ONTARIO SUPERIOR COURT OF JUSTICE

Court File No.: 08/57111
Date: 2013-02-11

BETWEEN:

B.C.R. Construction Incorporated

Plaintiff

— and —

Howard Anthony Humphrey and Kimberly Ann Aus

Defendants

Counsel:

Joseph Villeneuve for B.C.R. Construction Incorporated, plaintiff

Ian A. Johncox for Howard Anthony Humphrey and Kimberly Ann Aus, defendants

Heard: April 1, May 1 and 2, and November 28, 29 and 30, 2012

Sosna J.

REASONS FOR JUDGMENT

INTRODUCTION

[1] The plaintiff, B.C.R. Construction Incorporated (“B.C.R.”) and the defendants Howard Anthony Humphrey and Kimberley Ann Aus entered into an Agreement of Purchase and Sale and a Construction Contract in which the defendants purchased a building lot from B.C.R., and B.C.R. contracted to build the defendants a custom home on the lot.

[2] In the midst of construction, B.C.R. claims the defendants terminated the Construction Contract without cause. B.C.R. seeks damages for breach of contract in part relying on the restrictive covenants attached to the Agreement of Purchase and Sale.

[3] Relying on the Consumer Protection Act, S.O. 2002 C. 30 Schedule A (the “CPA”) and common law, the defendants submit they terminated the Construction Contract because B.C.R. exceeded the cost estimate of the project, invoiced them for services unrelated to the Construction Contract, and failed to meet the construction schedule.

[4] The defendants further submit that the restrictive covenants attached to the Agreement of Purchase and Sale are not binding.

[5] The defendants request that B.C.R.'s claim be dismissed with costs.

[6] By counterclaim, relying on the CPA, the defendants seek damages from B.C.R. of $100,000 for breach of contract and a refund of $52,545.46.

[7] Further the defendants seek damages for trespass claiming that B.C.R. or its agents entered their lot without permission after construction stopped.

[8] B.C.R. denies any breach of contract and submits the provisions of the CPA have no application as a defence or by Counterclaim as argued by the defendants.

[9] B.C.R. also denies any trespass on the defendants’ lot.

THE FACTS

[10] The plaintiff B.C.R. carries on business building premium quality luxury executive homes and is also the owner and developer of an upscale development known as West Lake Estates, located in the town of Clarington, Province of Ontario.

[11] Bruce Rondeau (“Rondeau”) is the principal of B.C.R.

[12] The defendants, Humphrey and Aus, are residents in the Province of Ontario.

[13] By Agreement of Purchase and Sale dated April 7, 2007, (“APS”) the defendants purchased vacant land municipally known as 14 Bice Court, Hampton, Municipality of Clarington, Ontario, LOB 1JO, being Lot 18 Plan 40M-1897, Municipality of Clarington, Regional Municipality of Durham, Land Registry Office No. 40 within the West Lake Estates, from B.C.R. The sale price was $225,000.

[14] Title was transferred to the defendants on April 19, 2007.

[15] The APS included two sets of restrictive covenants, Schedules A and B. Clause 12 in Schedule B in part provided that:

Any construction upon the Lot/Land [by the purchaser] shall be completed within one year from the commencement thereof…..

[16] Pursuant to a cost plus construction contract (“Construction Contract”) dated April 30, 2007, the defendants contracted to have B.C.R. build a custom home on the purchased lot. The Construction Contract provided that the defendants would pay the construction costs, and an additional 20 percent as B.C.R.'s fee and profit.

[17] Article A-6 of the Construction Contract provided inter alia that B.C.R. “… shall make such estimates as may be reasonably required in the course of the work and shall cooperate with the owner [the defendants] in respect of all such matters.”

[18] B.C.R. started construction prior to the Construction Contract being signed on April 30, 2007.

[19] On October 19, 2007, Humphrey paid B.C.R. $34,545.46 for final design and blueprints, Ontario New Home Warranty Programme fees, well drilling, water testing, lot grading, lot stripping, survey, roof truss engineering, driveway access permit, culvert, health permit, and Central Lake Ontario Conservation Authority permit.

[20] On November 11, 2007, Humphrey paid B.C.R. $30,000. On November 26, 2007, Humphrey made an additional payment of $70,000.

[21] In November 2007, at Humphrey’s request, Rondeau provided him with a written estimate of $115,000 to $125,000 to complete construction to the capping stage. (Exhibit A, Tab 13). Capping involves stopping construction for an indeterminate period of time after the following tasks are completed – excavation, backfill, earth moving, finishing a concrete foundation, laying down a plywood subfloor, erecting subfloor joists, with labour permits and levies being paid. Once the site is capped, a layer of plastic is placed over it to protect it and the site remains dormant until further instructions to proceed.

[22] B.C.R. did not cap the site because the defendants did not provide instructions to do so. Instead of capping, B.C.R. protected the footings and walls of the site during the winter months using bales of straw.

[23] On or about February 14, 2008, Humphrey requested that B.C.R. provide him with an estimate to finish the project to the lock-up stage. Lock-up refers to the cost required to complete construction to the stage that the structure could be physically locked. Rondeau provided the defendants a written estimate of $269,800 plus 20 percent.

