ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-09-390817
DATE: 2013/06/24

B E T W E E N:

Crina General Construction Ltd.

John Lo Faso, for the Plaintiff

Plaintiff

• and -

Carrington Homes Ltd., George Fernicola and Robert Fernicola also known as Rob Fernicola

Alan B. Dryer, for the Defendants

Defendants

HEARD: March 5, 6, 7, 8, 11, 12 and 13, 2013

Moore J.

[1] This action arises from a series of home construction projects that the plaintiff provided brick and masonry work for the defendants upon. The parties worked together over many years without difficulty until 2005 when issues arose over the plaintiff’s billing practices. The issue at that time involved charges for additional brickwork required to address minor grade changes on building sites and it arose again in the Spring Valley project that followed.

[2] The plaintiff insists that its contract allowed it to charge amounts in addition to its quoted price per home for extra work and materials. The defendants insist that only major grade change work, such as work related to the addition of walk outs, look outs or walk ups in basement walls, could support extra charges.

[3] The parties worked on five projects between 1999 and 2009; they negotiated unit pricing for each project. There were no formal written contracts in place but the plaintiff’s invoices all contained "price includes" and "price excludes" language. As to the latter, "supply and installation of all material for low grade condition" was specifically excluded. Low grade condition is a term that was not defined in any documents and it was not discussed or defined by the parties. The plaintiff arbitrarily and unilaterally included reference to low grade conditions in its invoicing and seeks to rely on that reference to support its claims in this action.

[4] The plaintiff’s evidence was given by its founder and president, John Sepe (“John”), who has been involved in masonry contracting for the past 30 years. He has owned and operated Crina General Construction Ltd. for about 22 years.

[5] The defendant, Carrington Homes Ltd. (“Carrington”), was incorporated by George Fernicola (“George”), who has been involved in house building in Alberta and across Ontario since the 1970s. He is Carrington’s president and has been its only director since 1983. Robert Fernicola (“Robert”) has been employed by Carrington since July of 2005. He holds a Masters of Finance degree and is a chartered accountant who practiced as such for about 10 years.

The Central Issue

[6] The central issue in this case is: did parties agree to compensate John for masonry work and materials for masonry work on houses with minor grade variations? This issue drives the lion’s share of the plaintiff’s damages claims.

[7] Originally John dealt with George but on the two projects that gave rise to this matter, he dealt almost exclusively with Robert. Those dealings heated up when John submitted two invoices for extra charges, invoice number 2993 dated June 26th, 2008 and invoice number 3032 dated October 8, 2008, in the amounts of $47,001.31 and $36,198.49, respectively, due to low grade conditions on the Spring Valley project. Robert disputed the invoices and John’s right to charge for work related to minor grade variations.

[8] Normally there is a height difference between the top of the foundation wall and the grade surrounding the building of about 2 feet uniformly around the house. A low grade condition occurs where the difference is greater. A gradual slope on the lot may produce a minor grade variation. A greater slope, such as one permitting of a basement walk out is a major variation.

[9] John testified that low grade conditions included both minor and major grade variances. George and Robert testified that the term included only the latter. They added that they met with John in mid-2005, shortly after Robert joined the company, around the time when the Steeles and Mavis project was wrapping up. George had Robert review the project hold-back against outstanding invoices. John claimed to be owed about $37,000; he and George settled for about one half that amount. There were various items in the mix, low grade conditions being one.

[10] I accept George’s evidence that this marked the first time that John specifically asked for payment for masonry work done relating to minor grade variations. George appreciated that several lots in the project were added after John had quoted on this job and, as such, John had not had an opportunity to examine those lots and to factor their bricking requirements into his quote. This was a unique situation, one that had not arisen on previous projects.

[11] In the course of negotiations, and in Robert’s presence, George told John that, in future, Carrington would not pay for grade variance work on a house-by-house basis except for situations where extra masonry work supported walk outs, walk ups or look outs.

[12] George added a warning to John that his payment to settle all issues outstanding on the Mavis and Steeles Avenues project would be the first, last and only payment to include minor grade variances.

[13] The next project the parties worked on together was the Castlemore project and at its inception, George directed John to attend at the Castlemore site to satisfy himself that his quote would include a contingency to accommodate any additional work and materials needed to address minor grade variations.

[14] I accept George’s evidence that he was even more emphatic in his direction to John in connection with his bid on the Spring Valley project because the Spring Valley site was not as flat as was the Castlemore site; George specifically instructed John to drive the site and walk the lots in order to factor in an appropriate contingency to his masonry quote for the project.

