ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-11-441535
DATE: February 27, 2014
BETWEEN:
Emily Creek Woodworking Ltd.
D. Conn for the plaintiff
Tel:: 416-363-1868; Fax: 416-862-0007
plaintiff
- and -
Disi-Peri Mgt. Inc. and DPI Construction Management Inc.
T. Nguyen for the defendant
Tel: 416-221-5100; Fax: 416-221-5106
defendant
HEARD: February 25 and 26, 2014
Master C. Albert
[1] Emily Creek Woodworking Ltd. (“Emily”) as contractor and Disi-Peri Mgt. Inc. operating as DPI Construction Management Inc. (“DPI”) as project manager contracted for Emily to supply cabinetry and other millwork to premises at 171 John Street, Toronto, 2nd floor, to be used by Schwarzkopf Professional (the “Client”) as a training facility. Unpaid, Emily registered a construction lien for $22,450.00 plus HST on October 28, 2011 as instrument AT2853491. In its statement of claim Emily claims this amount plus $1,001.75 for extras for a total claim of $26,370.25. DPI claims set-off of $18,710.00 plus $4,556.00 plus HST for a total of $26,290.58 for deficiencies and incomplete work.
[2] The issues are:
a) Did Emily perform the contract work?
b) Is Emily liable to DPI for deficiencies, incomplete work or delay?
c) What amount, if any, is reasonable as a set-off to rectify or replace the merchandising unit?
d) What amount, if any, does DPI owe to Emily?
The Contract
[3] The essential elements of a construction contract are price, scope of work and timing.
[4] The Client hired DPI as construction manager for the renovation project. DPI invited tenders from various trades for different components of the project, including millwork. Emily was one of several contractors responding and submitted a quote on April 27, 2011. After negotiating with John Knight, a project manager employed by DPI at the time but no longer in its employ, the parties agreed on the price of $22,450.00 plus HST. Mr. Knight negotiated the contract with Emily but testified that it was someone in management at DPI, perhaps Mr. Di Simone, who approved the contract on behalf of DPI.
[5] The parties never executed a written form of contract. DPI issued a purchase order on May 10, 2011 incorporating by reference the scope of work as set out in the Emily quote.
Reception – Millwork
Closet 102 – shelf and rod
Student Lounge
Museum Millwork – Wall panel
Product Merchandising – Wall millwork
[6] DPI included with its invitation to tender a construction schedule prepared April 29, 2011. It provided for a client move-in date of July 1 to 3, 2011 and a millwork installation date of June 21 to 24, 2011.
[7] I am satisfied that the purchase order and quote, read together, reflect the substance of the parties’ agreement as to scope of work and price.
[8] As for timing, the construction schedule reflected DPI’s expectation as to a completion date for the millwork. The parties did not execute a contract wherein DPI bound Emily to a deadline of June 24, 2011 or any other completion date, nor are there any documents of probative value submitted in evidence to prove that Emily agreed to a fixed completion date. The law is clear: where there is no fixed contractual completion date the contractor must complete the work within a reasonable time taking into account all of the circumstances.
[9] In its claim Emily asks for payment of an extra of $1,001.75, including HST, based on its invoice #2619 dated August 22, 2011. DPI did not dispute that the work was requested and completed. I am satisfied that Emily completed this work as an authorized extra to the contract.
1st Issue: Did Emily perform the contract work?
[10] The evidence is undisputed that Emily manufactured and installed all of the items in the scope of work and even though it took longer than DPI expected, all of the items were supplied and installed. There were deficiencies in various aspects of the project that Emily addressed. Except for the merchandising unit, all of Emily’s millwork was ultimately accepted by DPI and the Client and remains in use to the present day.
[11] Emily installed the merchandising unit but DPI and the Client were not satisfied with it. How DPI responded to its dissatisfaction is discussed under the 2nd issue dealing with deficiencies.
[12] I find that Emily supplied all of the millwork that it was required to supply pursuant to the contract. Barring any set-off for deficiencies or delay, Emily is entitled to be paid for its work.
2nd Issue: Is Emily liable to DPI for deficiencies or incomplete work?
[13] The issue is whether Emily is liable for deficiencies or incomplete work because the merchandising unit, although installed, was not accepted by the Client and DPI hired another contractor to remove it, build and install a new one.
