processed by Gottardo on November 21, 2008 that was signed by Kowalenko. The Change order shows:

Subcontract amount

$140,000.00

Previous changes

$6,057.54

This change

$6,673.37

Revised contract amount

$152,730.91

[86] With respect to this extra which did not follow not following the strict sequential requirements of the contract, Kowalenko, for Gattardo, on cross-examination confirmed that “I don’t know why we did not pay it”, and confirmed that this item is a “legitimate extra”.

[87] It is not clear why Gottardo is not willing to pay this extra in light of this admission.

Second Extra: Helping Another Contract Subcontractor

[88] The second extra referred to in para 2b of the motions judge’s decision was for labour that Jessco performed in January 2008 to assist another concrete formwork subcontractor working at the Maxum project on another building (not where Jessco was working) at the request of the Gottardo’s site supervisor, Tony Fraser.

[89] Jessco provided Fraser with the purchase order, which he signed confirming this extra work was done. This extra in the amount of $467.78 was billed by Jessco on March 28, 2008. Someone wrote on the invoice submitted by Jessco “ok”. No change order was ever prepared by Gottardo.

[90] A cheque (number 18639) including payment for this item of work was issued by Gottardo, then reversed. There is no explanation for why this payment was reversed.

Third Extra: Caissons to Piers

[91] The third extra/change was a request by Gottardo (through Patrief) in September 2008 on the BBC project requesting an alteration from the original plans and cost quoted for caissons to piers.

[92] This item does not appear to be specifically referred to in the reasons of the motions judge but was raised before us in argument.

[93] An email was sent by Patrief, on behalf of Gottardo on September 8, 2008 requesting this extra/change stating: “Romeo: Drawing change (no caissons in building A) Please review and update drawings. A change order will be issued for $5000 as per previous quote”.

[94] The work was done by Jessco in early 2009. On May 22, 2009, after prompting from Jessco, Gottardo prepared a change order for this work confirming the extra price of $5000.00 for this change signed by the project manager. The change order prepared by Gottardo provides:

Previous contract

$1,428,500.00

This change

$5,000.00

Contract price

$1,433,500.00

[95] Jessco invoiced this work on May 25, 2009. Gottardo has acknowledged the obligation to pay for this extra in its statement of defence and counterclaim in action CV-09-4823-00. This item was included as payable under the contract “Approved Extras-Bldg A- $5,000.00”.

[96] Notwithstanding these acknowledgements, this payment is still outstanding. There is no explanation from Gottardo why this extra should not be paid, given the admission in the pleading

Fourth Extra: Miscellaneous Extras on the BBC Project

[97] The fourth series of extras are outlined in the affidavit of White, Jessco’s foreman at the BBC project, and they include extra work provided at the request of Gottardo at the BBC site. Purchase orders confirming the work was done were generally signed by the site supervisor, Ziggy. This work included: spreading stone, pumping water and making changes to formwork due to errors in drawings. White confirms that Gottardo assured him that they would pay for the work to be done to allow us to continue with our concrete forming.

[98] There are two invoices for work performed from October 2007 to May 2009, one in the amount of $2,559.38 and another in the amount of $8,441.92.

THE REASONS OF THE MOTIONS JUDGE

[99] The Appellant relies on the findings of fact of the motions judge. He challenges the motions judge’s application of the law to these facts.

[100] In his findings of fact, the motions judge confirms that the extra work was outside the ambit of the contracts and was requested by Gottardo’s site supervisors. There is no dispute that the extra work was performed, as Gottardo’s site supervisors for the projects signed the purchase orders prepared by Jessco confirming the work was done.

[101] His analysis as to the requirements of the contract for changes or extras are found at paras. 22 and 23. Article 9.3 confirmed that no changes could be made to the contract without a written order from Gottardo. Without a written order he concluded that, “Jessco did not have the contractual obligation to do the work that Gottardo requested.”

