Court of Appeal for Ontario

Date: 2017-10-13

Docket: C62997

Judges: Doherty, LaForme and Miller JJ.A.

Parties

Between

2395446 Ontario Inc. and Nikolay Chsherbinin

Plaintiffs (Appellants)

and

King's and Queen's Custom Homes Inc. and Sula Kogan

Defendants (Respondents)

Counsel

Gregory M. Sidlofsky, for the appellants

Benjamin Salsberg, for the respondents

Heard: September 19, 2017

On appeal from the judgment of Justice Sean F. Dunphy of the Superior Court of Justice, dated October 20, 2016.

Reasons for Decision

Background

[1] The appellant, Nikolay Chsherbinin, entered into a construction management contract with the respondent King's and Queen's Custom Homes Inc. ("KQ"), in which KQ agreed to manage the construction of improvements at Chsherbinin's new law office. After the completion of the work, the appellants brought an action to recover alleged overpayments to the respondents, and for damages pursuant to a penalty clause for construction delays.

[2] The appellants' motion for summary judgment was unsuccessful and the motion and action were both dismissed.

[3] The appellants raised two substantive issues on appeal: that the motion judge erred in finding: (1) there was no overpayment to KQ; and (2) the penalty clause for delay did not apply to the construction of a feature wall in the reception area. A third, overarching issue is whether the appellants received a fair hearing. The motion judge made significant, adverse findings of credibility against Chsherbinin. The substantive issues were questions of fact and mixed fact and law, and the motion judge's credibility assessment must have influenced his decision. Unfortunately, that credibility assessment rested at least in part on significant misapprehensions of evidence.

[4] These misapprehensions would be sufficient reason to allow the appeal, but the motion judge made an additional error: by dismissing the action in its entirety on his own motion, he denied Chsherbinin judgment even for a small portion of the alleged overpayment that the respondents conceded as owing.

[5] For these reasons, we allow the appeal. In setting out our reasoning below, it is unnecessary, and we think unadvisable, for us to comment on the substantive issues on appeal. We set them out below only to provide the context for these reasons.

Analysis

(1) Overpayment

[6] Chsherbinin claims to have overpaid KQ by $9,322.29. The basis of the claim is that advance payments made by Chsherbinin at KQ's request exceeded the amounts ultimately invoiced by KQ.

[7] Some months after the job was complete, KQ provided an account reconciliation via email to Chsherbinin. The reconciliation applied Chsherbinin's advance payments against four invoices that had been issued by KQ, and noted a discrepancy of $9,322.29. The reconciliation then set out the extra work requested by Chsherbinin that largely accounted for the discrepancy: specifically, upgrades to door jambs, and hardware. KQ concluded that after the extra work was taken into account, there remained only a modest overpayment from Chsherbinin of $677.79.

[8] Chsherbinin, however, claimed the full $9,322.29 as an overpayment on the basis that the items referenced in the reconciliation email were not extras, as they had been included in the original contract. Further, he argued, he had not approved any extras in writing, as required by the contract.

[9] The motion judge rejected this argument. In the motion judge's view, there was clear evidence that Chsherbinin had requested numerous modifications as the project unfolded, and had paid for those modifications without complaint or reservation of rights. In any event, the motion judge found that Chsherbinin requested the work, received exactly what he asked for, and paid for what he received.

(2) The Penalty Clause

[10] The penalty clause for delayed construction reads as follows:

Any delays that are the sole fault of kings and queens homes inc. past April 2, 2015 for work related to this contract only will be subject to a penalty of $200.00 per day to be paid by kings and queens homes inc.

[11] On the motion judge's reading, the penalty clause related to delay in turning the premises over to Chsherbinin for painting and moving in on April 2, 2015. It did not relate to warranty claims or satisfaction of minor deficiencies. The purpose of the penalty clause, the motion judge found, was to avoid Chsherbinin having to continue to pay rent in his former premises while waiting for his new premises to become move-in ready. The motion judge found, and it was uncontested, that Chsherbinin did move in to the new premises on April 2.

