ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-11-425032
DATE: February 27, 2014
BETWEEN:
GOULIMIS CONSTRUCTION LTD.
David Rothwell, for the plaintiff,
Tel.: 416-593-5555,
Fax: 416-593-7760.
Plaintiff/Defendant by Counterclaim
- and -
JASON SMITH, EVA KLEIN and BANK OF MONTREAL
Lawrence Pick and Karen Dawson, for the defendants, Jason Smith and Eva Klein,
Tel.: 416-814-2822;
Fax: 416-362-2211.
Defendants
-and-
JASON SMITH and EVA KLEIN
Plaintiffs by Counterclaim
HEARD: November 5, 6, 7, 8, 12, 13, 2013 and December 5, 2013.
Master C. Wiebe
REASONS FOR JUDGMENT
I. BACKGROUND:
[1] The defendants, Jason Smith and Eva Klein, purchased a residential property with a municipal address of 70 Humberview Road, Toronto (“the Property”) in the summer of 2009, and, as they state in their pleading, “engaged” the plaintiff, Goulimis Construction Ltd. (“GCL”) to carry out certain renovation work on the Property. Mr. Smith and Ms. Klein together will be referred to as “the Owners.” The renovation work included the construction of a one story extension to the rear of the house and certain modifications to the basement and main floor of the Property.
[2] The parties had certain discussions in the fall of 2009 and the spring of 2010 concerning the work to be done. The Owners hired an architect to prepare plans for the work, and plans were prepared and eventually permits were issued for the work in the summer of 2010. GCL started working in June, 2010 and ceased working in March, 2011. This improvement will be referred to as “the Project.”
[3] On April 18, 2011, GCL registered a claim for lien on the title to the Property in the amount of $175,066.04. Two subtrades of GCL also registered claims for lien in April, 2011: Polo Mechanical Inc. (“Polo”) in the amount of $19,662; and Rapid Trends Electrical Company (“Rapid Trends”) in the amount of $11,863. A third subtrade, J.P. Ferreira Carpentry Ltd., also registered a claim for lien, but this claim was quickly discharged and this claimant did not participate in the reference.
[4] GCL perfected its lien on April 26, 2011 by starting this action naming the Owners and the Bank of Montreal as defendants, and by registering a Certificate of Action. Polo and Rapid Trends sheltered under the GCL claim. On June 15, 2011, the Owners delivered a Statement of Defence and Counterclaim. In the counterclaim, they claim recovery of what they allege was an overpayment to GCL for the “fair value of the work in place.” The Bank of Montreal has been noted in default.
[5] GCL obtained a judgment of reference on July 7, 2011 referring this action to the Master Polika. Master Polika conducted four trial management conferences on August 22, 2011, September 19, 2011, March 5, 2012 and July 23, 2012. On September 23, 2013, I conducted my first trial management conference in this matter by phone, and at this time all parties consented to me replacing Master Polika as the reference master, as Master Polika had retired. I conducted trial management conferences on September 23, 2013, October 9, 2013 and October 16, 2013, all by phone.
[6] At the commencement of trial, I was advised that the GCL claim had been reduced to $166,651.04, that the claims of Polo and Rapid Trends had been resolved with a payment by the Owners to those two trades in the total amount of $36,460.01 and with discharges of those two claims for lien, and that GCL had agreed that the said $36,460.01 would be credited against its claim, thereby further reducing the GCL claim to $130,191.03. The amount of the $36,460.01 payment to Polo and Rapid Trends was verified by Mr. Pick when he filed a copy of his firm’s trust statement showing the payments made from his trust account to the lawyers for these two parties.
II. ISSUES:
[7] The issues in this case are as follows:
a) Was there a contract between the Owners and GCL concerning the Project?
b) If so, was the contract a pure construction management contract, on the one hand, or was it a construction management at risk or fixed price general contract, on the other?
c) If there was a contract, was it breached, how, and what damages resulted?
d) If there was no contract, is GCL to be compensated on the basis of quantum meruit?
e) If GCL is to be compensated on the basis of quantum meruit, what is the value of the services and materials that GCL supplied to the Owners? If GCL has been over-compensated, by how much? If it has been under-compensated, by how much?
III. WITNESSES:
[8] The trial was a full trial with evidence in chief by way of viva voce testimony. GCL produced four witnesses: Peter Goulimis, the principal of GCL; Anthony Casimiri, a site forman for GCL who worked on the Project; Vasil Riskovski, the engineer hired by the architect to provide engineering services as needed on the Project; and finally, Haim Riback, the architect who was hired by the Owners to provide plans for the Project. The Owners called three witnesses: the defendant, Jason Smith, a co-owner of the property; Eva Klein, the other co-owner of the property; and Stephen Clifford, a quantity surveyor.
[9] Peter Goulimis was the principle witness for GCL. I found him to be the least credible of the witnesses. His credentials and experience as a construction manager are impressive. Yet in his evidence, Mr. Goulimis was argumentative and at times boastful, even with his own lawyer. When asked factual questions, he at times became non-responsive, insisting on giving his own version of events without addressing the factual issues properly. Furthermore, his versions often made little sense or conflicted with other evidence. I was particularly unimpressed by his evidence on the GCL invoices and accounting. The GCL invoices as rendered did not correlate with the invoices shown in the GCL accounting records. Mr. Goulimis explained this as a by-product of the lag between the accounting of costs and the rendering of the invoices, a lag that was captured by the GCL records. This explanation suggests a fundamental misunderstanding of accounting, conflicted with the wording of the invoices themselves (which described the invoices as capturing the costs expended to the date of invoice), and left me puzzling as to the veracity of the GCL records and the credibility of Mr. Goulimis.