[14] DPI argues that it is entitled to set-off because of deficiencies in the merchandising unit manufactured and installed by Emily. DPI claims that Emily is at fault because the merchandising did not fit properly into the space. The evidence does not support that assertion.
[15] Deficiencies are a part of every construction project, from small dings and paint chips to large structural deficiency items. The supplier’s response to deficiency items is relevant to whether the supplier performed its obligations under the contract or whether the supplier is liable for deficiencies.
[16] The evidence includes Emily’s response to deficiency items (exhibit 4, tab 22). It lists the deficiencies applicable to Emily’s contract and Emily’s response to each item. Many items are minor or pertain to items not within Emily’s scope of work. Examples, and Emily’s response either in the deficiency response form at exhibit 4, tab 22, or in evidence at trial, include:
a) Item 2.5: “Provide stainless steel base at reception”. Emily’s response in the deficiency response form is: “will provide and install”. At trial Oliver Meyer, principal of Emily, explained that stainless steel at the base of the reception desk was a change requested by DPI and the Client and that it was outside the scope of work in the Emily contract, but to resolve matters Emily agreed to provide it and did so. Despite DPI’s characterization of this item as a deficiency it is not a deficiency on the part of Emily.
b) Item 2.6. “repair sliders at staff side of reception millwork”. Emily’s response in the deficiency response form is: “will supply and install”. This is typical of the type of small details that are taken care of at the deficiency repair stage of a contract. It is not evidence of a contractor failing to perform its contract.
[17] These are just two examples of several small items listed in the deficiency list that Emily responded to appropriately.
[18] The deficiency list also included more significant items. In particular, DPI required Emily to remove the reception desk, take it back to the Emily factory near Peterborough and rework it to meet the Client’s demands. The evidence satisfies me that on numerous occasions the Client made changes to its specifications, requiring changes to millwork that had already been manufactured and in some cases installed. One example is the paint colour selected by the Client. After selecting it and Emily applying it the Client changed its mind and wanted a different colour. Rather than make an issue of it Emily complied. The changes required for the reception desk were not as a result of a deficiency in Emily’s work but rather a change in specification by the Client. This is another example of the many instances where the Client’s change of specification caused DPI to demand, in the guise of a deficiency, that Emily make changes to the millwork. It does not attract any set-off.
[19] The crux of DPI’s opposition to Emily’s claim is its belief that it was entitled to set-off from the amount owing to Emily the amount it paid to another contractor to remove and replace the merchandising unit. The issue is whether DPI acted reasonably in doing so and charging the cost back to Emily.
[20] DPI relies heavily on what it describes as the Client’s dissatisfaction. DPI’s evidence of this dissatisfaction is a letter dated September 2, 2011 from an employee of the Client (exhibit4, tab 27). The writer of the letter, Jami Steele, was not called as a witness. The letter itself is not evidence as to the facts stated therein. What is relevant is how DPI responded upon receiving the letter from the Client.
[21] In response to the letter DPI hired another millwork contractor, Salzburg Interiors & Furniture Limited (“Salzburg”) to remove and replace the merchandising unit.
[22] In order to determine whether DPI acted reasonably the court must consider the cause of the failure of the wall and the merchandising unit to fit together properly. Was it the fault of the drywall contractor, Argo, the millwork contractor, Emily, the construction manager DPI or someone else?
[23] DPI’s only witness in this trial is Mr. Di Simone who testified in chief by affidavit and was cross-examined at trial. By his own admission, Mr. Di Simone was not involved in the project on a daily basis. He blames Emily for the problems with the merchandising unit based on his review of emails and other documents, and his conversations with others, but without any direct evidence as to what happened.
[24] There were other DPI employees on site who had direct dealings with Emily. DPI did not lead evidence from any of them at trial. A glaring omission in the evidence is DPI’s site supervisor, Jim Harvey.
[25] Emily relies on the evidence of Oliver Meyer, principal of Emily and on site frequently, and John Knight, who was DPI’s project manager on site at the time, through to July 26, 2011. Both of these witnesses testified in chief by way of affidavit and were cross-examined at trial. They both have direct knowledge of the events that occurred through their presence on site, their attendance at meetings, their participation in phone calls and their observations of site conditions.
[26] The evidence of both Mr. Meyer and Mr. Knight was given in a forthright manner. They both have good memories of events that transpired. I find them both to be credible witnesses. They provided a reasonable explanation of what went wrong.