[12] The basis of Chsherbinin's delay claim is primarily that a feature wall in the reception area was not completed by April 2.

[13] The motion judge made a finding that the contract did not require the installation of the feature wall by April 2. This finding was supported by the motion judge's review of the parties' subsequent conduct, specifically correspondence between the parties (and from Chsherbinin to third parties) throughout April and early May 2015, none of which expressed the expectation that the feature wall would be installed by April 2, and none of which expressed any concern when it was not.

[14] Because the motion judge did not accept that the penalty clause applied to work that was not intended to be completed by April 2, the fact that there was, ultimately, delay in the installation of the feature wall, was immaterial. An additional ground for the penalty clause not applying to this latter delay, the motion judge found, was that the delay was not the "sole fault" of KQ as required by the contract. He would also have granted KQ relief from forfeiture even if the penalty clause applied, as the "claimed penalty [was] out of all proportion to the harm attributable to the delay".

(3) Credibility Findings

[15] The motion judge was highly critical of Chsherbinin. With respect to his conduct of the litigation, he objected that Chsherbinin had made a "mountain out of a molehill". He criticized Chsherbinin at length for adding KQ's principal Sula Kogan as an individual defendant, suggesting it was done for improper reasons. However, the propriety of joining Kogan was not in issue in the summary judgment motion, and Kogan had not at any point brought a motion to dismiss the action against her. The criticism was thus gratuitous. The motion judge also criticized Chsherbinin for "over-reaching" in claims made in his affidavit about the drafting of the penalty clause. In making his assessment of Chsherbinin's credibility, the motion judge said: "(h)is tendency to exaggerate or overstate, if not deliberately misstate, is simply too evident for me safely to credit his evidence with any weight unless corroborated."

[16] However, the motion judge's assessment of Chsherbinin's evidence is impaired by two serious errors.

[17] First, although the motion judge stated that there were several examples of "over-reaching" in Chsherbinin's affidavit, he listed only the one that he said was the "most glaring": that although Chsherbinin, in asking for the penalty clause to be construed against KQ, claimed in his affidavit that it was Kogan who drafted the penalty clause, he later contradicted himself on cross-examination by stating that he amended the penalty clause on his own computer in his office after discussions with Kogan.

[18] The apparent contradiction, however, is the product of the motion judge's error in mixing up Chsherbinin's and Kogan's evidence on cross-examination. It was Kogan who testified in cross-examination that she typed out the amended penalty clause in her office on her computer after discussions with Chsherbinin and with Chsherbinin present. Chsherbinin said nothing to the contrary in his cross-examination.

[19] Second, the motion judge faulted Chsherbinin for not disclosing a fifth invoice from KQ, thought to be material to the question of whether KQ had been paid in excess of the amount it had invoiced. However, there was, the respondent concedes, no fifth invoice from KQ, and the motion judge erred not only in finding there was, but in drawing an adverse inference against Chsherbinin for not producing it.

[20] It is arguable that the motion judge's serious misapprehensions of the evidence did not directly impact on his interpretation of the penalty clause in the contract. It is also arguable that his interpretation was a reasonable one. However, we are satisfied that the motion judge's strong, but unsupported findings against Chsherbinin's credibility would have inevitably influenced his assessment of all of the issues before him. This conclusion is supported by the motion judge's inexplicable outright dismissal of Chsherbinin's overpayment claim, despite KQ's concession that there had been a small overpayment that was recoverable by Chsherbinin.

Disposition

[21] The appeal is allowed. The orders for summary judgment and costs are set aside. The costs of the summary judgment motion below are reserved to the trial judge. The appellants are awarded costs of the appeal in the amount of $2,000 inclusive of disbursements and HST.

"Doherty J.A."

"H.S. LaForme J.A."

"B.W. Miller J.A."