CITATION: Integrity Home and Cottage Inc. v. Clegg, 2024 ONSC 5574
DIVISIONAL COURT FILE NO.: 1396/23
DATE: 20241008
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Sachs, Lococo and Howard JJ.
BETWEEN:
Integrity Home and Cottage Inc. Appellant/Respondent in the Cross-Appeal
– and –
Jane Margarete Helene Clegg and Robin Kelly Respondents/ Appellants in the Cross-Appeal
Counsel:
John Paul Ventrella and Neal Altman, for the Appellant/Respondent in the Cross-Appeal
Jeffrey A. Armel and Simon Cox, for the Respondents/Appellants in the Cross-Appeal
HEARD at Oshawa: September 19, 2024
H. Sachs J.
Overview
[1] This is an appeal and cross-appeal from a decision of Sutherland J. dated April 28, 2023, in which he awarded Integrity Home and Cottage Inc. (“Integrity”) the sum of $132,519.88 in damages under a construction contract. In a subsequent decision dated July 4, 2023, Sutherland J. awarded Integrity prejudgment interest and costs.
[2] Integrity appeals Sutherland J.’s award of prejudgment interest and the Respondents cross-appeal Sutherland J.’s award of damages.
[3] For the reasons that follow I would dismiss both the appeal and cross-appeal.
Background
[4] This proceeding arises out of the construction of a residence in the Kawarthas.
[5] The trial of the action was heard over 19 days between 2018 and 2021. During the trial, the parties agreed to proceed in a bifurcated manner. First, Salmers J. would decide the scope of the July 28, 2015, construction contract (the “Contract”) between the parties and second, Salmers J. would deal with Integrity’s claim for damages and the Respondents’ cross-claim for deficiencies.
[6] On March 4, 2020, Salmers J. determined the scope of the contract. He also heard the evidence dealing with the second part of the trial. Unfortunately, before rendering a decision, Salmers J. passed away. Sutherland J. adjudicated the second part of the trial, which dealt with the issues of damages and alleged deficiencies. He did so on the basis of the transcripts of the oral evidence that was heard before Salmers J., the documentary evidence filed during the proceeding and written argument from counsel.
[7] This appeal concerns the decisions of Sutherland J. No one is appealing the decision rendered by Salmers J.
Issues Raised
The Appeal
[8] Integrity appeals Sutherland J.’s decision respecting pre-judgement interest. According to Integrity, Sutherland J. erred in awarding interest at the rate prescribed by the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”) instead of at the rate of interest set out in the Contract.
The Cross-Appeal
[9] The Respondents allege Sutherland J. made the following errors in his decision:
(a) Sutherland J. erred in finding that Change Orders 6 and 7 were part of the Contract as this was contrary to the finding by Salmers J. as to the scope of the Contract, a finding that was not appealed and that Sutherland J. treated as binding on him.
(b) Sutherland J.’s finding with respect to Change Orders 6 and 7 had a cascading effect. As a result of that finding Sutherland J. determined that the Respondents had terminated the Contract. This in turn caused Sutherland J. to award Integrity damages to which it was not entitled, and it also caused him to fail to acknowledge the Respondents’ legitimate set-off claims.
(c) Sutherland J. mischaracterized a key document known as the “LAT Order”. As a result, he refused to deal with the claims covered by the LAT Order. In fact, the LAT Order was not an order, but Minutes of Settlement. This mischaracterization by Sutherland J. caused him to deny the Respondents’ legitimate set-off claims.
[10] I will deal with each of these issues in turn. In doing so I will review the factual background that is relevant to each issue.
The Appeal – Did Sutherland J. err in his award of prejudgment interest?
[11] The Contract contained the following interest provision:
If the Client fails to make payments to the IHC as they become due under the terms of this Contract or in award by arbitration or court, [interest or penalty of 2% crossed out] per month on such unpaid amounts shall accrue and also become due and payable until payment. Such interest shall be calculated and added to any unpaid amounts daily. TD PRIME RATE + 2%
[12] It was not disputed that Integrity’s normal rate of interest on unpaid amounts was 2% per month. For reasons that are not clear, Ms. Clegg deleted this clause and wrote in the higher rate of interest of TD Prime Rate plus 2%.