[102] Appendix B confirms that “no extras will be considered for any reason whatsoever unless negotiated with Gottardo before the work is done.” Appendix B does not require the negotiations to be in writing. The motions judge found that the extras were not “on account of any negotiations between Jessco and Gottardo; rather they were merely requests by Gottardo’s site superintendent to Jessco.”

[103] The motions judge concluded that Gottardo had not by its conduct waived the terms of the contract requiring extras to be negotiated. His Honour reached this conclusion, as no payments had been made by Gottardo for the extras claimed, and so he distinguished the applicability of Colautti. He concluded that Jessco’s claim for the extra work performed therefore failed.

[104] His conclusions on waiver by conduct are found at paras. 27 to 30 of the decision:

[27] Did Gottardo’s conduct constitute a waiver of the contract or its acquiescence to Jessco’s non-compliance with it? The conduct which Jessco relies upon for its contention that Gottardo waived the provisions of the contract is as follows:

(1) Gottardo’s site superintendent specifically requested Jessco to perform the work in question.

(2) Gottardo’s site superintendent signed Jessco’s purchase orders, which confirm that the work had been done and the hours required to do the work.

[28] Unlike the facts in Colautti, Gottardo never paid Jessco for any of the extras done on its projects. This failure, in my view, distinguishes the facts of this case from that in Colautti, and does not support a conclusion that Gottardo’s conduct changed the terms of the contract or acquiesced in Jessco’s alteration of the contract.

[29] Furthermore, it cannot be said that Gottardo’s site superintendent changed the provisions of the contract or developed an alternative arrangement, given that the contract expressly states that tickets signed by the site superintendent are not an agreement that the items are additional to the contract constitute acceptance of labour rates or material costs. Gottardo therefore cannot be held to have acquiesced to Jessco’s alteration of the contract by doing work without a written order.

[30] This decision may appear to be patently unfair to Jessco, given that there is no dispute that it did the “extras” that are the source of this dispute. However, Jessco’s principal was aware of Article 9.3 and Appendix B of the contract. One would have thought that, given the applicable provisions, he would have sought, before the work was done, assurances from Gottardo that the latter would pay for the “extras” that it did. [Emphasis added.]

CONCLUSIONS

[105] I am mindful that the Supreme Court of Canada unanimously directed appellate courts to defer to determinations of decision makers at first instance on contractual interpretation. Justice Rothstein confirmed the fact-specific nature of the exercise of contract interpretation in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633.

[106] 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.

[107] As well as deference to contractual interpretation, deference is owed to the findings of fact made by the motions judge and this court shall not intervene unless there has been a palpable and overriding error in the analysis of the facts.

[108] I reiterate that this motion was initiated as a Rule 21 motion, which may explain the cursory review of the facts, and the approach to the legal question of waiver by conduct.

[109] The facts as confirmed by the motions judge, when considered along with the uncontested facts in the record, clearly confirm that there was a pattern of conduct by Gottardo waiving the strict terms of the written contract, beginning in October 2007 and continuing until May 2009, by verbally requesting extra work beyond the contract, and continuing for some 20 months. It was not until the dispute arose between the parties on bigger issues in September 2009 when the parties parted ways did Gottardo refuse to pay for the extras.

[110] I conclude that the learned motions judge applied an incorrect test as to the meaning of waiver by conduct, as counsel did not clearly bring forward the relevant law confirming that when requests are made for extra work outside the scope of the contract, this constitutes waiver by conduct. The problem was compounded because the motion was brought as a question of law under Rule 21 of the Rules of Civil Procedure, rather than a question of mixed fact and law to be determined under a Rule 20 motion or in the context of a trial. The review of the facts by the motions judge was cursory.

[111] I find that the conclusion of the motions judge that as Gottardo had not made any payments for the extras requested, therefore that the principles of waiver outlined in Colautti did not apply is a reversible misapplication of the law of waiver by conduct. It is not necessary to show that payment was made by Gottardo for Jessco’s claim to succeed.