[10] Then there was the evidence from Mr. Goulimis that Mr. Smith preapproved $100,000 to $150,000 worth of future new work in early November, 2010 after the initial GCL budget was delivered on October 22, 2010. Mr. Goulimis stated that Mr. Smith kept adding work “like a drunken sailor.” This did not accord with GCL’s subsequent budget records. In the last GCL budget document of March 3, 2011, the “committed costs” are shown as being no more than $35,000 above the “committed costs” in the October 22, 2010 budget. “Committed costs” are described in the document as approved estimates, budgets and purchases. This same March 3, 2011 spreadsheet shows, on the other hand, the “expended costs,” namely the incurred costs, as grossly outstripping the “committed costs.” The difference is significant, namely between $90,000 and $108,000. This all suggests that, contrary to what Mr. Goulimis asserted, GCL was incurring costs towards the end of the project that were well in excess of what was approved. The March, 2011 GCL invoices and budget spreadsteets are telling documents in my view.
[11] Mr. Goulimis’ argumentative nature shown through the Scott Schedule, which went on at length on account of Mr. Goulimis’ answers. He was also prone to exaggeration, such as the statement he made that the permit drawings did not capture the bulk of the work that was done. It came out in other evidence that the permit drawings were quite detailed and comprehensive, at least on the major elements of the work to be done. For all of these reasons I found the credibility of Mr. Goulimis’ evidence to be diminished.
[12] Messrs. Riskovski, Riback and Casimiri all gave their evidence in a straight forward way. None of these witnesses had a stake in the outcome of the case, and were quite believable. However, their evidence did not concern what I view to be the major issues in the case, namely whether there was a contract and what the value of the work was. The evidence of these three witnesses concerned the changing work that was to be done, what work was approved, when the work was done and when the work ceased. As these were not seriously contested issues, their evidence was of limited use.
[13] Jason Smith was the principle witness for the Owners. He was the one who negotiated and corresponded with Mr. Goulimis. He is obviously well educated (with a mathematics degree) and has a senior managerial position with Telus. He was careful and measured in his evidence. He admitted that his memory after 3 years was not the most accurate, and that he found the GCL initial invoice of October 22, 2010 to be a helpful guide as to the chronology of events. He used documents wherever possible to corroborate his testimony, which enhanced his credibility. Mr. Smith acknowledged issues that were contrary to the Owners’ interests, such as when he admitted reluctantly “accepting” the revised budget limit shown in the budget attached to the GCL October 22, 2010 invoice ($319,282.48) despite his insistence that the parties had originally agreed to a budget limit of $200,000 in early March, 2010. He acknowledged having authorized all of GCL’s work. He acknowledged not requiring GCL to stop after he received the first GCL budget on October 22, 2010. He admitted that there was nothing significantly deficient about GCL’s work. I found Mr. Smith generally to be a balanced and credible witness despite his obvious interest in the case. He did not appear capable of acting like “a drunken sailor.”
[14] Eva Klein was the other co-owner who gave limited evidence, as she did not correspond or negotiate with Mr. Goulimis. She is a nurse, and through a friend at work was introduced to Mr. Goulimis. She was present at the meetings in March, 2010 between Mr. Goulimis and the Owners concerning the Project. She gave more evidence about what she observed later in the Project, particularly as to what she perceived to be inefficiencies in the GCL crew. She was also measured and careful in her evidence, and admitted limitations as to what she observed, such her admission that she worked shifts which often did not allow her to be at home when the construction work was done. I found Ms. Klein’s evidence to be generally credible although limited in scope and usefulness.
[15] The final witness called by the Owners was Stephen Clifford, a quantity surveyor with the firm of Pelican Woodcliff Inc. (“Pelican Woodcliff”). Mr. Clifford submitted two reports in support of his evidence, one dated August 31, 2011 and the other dated October 18, 2013. Mr. Clifford’s credentials as a quantity surveyor with considerable knowledge and experience in that area were not challenged, and he was admitted as an expert witness accordingly. What was challenged was the credibility of his findings. As the usefulness of Mr. Clifford’s evidence depends, in my view, on my determination of certain of the issues in this case, I reserve my discussion of the credibility of his opinions until later in this decision.
[16] In summary, I found Mr. Smith to be a more credible witness than Mr. Goulimis, and, as a result, where the evidence of the two conflict, I prefer the evidence of Mr. Smith. Other conflicts in the evidence, I will deal with on an issue by issue basis as they arise.
IV. ANALYSIS:
a) Was there a contract between GCL and the Owners?
[17] A leading case on the requirements for a building contract is the decision of Fisher J. in Rafal v. Lepaspi 2007 BCSC 1944, 2007 CarswellBC 3278 (B.C.S.C.). One of the issues in that case was whether there was an enforceable construction contract. A written contract existed but both parties acknowledged that oral terms supplemented the written contract. They disagreed as to what those oral terms were, particularly as it pertained to the scope of the work to be done. Justice Fisher summarized the law in this area and made the following observations: the parties must be ad idem on the essential terms of the contract; where there is no written contract, the court must determine the reasonable expectations and intentions of the parties in creating legal relations; part performance is a good indicator of the parties intention to contract with each other, but it is only an indicator; with building contracts, the parties must not only agree on the building of the improvement, but also on the following three key features, namely the exact scope of the work to be done, the timeline for completion and the price to be paid. He said this at paragraphs 23 and 24:
However, for building contracts, it is not sufficient for both parties to have agreed on the building of a house. For the contract to be enforceable, the parties must also agree on the exact type of house, the timeline for completion and the price. . . . The absence of an essential term, in this case the specification to which the house was to be built, as well perhaps as the price, may result in uncertainty in the parties’ contact. . . .
It is not for this Court to complete the parties’ contract for them, particularly where an essential term is missing, and it cannot be said that the parties agreed to it. Even if the parties believed and acted as if they had made an enforceable contract, and the court’s interpretation of the contract would be fair and calculated to do justice to both parties, the court must be careful not to create an agreement which the parties never had, nor intended. . . .
[18] In the Rafal case, Justice Fisher found that the parties had not agreed on the specifications for the construction of the house, despite the existence of a written document purporting to be an agreement. He also concluded that there was no certainty as to price. He found as a result that there was no enforceable contract between the parties.