[27] Mr. Meyer, who has been in the millworking business for some thirty years, explained how he proceeds in a job such as this. After securing the job he prepares shop drawings for approval by the project architect. In this case the architect was Gow Hastings Architect Inc. (“Gow”). Once approved, the shop drawings form the roadmap for building the cabinetry. Gow approved Emily’s shop drawings.
[28] The merchandising unit was to be affixed to a wall that had a curve to be built with a specified radius. It was critical to the fit of the merchandising unit that the radius of the wall and the radius of the merchandising unit be the same. Emily used a computer generated program to create a template for the radius that was to be used for the merchandising unit and the wall. It was critical that the two follow the same template so that they would fit together flush without any gaps or extensions.
[29] Mr. Meyer provided the template to be used by the drywall contractor, Argo, so that the radius of the wall would match the radius of the merchandising unit.
[30] Mr. Meyer explained that instead of building the wall to the radius of the template, Argo flared the wall at a different angle. Consequently, the merchandising unit did not fit properly and could not be flush as was intended. Emily made several proposals to remedy the situation but none were acceptable to DPI.
[31] Mr. Knight’s evidence corroborates Mr. Meyer’s explanation of why the wall and the merchandising unit failed to align. He testified that when he went to the site in late July he identified the problem and told the DPI site superintendent, Jim Harvey, to have the drywall contractor shift the wall to rectify the problem and use the radius that was provided in the template. Mr. Knight testified at trial that the wall was open and it would have been relatively easy for Argo to shift the wall to conform to Emily’s template for the radius of the wall, but that apparently this was not done. He further explained that the problem with the wall as constructed was that it flared too much and that the cabinetry unit could not bend to fit the wall as built.
[32] Mr. Knight explained that there were also problems with the design of the wall. He was concerned that it was too flimsy to support the merchandising unit which, in essence, is a cabinet with shelves to store the Client’s products and other merchandise. The architect required a redesign of the wall with structural supports including steel supports that would protrude from the wall and affix into the merchandising unit. To accomplish this the wall, already completed beyond the drywall and taping stage, had to be reopened, supports installed and then closed up and taped and painted. Correcting the radius to match the template at this stage could have been accomplished readily and solved the problem. DPI did not call Jim Harvey as a witness and lead no evidence as to why it did not require Argo to rectify the radius of the wall.
[33] Mr. Knight left the employ of DPI before the job was finished. DPI did not produce a witness who was on site to supervise the job after Mr. Knight’s departure.
[34] DPI tendered no evidence to the contrary from Argo, the site supervisor or any other witness who was on site at the time this issue arose. Its evidence on this issue is that of Mr. Di Simone who has no first hand knowledge of what happened. He testified that the template must have been followed because it was left in the wall. He did not explain how he knew that it was left in the wall. Mr. Knight explained that the template could not have been left in the wall and that such a template is never left in a wall. He described the template, which he had seen, as a piece of wood made of ¾ inch thick MDF construction and it is used to mark the floor to make the outline for the radius to be applied to build the wall following the outline. The template does not stay in the wall.
[35] I accept Mr. Knight’s evidence on this issue that the reason the merchandising unit did not fit properly is that the computer generated template for the radius of the wall, produced by Emily and followed by Emily in its manufacture of the merchandising unit, was not followed by Argo, the drywall contractor, and DPI failed to require the drywall contractor to rectify the situation.
[36] I draw the inference from DPI’s failure to submit evidence from Argo, Gow or Jim Harvey that none of them would not have evidence to refute Emily’s version of what happened.
[37] I conclude that the reason Emily’s merchandising unit did not fit properly was not the fault of Emily but rather the fault of other trades, most likely Argo, and it was the responsibility of DPI as the construction manager to ensure that the template supplied by Emily for the radius of the wall was followed.
[38] For these reasons I find that the failure of the merchandising unit to satisfy the Client was not a deficiency on the party of Emily in performing the contract work.
3rd Issue: Is DPI entitled to set-off the amount it paid to Salzburg?
[39] DPI contracted with Salzburg to remove the merchandising unit built by Emily and replace it with a new one to be built by Salzburg. Having found that Emily is not liable for any deficiency in the merchandising unit it follows that DPI is not entitled to set-off the amount it paid to Salzburg to remove the Emily merchandising unit and replace it with the Salzburg merchandising unit.