[13] Justice Salmers found the following with respect to prejudgment interest:
In the defendants’ written submissions, they make reference to some possible issue about the applicable interest rate for late payments. Their submissions are not clear about what the defendants are requesting in this regard. In any event, the interest rate for unpaid amounts is clearly stated on page 12 of the [Contract] and no amendment was made in that regard. Accordingly, interest on unpaid amounts shall be payable as set out in the [Contract].
[14] In his decision of April 28, 2023, Sutherland J. stated:
[9] To be clear, I do not intend to re-visit or redo Justice Salmers’ findings on the first part of the trial. I accept those findings and will only deal with issues arising from the second part of the trial.
[15] During the second part of the trial, Integrity’s representative testified that Integrity would agree to adjust the interest rate to Integrity’s traditional rate, being the rate of two percent per month.
[16] In its written closing submissions Integrity requested that interest be payable as follows:
Pay to [Integrity] pre and post judgment interest on the above sum, calculated and compounded monthly at the rate of two per cent (2%) monthly, commencing as of January 19, 2016, or in the alternative, interest pursuant to the Courts of Justice Act, R.S.O. 1990, c. C. 43, as amended.
[17] In his decision of July 4, 2023, Sutherland J. reasoned as follows regarding the interest payable:
[24] On the issue of interest, I agree with the defendants that the most the plaintiff may request for interest is 2% per month. I make this determination based on the transcripts of the trial stated above along with the closing submissions of the plaintiff where it ONLY requested interest at the rate of 2% per month or in the alternative, pursuant to the Courts of Justice Act.
[25] I also find that interest should run from the date the Statement of Claim was issued, July 20, 2016, to the date of my Decision. I do not accept that prejudgment interest should commence on June 1, 2016, as requested in the plaintiff’s submission or January 2016, as requested in the Statement of Claim.
[26] Further, I am not convinced that interest should be at 2% per month. I see no justification for such a rate. The Contract does not include a term that interest is at 2% per month. This is something the plaintiff said it is agreeable to. But beside the plaintiff’s agreement, I see no reason why the defendants are bound by that agreement of the plaintiff. The plaintiff, at trial, did withdraw interest pursuant to the terms of the Contract.
[27] This leaves the alternate claim of the plaintiff of interest pursuant to the Courts of Justice Act. I therefore find that the plaintiff should receive prejudgment interest at the rate of .08% per annum from July 20, 2016, to April 28, 2023 and post judgment interest pursuant to section 129 of the Courts of Justice Act.
[18] The standard of review applicable to Sutherland J.’s interest decision is the one set out by the Court of Appeal in Sorbam Investments Ltd. v. Litwack, 2022 ONCA 551 where, at para. 25, the Court states:
An appellate court may only interfere with a trial judge’s exercise of discretion in relation to the rate or period for prejudgment interest where there has been a wrongful exercise of discretion by the trial judge in that they gave no weight or insufficient weight to relevant considerations.
[19] Integrity submits that Sutherland J.’s decision regarding prejudgment interest conflicts with the decision of Salmers J. that interest was to be awarded in accordance with the amount set out in the Contract. Further, Integrity submits that Sutherland J.’s decision to award interest in an amount that was not consistent with the Contract ignored the provisions of s. 128(4)(g) of the CJA that interest is not awarded at the prescribed rate “where interest is payable by a right other than under this section.” Section 129(5) has a similar provision regarding post judgment interest.
[20] Integrity also submits that it did not withdraw its claim for interest at the contractual rate. Rather, it just agreed that it was prepared to compromise by asking for interest at its usual rate of 2 percent per month. Integrity should not be penalized for being prepared to take less than it was entitled to.
[21] Finally, Integrity argues that if Integrity did withdraw its claim for interest at the rate prescribed by the contract, Sutherland J. ought to have considered whether to exercise his discretion under s. 130 of the CJA, which allows a court, where it considers it to be just to do so, to “allow interest at a rate higher or lower than that provided in either section.”