[24] On February 20, 2008, the defendants paid B.C.R. $43,000. On April 14, 2008, the defendants paid B.C.R. a further $12,411.

[25] On May 30, 2008, B.C.R. invoiced the defendants $63,866.25 for labour, and the purchase of materials. By that date, the foundation of the building had been built and completed. When the defendants failed to make that payment B.C.R. stopped all future construction.

[26] By May 30, 2008, B.C.R. had invoiced the defendants $232,127.82. The defendants had paid $189,956.46 leaving a shortfall of $42,171.36.

[27] After construction stopped, the defendants contend that B.C.R. trespassed on their lot leaving construction debris and materials from other sites without permission.

[28] B.C.R. seeks recovery of costs it incurred to remediate erosion and runoff from the defendants’ lot after construction stopped. The defendants deny any liability for these costs.

ISSUE TO BE DETERMINED

[29] There is no issue that having purchased the lot and paid B.C.R. $225,000, the defendants contracted with B.C.R. to build a custom home on the purchased lot.

[30] There is no issue the construction of the home was not completed and the contract ended.

[31] Given the above, the following issues require review:

(1) Does the CPA have application to the present case?

(2) If the CPA does not apply, what breaches by either party led to the termination of the contract? This issue requires review of the cost and timing estimates for the project and a determination whether the restrictive covenants attached to the Construction Contract are binding.

(3) Did B.C.R. trespass on the defendant’s lot?

(4) Are the defendants responsible for the costs B.C.R. incurred to remediate erosion and runoff stemming from the defendants’ lot?

DOES THE CPA HAVE APPLICATION TO THE PRESENT CASE?

[32] The resolution of this question is contingent upon determining whether B.C.R. and the defendants entered into one global agreement for the entire project or two separate contracts.

[33] The defendants submit that they and B.C.R. entered into two separate contracts; the (APS) dated April 7, 2007 for the purchase and sale of the lot, and a second contract the (Construction Contract) dated April 30, 2007 to have B.C.R. build the custom home. The defendants submit having paid $225,000 they fulfilled the requirements of the first contract, the APS. The defendants submit that through cost overruns and delay B.C.R. breached the provisions of the separate Construction Contract. The defendants submit these breaches provided them grounds to terminate the Construction Contract and seek damages pursuant to the provisions of the CPA.

[34] B.C.R. agrees that the parties entered into two signed contracts. However B.C.R. submits both contracts formed one global contractual agreement comprising of the purchase of the lot by the defendants (the APS) and construction of a home on that lot for the defendants (Construction Contract). B.C.R. submits the CPA does not apply to this global arrangement. Furthermore B.C.R. denies any breaches arising from delay or cost overruns as alleged by the defendants.

ANALYSIS

[35] The defendants submit that the legislated purpose in section 2(1) of the CPA is to protect consumers. Section 2(1) states:

Subject to this section, the act applies in respect of all consumer transactions if the consumer or the person engaging in the transaction with the consumer is located in Ontario where the transaction takes place.

[36] The defence concedes that although the APS is a “consumer transaction” it is exempt from coverage under section 2(2)(f) of the CPA. Section 2(2)(f) in part states “This Act does not apply in respect of…. consumer transactions for the purchase, sale or lease of real property…”.

[37] Section 1 of the CPA provides that a “consumer agreement” is “…an agreement between a supplier and a consumer in which the supplier agrees to supply goods and services for payment…” The defendants argue the Construction Contract is a “consumer agreement” to supply goods and services for the construction of a custom built home. The defendants submit the construction contract has no relationship to the APS.

[38] The defendants submit because the Construction Contract stands alone independent of the APS, the Construction Contract is governed by the CPA. The defendants submit that by breaching the Construction Contract through cost overruns and delays B.C.R. rendered the Construction Contract illegal. Relying on Section 6 of the CPA which states “Nothing in this Act shall be interpreted to limit any right that a consumer may have at law” the defendants argue they have all the common law rights relating to an illegal contract including the right of termination for breaches.

[39] In support of the submission that the Construction Contract is governed by the CPA the defendants cite Ontario (Ministry of Consumer Services) v. K-Tech Building Systems Inc. [2012] OJ No.1764 (Ontario Court of Justice).

[40] In K-Tech the complainant, Engel, contracted with K-Tech to construct a cottage on a lot owned by her and her husband. K-Tech was responsible for construction, manufacturing wall panels, and ordering all building materials. $57,000 in instalments was paid to K-Tech in advance of construction. K-Tech did not commence construction and refused Engel access to the wall panels and materials she paid for. Engel cancelled the contract; K-Tech did not refund the advance payments, and later declared bankruptcy.

[41] K-Tech was charged with breach of five counts of the CPA namely; three counts for making false, misleading or deceptive representations to a consumer, one count for failing to deliver to a consumer a future performance agreement, and one count of failing to provide a refund payment upon cancellation of the agreement.

[42] In its defence to the charges K-Tech submitted that the contract with Engel involved “real property” and therefore exempt from protection under section 2(2)(f) of the CPA. Although the term “real property” is not defined in the CPA the Court dismissed K-Tech’s submission finding that:

The cottage to be built by K-Tech … was not real property and had not become real property before the agreement was cancelled, as the cottage was not being sold attached to the land, and had not become legally attached with the land in any respect.

