ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 08-0508
DATE: 20120604

IN THE MATTER OF THE CONSTRUCTION LIEN ACT, R.S.O. 1990, c.C30 ,

AS AMENDED

BETWEEN:

MELCO CONSTRUCTION INC. Plaintiff – and – ROBERT JAMES CLOUSE, ANGELA MARIE CLOUSE and CIBC MORTGAGES INC. Defendants

O. Thompson, for the Plaintiff

J. Switzer, for the Defendants

AND BETWEEN:

ROBERT JAMES CLOUSE and ANGELA MARIE CLOUSE Defendants/Plaintiffs by Counterclaim -and- MELCO CONSTRUCTION INC. Plaintiff/Defendant by Counterclaim

J. Switzer, for the Defendants/Plaintiffs by Counterclaim
O. Thompson, for the Plaintiff/Defendant by Counterclaim

HEARD: May 18, 2012

HOWDEN J.:

Introduction

1This is a lien action brought by a builder-renovation contractor for the balance owing on a contract dated May 7, 2007 to convert a crawlspace into an unfinished basement area. The contract included excavation and structural support for the existing block walls. As of February 6, 2008, the plaintiff Melco Construction Inc., (“Melco”) claims the amount owing as $15,910.63 plus interest and legal costs (para. 7, Statement of Claim).

2CIBC Mortgages Inc. (“CIBC”) is a defendant because the plaintiff claims that it advanced funds secured by mortgage on the subject property to finance this project and that the plaintiff’s lien claim has priority over CIBC’s mortgage. The defendant, CIBC, took no part in the trial and filed no Statement of Defence.

3The defendants, Mr. and Mrs. Clouse, admit the contract and addendum but claim by defence and counterclaim that Melco failed to meet the date for completion in the contract, abandoned the project unfinished and caused damage to the defendants’ property, forcing the defendants to incur further damage and expense to complete it. The defendants-plaintiffs by counterclaim claim damages for breach of contract, delay and deficient and negligent work in an amount to be ascertained.

4The plaintiff alleges that the defendants instructed Melco to stop work on the site on December 11, 2007, and on January 22, 2008 terminated the contract without taking steps to protect the unfinished work or paying Melco for their work and additional costs for an engineering report required by the Town. Melco denies any liability for the damages and loss claimed by the defendants Robert and Angela Clouse.

5At the commencement of trial, I was advised that counsel had agreed to bifurcate the trial. The first phase is to deal with liability for the shifting of the foundation underpinning and walls between December 6 and December 24, 2007. They agreed on a list of nine issues which they ask me to address.

6It was also agreed that the evidence of the principal of the plaintiff company, Mel Bursey, and of the defendant, Robert Clouse, is to be presented to the court in affidavit form and that counsel would present their submissions on all of the evidence, including the two-volume Book of Documents and the cross-examinations of Mr. Clouse and Mr. Bursey, as well as the plaintiff’s record of work on the site. Both counsel advised me that the determination of the liability issues is required in order to lead to a probable resolution of all of the rest.

7I heard counsel’s submissions and reserved my decision. The following are my reasons and findings on the issues agreed to by counsel and on liability for the shifting of the underpinning and walls of the basement.

THE CONTRACT

The Contract

8The contract is to perform the work and supply the necessary equipment and materials to carry out the following project:

PROJECT: Convert crawlspace to unfinished basement area.

It goes on to require Melco to obtain all permits and do the specified work under these headings: Demo, Foundation, Doors and Windows, Plumbing, Site Work, and Engineer. The clauses pertaining to “Foundation” and “Engineer” set out the specific work required to the underpinning and walls and leave the duty to obtain the necessary engineering stamp on the plaintiff:

1. Excavate to required depth, to underpin existing crawlspace wall and to seal existing basement foundation wall.

2. Construct forms using 5/8 inch OSB for underpinning.

3. Pour new concrete to underpin existing walls as per underpinning diagram.

4. Provide engineer stamp for underpinning.

9The owners’ responsibility was to “provide access ... to ensure efficient work progression” and provide power and water for the project. The total price was set at $40,000, payable in installments as the work proceeded.

10The following term is important to this case:

Work Schedule

The contractor will commence work on or about 30 July 2007, and will substantially complete it by 24 August 2007.