[22] As Sutherland J. noted, both at trial and in closing submissions, Integrity made it clear that it was not asking for interest pursuant to the Contract. Given this, it cannot be said that Sutherland J. erred in failing to award interest in accordance with the terms of the Contract. Integrity’s closing submissions were filed after Salmers J. made his finding that interest should be awarded in accordance with the Contract. Given these submissions, it was appropriate for Sutherland J. to consider what interest to award in accordance with the two options Integrity put forward – neither of which were for interest at the contractual rate. In other words, since Integrity was no longer requesting interest at the contractual rate, neither Salmers’ J.’s decision nor ss. 128 and 129 of the CJA required Sutherland J. to award interest at that rate.
[23] In terms of s. 130 of the CJA, while Sutherland J. did not mention that section, it is clear that he considered whether to award interest at a higher rate. Having done so, he decided that the more appropriate rate to award was the rate prescribed by the CJA. Section 130 is a discretionary provision. While Sutherland J. could have chosen to exercise his discretion to increase the rate of interest so as not to penalize Integrity for agreeing to a lower number than that provided for in the Contract, he was not required to exercise his discretion in that manner.
[24] For these reasons the appeal is dismissed.
The Cross- Appeal
Change Orders 6 and 7
The Salmers Decision
[25] Salmers J. stated that “[t]he first part of the bifurcated trial was to determine the interpretation of the July 28, 2015, contract between the parties, including, but not limited to, the scope of the work included therein.” He then determined “the parties’ obligations to each other pursuant to the July 28, 2015, contract and any agreed amendments thereto.”
[26] Salmers J. found that the Contract was only amended by three Change Orders that were signed by the parties and that formed part of the Contract. He further found that “there were no other amendments to the parties’ contract.”
[27] During the hearing before him Salmers J. was presented with evidence concerning two other Change Orders – Change Orders 6 and 7. They were made exhibits to the trial.
[28] According to the Respondents, Salmers J. clearly excluded Change Orders 6 and 7 from the scope of the Contract and found that the invoices underlying those change orders were not payable by the Respondents. This was further confirmed by Salmers J. when he was receiving evidence during the second part of the trial and the following exchange occurred:
Q. And Ms. Clegg, do you see Invoice Number 2809 on the screen?
A. Yes.
Q. And that’s Exhibit 38.
A. It is invoice…
Q. Is that…
A. Go ahead.
Q. Is that invoice dated May 17th, 2016?
A. May 17th, 2016 for Change Order 7.
Q. Okay. And isn’t it true you have not paid this invoice?
A. That’s correct.
THE COURT: Ms. Friend, if it’s for Change Order 7, why would she not (ph) pay it? That wasn’t part of the contract as I determined. [The audio version of the trial testimony confirms that the word “not” was erroneously inserted in the transcript.]
Ms. Friend: My apologies, Your Honour.
THE COURT: Same thing for Change Order 6.
[29] Thus, the Respondents argue that Salmers J. confirmed that he did not see Change Orders 6 or 7 as being part of the Contract. Therefore, the Respondents had no obligation to pay the invoices underlying those Change Orders.
The Sutherland Decision
[30] Change Orders 6 and 7 related to invoices to Integrity for site work and surveying necessary for the improvements to the property. Mr. Hood of Integrity gave evidence at trial that these were “pass-through’ items that related to costs that the Respondents had agreed to pay for under the Contract. According to Mr. Hood, these items were only referred to as “change orders” because change orders were required by Integrity’s billing software to generate an invoice for the charges.
[31] The Respondents argued at trial that Sutherland J. was bound by Salmers J.’s finding that Change Orders 6 and 7 were not part of the Contract. Integrity submitted that these Change Orders related to items that did not represent changes to the scope of the contract, but were “extras” performed by others, which the Contract expressly provided would be paid with a 15% markup for overhead and profit.
[32] Sutherland J. considered the submissions and found as follows:
[54] Invoice 2808 is for site survey consulting performed by a subcontractor Elliot and Parr, with a 15% for overhead and profit. The Contract allows for cost-plus items, being the costs of the work by others plus 15% markup for overhead and profit. This work relates to Change Order 6, which the Court determined was not part of the Contract work. This is an extra to the Contract. This invoice has not been paid. I allow this invoice as an extra to the Contract.