[19] In the case at bar, there was no written contract document. Therefore, the issue is whether, looking at the evidence of the conduct of the parties, the parties can be viewed objectively as having reached a binding verbal contract on the three essential elements for an enforceable construction contract, namely an agreement as to contract scope, schedule and price. I have concluded that they did not. The primary reason is that, in my view, they did not come to an agreement on price.
[20] Concerning scheduling, I am satisfied that the parties reached an agreement that the work was to be done within a reasonable time. There was no formally agreed upon schedule. There was some evidence as to what each party expected concerning project duration. In an August 24, 2010 email from Mr. Goulimis to Mr. Smith, Mr. Goulimis stated that he had originally expected to start work on June 1, 2010 and be finished by the end of September or the beginning of October, 2010, namely within a duration of 4 to 4 ½ months. In the email he added, however, that this schedule had slipped in light of the many design changes. In his evidence, Mr. Goulimis stated several times that he did not produce a schedule because of all the design changes. In his evidence, Mr. Smith stated that at the meetings with Mr. Goulimis on March 3 to 5, 2010, he, Mr. Smith, had expected that the work would be done “as quickly as possible.” He added that he “hoped” the work would be done by August 1, 2010, as this was the date the HST came into effect, but that this “hope” soon became unrealistic in light of the “permit complexity.” Based on this evidence, it appears that both parties initially expected a short project duration of about 4 months, but then came to an understanding and agreement that the completion was to be as soon as reasonably possible in light of the design complications. This is what I find.
[21] Concerning scope, this seemed to be somewhat of a moving target. Initially, when the Owners first consulted Mr. Goulimis in the fall of 2009, the discussion focused on the kitchen only, which Mr. Goulimis did not want to do. When the Owners met Mr. Goulimis in February and early March, 2010, the discussion of the work scope had grown to involve a new addition (basement and first floor) to replace the old one, certain basement alterations and certain alterations concerning the passageway between the kitchen and the dining room on the main floor. This was all in addition to certain immediate asbestos removal and drainage work that was to be done. Mr. Smith made it clear in his evidence that he and Ms. Klein had at this time a clear idea of what they wanted in the renovation.
[22] The GCL work on the house began in late June, 2010. By this time, the evidence showed that the work plans had crystallized to the point that Messrs. Riback and Riskovski prepared permit drawings for the Project dated June 28, 2010. Because of complications with the basement alterations, it was decided to obtain a separate basement permit with subsequent drawings of the basement area prepared and approved by Messrs. Riback and Riskovski dated July 22, 2010. The drawings were approved by Toronto on July 30, 2010 and August 17, 2010. It was from these permit drawings that GCL was asked in the summer of 2010 to prepare a budget, which it eventually did on October 22, 2010. This all indicates that the parties came to an agreement as to what work was to be approved of for permit purposes.
[23] I acknowledge and accept Mr. Goulimis’ evidence that several changes were made to the permit drawings, such as the layout of the laundry and recreation rooms in the basement, the switching of the locations of the windows in the addition, the addition of a vaulted ceiling in the addition, and the change to open tread stairs in the basement. I also accept Mr. Goulimis’ evidence that all of GCL’s work, including the changes to the permit drawings, was approved of by the Owners. This was confirmed by Mr. Smith in his cross-examination after he had asserted initially that there was unauthorized work. I therefore find that the scope of the work to be done by GCL was agreed upon by the parties, despite the obvious fact that the scope kept changing.
[24] Concerning changes, I must add that I do not agree with Mr. Goulimis in his assertion that the changes in scope after the October 22, 2010 budget were numerous and continuous. There were changes, such as the vaulted ceiling and the window location change in the addition, new windows and the reduction in window sizes. Some changes involved removal of work, such as the deletion of the drywall and vapour barrier in the basement extension. I did not note a significant increase in the scope after October 22, 2010 budget, which is reflected in the subsequent GCL budget documentation.
[25] It was on the issue of contract “price” that the parties did not, in my view, reach an agreement.
[26] Mr. Goulimis stated that he was a construction manager acting as agent for the Owners concerning the renovation, and that he had not agreed to a guaranteed maximum price or a fixed price. His evidence was that he made it clear to Mr. Smith and Ms. Klein in their conversations in February and March, 2010 that he would be charging them costs as incurred plus a markup and a construction manager fee, all without a limit. Specifically, he stated that he advised the Owners that GCL would be charging them for subcontractor work and supplied materials at the cost incurred for same by GCL plus a 25% markup (later reduced to 15%). As for labour, he stated that he informed the Owners that he would be charging them for his own forces at what he called “billable rates,” which he described as rates his company had developed over time to cover the direct cost of the labour plus indirect costs such as office overhead, vehicles, insurance, etc. Concerning the construction manager fee, he stated that he advised the Owners that he would be charging a fee for design development and off-site work. In the end, this fee proved to be a largely negligible issue.
[27] The difficulty is that GCL provided limited evidence that the Owners agreed to those terms. Concerning the “billable rates,” Mr. Goulimis conceded in cross-examination that he never gave the Owners any form of documentation explaining what these rates were. He just assumed that they agreed to pay them for whatever labour was done. Concerning the costs for subcontractors and materials, there is more of an inference to be drawn that the Owners agreed to pay for these items at cost plus the stated markup, but that was always subject to what they viewed to be the essential term of the contract, namely a guaranteed maximum price.
[28] The Owners, on the other hand, thought that they had in fact reached an agreement with GCL whereby GCL would act as construction manager with a guaranteed maximum price. Though well-educated and intelligent, the Owners were not experienced in construction management or construction contracts. Mr. Smith made it clear that when he and Ms. Klein met Mr. Goulimis on March 3 or 5, 2010 to discuss the contract for the improvement, he and Ms. Klein informed Mr. Goulimis that they had a budget limit of between $150,000 and $200,000, and that they told Mr. Goulimis at that time that with anything over $200,000 “we were in trouble.” Mr. Goulimis admitted discussing such a budget at this time. Mr. Smith advised that because no one contradicted them on this point, they assumed that GCL had agreed to this as a budget limit. The Owners stated that Mr. Goulimis confirmed verbally as late as October, 2010 that they were “still good” at $200,000. The difficulty is that there is virtually no corroboration that GCL agreed to this budget as a maximum limit.