(All references are to contract agreement dated May 7, 2007, Bursey Affidavit, Exhibit A.)

11Under General Conditions, directly above the parties’ signatures, are the words “Time is of the essence of this agreement.”

12There is one addendum to the contract, dated August 13, 2007. It authorizes extra work to provide “structural support” in the quote for “the existing block walls per engineering requirements”.

13Four days were added to the date for substantial completion, part payable on signing and the rest ($1,634.63) due on completion. Total cost of the extra work was $3,269.24 plus tax.

14In his affidavit, Mr. Bursey describes the plan for the work as excavating around the perimeter of the house, pouring new footings under the existing footings, and “pinning walls” between the new footings up to close to the bottom of the existing footings. The excavation and underpinning had to be done in stages so as not to undermine the house. When underpinning was complete (except for a section to permit removal of soil under the crawlspace), the soil would be excavated from under the house and the final underpinning and walls would be set. The new basement floor would be poured at the end.

15Mr. and Mrs. Clouse expressed, through an agent in the second week of September 2007, their dissatisfaction that the work had not been completed according to the contract. A letter was sent on their behalf dated September 10, 2007 to the builder to this effect. The request on the Clouses’ behalf was that, because of the difficulties for clients of Mrs. Clouse, a registered massage therapist, in trying to get to her for treatment safely, the builder should give his prompt attention to the slow pace of the job and rectify it (Exhibit 2, Documents, Tab 19).

16Mr. Bursey stated rather off-handedly that delays in the progress of this job occurred “as is typical in most projects”. He referred to unforeseeable issues with the subsoil, which are not particularized (Bursey Affidavit, para.9). However, when I look at the Record of Hours Worked (Exhibit 9), the excavator did not appear on site until August 17, then not again until August 29 and 30. From then, he did not excavate again until September 20, 2007, the only day in September that excavation occurred. The record states:

Waiting for excavator on September 17 and September 19. He attended two days in early October before abandoning the job on October 12, 2007.

On October 15, the entry states:

Waiting for earliest excavator available.

17None appeared until Eisses Bros. Excavating came on November 8, 9, and 12 to complete the excavation. Mr. Bursey offered no explanation when, on a contract that required substantial completion by August 28 (four days were added by the addendum), August, September and October were allowed to pass before an excavator was engaged, who would complete the job in three days, by November 12. On cross-examination, Mr. Bursey was asked to explain the delays. At Q.142 to 144, he identified the first excavator as the “biggest issue” in the delays – he would not show up and “we were constantly chasing him.” The excavation on this job was done simply by one operator on a bobcat. Mr. Bursey stated that he tried to engage another machine twice in that three-month period and was told that one could not be freed up for two to three weeks (Bursey Cross-Examination, Q.152-7). Eisses Bros. Excavating was hired in November. At that point, Melco was “starting to excavate the basement area” (Q.177). It was completed in only three days by November 13 (Q.181).

18The significance of this substantial delay becomes clear when on December 27, 2007, an engineer was required to attend to do a structural assessment of the damage to the foundation walls. Had this contract been completed within the time required by the contract, the project would not have met the seasonal rise in the water table by November. Melco would have had the floor in and thus internal support for the walls and it would have been enclosed fully well before any moisture and water problems could develop. The engineer’s letter of December 28, 2007 describes what he found and the major change in conditions that had occurred since October 3 (its prior inspection):

At the time of his visit, Mr. Hafner noted that you were pumping water out of the new basement which was entirely flooded with water where the basement slab-on-grade had not yet been installed. It was noted that when the pump was shut off, water was re-entering the new basement. The entire structure had been underpinned except for a small portion of the west wall. This extent of construction has remained basically the same since we last examined it nearly three months ago (October 3, 2007). One notable exception since that time was that some of the exterior side of the excavation had been backfilled.

Mr. Hafner informed you that, in his opinion, the subject building is currently unsafe for occupation, particularly in the area of the new front addition. If further thawing and freezing of the ground continues as expected, the east wall could slip further inwards and result in the collapse of most of the new addition.