Therefore, the court found the CPA applied to the parties’ transaction and had not been exempted under s. 2(2)(f) of the Act.

[43] At trial K-Tech was convicted of four of the five counts alleged as breaches under the CPA.

[44] In the present proceedings, the defendants argue it was B.C.R. who chose to enter into two separate independent contracts; the APS and Construction Contract. The defendants submit as found in K-Tech, the Construction Contract does not involve “real property” and therefore is governed by the provisions of the CPA.

[45] Being governed by the CPA the defendants submit that B.C.R. breached Section 10.(1) of the CPA by failing to comply with Article A-6 of the Construction Contract.

[46] Section 10.(1) of the CPA provides: “ If a consumer agreement includes an estimate for the cost of all the goods and services, the supplier shall not charge the consumer an amount that exceeds the estimate by more than 10 percent.” As previously reviewed, Article A-6 in part provided that B.C.R. “…shall make such estimates as may be reasonably required in the course of the work….” The defendants submit that B.C.R. breached Section 10.(1) of the CPA by rendering interim accounts on a cost plus calculation of 20 percent which exceeded the 10 percent maximum set out in Section 10.(1). The defendants submit this breach provided them grounds to terminate the Construction Contract.

[47] I find the analysis and reasons in K-Tech are not applicable in the present proceedings.

[48] In K-Tech, the complainant purchased the property on which she intended to build the cottage years earlier. That purchase was from a third party not K-Tech. Twenty-two years later she negotiated a contract for $57,000 with K-Tech to construct a cottage. On these facts at paragraph 127 the court in K-Tech agreed with the prosecution submission that “… the proposed cottage is not real property since land in any respect had not been sold to Bonnie Engel [the complainant]”.

[49] In the present proceedings, although the APS and Construction Contract were signed on separate days, I find they constitute one agreement; that agreement being that the defendants purchase a lot from B.C.R. (the APS) and B.C.R. would build the defendants a custom designed home (the Construction Contract). Unlike K-Tech the Construction Contract does not stand on its own with no relationship to the APS. I therefore find the Construction Contract is part and parcel of the real estate transaction (the APS) and exempt from coverage pursuant to Section 2(2)(f) of the CPA.

[50] This relationship between the APS and Construction Contract is supported by the following evidence. Both Rondeau and Humphrey are knowledgeable businessmen. From the outset their negotiations were governed by the bottom line; the bottom line being what would be the total cost of the project.

[51] As will be reviewed later in this judgment, whether the bottom line was up to $1.5 million as testified by Rondeau, or $900,000 as testified by Humphrey, the bottom line was comprised of the cost of the APS ($225,000), and the cost plus 20 percent terms set out in the Construction Contract.

[52] It was admitted that construction on the project began even before the Construction Contract was formally signed on April 30, 2007. It would strain common sense to find that after title was passed to the defendants, building started on site absent a formally signed Construction Contract unless both parties were ad idem on a projected final global cost comprised of the APS ($225,000) and a future Construction Contract.

[53] The relationship between the APS and Construction Contract is additionally found in evidence regarding the preparation of blueprints before the Construction Contract was signed. The APS was signed on April 7, 2007. There is no contractual provision for preparation of blueprints in the APS, the APS being strictly a real estate transaction. Articles A1 and A2 of the Construction Contract (Exhibit A, Tab 3) specifically provide for the preparation of blueprints. On April 7, 2007, the day the APS was finalized and three weeks before the Construction Contract was signed, the defendants in writing instructed B.C.R. to commission blueprints for construction (Exhibit A, Tab 4).

[54] For the aforementioned reasons, I find the Construction Contract is not independent of the APS as submitted by the defendants but part and parcel of the APS.

[55] Furthermore Section 3 of the CPA provides that:

In determining whether this Act applies to [a] …. transaction, a court …. shall consider the real substance of the …. transaction and in so doing may disregard the outer form.

[56] For the same reasons I find “despite the outer form” the APS and Construction Contract being formalized on separate dates, the “real substance” of the parties “transaction” is one ongoing agreement for the purchase and sale of the lot (the APS) and construction of the custom built home (the Construction Contract).

[57] For the aforementioned reasons, having found the CPA is not applicable, it is not necessary to determine whether B.C.R. breached Section 10.(1) of the CPA by failing to comply with Article A-6 of the Construction Contract.

[58] In any event if the CPA does apply, contrary to the defendants’ submission, the CPA does not provide a right to terminate a contract. The only remedy available in context of the terms and conditions of the Construction Contract would be to have B.C.R. complete the Stage 1 Estimate (Exhibit C, Tab 5A) for $115,000 to $125,000.

[59] I therefore dismiss the defendants’ submission that B.C.R. breached the provisions of the CPA and that those breaches provided the defendants grounds to terminate the Construction Contract. Furthermore I dismiss the defendants’ counterclaim again relying on the CPA for damages for breach of contract and refund of $52,545.46 for alleged overbilling. The issue of overbilling will be reviewed later in this Judgment.

OTHER ALLEGED BREACHES OF CONTRACT

[60] Having found that the CPA does not apply, were there other grounds that led to the termination of the Construction Contract?