[29] There is no doubt that GCL began working on the improvement in late June, 2010 and that it got paid three cheques on June 22, 2010, August 25, 2010 and September 23, 2010. Usually, work and part-payment create a reasonable inference that an agreement has been reached. Mr. Rothwell urged that work and part payment should cause me to conclude that the Owners had agreed to the contract price as understood by GCL. He even raised an argument of estoppel by conduct. I cannot, however, draw that inference in this case. The initial payment on June 22, 2010 (as shown on the GCL internal accounting records) was made without an invoice. While the GCL accounting records refers to an initial invoice, none was presented in the evidence. Therefore, I cannot conclude that this payment was a sign that the Owners had accepted the payment terms of the contract as understood by Mr. Goulimis.
[30] In fact, the Owners’ conduct was consistent with their view that the contract had a fixed price. They consistently demanded a budget showing how the GCL costs conformed to the understood fixed price. About a month into the work, at the time when the permit plans were done and the decision was made to obtain a separate permit for the basement work, Mr. Smith wrote an email to Mr. Goulimis on July 21, 2010 expressing concern about “blindly writing cheques” and about the labour rates quoted for block wall removal. The email ended with a demand for a budget including a “suggestion” that all work be suspended until such “a budget can be provided and finances reconciled to date.” Mr. Smith stated in his evidence that he wanted to have a budget to confirm that the costs being incurred by GCL were within the $200,000 limit. Mr. Goulimis agreed reluctantly to suspend the work to prepare this budget. Therefore the commencement of work cannot be viewed as proof that the Owners had agreed to the payment terms as understood by Mr. Goulimis. The Owners wanted the work suspended until a budget was prepared.
[31] It took over 3 months for GCL to prepare and deliver a budget. Mr. Goulimis explained this as being a result of the allegedly constantly changing design. In the meantime, Mr. Goulimis repeatedly assured the Owners that a budget was being prepared. Indeed, Mr. Smith went further and stated in his evidence that twice Mr. Goulimis had verbally assured him that GCL was within the $200,000 budget. I accept that evidence. Work resumed when the amended permits were obtained, and two further cheques were paid by the Owners, one apparently on August 25, 2010 and another ($15,000) on or about September 23, 2010. Again, there were no actual invoices for these cheques in the evidence. These payments and the resumption of work appear to have been the byproduct of Mr. Goulimis’ verbal budget reassurances. I so find. The evidence is clear that the Owners never resiled from their demand for a budget with a limit. I do not conclude that these payments and this work resumption show an acceptance by the Owners of the payment terms as understood by Mr. Goulimis.
[32] Finally, GCL delivered a budget with the fourth invoice dated October 22, 2010. The invoice was for $48,640.58. Attached to the invoice was a spreadsheet with various columns of numbers. The key ones were two: one entitled, “Committed Costs (Approved Estimates, Budgets & Purchases)”; and the other entitled, “Expended Costs (Actual Invoiced &/or Paid Costs).” The “Committed Costs” column was explained by Mr. Goulimis as containing budgeted costs (in bolded print) and incurred costs. It had a total of $319,282.48. The extended costs column was explained as containing incurred costs only and contained a total that was below the committed costs total. Mr. Smith stated that he and Ms. Klein read the “Committed Costs” column as containing the budget they had demanded. This reading I find to be reasonable in the circumstances.
[33] The Owners stated that they were both shocked by the amount shown for committed costs, as they had been assured by Mr. Goulimis as late of October, 2010 that they were “still good” at $200,000. Nevertheless, after consideration, Mr. Smith stated in his evidence that he reluctantly “accepted” this “new” budget limit. He also stated that the Owners were assured by Mr. Goulimis that GCL would abide by this limit. He also stated that he worked with Mr. Goulimis to reduce the scope to help GCL meet this limit.
[34] GCL delivered 9 further invoices. Each one (with the exception of Invoice 9 dated December 21, 2010) attached the same type of spreadsheet. These subsequent spreadsheets showed the committed costs as exceeding the committed costs shown in the October 22, 2010 spreadsheet by relatively small amounts (no more than $35,000). Mr. Smith stated that this concerned him and that he advised Mr. Goulimis to “review” these figures in light of what Mr. Smith understood to be the agreed upon budget limit of $319,222.48. He stated that Mr. Goulimis agreed to do so.
[35] In the meantime, given their understanding of what had been agreed to in relation to a budget limit (bolstered by the fact that prior to March, 2011 the committed costs were shown in the invoice spreadsheets as consistently exceeding the expended costs), the Owners continued to pay in response to the GCL invoices. Some payments conformed to the invoiced amounts, some did not. It was when the spreadsheets delivered with the invoices in March, 2011 showed the expended costs as grossly exceeding the committed costs, that the Owners were again shocked and ceased payment. This was made clear by Mr. Smith in his evidence. I accept it. Therefore, the payments by the Owners do not represent an acceptance by them of the payment terms as understood by GCL.
[36] On the other hand, there is no evidence that GCL accepted these budget limits as a guaranteed maximum price for its work. In fact, the evidence indicates that GCL proceeded as if there was no such limit. It started working in June, 2010 apparently before any budget work was done and resumed working in August, 2010 while it was working on the requested initial budget. It would have been reckless to do so had it been working to a guaranteed maximum price, particularly with all of the changes that occurred to the scope of the work. Furthermore, GCL did not embark on its budget work with the commitment of one who believed that the budget’s acceptance was vital to its entitlement to payment. Furthermore, the invoices it generated were correlated to GCL’s expended costs, not its committed costs, even when the expended costs column exceeded the committed costs column. Finally, Mr. Goulimis in his evidence was emphatic that he never agreed to a guaranteed maximum price.