When the underpinning was reviewed on October 3, 2007, conditions were almost ideal, conditions were dry and there was no evidence of damage. Since that time, much water has accumulated and the natural clay soil material has become saturated. Furthermore, there are additional concerns about the onset of prolonged freezing temperatures and subsequent frost heave. Various reasons have been put forward for this rather large delay (time elapsed since an appropriate excavator could be obtained, delays on the owner’s part while a decision on wether [sic] or not a three piece [sic] washroom would be installed, and further delays on the employment of an engineer to address this issue in the form of a report required by the authorities while a Stop Work Order was in place, etc.).

You reported that the town inspector noted that the soil became “spongy” about three weeks ago and that the east foundation shifted inwards about three or four days ago. Obviously, it would be prudent to take action without further delays, whatever the cause(s).

(Exhibit 2, Tab 28, pp.1-2)

19With this background, I turn to the factors and events leading to the slippage in the basement walls.

20According to Mr. Bursey, by late November 2007, all the underpinning was complete and Melco was “preparing to pour the basement flooring” (Bursey Affidavit, para. 14). Mr. Bursey says that he noticed that the soil underneath the house was showing signs of moisture. With the plumber in attendance, he decided to increase the size of the sump pump in the excavated basement to provide “adequate drainage of water from under the basement floor” (Bursey Affidavit, para. 21). No date is offered for this event by Mr. Bursey, but it had to be between late November and the next inspection by the building inspector. This is documented as having happened by December 11, 2007.

21At about this time, Mrs. Clouse had inquired of the Town Building Department about the possibility of roughing in a bathroom. A roughed in bathroom was never part of the contract with Melco. Both Bursey and Clouse agree that Mrs. Clouse’s inquiry triggered the Town’s inspection of December 11, 2007. It was something that would require laying of pipes within the basement floor and therefore would have to be decided before the pouring of the floor.

22The Town Building Department Inspection Report of December 11, 2007 stated, in part:

Spoke with Mel and told him we need an engineer’s report on current situation at site. Prior to installing drains, wipers and stone. We are concerned about water table and bearing capacity of the soil. i.e. are the proposed footing/underpinning adequate for load. Mel said he would have him in before he placed floor drains, interior weepers and stone ... we should expect a fax from A-D Engineering within next week or so. – will not issue permit for bathroom rough-in until this is resolved and we get drawings.

23Both Mr. Bursey and Mr. Clouse agree that Mr. Clouse would not authorize payment for that engineering report. The cost was $500. Mr. Clouse says that he told Bursey to “hold off in obtaining the engineering report” (Affidavit, para. 24). Clouse cited the extra cost he could not afford and the contract provision leaving the duty to obtain documents and do inspections required the builder to look after this, in his view. Mr. Bursey says that it was either on Friday, December 7 or the following Tuesday, December 11 (he referred to a note in his diary of December 7 and the lack of any documented date for the actual inspection by the Town) when he made this note. In any event, whether it was December 7 or December 11, Mr. Bursey says that:

[a]t that time, I was told to stop all work on the project and await further instructions from Mr. Clouse. In accordance with the instructions of Mr. Clouse, I stopped all work and awaited his instructions.

(Bursey Affidavit, para. 27.)

24According to Melco’s Record of Hours Worked (Exhibit 9), one trade attended between December 7 and 21, a plumber, regarding the sump pump installation, as well as sump tank and drain piping. Mr. Bursey’s affidavit evidence is that he received no instructions from Mr. Clouse during this period. Mr. Bursey’s affidavit says nothing about any attendance on site by Melco or work done before December 21. Mr. Clouse then authorized him to proceed to obtain the engineering report. Mr. Bursey’s evidence is that until December 24, 2007, he knew nothing about water problems on the site and the first he knew of them was on December 24 when he attended and saw “a significant amount of water in the basement”. He also states that a hose was curled in the basement so that water could be pumped through the hose and back into the basement. Mr. Bursey corrected that situation. He also confirmed that one wall was starting to shift inward and “could potentially collapse, causing significant danger to the house above ...” (Bursey Affidavit, paras. 31-38). Mr. Clouse’s evidence is that he reported to Melco water or flooding in the basement several times, on October 11 (due to damage to the water lines in the existing basement), on November 22 (in the excavated area), November 26 (sewage seepage into the existing basement due to a severed septic line), December 4 (water in the excavated area) and December 18. He discovered the basement foundation walls had shifted and informed Melco by phone, he says, on December 15.