[61] The defendants submit they terminated the Construction Contract because B.C.R.:

(1) Breached the agreed-upon cost estimate of the project, inclusive of the lot purchase;

(2) Stalled construction rendering the project delayed and ultimately stopped; and

(3) Submitted irregular and inflated billing for work on the project, including cost overruns.

[62] B.C.R. denies these breaches and argues by terminating the Construction Contract without cause, the defendants breached the Schedule B restrictive covenants attached to the APS signed on April 7, 2007. Amongst other things, the restrictive covenants provided that the defendants have building of the intended home completed within one year of starting construction.

[63] The defendants submit that the restrictive covenants are not binding, and no breach as submitted by B.C.R. occurred.

WAS THE AGREED UPON COST ESTIMATE OF THE PROJECT BREACHED BY B.C.R.?

[64] There is no doubt that once the lot was purchased, B.C.R. gave the defendants the option of selecting their own independent contractor or using B.C.R. for construction. The defendants selected B.C.R.

[65] There is no dispute that B.C.R. provided the defendants with two cost options for construction; either a fixed price contract or a cost plus contract. The defendants agreed and signed a cost plus contract (Exhibit A, Tab 3) in which they would pay B.C.R. for fees and construction costs, plus an additional 20 percent of those costs to reflect B.C.R.’s profit.

[66] Rondeau testified that when the APS was signed on April 7, 2007, he advised Humphrey that the total cost of the project including lot purchase would be $1.2 to $1.5 million. He testified he showed those figures to Humphrey on a pad of paper. He testified he had not produced that written estimate since written production of that document had not been requested. The purported written estimate was relevant and I find should have been produced.

[67] Humphrey testified that the entire cost of the project was to be $900,000 and not $1.2 to $1.5 million. In challenging Rondeau’s evidence concerning the project cost, the defendants rely on two written estimates Rondeau provided in an application for a building permit and an application under the Ontario New Home Warranty Act, R.S.O. 1990, c. O.31 (the “ONHWA”).

[68] Rondeau acknowledged that in an application for a building permit dated November 13, 2007, (Tab 4, Exhibit C) he estimated the cost of construction to be $750,000 and then amended that estimate to be $782,418.

[69] He further acknowledged that on September 9, 2007 in an application under the ONHWA he estimated the cost of construction was $850,000. When challenged why he did not provide an estimate of $1.2 million, Rondeau testified that the maximum amount provided in the form was $850,000 and used that number. When advised that the form only provided a maximum figure of $500,000 and not $850,000, Rondeau acknowledged that his estimate was not in keeping with the application but merely an arbitrary number he selected.

[70] The defendants submit that because of these inconsistencies and Rondeau’s failure to produce the written estimates of costs, the Court should reject Rondeau’s evidence that the agreed upon cost for the project was $1.2 to $1.5 million dollars. The defendants invite the Court to accept Humphrey’s trial evidence that Rondeau advised him that the estimated cost of the entire project was $900,000 inclusive of the $225,000 lot fee. In other words the estimated construction of the intended home would be $675,000.

[71] For the following reasons I reject Humphrey’s evidence that the entire cost of the project was to be $900,000, despite the inconsistencies highlighted by the defendants in Rondeau’s evidence concerning that project cost.

[72] A Development Budget Summary (Exhibit C, Tab 7), providing an estimated cost of the project was sent to Humphrey’s bank on February 21, 2008. That cost estimate was $1,621,932 inclusive of the purchase of the lot. Construction of the home was already underway having been started nine months earlier in April 2007.

[73] In cross-examination Humphrey testified he approved the budget summary which was prepared by Rondeau.

[74] At trial on May 1, 2012, at page 170, lines 19 through 26, regarding the Development Budget Summary Humphrey was questioned as follows:

Q. And what I'm suggesting to you sir, is that when you sat down at the table with Bruce and jointly created the document, that - at that point you weren’t trying to commit a fraud on your bank, you weren’t trying to inflate the number, exaggerate, you're telling them what you needed.

[75] Humphrey responded at line 26:

Actually Bruce's words to me - well you can inflate ‘em as much as you want, ‘cause it doesn't really matter because you're only gonna borrow what you're gonna borrow.

[76] I find the Development Budget Summary approved by Humphrey was for one purpose only, that being to secure financing for the entire project including the cost of the lot. There is no evidence that Humphrey was involved in any other project that necessitated additional financing to total $1.6 million, well beyond the $900,000 he claimed.

[77] Humphrey’s evidence regarding Rondeau’s statement regarding Development Budget, “… you're only gonna borrow what you're gonna borrow” is evasive. It does not answer the question put to him, nor does it explain why he was seeking financing of $ 1.6 million when the entire cost of the project according to his evidence was to be no more than $900,000.

[78] Humphrey’s trial evidence regarding the total cost of the project is further undermined in his Statement of Defence and in his answers on discovery. In paragraph 10 of his Statement of Defence Humphrey contends “Rondeau estimated the cost of the construction to be $1,100,000 inclusive of the cost of the land.” When challenged in cross-examination that at his discovery on March 4, 2009, he provided a project cost of $800,000 he testified that the $800,000 cost was incorrect. (May 2012 trial, page 50, line 31 to page 52, line 31)

[79] In response to questioning by this Court regarding cost of the entire project, Humphrey testified it was $900,000 - $225,000 for the lot and $675,000 for construction of the intended home. (Page 54, line 9 to page 56, line 3).