[37] Therefore, I have concluded that, while both parties thought they had a verbal contract, they had entirely conflicting views as to what the contract price was. GCL thought it had what was essentially a cost-plus, pure construction management contract. The Owners, on the other hand, thought they had a construction management contract “at risk,” namely with a guaranteed maximum price. The evidence indicates that this conflict was never resolved.
[38] An agreement on price is essential to a construction contract, and without it, a contract cannot be formed. I find, as a result, that no contract was formed.
b) If there was no contract, is GCL to be compensated on the basis of quantum meruit?
[39] Given my ruling on the contract point, it is unnecessary to determine what type of contract there was, whether it was breached, and if so, by whom. I will move to the quantum meruit point.
[40] Was GCL nevertheless entitled to compensation on the basis of quantum meruit? I note that quantum meruit was not expressly pleaded by GCL, but Mr. Pick did not raise this point in argument, and I will assume that it is a properly pleaded alternative claim in this action.
[41] The courts generally will grant recovery on the basis of quantum meruit where a party supplies services and materials to another at their request, encouragement or acquiescence, whether under a quasi-contract or no contract, and where it would be unjust for this other party to retain the benefit. The court in the above noted Rafal decision reiterated this basic proposition at paragraph 30, again referring to the Fridman text:
Quantum meruit will be available if the services in question were furnished at the request or with the encouragement or acquiescence of the opposing party in circumstances that render it unjust for the opposing party to retain the benefit conferred by the provision of the services: Fridman, Restitution, 2nd ed. (Toronto: Carswell, 1992 at 290-92; Nicholson v. St. Denis (1975), 57 C.L.R. (3d) 699 (Ont.C.A.), leave to appeal to S.C.C. refused, [1975] 1 S.C.R. x (S.C.C.).
[42] This notion of quantum meruit is reflected in the Construction Lien Act (“CLA”). Indeed, the CLA contemplates a situation, such as this case, where there has been a supply of services and materials with no agreement on price. It expressly confers a lien right in those circumstances. CLA section 14 specifies that any person who supplies services and materials to inter alia an owner, has a lien upon the owner’s interest in the improved land for the “price” of those services and materials. CLA section 1 defines “price” to include the contract price agreed upon between the parties, or, “where no specific price has been agreed upon between them, the actual value of the services and materials that have been supplied to the improvement under the contract or subcontract.”
[43] As stated above, there is no question that GCL performed its work at the request and with the approval of the Owners. Therefore, GCL has an entitlement to be paid on a quantum meruit basis. The question is: what is the “value” of the work that GCL provided to the Owners?
c) What is the value of GCL’s work? Has GCL been over-compensated or under-compensated?
[44] As stated by the Supreme Court in R. v. Wallberg (1910), 1911 48 (SCC), 44 S.C.R. 208 at paragraph 145, the assessment of “value” for the purpose of a quantum meruit claim turns, not on what it actually cost, but what it would have cost to the party that benefitted from the supply under a competitively bid contract:
On the proper construction of the order of reference I think the question referred for investigation was the “fair value” of the completed sewage and water-systems mentioned in the pleadings. By that I think is meant the value to the Crown, but the value estimated with regard to the circumstance that the construction of these systems was a necessary work; in such circumstances the completed work would be worth to the Crown just what it would cost to reproduce them in the usual way, that is to say, to have them constructed under a contract entered into after a proper opportunity had been given for the presentation of competitive tenders. I do not know any other way of ascertaining such cost than estimating the reasonable cost of works when executed in a provident way.
[45] GCL presented no expert evidence on the issue of the value its work. The only evidence was that of Mr. Goulimis. He maintained that the value of the GCL work was what was shown on its invoices as finally recorded in GCL’s internal accounting records, namely $435,339.78 plus GST/HST. The total with tax as shown on the GCL accounting records is $490,998.70. The total payments by the Owners are undisputed, namely $324,347.66 + $36,460.01 (the amount paid to Polo and Rapid Trends) = $360,807.67, leaving a net claim of $130,191.03. Mr. Goulimis stated that the shown invoiced amount of $490,998.70 included all of the costs that GCL had incurred for materials, subcontractors and direct labour plus a markup of 25% on the materials and subcontractors.
[46] The Owners relied primarily on the evidence of expert, Stephen Clifford. Mr. Clifford is a quantity surveyor who retired from the firm of Pellican Woodcliff in April, 2013. He has considerable experience in this field having worked as a quantity surveyor for about 41 years prior to his retirement in 2013. His qualification as an expert witness in the area of quantity surveying was not challenged.
[47] Mr. Clifford was retained by the Owners’ lawyers on May 17, 2011 to provide an opinion on the “value” of the GCL improvements to the Owners’ house. He stated in his evidence that he reviewed the permit plans and the GCL invoices, and attended with his assistant, Elvis Chan, at the Property on June 23, 2011 for between 2.5 and 4 hours to interview the Owners and take measurements. He also reviewed some photographs provided by the Owners. He stated that where existing conditions did not conform to the permit drawings, he and Mr. Chan physically measured the conditions. Mr. Clifford produced an initial report dated August 31, 2011 entitled, “Report of Cost of Work-in-Place for Additions & Renovations to 70 Humberview Road, Toronto, Ontario.” It was submitted into evidence. It will be called the “First Clifford Report.”
[48] The First Clifford Report based its assessment of the value of the GCL work on a GCL document dated April 14, 2011 that Mr. Goulimis sent to the Owners on April 15, 2011 in an attempt to justify the GCL charges. It was entitled, “Evolution of Design and Change Order Summary.” The GCL document reviewed GCL’s work by placing it into three categories: an initial concept with a budget of $200,000; five property defect change orders; and 44 change orders. Mr. Clifford had no documents from GCL concerning its actual costs other than what appeared in the GCL invoices. The productions had not taken place by this time.