25A-D Engineering was the engineering firm retained by Melco. Melco instructed A-D Engineering and on December 27, A-D Engineering’s representative inspected the basement walls. I understand that that inspection was arranged by Mr. Bursey, as required by the Town Building Department. The engineer recommended immediate action to install vertical shoring to support the ground floor, install shoring immediately to the east wall from the inside to prevent further inward movement from the pressure of the backfill outside, relieve backfill pressure against the underpinned foundation by pulling it back “to the base of the underpinning”, install insulation by exposed soil below the underpinning, reinforce damaged walls from the inside, and install a sump pit in the basement to reduce the level of the water table at the site (letter from A-D Engineering, December 28, 2007).

26From Exhibit 9, the plaintiff’s hours of work record, there is no record of work done at the site until January 7 when shoring was installed. It records that the Town stopped further work until January 10. The only other work recorded before January 22, 2008 was installation of the sump pump and piping. Despite Mr. Bursey’s acknowledgement of the need for this in November, this had not been done.

27On January 15, 2008, Mr. Bursey delivered an invoice to Mr. Clouse for $5,259 covering stone, installation of shoring, excavating east wall, rental of pumping equipment and inspection and monitoring site. Both Mr. Bursey and Mr. Clouse agree that by January 23, 2008, after Clouse had refused to pay the invoice and mutual accusations over who was to blame had been exchanged, Melco and Clouse had no further dealings with each other and their contractual relationship had ended, except for the allegations of breach of contract.

Issue 1: Did the plaintiff Melco Construction Inc. owe a duty to inspect the construction site at regular intervals during construction to assess and monitor the conditions?

Issue 1: Duty to Inspect

28There is no controversy on this point. Yes, the builder Melco had a duty under the contract, not only to do the necessary work, but to inspect the construction site regularly during construction.

Issue 2: Did the defendant Robert Clouse assume control of the construction site in the period between December 11, 2007 and December 24, 2007?

Issue 2: Control of the Construction Site

29I understand the position of the plaintiff on this issue. Mr. Thompson submitted that Mr. Clouse, by refusing to pay the added engineering fee of $500 on or about December 11, assumed control of the construction site from December 11 to 24, when Mr. Bursey received Clouse’s message that a wall was shifting. On the evidence of both, all that Mr. Bursey had been told on or about December 11, was to do no further work until he heard from Clouse again.

30Mr. Bursey, as of December 11, was well aware that this job had taken over three times the duration contracted for by the parties. Nevertheless, he knew that the Town on October 2 had required a re-inspection prior to backfilling. No such re-inspection was arranged by him. Mr. Bursey had proceeded with the backfilling in November without arranging the re-inspection and approval by the Town building personnel (Cross-examination of M. Bursey, Q. 119-127, and Q. 246). Mr. Bursey knew that it was his duty as a builder to arrange for the pre-backfill re-inspection. Also, he admitted that by late November, he knew the soil in the excavated area and under it was showing “signs of moisture” and a larger sump pump was required in his view “to ensure that there would be adequate drainage of water from under the basement floor”. He was made aware again by the Town’s Building Directive of December 11, 2007, that there were concerns about the rising level of the water table by the late fall of the year, and the adequacy of the footing/underpinning.

31At no time, according to both Mr. Bursey and Mr. Clouse, was Mr. Bursey told that his company was off the project, only that he was to do no further new work until he heard further from Mr. Clouse.

32In my view, at no time did the homeowners assume control of the site, nor was Melco released from its obligation to monitor and assess conditions on the site. This is particularly so given the knowledge Mr. Bursey had, as I have outlined above, when new work was discontinued. This was still a building site on which Melco continued to be the builder. Furthermore, the engineering report of December 28 outlines the very deficiency that a re-inspection prior to backfilling may well have avoided. The shifting of the wall and underpinning was caused by the external backfill pressure without internal reinforcement in late fall conditions when evidence of a rising water table created less than stable soil conditions in the unfinished excavated basement. No support internally had been provided following the backfilling externally. Mr. Bursey apparently accepted these observations from the engineer retained by his company. Melco installed the shoring, installed reinforcement internally for the wall and installed a new sump pump well after knowing that water was becoming a problem.

Issue 3: Did the defendants Robert Clouse and Angela Clouse owe a duty to advise the plaintiff Melco Construction Inc. of any changes in the conditions of the construction site during the period of December 11, 2007 and December 24, 2007, (including flooding)?