[112] The pattern of conduct was simple and clear. Gottardo, through the site supervisor or project manager, unilaterally initiated requests to Jessco for extra work outside the scope of the contracts for a period of 20 months. Two were more major extras. Others were day-to-day work performed by Jessco employees. The site supervisors had authority to authorize the day-to-day extras that are in dispute to keep up the momentum on the work site.

[113] At no time did Gottardo follow the terms of the written contract between the parties that extras must be “negotiated”. Unfortunately, the site supervisors did not follow their own internal procedure to issue slips confirming the extra work was done. However, Jessco in turn, prepared purchase orders confirming the extra work requested was done, which were signed by the site supervisors and in turn invoiced to Gottardo.

[114] For one major component of the extra work, the representative from Gottardo prepared a change order and confirms that the $6,673.37 was a “legitimate extra’, and he did not understand why it had not been paid. Although payment was not made in this case, as took place in Colautti, this admission is important.

[115] Further, for the alteration from caissons to pillars for the sum of $5000.00 a change order was prepared by Gottardo, and is shown in Gottardo’s pleading as an “Approved Extra on Building A”. This admission is not a payment, but it is clear evidence of acknowledgement of payment due notwithstanding the strict terms of the contract were not followed.

[116] I find that the evidence discloses a lengthy and clear history of conduct of non-compliance by Gottardo requesting extra work over a period of 20 months beginning in October 2007 and continuing to May 2009, as well as the important concessions made by Gottardo that the first extra was “legitimate” and the third extra was admitted as payable in the pleading. Although payments were not made, as occurred in Colautti, these important admissions should have been considered by the motions judge as relevant to the question of waiver by conduct.

[117] Counsel for the Respondent confirmed that it was not until September 4, 2009 when other difficulties arose between the parties that Gottardo refused to pay for the extra work performed taking the position that the extras had not been negotiated.

[118] In Technicore Underground the parties from the beginning followed meticulously the strict requirements in the governing contract underpinning the finding by the Court of Appeal that there was no waiver by conduct. By way of sharp contrast, it is clear that the parties in this case, and in particular Gottardo never followed the terms of their contract concerning the negotiation of extras.

[119] Gottardo had full knowledge of the contractual provisions as it was their contract. I conclude that the evidence confirms that the Gottardo through their supervisors over a 20 month period made an unequivocal and conscious decision to abandon the right to rely on the contract in accordance with the test stipulated in Technicore Underground.

[120] There is no danger of Gottardo being caught by surprise for unforeseen extras, as outlined in the cases relied upon by the Respondent, as Gottardo initiated all requests for the extras to ensure the smooth and timely functioning of work conducted on the construction site. A reasonable contractor would anticipate that these extra services rendered clearly outside the scope of the contract must be paid for. In two instances, change orders have been issued by Gottardo with admissions that these extras are legitimate, but the funds still remain unpaid. For the other items in issue, purchase orders were signed by the site supervisor confirming the work they had requested had been performed.

[121] For these reasons, I respectfully disagree with the conclusions of my colleagues. I would allow the appeal by setting aside the decision of the motions judge, including the award of costs and would grant judgment in favour of Jessco in the amounts claimed totalling $32,330.47 with costs of this appeal.

J. Wilson J.

Released:

CITATION: Jessco Structural Limited v. Gottardo Construction Limited, 2016 ONSC 2189

DIVISIONAL COURT FILE NO.: DC-15-0063-00

DATE: 20160524

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Perell and Horkins JJ. (Concurring)

J. Wilson J. (dissenting)

BETWEEN:

JESSCO STRUCTURAL LIMITED

Plaintiff (Appellant)

-and -

GOTTARDO CONSTRUCTION LIMITED

Defendant (Respondent)

REASONS FOR JUDGMENT

Released: May 24, 2016