[49] Mr. Clifford stated in his evidence that he applied his own firm’s internally generated market rates for materials, equipment and labour to the GCL work he observed from the permit drawings and the site visit using the aforesaid GCL document as a guide. On page 1, the First Clifford Report stated that Mr. Clifford took “into consideration the purchase price of materials, typical hourly rates for trades people constructing similar projects, accepted trade productivity bench marks and a fair market price for the General Contractor mark-up.” On page 3 the Report stated that the prices were based on current tender levels, and that labour rates were a “combination of Residential Union and Non-Union Labour.” In cross-examination, Mr. Clifford confirmed that his firm’s rates were not created using industry measures such as RS Means. He stated that his rates were adjusted for market size and various site conditions such as soil conditions and work space. There was no further discussion of the basis for the rates that Mr. Clifford applied.
[50] The First Clifford Report concluded that the estimated cost of GCL’s work-in-place on the Property was $313,543 plus GST/HST. As stated in the report, this assessment did not include the cost of work that the Owners paid for directly, work outside normal working hours, materials that the Owners supplied, and cost of remedial work for deficiencies. The Clifford assessment was broken down as follows:
a) New addition and basement extension (the initial concept): $131,370
b) Property defects: $ 15,024
c) Changes: $167,149
TOTAL EXCLUDING GST/HST: $313,543
[51] The Clifford assessment of the GCL work done under the “initial concept” was below that of GCL’s budget of $200,000. However, his assessment of the work done under the many changes varied between being less than and greater than what was shown on the GCL “Evolution of Design and Change Order Summary.” Mr. Clifford confirmed in his evidence that his assessment contained an amount for material and labour costs of $270,018 and a 15% markup for construction management and “soft costs” totaling $43,525. He stated that 15% markup was a reasonable markup in the industry for a home renovation project of this size. Mr. Clifford confirmed in his verbal evidence that his opinion as to the value of the GCL work remained unchanged.
[52] Mr. Clifford produced a second report over two years later, on October 18, 2013, entitled, “Response to Goulimis Productions” (“the Second Clifford Report”). As indicated in its title, by this time the parties had exchanged productions. Two key GCL documents had been produced by GCL: (1) an accrual basis report dated January 9, 2012 (“Cost Report”) showing the total cost GCL incurred for subcontractors and materials, on the one hand, and direct labour, on the other; (2) a cost chart dated January 10, 2012 (“Cost Chart”) showing inter alia the markups GCL placed on the materials and subcontractors, on the one hand, and direct labour on the other. The Cost Report showed that GCL recorded costs for material and subcontractors totaling $218,556.99, and costs for direct labour totaling $85,986.33, for a grand total of $304,543.32. The Cost Chart showed that GCL had marked up the materials and subcontractor cost (with some exceptions) by 25% for a total of $54,521.78, and the direct labour cost by 71.836% for a total of $61,768.92, Mr. Goulimis confirmed the accuracy of these records in his cross-examination.
[53] The Second Clifford Report commented on various aspects of these documents. Concerning the total for subcontractor and material costs, Mr. Clifford reported that he had reviewed all of the GCL produced invoices and receipts for these items, and had included them in an attached chart which produced a total of only $191,328.28. Mr. Smith had himself prepared his own chart of material and subcontractor invoices and receipts which produced a total of only $187,146. Concerning the total for direct labour, Mr. Clifford made several comments in the report and in court. He stated that the 71.836% markup shown on the Cost Chart was “well above industry standard.” He went through the breakdown provided by GCL for Mr. Casimiri’s rate, and criticized the inclusion of amounts for vacation pay, CPP, group health benefit, rest, supervision, tools and vehicles.
[54] Mr. Clifford also commented on what he noted was evidence of inefficiency in GCL labour forces. Using the GCL invoices, he calculated the totals for labour costs expended from month to month, and noted that the highest monthly totals for labour costs appeared in January, February and March, 2011 when the finishing trades were apparently on site. He described this as “very unusual.” This dovetailed with what the Owners commented on anecdotally in their evidence as to what they saw were inefficiencies, such as time lags in bin replacement and late commencement of work each day by GCL forces.
[55] Mr. Goulimis in his evidence, and Mr. Rothwell in argument, urged me to discount the credibility of Mr. Clifford’s opinion and to accept Mr. Goulimis’ position on value instead. I do not do so. Here were my comments in this regard:
• Mr. Goulimis argued that the First Clifford Report was a “Class D” budget. He never properly explained this statement. In any event, Mr. Clifford disagreed with it. In argument, Mr. Rothwell pointed out that the investigation by Mr. Clifford and his assistant, Mr. Chan, was not sufficiently detailed to support the conclusions that he made in the First Clifford Report. Mr. Rothwell argued that a site visit of 2 ½ to 4 hours, one or two interviews with the Owners and a review of the permit drawings could not give Mr. Goulimis a thorough understanding of all the changes that were made. I do not agree. The permit drawings were sufficiently detailed and incorporated many of the changes that were made. As to the post-permit drawing changes, I note importantly that Mr. Clifford was careful to consult and follow the GCL exhaustive review of its own work contained in its “Evolution of Design and Change Order Summary,” a document that GCL produced about a month after its work ceased. This document contained no less than 49 change order references.
• Both Messrs. Goulimis and Rothwell criticized Mr. Clifford’s opinion as not being transparent or capable of cross-examination. They argued that Mr. Clifford did not disclose the rates that he applied to his assessment of the value of GCL’s work, or the measurements that Mr. Chan made and that Mr. Clifford relied upon. They argued that I should disregard expert opinion evidence that is not capable of cross-examination in this way. Mr. Rothwell referred me to the test outlined by the Supreme Court of Canada in R. v. Mohan as described in the article written by Graham D. Clancy (“The Admissibility of Expert Evidence in Canada”, Journal of the American Academy of Psychiatry and the Law, 35:350-6, 2007) to substantiate this argument.