[80] Humphrey’s evidence that he intended to build a 5000 ft.² home with 3500 ft.² of finished space is contradicted by Ray Abbott the architect who drew the blueprints for construction. Abbott testified that he began preparing blueprints in June 2007, assuming a minimum construction of 4000 ft.² and that figure grew to approximately 6,700 ft.² by the time the plans were finalized. Abbott's evidence was not undermined in cross-examination.

[81] I find Humphrey’s evidence regarding the size of the intended home to be built, the cost of that construction, and the final project cost of $900,000 including the lot to be inconsistent, unreliable, and self-serving. In contrast I find the Development Budget Summary of $1.6 million forwarded to the bank in February 2008, and approved by Humphrey to be more consistent with the estimate of $1.2 to $1.5 million Rondeau provided Humphrey.

[82] Therefore I reject the defendants’ submission that B.C.R. exceeded the budget estimate, thereby providing grounds for termination of the Construction Contract.

DID B.C.R. DELAY CONSTRUCTION PROVIDING CAUSE FOR TERMINATION?

[83] The defendants submit that when they formally terminated the Construction Contract in August 2008, 16 months had elapsed since the construction began in April 2007. After 16 months with only the foundation being completed, the defendants submit B.C.R. was in breach of Article A-1(d) of the Construction Contract (Exhibit A, Tab 3) which provided that B.C.R. was to “…carry out work with due diligence and dispatch”. The defendants submit B.C.R.’s breach of this provision provided them grounds to terminate the Construction Contract.

[84] For the following reasons I find B.C.R. did not breach Article A-1(d) of the Construction Contract. On the contrary, I find it is the defendants’ actions that brought the construction to an end before completion.

[85] I accept Rondeau’s evidence that in November 2007 at Humphrey’s request, he provided Humphrey with a “Capping Estimate” of $115,000 to $125,000 (Exhibit C, 5(B)) to halt construction for an indeterminate period. I accept Rondeau’s evidence that instructions to cap were never provided by Humphrey. Absent those instructions, the only inference to be drawn was that the project was continuing.

[86] On February 14, 2008, again at Humphrey’s request Rondeau provided Humphrey with a “Lock-up Estimate” of $269,800 plus 20 percent (Exhibit A16). Lock-up cost refers to the cost required to complete construction to the stage that the structure could be physically locked.

[87] Subsequently on February 21, 2008, a Budget Summary (Exhibit C, Tab 7) approved by Humphrey to secure financing of $1.6 million was sent to his bank. I find it illogical that if delay as contended by Humphrey was a concern, he would take any steps to secure financing.

[88] Thereafter, between February 21, 2008 and May 26, 2008 there was no further communication between Humphrey and Rondeau. On May 26, 2008, Humphrey and Rondeau met at the building site.

[89] Humphrey testified, that during the May 26, 2008 meeting, he complained to Rondeau of delay, that B.C.R. was dragging its feet, leaving the basement unfinished over one year, and incurring extra costs to have “…contractors to re-scou’- scrape the foundation several times because it wa’ - being a winter build, instead of being done when it should have been done.” (Trial proceedings May 2, 2012, page 20 lines 31 to page 21, line 1 to line 2).

[90] The issue of delay, if discussed in the May 26, 2008 meeting, was also brought up in earlier discussions between Rondeau and Humphrey. I accept Rondeau’s evidence that when the issue of capping was discussed in November 2007 it was Humphrey who advised that he wanted to “hold off” and “stop the bleeding” because of financial difficulties related to marital issues, his costs of starting up another factory, and a trip to visit his ill mother in England. (Trial Proceedings November 29, 2011, page 29 to page 30 Line 24). However whatever “bleeding” Humphrey was experiencing then, three months later in February 2008 he requested a further cost estimate to proceed to the lock-up stage. When requesting a lock-up stage estimate, as with capping, Humphrey provided no instructions to proceed to the lock-up stage or in the alternative stop the project.

[91] There is no evidence that in the May 26, 2008, meeting Humphrey advised Rondeau of any reason, including delay, to terminate the Construction Contract. The defendants provided no grounds including delay in their termination letter in August 2008 advising B.C.R. that the contract was at an end. In cross-examination Humphrey admitted that although aware of Article 41 in the Construction Contract which provided arbitration to address grievances which included delay, he did not invoke that remedial clause. He further admitted that he did not advise B.C.R. that he had purchased another home while in the midst of construction with B.C.R.

[92] B.C.R. on the other hand submits that it is the defendants’ silence and failure to provide clear instructions as to how the project was to proceed (capping stage, lock-up stage?) that delayed progress and completion of the project. B.C.R. submits the defendants’ delay breached Clause 12 Schedule B of the restrictive covenants (Exhibit A, Tab 2) attached to the APS. Schedule B in part states: “The purchaser agrees…. [Clause 12] Any construction upon the Lot/Land shall be completed within one year from the commencement thereof….”

[93] As previously noted, construction began on or about April 30, 2007. The defendants formally terminated the Construction Contract in August 2008. Construction of the home was far from complete.