[40] Had I found otherwise on the issue of Emily’s liability for a deficiency in the merchandising unit I would have found that DPI failed to meet its burden of proving that it mitigated its damages reasonably. DPI failed to satisfy the court that the merchandising unit built by Salzburg was the same design as the merchandising unit that Emily was contracted to build. There are two obvious differences: the Salzburg merchandising unit included lighting and glass whereas those items were excluded from the Emily merchandising unit specifications. DPI failed to produce the shop drawings that Salzburg used. Had it done so then a comparison could have been made to determine whether the scope of work was the same.
[41] A party seeking compensation for completion or rectification costs has a duty to act reasonably in mitigating its damages. In this case DPI obtained two quotes from two millwork suppliers. DPI provided no evidence of the scope of work provided to the contractors submitting quotes:
a) Salzburg quoted $18,710.00 plus HST on September 8, 2011; and
b) True Wood Interiors quoted $19,500 on September 8, 2011 for “after hours removal & replacement of existing unit as per new details”.
[42] DPI contracted with Salzburg to remove the merchandising unit manufactured and installed by Emily and to manufacture and install a replacement. The only evidence of a breakdown of Salzburg’s price is in an invoice on DPI letterhead that appears to be directed to Emily in an accounting of the Emily account. It sets out in the accounting the original contract price with Emily and then deducts from it $18,710.00 on account of the Salzburg contract to replace the merchandising unit and deducts a further $4,556.00 on account of “additional costs”. The account statement goes on to provide a breakdown of Salzburg’s costs but DPI failed to produce any evidence from Salzburg as to its breakdown of costs. Mr. Di Simone was unable to explain the basis for the breakdown in the account statement.
[43] In their original negotiations Emily and DPI acknowledged that the component of the $22,450.00 contract price attributable to the merchandising unit was $8,250.00.
[44] The fact that the Salzburg costs are more than double the Emily allocation for the same item causes me to question DPI’s reasonableness in the amount claimed as set-off. While some increase is attributable to the haste with which the replacement unit was to be built and the need to install it after business hours, there was no evidence of probative value that explained and justified what appears to be an excessive amount. I find that DPI has not met its burden of proving that its costs to remove and replace the merchandising unit is reasonable mitigation.
[45] Had I found that DPI was entitled to a set-off for the merchandising unit I would have quantified it as $8,250.00 plus HST for a total of $9,322.50.
4th Issue: Is Emily responsible for delay?
[46] DPI grounds its claims of set-off in its assertion that Emily failed to perform its contractual obligations by the contract deadline. To succeed in its claim DPI must prove that the parties had agreed to a completion date, that Emily delayed completion unreasonably beyond the completion date and that the unreasonable delay was Emily’s fault.
[47] As to a contractual completion date, the only evidence of a deadline date is in the form of project schedules. The first schedule, dated April 29, 2011, provides for a millwork completion date of June 24, 2011. This is the schedule that was provided to Emily when it submitted its tender bid. Due to project delays, which DPI acknowledges were not caused by Emily, the construction schedule was replaced by a new one dated June 27, 2011. The replacement schedule provides for a millwork completion date of July 14, 2011. No other construction schedules were tendered in evidence.
[48] Emily never signed the construction schedule or any other document committing itself to a “drop dead” completion date. The construction schedule is DPI’s proposed schedule. DPI did not require Emily to commit itself contractually to a fixed completion date. In the absence of a contractual completion date the court must consider whether Emily supplied its services and materials within a reasonable time taking into account all of the circumstances.
[49] Emily’s evidence as to the reason that it could not complete the project by July 14, 2011 was given by Oliver Meyer. He was personally involved in the project and familiar with all aspects of the job and the project site. Mr. Knight, DPI’s project manager, also explained reasons for delay on the project that delayed installation of the Emily millwork. Their combined evidence satisfies me that the reasons for the delay in completion of the project and the Client’s move-in date were not attributable to delay on Emily’s party. They explained that:
a) tendering was late because the engineering drawings were late;
b) after the tenders closed DPI decided to source an alternate electrician, causing additional delay;
c) the architect and the Client decided to buy their own light fixtures which ultimately they could not do, causing additional delay;
d) drywall was delayed;
e) the site was not ready to receive the cabinetry;
f) the completion date of July 14, 2011 was further extended to a date in August, 2011, around the 5th or the 8th;
g) DPI and the client repeatedly changed the specifications and requirements, requiring modifications and changes;
h) when parts of the millwork project were delivered to the site and installed DPI and/or the Client requested changes requiring Emily to remove the millwork, return it to their factory, carry out the repair or modification and return it to the site;
i) the wall to which the merchandising unit was to be affixed gave rise to most of the problems causing delay in Emily’s ability to complete the contract work, already discussed in these reasons;
j) the wall structure that was to support the merchandising unit had to be reinforced with supports, causing additional delay that was not Emily’s fault; and
k) when Emily was ready to install its millwork DPI required it to wait while modifications were made in other areas of the project including lighting and sprinklers.