This did cause me some initial concern, but not enough in the end to discount Mr. Clifford’s opinion. Firstly, I note that the concern about the ability to cross-examine an expert as referenced in the said article concerned novel theories. With novel theories the concern about the foundation of the expert opinion is real as there would be typically limited critical analysis of the propounded theory. That does not apply to the area of quantity surveying and the assessment of the value of construction work. This is a well-established field. GCL was quite capable of calling its own expert witness to contradict the assumptions made by Mr. Clifford, and chose not to do so even though it had the onus of proving the value of its work. Furthermore, GCL apparently had the First Clifford Report in hand in advance of discoveries, and could have sought disclosure of the foundation of the report. Nothing was stated in the evidence or in argument as to whether that was done.
Secondly, the Clifford assessment of the value of the GCL work was not so radically dissimilar from the GCL evidence of its actual cost as to create a suspicion in me that Mr. Clifford was “totally off base.” Mr. Clifford’s assessment of material, subcontractor and direct labour cost (before markup) was only about 10% less than what GCL showed in its records to be its actual costs (before markup). It was about 5% less than what was shown for committed costs (before markup) in the last few GCL invoices. There was evidence of labour inefficiency towards the end of the project, as shown in the Second Clifford Report, which leads me to conclude that these discrepancies have a rational basis.
Therefore, I do not agree that First Clifford Report should be discounted for lack of transparency.
• Mr. Rothwell referred me to a case where Master Albert had discounted the expert evidence of Mr. Clifford concerning the value of the contractor’s work in that case. In Crownwood Construction Ltd. v. Omartech Construction Inc. 2006 CarswellOnt 1337, one issue was the value of the work done by the contractor outside of the agreed upon lump sum. Mr. Clifford was called as an expert witness by the owner. Master Albert discounted Mr. Clifford’s evidence not on the basis of his qualifications, ability or work, but on the basis that he had relied upon the evidence presented to him by the owner concerning the contractor’s scope of work, which was limited and erroneous. That is not the case here where I noted that the Owners and their lawyers were careful to give a relatively free hand to Mr. Clifford to conduct his investigation has he saw fit.
• Mr. Rothwell referred me to several cases where a quantity surveyor’s expert evidence was rejected. I find that these cases are distinguishable from the case before me. For instance, in Homewood Development Inc. v. 201099 Ontario Ltd. 2013 CarswellOnt 8867 the court rejected the quantity surveyor’s evidence because it was obtained 3 years after the project and did not include design changes. Mr. Clifford’s opinion was obtained within 3 months of the subject project and addressed the scope changes. In Degelder Construction Co. v. Dancorp Developments Ltd. 2000 CarswellBC 1484, the court rejected a quantity surveyor’s opinion evidence because he wondered into fields outside of his expertise. That is not the case with Mr. Clifford’s evidence which focused on the cost of the GCL work in place.
• Mr. Clifford was a generally credible witness. His assessment was balanced; his assessment of the value of the changes both exceeded and were less than GCL’s amounts. He was tempered in his conclusions. Addressing the Mohan factor, I find that his evidence was relevant and necessary for this trial since it addressed the key issue of the value of GCL work, and did so fairly.
• Concerning Mr. Goulimis, I have already commented on the general lack of credibility of his evidence. Suffice it to say here that Mr. Goulimis’s evidence on the value of GCL work was no less partisan than his other evidence, which is understandable as he has a clear stake in the outcome of this case. He blamed GCL’s increase in costs after November 1, 2010 on what he described as Mr. Smith’s penchant for spending “like a drunken sailor” on new work, despite the other evidence that the new further work was limited in scope.
Concerning the GCL “billable rates” for its labour charges, I accept Mr. Clifford’s criticism that these include several items that are not usual for the residential construction market. GCL had no rejoinder to Mr. Clifford on this point other than Mr. Goulimis’ evidence that he created these rates from the company’s previous experience and RS Means, an alleged industry standard. Mr. Rothwell referred to RS Means as well in argument. However, GCL neither produced these rates at trial nor had them explained by a third party expert witness. Mr. Clifford denied in cross-examination that the RS Means rates represent the industry standard for the subject project. Therefore, I do not accept that these “billable rates” represent the industry standard for the subject project or reflect fair value of the work done.
Concerning the quantum claimed for GCL labour, material and equipment, GCL relied primarily on its internal accounting documentation (particularly the Cost Report) for evidence of the amounts claimed. At trial there was no significant backup presented for the amounts shown in this report, such as time sheets, diaries, invoices and receipts.
As to the quantum claimed for labour, as noted earlier, Mr. Clifford raised doubts as to the efficiency of the hours spent towards the end of the project. Mr. Goulimis’ sole response was that there was no inefficiency, and that these were the hours that were required to do the ever evolving scope of work. Since I have found that the post-November 1, 20110 changes were limited in scope, I do not accept this answer. As to the quantum for the materials and subcontractors, the tabulations performed by Messrs. Clifford and Mr. Smith of the invoices and receipts that GCL produced as a part of the discovery process casts doubt as to the veracity of this total in the Cost Report.
Therefore, I do not accept that the evidence of Mr. Goulimis on this subject reflects the fair value of GCL’s work.
[56] Mr. Pick urged that I adopt another approach to the assessment of the value of the GCL work based on a critical review of GCL’s actual cost. He argued that I accept the reasonableness of the GCL’s labour cost total as shown in its Cost Report, namely the $85,986.33, and adjust it to account for two proven errors on pages 1 and 2 of that report, producing a total labour cost (before markup and taxes) of $78,786.33.
[57] Mr. Pick then argued that I accept the analysis done by Mr. Clifford of the produced GCL invoices and receipts as the total cost GCL incurred for materials and subcontractors before markup and taxes. The amount shown for these costs in the GCL Cost Report is $218,556.99. As stated above, in the Second Clifford Report Mr. Clifford reported that he had tabulated the invoices and receipts that GCL had produced in the course of this litigation, and had reached a total sum of only $191,328.28. Mr. Pick argued that I should deduct the tax from this figure to produce a total of $171,849.55 and conclude that this is the true cost to GCL of materials and subcontractors.