[55] Invoice 2809 relates to additional backfill performed by Buckhorn Sand and Gravel. This work relates to Change Order 7. The Court determined that this work was not part of the Contract work. It is a claimed extra by the plaintiff. From the evidence presented at trial, I am satisfied that the work was extra to the Contract and that the invoice is owed by the defendant, Ms. Clegg.
[33] The Respondents submit that Sutherland J.’s findings were directly contrary to the findings of Salmers J.
Standard of Review
[34] The Respondents argue that Sutherland J. exceeded his jurisdiction in awarding damages for Change Orders 6 and 7. As a jurisdictional error, this court must review it on a standard of correctness.
[35] I disagree. As courts have pointed out in a number of cases, true jurisdictional errors are rare and appellate courts should be wary of branding something as jurisdictional in order to apply less deference to a lower court’s findings: see for example Quebec (Procureure generale) v. Guerin, 2017 SCC 42, [2017] 2 S.C.R. 3, at para. 32.
[36] In making the finding he did, Sutherland J. had to decide both the scope of Salmers J.’s determinations and whether Change Orders 6 and 7 were covered by those determinations. He then had to decide whether, under the Contract, the invoices covered by those change orders should be paid. These findings are findings of mixed fact and law, which should only be set aside if Sutherland J. committed a palpable and overriding error.
Sutherland J. did not make a palpable and overriding error.
[37] Sutherland J. is explicit as to his view of Salmers J.’s decision – it was to determine the scope of the work covered by the Contract. Sutherland J. respected Salmers J.’s finding that Change Orders 6 and 7 were not part of the contract work. He then went on to find that these Change Orders represented matters that were “extras” to the contract i.e., work that was performed by others, not Integrity. Since the Contract allowed for cost-plus items, the Respondents were liable for the amounts in question.
[38] These findings were open to Sutherland J. on the evidence before him. They do not reveal a palpable or overriding error.
[39] It is true that, while he was hearing evidence, Salmers J. stated that he had determined that Change Orders 6 and 7 were not part of the Contract. He then asked the question why the Respondents would pay the invoices underlying those change orders. That question was answered to Sutherland J.’s satisfaction by the evidence he reviewed. Again, Sutherland J. accepted that the two change orders were not part of the Contract, but that they were nevertheless covered by the Contract as “extras” to that contract work. These are findings that Sutherland J. was entitled to make on the evidence before him and to which this court owes considerable deference.
[40] Given my conclusion that Sutherland J. committed no reversible error with respect to Change Orders 6 and 7, there is no need to deal with the second issue that the Respondents raised on their cross-appeal. That issue depended on a finding that Sutherland J. made a reversible error in relation to Change Orders 6 and 7 and whether that error “resulted in a further erroneous determination that the Respondents terminated the Contract”.
The LAT Order
[41] The Respondents proceeded with a warranty claim with the Tarion Warranty Corporation and added Integrity as a party to those proceedings. They sought certain relief with respect to alleged deficiencies in those proceedings. They were not successful and appealed the decision to the Licence Appeal Tribunal (“LAT”). Before the appeal was heard, the parties entered into Minutes of Settlement. Under those Minutes, Integrity agreed to perform certain work. The Minutes also provided that Integrity could proceed with its lien action (the within action) and the Respondents could proceed with their counterclaim in that action. As noted by Sutherland J:
[18] [Integrity] admitted that the following work described in [paragraph] 17 was not completed: a, b, e, f, and g. Mr. Gerald Hood, principal and general manager of the plaintiff, testified that the work was not completed due to scheduling issues with the defendants. He testified that [Integrity] was ready and willing to complete the work, and provided dates to do so, but was unable to because the defendants were not responding.
[42] Integrity acknowledges that the document that Sutherland J. referred to as the “LAT Order” was, in fact, the Minutes of Settlement entered into by the parties to resolve the LAT proceedings.