[94] The defendants submit the restrictive covenants are not binding and no breach has occurred.

[95] The defendants argue there are two sets of restrictive covenants in this matter. The first set, (the title covenants) was registered on title on January 16, 1998, by 8210110 Ontario Limited. The second set (the APS covenants) were not registered on title. Since they were not registered on title, the defendants submit they are not valid restrictive covenants or building schemes and therefore unenforceable. Conceding that the APS Covenants are personal covenants as between the parties and conditions of the APS, the defendants submit they are nevertheless unenforceable due to ambiguity and uncertainty.

[96] In rejecting this submission, the determination of whether the APS Covenants are valid restrictive covenants or building schemes is unnecessary since I find the APS incorporates the material restrictive covenants as part of the contract and therefore enforceable in contract law, without resort to the registered or non-registered nature of the covenants as argued by the defendants.

[97] Nor do I find any ambiguity or uncertainty in the wording of Clause 12 in Schedule B of the restrictive covenants which sets out the defendants’ commitment to have building of the residence completed within one year of commencing construction. Furthermore although the defendants submit that the term “developer” is not defined in the APS covenants, rendering it uncertain and vague who the “developer” is and what authority the “developer” has to enforce any of the clauses provided in the APS covenants, the APS covenants are signed by Bruce Rondeau himself under the title “developer”. (Exhibit A, Tab 2) Alongside Rondeau’s signature as “developer” the defendants have endorsed their signatures as “owner/purchaser”. Both signatures were affixed on April 7, 2007, on the last page of their agreement. I find therefore no ambiguity or uncertainty as to who the “developer” is regardless of whether the term “developer” is defined in the body of the restrictive covenants.

[98] For the above reasons I find no delay by B.C.R. as alleged by the defendants. I further find it is the defendants who delayed the project and in so doing breached Clause 12, Schedule B of the restrictive covenants.

WERE COST OVERRUNS AND QUESTIONABLE BILLING PRACTICES BY B.C.R. CAUSE FOR TERMINATION?

[99] It is admitted (Admitted Facts #46 and 47, Exhibit 1) that prior to termination of the Construction Contract the defendants forwarded B.C.R. $189,956.46 by way of the following payments:

a. October 19, 2007 $34,545.46.

b. November 11, 2007 $30,000.

c. November 26, 2007 $70,000.

d. February 14, 2008 $43,000 and

e. April 14, 2008 $12,411.

[100] The Batches of invoices B.C.R. relied upon for payment were delivered to the defendants on:

a. Batch 1: September 14, 2008: $31,561.55.

b. Batch2: February 14, 2008: $141,081.63.

c. Batch 3: March 12, 2008: $12,411.00.

d. Batch 4: November 4, 2008: $47,043.65.

[101] The above chronology confirms that from November 26, 2007 to February 13, 2008, the defendants had paid $134,545.46, yet in that period had received less than $35,000 in invoices.

[102] Initially Rondeau testified that some of the Batch 2 invoices had not been paid and payment was still outstanding on the Batch 4 invoices. He testified non-payment by the defendants was one of the reasons B.C.R. stopped construction.

[103] Even when challenged in cross-examination that the Batch 4 invoices were produced to the defendants in November 2008 after litigation had commenced, and that Batch 4 contained invoices from July 2008, Rondeau maintained that the defendants were still in arrears and that B.C.R. was not involved in any billing irregularities.

[104] The defendants submit that Rondeau’s evidence regarding B.C.R.’s accounting and billing practices is not credible and that costs improperly invoiced provided them grounds for termination of the Construction Contract.

[105] For the following reasons I reject this submission.

[106] The billing history confirms that B.C.R.’s invoicing/billing was untimely and open to question. However, untimely invoicing does not equate to cost overruns. There is no evidence that prior to May 26, 2008, when the last payment was refused, that the defendants threatened to withhold payments. There is no evidence that B.C.R. had not sourced materials properly, or denied any requests by the defendants for an audit to confirm or review B.C.R.’s expenditures. There is no evidence that the defendants invoked any contractual provisions to mediate the contract arising from cost overruns or questionable billings. Nor is there any evidence that in the August 26, 2008 termination letter the defendants cited any grounds for termination including overcharging, although on discovery Humphrey testified that he terminated the contract due to “incorrect invoicing, overcharging”. (Read in evidence of Plaintiff, page 110 transcript of April 30, 2012).

[107] In further support of their submission, the defendants have alleged a host of other billing discrepancies which I find to be minor and of little significance in the context of the entire contract. These include amongst others costs for trenching $300.00 to $400.00 (Exhibits C-37 to C-40), invoices for straw, a $312.50 “engineering” cost (Exhibit C-26) and a $100.00 porta-potty cost for washroom facilities on site. At trial, B.C.R. acknowledged erroneously billing the defendants $760.00 for an engineering stamp.

[108] In summary, I find these cost discrepancies do not go to the heart of the Construction Contract and do not provide the defendants grounds for termination.

DID B.C.R TRESPASS ON THE DEFENDANT’S LOT?

[109] This issue can be summarily disposed. Although alleged in the defendants’ Counterclaim, the evidence on this issue was not extensive, nor did the written submissions filed greatly assist the Court further.