[15] Robert maintained that low-grade conditions having been defined at the end of the Mavis and Steeles Avenues project, he had no discussions about the issue with John in the context of the Castlemore project or of the Spring Valley project that followed. Robert was John’s principal contact for issues involving both of the Castlemore and Spring Valley projects.

[16] Robert confirmed that on the entire Castlemore project, he was not billed for any low-grade conditions that were not walk outs, look outs or walk ups. The disputed invoices for the Spring Valley project include minor grade variation work but they were rendered long after the homes were built and their masonry work had been billed and paid for. John had not invoiced billings for minor grade variations, in clear language, on any project before Spring Valley and never on invoices delivered after he had completed and billed for his work for completing a given house.

[17] With reference to invoices 2993 and 3032, Robert testified that the charges for minor grade variations blind-sided him. These were the first invoices that addressed grade variation charges in the three years between the completion of the Mavis and Steeles Avenues project and the time these invoices were rendered.

[18] John and Robert spoke and exchanged emails about the disputed invoices during which John did not deny Robert’s assertion that George had firmly and in plain language stated Carrington’s position that it would not pay for minor grade variation work going forward from the Mavis and Steeles project and that John had made a verbal agreement with George accordingly.

[19] All three of John, George and Robert were articulate, responsive witnesses but I choose to credit one version of the discussions they had and the agreement they reached. In addition to the fact that Robert corroborated George’s evidence, John’s silence when confronted in email exchanges with a version of events that he denied at trial having occurred is significant.

[20] Around Christmas of 2007, John requested a 4% increase in the contract pricing to reflect the reality of increased materials costs since the time the Spring Valley project was originally negotiated. He met with Robert after the holiday season and they agreed upon an increase of 2.5% effective in January 2008.

[21] John did not raise the matter of extras for minor grade variations as a concern at that time. Had he done so, I agree with Robert’s evidence that the negotiations would have been very different. Had Robert known that there would be additional invoices for grade variations, he would not have agreed to recommend the 2 1/2% figure to George. This too is significant to my determination of the conflicting recollections at trial.

[22] The evidence at trial established Carrington’s practice to accept and pay John’s invoices on a timely basis during the course of construction without hold back. Robert would review the invoices and periodically reconcile them against project quotes. It was important to have billings track the work on site so that if unexpected extras properly arose, they could be dealt with, paid and passed on to the home buyer. John’s evidence that the parties agreed to allow him to hold back and bill low grade expenses well after the house was built, bricked and sold cannot be reconciled with George’s and Robert’s evidence or industry practice. This too weighs in the balance and not in John’s favour.

[23] To the extent, therefore that John seeks to recover for his company the costs claimed for materials and labour for grade variation related work, other than on walk out, walk up and/or look out homes, his claim fails.

Other Issues and Invoices

[24] Arising from the Castlemore project, invoices, net of credit memos, remain outstanding totaling $17,720.06. I accept John’s explanation of the circumstances leading to these charges. The charges on invoice 3028 are for extra materials for walk out houses. Robert accepts the charge for a walk out for the house on lot 348 but disputes the base price for the house on invoice 2953 and seeks a credit of $8,410. The charge for repairs to settlement cracks, in invoice 3208, is valid and John’s evidence on this matter is uncontroverted.

[25] Robert agreed that the $10,605 sought in invoice 3220 is valid and the $252.50 claimed in invoice 3221 is as well.

[26] Carrington counterclaimed in respect of the Castlemore project. It paid invoice 2741 but John issued a credit memo, 3222, for an overpayment of $1,579. Robert agreed that that credit resolves this claim.

[27] With respect to the counterclaim, John rendered invoice number 2953; Carrington submits it overpaid that invoice by $8,410. John’s response was that this invoice refers to lot 348 and that was a lot specific model not covered by the original contract quote.

[28] He referred to the production schedule which shows that his crew was not active on the site for about seven months before work was done on lot 348. He recalled that the site superintendent called to ask him to do the house on that lot on a rush basis and gave him plans from which he bricked the house and built it as a one off or lot specific house.

[29] John confirmed that the drawings for this house were not the drawings from which he quoted the Castlemore project. They depict a three-car garage, the model actually built in the Castlemore project. He testified that at the time he quoted this project, in April of 2006, he had drawings only for a smaller model with two-car garage. The model built in the Mavis and Steeles Avenue project had only a two-car garage and was a smaller unit, so these drawings were not those that he worked from there either.

[30] I accept John’s evidence and will not allow the counterclaim to succeed on this issue.