[43] Sutherland J. concluded that he did not have jurisdiction to deal with Integrity’s failure to comply with the Minutes of Settlement. As put by him:
[19] It is not disputed that there is no relief requested by the defendants in this proceeding concerning the failure of the plaintiff to comply with the LAT Order. I am of the view that this Court in this proceeding does not have jurisdiction to adjudicate the failure of the plaintiff to comply with the LAT Order. First, this is an action pursuant to the [Construction Act]. It is questionable that such relief is within the realm of the Act. Second, no relief was requested in this proceeding. Third, the LAT has the jurisdiction to adjudicate [the] failure of a party to comply with its orders. Thus, I am of the view that relief of the defendants for failure of the plaintiff to comply with the LAT Order is not [within] this proceeding.
[44] Sutherland J. refused certain of the Respondents’ claims for deficiencies on the basis that the work claimed was work that Integrity had agreed to complete under the Minutes of Settlement. For example, Sutherland found as follows with respect to the Respondents’ claim regarding what is described as a Detached Garage Slab.
[70] The defendants claim the sum of $12,869 being work of Hope Brothers Construction (Exhibit 22). This work was not performed by the plaintiff. This work was agreed to be completed by June 18, 2018, per the LAT Order. It was done. The defendants did not seek an order that the work not performed in the LAT Order be either performed by the plaintiff or compensated for. The LAT Order is silent on the remedy if the work agreed to be completed is not performed. The parties’ pleadings were not amended to deal with the LAT Order. It is my view that the relief for this item is with the LAT, and it is the LAT who should deal with compliance with the LAT Order. For the reasons stated, no relief is granted for this claim in this proceeding.
[45] The Respondents submit that Sutherland J. erred when he characterized the Minutes of Settlement as the “LAT Order”. According to the Respondents, since there was in fact no “order” there was no mechanism by which either party could enforce the Minutes through the LAT. Given this, Sutherland J. erred when he refused to compensate the Respondents for the deficiencies that were dealt with in the Minutes of Settlement on the basis that “relief for [those items] is with the LAT.”
[46] There is no merit to any suggestion that Sutherland J. thought that he was dealing with a LAT “order” when in fact he was dealing with Minutes of Settlement. This is clear from para. 16 of his reasons where he states that “Before the [LAT appeal] was heard, the parties, on consent, entered into the LAT Order.” Thus, he was aware that he was dealing with a settlement, not an order. Further, his reasons reveal that he reviewed the document at issue. On its face, it is clear that it is an agreement between the parties.
[47] Further, there is support for Sutherland J.’s finding that any failure to abide by the terms of the Minutes of Settlement was subject to the LAT’s jurisdiction. In Cheung v. Tarion Warranty Corporation, 2023 ONLAT 17685 (Ont. L.A.T.), at paras. 8-10, the LAT found that it had jurisdiction to enforce a settlement where the file was closed following a case conference after the parties advised the LAT that they had settled the issues in dispute. Like in the case at bar, the appeal was an appeal from a decision of the Tarion Warranty Corporation.
[48] I agree with Integrity that the Respondents have provided no support for their assertion that Sutherland J. erred in his assessment of the LAT’s jurisdiction to enforce the Minutes of Settlement.
Conclusion
[49] For these reasons, the Respondents’ cross-appeal is dismissed.
Disposition
[50] Integrity’s appeal is dismissed, with costs to the Respondents in the agreed upon amount of $17,000. The Respondents’ cross-appeal is dismissed with costs to Integrity fixed in the agreed upon amount of $25,000.
Sachs J
I agree _______________________________
Lococo J
I agree _______________________________
Howard J
Released: October xx, 2024
CITATION: Integrity Home and Cottage Inc. v. Clegg, 2024 ONSC 5574
DIVISIONAL COURT FILE NO.: 1396/23
DATE: 202410XX
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Sachs, Lococo and Howard JJ.
BETWEEN:
Integrity Home and Cottage Inc. Appellant/Respondent in the Cross-Appeal
– and –
Jane Margarete Helene Clegg and Robin Kelly Respondents/ Appellants in the Cross-Appeal
REASONS FOR DECISION
Sachs J.
Released: 20241008