And

Issue 4: Following Robert Clouse’s discovery of water flooding the basement, did either of the defendants Robert Clouse or Angela Clouse inform the plaintiff Melco Construction Inc. of the flooding?

Issues 3 and 4: Duty to Advise and Inform of Flooding

33Yes, the defendants as occupants of the home had a duty to advise the plaintiff of any changes in conditions and I find that Mr. Clouse did notify Melco of flooding on November 26 – 27: “Water in basement sometime after 3:30 p.m.” and “Mel coming 3:40 p.m. – water outside in corner by patio door.” (Exhibit 66, Affidavit of R. Clouse), I put no weight on alleged reports of water in the basement on other dates said to be made by Mr. Clouse prior to December 24. In view of the lack of contemporaneity of the recording of times in connection with the photographs of the defendants and the obvious errors with the photograph dating in Exhibit 7, I cannot say as a probability that he did or did not do so. But cross-examination did not shake his evidence that the calendar notes (Exhibit 66) were made at the time or within 24 hours of the events, unlike the entries made electronically in Exhibit 65 and the dates associated with the photographs produced by the defendants.

34However, given the aforementioned knowledge of the failures of Melco (para. 29), Mr. Bursey knew well in November that Melco had backfilled externally without providing internal support and the growing soil instability he himself saw. I do not see this issue as significant, however, regarding liability for the shifting of the underpinning/walls in view of my other findings.

Issue 5: If the answer to question 4 is yes, did the plaintiff Melco Construction Inc. owe a duty to:

(a) Inform the defendants Robert Clouse and Angela Clouse of the risks associated with the accumulation of water within the basement? and/or

(b) To take preventative measures to prevent damage to the home or the shifting of the underpinned foundation walls? and/or

(c) To inspect the construction site at regular intervals to assess and monitor the condition of the basement?

Issue 5: Plaintiff's Duty to Inform and Take Preventative Measures

35In my view, the answers to (a), (b) and (c) are all yes.

Issue 6: Were the construction delays incurred by the plaintiff Melco Construction Inc. the cause of the shifting of the foundation underpinning wall?

Issue 6: Construction Delays as Cause of Shifting

36For the reasons stated under Issue 2, the answer is that the delays were a definite contributing factor to the shifting of the underpinning/wall.

Issue 7: Is the plaintiff Melco Construction Inc. fully or partially responsible for the shifting of the underpinned foundation walls?

Issue 7: Plaintiff's Responsibility for Shifting

37In my view, given the knowledge Melco had of their own work and site conditions (para. 29), and of the failure to arrange pre-backfilling re-inspection by the Town Building Department, and its failure to deal seriously and early with delays on a “time of the essence” contract, it should bear the major portion of responsibility for the shifting of the foundation walls.

Issue 8: Are the defendants Robert Clouse and Angela Clouse fully or partially responsible for the shifting of the underpinned foundation walls?

And

Issue 9: Pursuant to questions 7 and 8, if the plaintiff Melco Construction Inc. and the defendants Robert Clouse and Angela Clouse are each partially responsible for the shifting of the foundation walls, what proportion of responsibility does each of them bear for the shifting of the underpinned foundation walls?

Issues 8 and 9: Defendants' Responsibility and Apportionment

38I am not satisfied that Mr. and Mrs. Clouse carried out their duty as occupants of the site to notify Melco if indeed flooding was occurring as Mr. Clouse now says it was. Their own calendar does not support Mr. Clouse’s evidence of notifying Melco in a timely fashion in December. As well, Mr. Clouse’s failure to authorize the engineering report on December 11 played a part, though not by any means to the degree to which I find Melco is responsible.

39I find that the plaintiff should bear responsibility for the shifting of the underpinning/wall to the extent of 75% and Mr. and Mrs. Clouse 25% in equal shares. It appears to me that both took a part in recording and notifying of conditions.

Conclusion

40This is the extent to which the parties had agreed that I was to go. I await either resolution of the rest of the action or a date to be fixed by the trial co-ordinator after consultation with counsel for continuation of the trial. Counsel should be in touch with the trial co-ordinator following one month after this date if they have not been able to resolve the remainder of the action, and a trial date can be set.