[31] Carrington takes issue with and counterclaims in respect of invoices 2527 and 2699. These relate to two model 4A and two model 4B homes built on non-corner lots in January of 2007. The invoices were paid in full in May of 2007. Robert raised his concern about the invoices in March of 2009. John responded by email saying that all pricing on those invoices was correct as per all revised lots over the years.

[32] John testified that he quoted the project for the model 4 homes but later learned that two lots required corner treatments that he had not quoted on. He therefore quoted them separately. There followed negotiations on appropriate pricing for the corner units and some discussions on re-pricing the non-corner units to apply an average price to all corner and non-corner units equally.

[33] Robert testified that the price for the standard model 4 home never changed and the price for corner units was later agreed on. John described the four non-corner units covered by these invoices as hybrids with some features common to corner units.

[34] I accept Robert’s evidence on these invoices. I accept that the subdivision is governed by a control architect hired on behalf of the municipality that approves all exterior designs and elevations including all changes that are requested by customers. The control architect inspects during the course of construction to ensure compliance with approved designs and plans. John’s evidence that he and Robert agreed to a hybrid design with increased pricing over the base model 4, non-corner unit is not supportable.

[35] I accept the submission that Robert’s evidence on these four units is logical and corroborated by documentary evidence, including the drawings, and the necessary involvement of a control architect.

[36] Carrington also seeks a credit for the masonry work done on lot 321, billed on invoice 2708 and paid. John charged $39,400 to brick this corner specific house, $11,695 over the contract price for the base model. This was a red flag to Robert, especially since they built a very similar but smaller version of this model in the Mavis and Steeles Avenues project for only $26,088. For John to suggest a 50% increase in price for the unit in the Castlemore project is warranted does not make sense from Robert’s perspective. In any event, John did not justify the claimed cost of $39,000.

[37] John insists that the price for this corner house is reasonable; the invoice was paid on September 17, 2007. It was not questioned for over two years. But it was, in my view, fair for Robert to ask for an explanation of John’s pricing to justify the cost of that unit. John did not respond with detail or documentation to support his account, not at any time through to and including at trial. In my view, Carrington is entitled to a credit in the amount sought.

[38] Also to be credited in favour of Carrington is the sum of $5,000 for a warranty claim made by a home purchaser due to problems encountered with bricks supplied by John. John conceded this claim at trial.

[39] Turning now to the Spring Valley project, the plaintiff claims, on invoice 2775, for the cost of tarping houses under construction on lots 44 and 45. The claim is for $1,431. John’s evidence conflicted with that of the site superintendent, Mr. DeFrancesco. John insists that tarps were applied and properly billed for. Mr. DeFrancesco struck a line through the reference to one lot indicating that no tarp had been applied there and wrote “1/2 only” beside the other. I accept John’s evidence that he would not have tarped ½ of a house. I allow this claim.

[40] Invoice 2917 is disputed for the sum of $1,224.07. This invoice refers to lot 24 and brick repairs that were not covered by warranty. Robert could not recall receiving this invoice but offers no valid reason for not honouring it with payment. It will be added to the plaintiff’s recoverable claims.

[41] Invoice 3060 claims $2,677.50 and was issued because the defendants underpaid an earlier invoice, number 2751, for extra bricks for a side gable for the house built on lot 18. Robert testified that he asked the site superintendent to undertake a count of bricks used for the gable. In the result, he asserted that the claimed number of bricks on the invoice was high by about 1400 bricks.

[42] Mr. DeFrancesco was the site superintendent. He testified that he did not recall counting the bricks and confirmed that the hand notes on the invoice were not his.

[43] Carrington paid for 3000 bricks for gables on houses on four other lots without any questions raised. From photos of the house in question, Robert agreed that the gables in question were bricked. There being no other evidence on the issue I conclude that John’s count and invoice were accurate; Carrington must pay $2,550 on invoice 3060.

[44] Invoice 3061 bills $721.50. Robert did not concede that amount as owing as it referred to a substitution made on site for masonry materials used in building the house. Robert felt the invoice lacked particularity. In his evidence, John explained the substitution process as it applied to this house. I accept his brick and stone counts for this house; they were unchallenged. In the result, I accept that he gave appropriate credit for the bricks and stones actually installed and Carrington owes the $721.50 claimed on invoice 3061.

[45] Invoice 3062 was issued to re-bill the amount not paid on invoice 2875 for a side gable on the lot 31 house. John explained to Robert’s satisfaction that the lot reference should have been lot 69, not 31. An issue remained though as to whether John’s gable brick count was too high. Photos shown to Robert at trial confirm the existence of the gable on the lot 69 house. Carrington offered no evidence to refute the gable brick count John testified to. Carrington therefore owes $5,827.50 on invoice 3062.