[110] I find the issue of trespass is inferentially addressed in Schedule B APS restrictive covenants. The Court has previously found the restrictive covenants to be binding. Clause 22 in Schedule B provides that the purchaser shall not leave the grounds:

… in an unsightly and unreasonably untidy condition. In the event that the owner fails to keep his/her grounds under control…then the Developer will have the problem remedied at the Owner’s expense. Right of entry shall be granted to the Developer or an agent for the Developer to effect such repairs.

[111] The first seven photographs in Exhibits G, Tab 1 provide evidence of the state of the defendants’ lot after construction was stopped. These photos confirm that the lot was in an unkempt condition strewn with rocks, construction debris, and overgrown weeds. Humphrey testified that Rondeau left construction material and debris on the lot from other subdivision construction projects, including rocks to be used in the construction of a waterfall on his lot in the subdivision. That evidence is confirmed in three photographs marked as Exhibit G Tab 6.

[112] I find entry, if any, by B.C.R. on the defendant’s lot after termination of the contract was in accordance with the restrictive covenants APS and therefore not a trespass. On all the evidence after May 2008, Humphrey paid little if any attention to the lot leaving it unsupervised and unattended allowing it to deteriorate. The issue of what if any construction materials were improperly stored by B.C.R. on the defendants’ lot remains unresolved in light of Humphrey’s testimony that Rondeau advised him that some of the construction materials on site had been earlier ordered and left for construction of the intended home.

[113] If I am in error on the question of trespass, the damages sought of $10,000 are excessive and in any event have not been proven.

[114] In the same vein B.C.R.’s claim for nuisance and recovery of costs incurred to maintain the defendants’ lot after abandonment, in order that neighbouring lots and municipal property not be adversely affected, is dismissed. There was little or no evidence to support this claim including evidence of additional damages for purported loss of goodwill and reputation suffered by B.C.R., resulting from the defendants’ abandonment of the lot.

ARE THE DEFENDANTS RESPONSIBLE FOR THE COSTS B.C.R. INCURRED TO REMEDIATE EROSION ISSUES STEMMING FROM THE DEFENDANTS’ LOT?

[115] Relying on the restrictive covenants, B.C.R. submitted that costs they paid ($6,490) to Saller Excavating Limited (Exhibit C, Tabs 34-36) for ditch and silt maintenance work because of runoff and erosion from the defendants’ lot be reimbursed to them. Before closing its case B.C.R. abandoned its reliance on the restrictive covenants for this specific relief.

[116] Regardless of whether the restrictive covenants are binding, I find a review of the evidence surrounding the issue of runoff/erosion and costs incurred by B.C.R. for remediation is not necessary for the following reasons. As compelling as the evidence is regarding the severity of the runoff/erosion, (see Exhibit G, Tabs 2 and 3) on the evidence of Norm Clarke (Manager of Construction for the Municipality of Clarington) and to a lesser degree, Rondeau, who both testified that the runoff did not stem exclusively from the defendants’ lot, there is insufficient evidence to find the defendants solely responsible for costs paid by B.C.R. to Saller to remediate the problem. Therefore the Saller costs sought by B.C.R. at best should be apportioned between all parties. On the evidence, the extent of apportionment is impossible to determine.

DAMAGES

[117] Having ruled that the CPA does not apply and the restrictive covenants binding, in abandoning the construction of the home without cause I find the defendants breached the April 30, 2007 Construction Contract. Additionally, the defendants’ Counterclaim for damages for breach of contract, trespass, and refund of $52,545.46 for overpayment to B.C.R. is dismissed. The issue remaining is what damages are to be awarded to B.C.R.?

[118] The Defendants submit that even if breaches are found, no damages be awarded to B.C.R. The defendants argue that at trial B.C.R. only led evidence with respect to what its lost revenue would have been as a result of the breach[es] and no evidence regarding what its lost profits would have been. In cross-examination of Rondeau the following exchange took place during the Proceedings at Trial, November 30, 2011, page 65, line 20 to page 66, line 8:

Q. Your claim, sir, is for, part of your claim, is for your lost 20 percent of the, for that, that you didn’t get by continuing the build, and that is revenue for B.C.R., isn’t it?

A. Yes.

Q. And I take it B.C.R. has expenses?

A. A few.

Q. So, the revenue that you’re claiming for is not the same as your profit, is it?

A. No.

Q. Your profit is some amount less than that.

A. Yes.

Q. But we don’t know what it is.

A. Not off hand.

[119] The defendants submit in the absence of further evidence, namely cost and expense details as opposed to speculative revenue loss based on the 20 percent mark-up in the Cost Plus Construction Contract, at best the Court can only guess as to what B.C.R.’s lost profits would have been as a result of the breaches. In these circumstances no damages should be awarded to B.C.R.

[120] I accept the defendants’ submission to this extent; there is no evidence on which to calculate B.C.R.’s lost profits based on speculative revenue. However this submission only speaks to B.C.R.’s future profits had the breaches not occurred, but does not address present profits outstanding, if any.

[121] It is admitted that the Construction Contract entitled B.C.R. to charge the defendants 20 percent of the cost of work as its fee. It is admitted that the Construction Contract did not provide an itemized list of the prices at which the goods and services would be provided to the defendants.