[50] DPI’s evidence as to the reason that Emily did not complete the project by the required completion date was given by DPI’s director, Mr. Di Simone. He was not personally involved in the project, did not attend meetings or deal directly with Emily, and most of his evidence is based on what others told him or what he has gleaned from reading emails and reviewing other documents. Mr. Di Simone testified that the reason for Emily’s delay was that Emily’s workmanship was substandard and Emily was not capable of building the merchandising unit properly.
[51] The burden of proof that delay was caused by Emily lies with DPI as the party asserting delay. Where the evidence of Mr. Meyer and that of Mr. Di Simone conflict, I prefer the evidence of Mr. Meyer as more reliable for several reasons. First, he is a credible witness with direct involvement in the project and firsthand knowledge of what happened. Second, Mr. Meyer’s evidence of the problems and the efforts made to satisfy DPI and the Client are corroborated by John Knight, DPI’s project manager up until July 26, 2011.
[52] Similarly, where the evidence of Mr. Knight and that of Mr. Di Simone conflict, I prefer the evidence of Mr. Knight as more reliable for the same reasons. He is a credible witness with direct personal knowledge and his evidence is corroborated by Mr. Meyer’s evidence.
[53] I am not satisfied that DPI has satisfied its burden of proof that there was delay. I find that Emily carried out its work within a reasonable time taking into account all of the site delays caused by other trades and the Client’s changes to the project as it progressed, as well as DPI’s failure to require the drywall contractor to shift the wall to conform to the template for the radius required to accept the merchandising unit.
[54] For these reasons I find that Emily is not responsible for delay and no set-off is warranted.
Conclusion
[55] For the reasons given I find that Emily is entitled to $22,450.00 plus HST plus $1,001.75 inclusive of HST for a total of $26,370.25 payable by DPI to Emily.
[56] Costs: Having succeeded in its claim Emily is entitled to costs. This is a case that should have been resolved long before it reached trial, had DPI acted reasonably. Emily claims costs on a partial indemnity scale of $10,283.00 inclusive of HST for fees plus $1,864.12 inclusive of HST for disbursements for a total costs claim of $11,864.12. This is significantly less that the amount shown in DPI’s costs outline for partial indemnity costs and consequently I find that the costs sought by Emily are well within the reasonable expectation of DPI.
[57] Emily was entirely successful in its claim and had no choice other than to pursue the claim through to trial to get paid. While DPI made two offers Emily achieved a far better result at trial than was offered.
[58] I find that the costs claimed by Emily are reasonable, modest for counsel of Mr. Conn’s experience and appropriate indemnification for a claim of this quantum that necessarily must go to trial. Emily conducted the case as efficiently as possible.
[59] Costs are fixed at $10,283.00 inclusive of HST for fees plus $1,864.12 inclusive of HST for disbursements for a total of $11,864.12, payable by DPI to Emily.
[60] If DPI fails to pay the amounts found to be owing by DPI to Emily within thirty days of confirmation of the report arising from this lien reference trial then the funds posted in court to vacate the construction lien, being $31,710.63 in cash posted to account 520476 pursuant to the order of Master Sandler made November 15, 2011, shall be paid out of court to Emily towards satisfaction of the amount found owing by DPI to Emily.
Master C. Albert .
Released: February 27, 2014
2014 ONSC 1294
COURT FILE NO.: CV-11-441535
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Emily Creek Woodworking Ltd.
Plaintiff
- and -
Disi-Peri Mgt. Inc. and DPI Construction Management Inc.
Defendant
REASONS FOR JUDGMENT
Master C. Albert
Released: February 27, 2014