[46] Carrington issued a credit memo, number 3084, for $6,760. This amount is not disputed by the plaintiff and will be set off by Carrington against any amounts it owes on plaintiff invoices as determined in these reasons.

[47] Invoice 3205, for charges for installing two brick piers on Block 312, a model home for the Spring Valley project, demands payment of $1,470. Robert testified that the billing is suspicious as it was not presented until September 16, 2009, some two and one half years after John invoiced for building the house itself on April 30, 2007. Robert did not dispute the fact that piers are generally billable extras and that piers were in fact added to this model home. On the whole of the evidence relating to this invoice and notwithstanding its rather late delivery, I find that invoice 3205 is a proper charge of $1,470 to Carrington and shall be paid in full.

[48] Carrington paid $25,862 on invoice 2578 on June 18, 2007 and counterclaims for the sum of $4,538 on the basis that Robert did not approve of extra charges for stone on the model or lot invoiced.

[49] Although Robert does not recall discussing this with John, John testified that his estimator had made a mistake in quoting the cost for this house and John discussed that with Robert. John made a notation on the face of the invoice confirming the fact that that discussion had occurred and that Robert had agreed to the added stone supplied and invoiced on 2578. I accept that the discussion occurred and the agreement was made. Invoice 2578 is proven and Carrington’s counterclaim in respect of it fails.

[50] Invoice 2774 was paid but Carrington counterclaims $6,760 on it in relation to houses built on lots 44 and 33, each being model 2363A houses.

[51] Robert testified that this model was not one originally that John quoted on for the Spring Valley project. Carrington insists that the price for model 2363A houses was later agreed at $31,180 each.

[52] Lots with this model were built in November and December 2007, invoiced to and paid by Carrington. Then, in March 2008, Robert emailed John indicating that he had a problem with the price paid for model 2363A. Discussions followed and John testified that the model 2363A homes built before December 2007 would not be re-priced but going forward, from December 2007, builds of that model would be billed at $27,800.

[53] Robert disputes John’s evidence and asserts that the prices of all 2363A models across the board were revised to be only $27,800. Robert points to the contract document in evidence upon which John wrote a notation upon agreeing to the price for model 2363A, a note containing no restriction of its application only to models built after December 2007. In my view, upon the whole of the evidence on point, Robert and John agreed to revise the model 2363A unit cost for all models built in Spring Valley. The counterclaim succeeds in this respect and Carrington shall have a credit of $6,760 in relation to lots 44 and 33.

The Construction Lien Act Claims

[54] In reply submissions, the plaintiff submits that the applicable sections of the Construction Lien Act, R.S.O. 1990, c. C-30 (“the Act”) are sections 7, 9 and 13 and that earlier references in written submissions to section 8 were made in error.

[55] Despite the fact that the court was not asked for permission to receive supplementary responding submissions, the parties filed Sur-Reply submissions for the defendants and Supplemental submissions for the plaintiff.

[56] The defendants pointed out that the plaintiff has not pleaded sections 7 or 9 of the Act and that where a statute is pleaded, particulars of the sections relied upon must be pleaded. They submit that it is improper for the plaintiff to now raise new causes of action or new arguments, much less those not specifically pleaded and they ought not to be considered to any extent.

[57] The plaintiff re-replied by submitting that the pleading referenced all of Part II of the Act and that therefore sections 7-13 were included. In addition, the plaintiff pointed out that the defence pleaded a strict denial of any and all allegations of breach of trust and that they were therefore fully aware that the plaintiff pleaded its case under Part II of the Act and that part includes trust obligations of owners, contractors and subcontractors. The defendants did not, in their pleading, restrict their defence solely to contractors within the purview of section 8.

[58] I disagree that a party “must” plead statute and section references with particularity in order to rely on them in submissions at trial. Parties should plead with particularity but where, as here, the case proceeded beyond pleadings, discoveries and several days of trial without any concern raised that any party did not appreciate the case it/he was called upon to meet and there being no evidence of prejudice arising for the defendants by generously interpreting the scope of the plaintiff’s pleading of the Act and no suggestion that the defendants would have defended the plaintiff’s claims differently at trial had the pleadings been amended, the case should be determined upon its merits and not on a technicality relating to pleadings.

[59] The time for questioning the adequacy of the plaintiff’s pleading in this matter expired long before trial. At trial the court is mindful of the provisions of rule 1.04 which mandates that the rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.