[122] Exhibit B(2) is a three page spreadsheet prepared by B.C.R. of project costs that are itemized in the four batches of invoices forwarded to the defendants. Based on the cost plus construction contract these costs include B.C.R.’s 20 percent profit margin. It is admitted in Exhibit 1 that as of November 7, 2008, the defendants had paid B.C.R. $189,956.46 and that the shortfall between the amount invoiced by B.C.R. and the amount received is $42,171.36.

[123] Although the defendants challenged the costs invoiced, this Court has already found in paragraph [106] that the invoices reflect B.C.R.’s costs for work done prior to termination of the contract. Therefore I reject the defendants’ submission that no damages be awarded to B.C.R. I find it is the outstanding $42,171.36 not paid on which damages awarded are to be calculated.

[124] B.C.R. submits that the damage awarded by this Court should put the company in the position it would have been had the breaches not occurred. Conceding that the global agreement of the project to be the lower figure of $1.2 million, B.C.R. submits given the cost plus agreement of 20 percent, damages be calculated on the $1.2 plus interest and taxes less monies paid to date by the defendants. In summary B.C.R. submits it be awarded $173,924.44.

[125] For the following reasons, I find B.C.R.’s claim of $173,924.44 for damages to be excessive.

[126] Assessing damages based on the entire $1.2 million project estimate invites the Court to calculate future damages based on revenue alone. As already held, damages cannot be determined on projected revenue without further evidence.

[127] Furthermore, to assess damages on the project cost of $1.2 million would be to find that the 20 percent cost plus profit margin is to be applied to the APS and the Construction Contract. Although the Court has found that the substance of the parties’ agreement is the purchase and sale of the lot and construction of a home with the Construction Contract being part and parcel of the APS, the 20 percent profit mark up is only provided in the Construction Contract.

[128] It is admitted in Exhibit 1 that the shortfall between the costs invoiced by B.C.R. and payments made by the defendants is $42,171.36. B.C.R. acknowledges that $760.00 is to be deducted because of their error in wrongly billing the defendants for the engineering stamp. Based on the findings earlier made regarding the Saller invoices, the following amounts are also deducted - $ 225.00, $3,565.00, $2,700 (Exhibit C, Tabs 34, 35, and 36). These deductions total $7,250.00.

[129] Applying the deductions, the damages to be awarded without calculation of interest, are $34,921.36.

[130] With respect to the interest calculation, B.C.R. relies on Article 27 in the Construction Contract (Exhibit A, Tab 3) which states:

Should the Owner fail to pay the sum requested by the Contractor as stated above, or in any award arbitration, upon demand when due, the Contractor shall receive, in addition to the sum named in the certificate or award interest at the rate of 4 percent per month for each calendar month outstanding, (or fraction thereof).

It is the reliance on this provision that significantly increased the damages in excess of $173,000 sought by B.C.R.

[131] I agree with the defendants’ submission that the 4 percent per month interest rate sought is unenforceable because it is in contravention of Section 4 of the Interest Act, R.S.C. 1985 c.1-15 which states:

When per annum rate not stipulated

4. Except as to mortgages on real property or hypothecs on immovables, whenever any interest is, by the terms of any written or printed contract, whether under seal or not, made payable at a rate or percentage per day, week, month, or at any rate or percentage for any period less than a year, no interest exceeding the rate or percentage of five per cent per annum shall be chargeable, payable or recoverable on any part of the principal money unless the contract contains an express statement of the yearly rate or percentage of interest to which the other rate or percentage is equivalent.

[132] Accordingly, the interest rate to be applied to the damages of $34,921.36 is 5 percent per annum. As admitted in Exhibit 1 any interest owing commences November 7, 2008.

[133] Relying on Schedule B paragraph 25 of the restrictive covenants (Exhibit A, Tab 2), B.C.R. seeks an additional $25,000 be awarded as submitted by them because of the defendants’ decision not to build with B.C.R. Schedule B paragraph 25 states:

The Owner [Defendants] agrees to contract the construction of all buildings on his/her site with B.C.R. Construction Incorporated. In the event that the Owner chooses to contract with another contractor for construction, then the Owner will pay to B.C.R. Construction Incorporated a sum of Twenty-Five-Thousand Dollars ($25,000) upon closing, as a management and consultant fee.

[134] The wording in paragraph 25 is clear and unambiguous; the $25,000 “management and consultant fee” is to be paid “In the event that the Owner [the defendants] choose[s] to contract with another contractor for construction…..” There is no evidence that the defendants, at any time, chose another contractor for construction. Although given that option, the defendants chose B.C.R. and only B.C.R. to be their contractor. Terminating the contract and later listing the lot for sale with construction incomplete does not amount to contracting “with another contractor for construction”.

[135] For these reasons B.C.R.’s claim for the “management and consultant fee” as provided in Schedule B paragraph 25, is dismissed.

[136] If the parties cannot agree on costs, written submissions are to be forwarded to the Trial Co-ordinator within 30 days of the release of this judgment by the Plaintiff, B.C.R. The defendants shall have 15 days thereafter to respond. B.C.R. shall have 10 days thereafter to reply.

The Honourable Mr. Justice A. Sosna

DATE RELEASED: February 11, 2013