[58] Mr. Pick then argued that I should add a markup of 15% on both the above noted labour and material/subcontractor cost totals to account for construction management and overhead costs, as that is the percentage that Mr. Clifford stated in the First Clifford Report was a reasonable markup for these costs. He finally argued that the total should then be increased by 13% to account for the HST that came into effect on July 1, 2010. It seems clear from the evidence that relatively few costs were incurred by GCL prior to July 1, 2010. The grand total is $324,701.32, which Mr. Pick argued was a reasonable alternative assessment of the value of GCL’s work.
[59] Mr. Pick then argued that this $324,701.32 total is roughly the same as the amount that has been paid by the Owners to GCL (other than on account of Polo and Rapid Trends), namely $324,347.66. Adding the amount the Owners paid to Polo and Rapid Trends, namely $36,460.01, to the total amount the Owners paid to GCL would produce a total of $360,807.67. Mr. Pick then argued that the Owners’ counterclaim had validity to the extent of the difference between the total paid, $360,807.67, and the total value of GCL’s work, $324,701.32, namely $36,106.35. This is roughly the same as the payment the Owners made to Polo and Rapid Trends, which was done only on account of the Owners holdback liability under the Construction Lien Act.
[60] I do not accept this alternative method of assessing the value of GCL’s work for the following reasons:
• While Mr. Clifford tabulated the GCL invoices and receipts as indicated in the Second Clifford Report, he did not in his evidence change or resile from his opinion as to the value of the GCL work as stated in the First Clifford Report.
• Mr. Clifford did not endorse Mr. Pick’s alternative method of assessing the value of GCL’s work. Therefore, there was no expert evidence presented in support of this method.
• Mr. Clifford did not indicate in his report that his tabulation of the invoice and receipt figures included tax. He did so in re-examination. Only a few of the invoices and receipts were produced in the document briefs presented at trial, and therefore I am not confident that this was in fact a proper step in this process.
• I am also not confident that the tabulated total for the GCL invoices and receipts captured all of the GCL cost for materials and subcontractors. Mr. Clifford’s chart refers to large apparent expenditures for which there were no receipts and invoices. Payment may very well have happened, and legitimately, with no invoice or receipt. I note that Mr. Clifford made no comment on this in his report.
• Most importantly, though, this assessment is predicated on the assumption that GCL’s costs as incurred were reasonable, and that the only exercise the court should engage in is a proper accounting of GCL’s costs. In fact, the argument is that I should accept the totality of what is shown in GCL’s records for labour costs. This is not consistent with the evidence. In the Second Clifford Report, there was an analysis of GCL’s labour costs that created an inference that GCL’s labour was inefficient towards the end of the project. There is also the large discrepancy between the committed costs and the expended costs as shown in the March, 2011 GCL spreadsheets attached to the invoices. Finally, Mr. Clifford came to a separate independent assessment of the value of GCL’s work that indicated that recorded GCL costs were not reasonable. This all indicates that GCL’s costs were not reasonable and were not a proper reflection of the fair value of GCL’s work.
[61] Therefore, I conclude that Mr. Clifford’s assessment of the value of GCL’s work as contained in the First Clifford Report, and as reinforced by Mr. Clifford in his viva voce evidence, namely $313,543 (plus tax), is a fair assessment of the value of the GCL work, and I accept it.
[62] To determine whether GCL has been over-compensated or under-compensated, it is necessary to add tax to Mr. Clifford’s assessment, as Mr. Clifford’s total did not include tax. For simplicity sake, I have simply added a 13% HST figure to the $313,543. This is what Mr. Pick did in his alternative analysis of value, and I adopt it. The grand total is $354,303.59. Interestingly, this total is very close to the total shown for committed costs (ie. the budgeted amount) in the second last GCL invoice dated March 3, 2011.
[63] Since the Owners have paid a total of $360,807.67 to or on account of GCL (including the amounts paid to Polo and Rapid Trends), I conclude that GCL has been over-compensated by $6,504.08.
V. CONCLUSION:
[64] Therefore, I dismiss the GCL claim and order that the GCL lien be discharged and that the GCL claim for lien and certificate of action be vacated from title.
[65] As to the counterclaim, I award the Owners $6,504.08 on their counterclaim plus prejudgment interest and post-judgment interest on same in accordance with the Courts of Justice Act.
[66] As to costs, at the close of argument on December 5, 2013 Mr. Rothwell filed a Cost Outline showing a partial indemnity recovery for the action and counterclaim of $117,985.67 and a substantial indemnity recovery of $144,746.31. On December 20, 2013, Mr. Pick delivered a letter stating that, if successful, the Owners would be seeking partial indemnity recovery of $45,000 plus HST. There was no Costs Outline attached.
[67] Generally costs follow the event. If the parties are unable to agree on costs, counsel may file written submissions on costs. Submissions may not exceed four pages (typed, 8 ½” x 11” pages, double spaced, minimum font size 12). The Owners submissions must be served and filed by March 12, 2014. The GCL submissions must be served and filed by March 26, 2014. The Owners’ reply submission, if any, must be served and filed by March 31, 2014.
[68] If the parties are unable to agree on the form of the final report, an attendance may be required to settle the report.
Master C. Wiebe
Released: February 27, 2014
2014ONSC 1239
COURT FILE NO.: CV-11-425032
DATE: February 27, 2014
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
GOULIMIS CONSTRUCTION LTD.
Plaintiff/Defendant by Counterclaim
- and -
JASON SMITH, EVA KLEIN and BANK OF MONTREAL
Defendants
-and-
JASON SMITH and EVA KLEIN
Plaintiffs by Counterclaim
REASONS FOR JUDGMENT
Master C. Wiebe
Released: February 27, 2014