[60] The more important question is whether Part II of the Act applies to assist the plaintiff in the circumstances of this case at all. It does not. To the extent that Carrington refused to pay or underpaid invoices before this court, the decision was made in good faith by Robert applying due diligence, common sense and reasonable business judgment to each invoice as it came in for processing and later when he reconciled billings against the contract quotes for the Carrington and Spring Valley projects.

[61] I agree with the defendants’ submissions that the failure to pay a contractor is not, of itself, a breach of trust.

[62] I accept George’s evidence without reservation that Robert kept him apprised of the progress, problems and proposed solutions as building issues arose on the Castlemore and Spring Valley projects. Although George was not directly involved in managing those projects, he was intimately involved in their financing, as he decided whether payments recommended by Robert would be made.

[63] George explained that for these projects Carrington financed payments to trades out of an operating bank line of credit, a $500,000 revolving line, which would be drawn down during the course of construction and secured by mortgages on each house. The building construction draws were then paid back to the bank upon the sale of each home.

[64] The Carrington and Spring Valley projects came on line during a difficult period in the real estate market for new housing. They lost money, over $2,000,000 in fact, and George dug into his own pocket to ensure that Carrington paid every trade for legitimate invoices for work and materials supplied to the projects, including the plaintiff. George’s evidence is clear and uncontroverted.

[65] While the plaintiff argues that Carrington did not produce cheques, accounting ledgers or financial records to document the flow of funds from Carrington to its trades, none were asked for at trial or via the forensic machinery of the documents production rules and compliance procedures contemplated by the rules before trial.

[66] In Belmont Concrete,[^1] the project was not profitable and a subcontractor was not made whole on its invoicing. The court relieved against that failure for purposes of the Act as the monies received in respect of the project were used to pay other subcontractors and no breach of trust had been established.

[67] There is no evidence that Carrington disbursed any money from the sales of homes in these projects to any person or purpose inconsistent with any trust. Carrington acted within the manner described in section 11 of the Act to fund the supply of services and materials from its revolving line of credit and to discharge its financing loan from the proceeds of sales.

[68] Further, I agree with the submissions of the personal defendants that in order to establish personal liability under section 13 of the Act, a plaintiff must first prove particular conduct, i.e., particular payments by the corporation that constituted a breach of trust toward the plaintiff.[^2] The onus rests with the plaintiff to establish the particular conduct to support the finding of personal liability[^3] and the plaintiff has adduced no such evidence.

[69] In the result, Carrington will not be found in breach of Part II of the Act and neither George nor Robert will be found personally liable under section 13 of the Act.

[70] In any event, in so far as Robert is concerned, I find that he is not and was not at any material time an officer, director or person in effective control of Carrington for purposes of section 13 of the Act. George was the sole director and officer of Carrington at all times and in effective control of the finances and every trade funding decision at issue.

[71] Carrington claims punitive damages on the ground that the evidence demonstrates that John acted in a manner that was arrogant and high-handed and demonstrated a reckless disregard for Carrington’s legal rights. I disagree. The evidence demonstrates that John misapprehended his company’s contractual right to insist on payment for extra work and materials on minor grade variance homes. The evidence also demonstrates honest disagreements between businessmen relating to invoicing for work done and materials supplied in the course of construction. There is no evidence of conduct carried out in bad faith or of conduct so reprehensible as to warrant an award of punitive damages. This is not an exceptional case and simply not an appropriate case in which to award punitive damages.

Disposition

[72] On applying the findings I have made in these reasons, the parties can account for money owed as between the plaintiff and Carrington. Should any issues arise in that regard, they may re-attend before me to address them.

[73] The action shall be dismissed against George and Robert.

[74] There has been mixed success between and among the parties on the many issues this cases presents but as I directed the parties to exchange costs demands at the outset of the trial, they will be well positioned to resolve costs issues. If costs issues remain, however, counsel may re-attend to address them at a date convenient to counsel and the court, to be scheduled through the civil trials coordinator.

Moore J.

Released: June 24, 2013

[^1]: Belmont Concrete Finishing Co. v. Marshall, 2011 CarswellOnt 6942 (Div. Ct.); Aff’d 2012 CarswellOnt 11103 (C.A.)

[^2]: Belmont Concrete Finishing v. Marshall, 2011 CarswellOnt 6942 (Div. Ct.)

[^3]: Belmont Concrete Finishing v. Marshall, 2012 CarswellOnt 11103 (C.A.), at para 10