ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-12-467297
DATE: March 26, 2014
BETWEEN:
Galrich Restoration Inc.
R. Spinks, for the plainitff
Fax: 416-941-8852
plaintiff
- and -
1597181 Ontario Inc. and SUN LIFE ASSURANCE COMPANY OF CANADA[^1]
H. Shankman, for the defendant
Fax: 416-665-4291
defendant
HEARD: March-25-14
Master C. Albert
[1] Galrich Restoration Inc. (“Galrich”) carried out garage restoration work at the apartment complex owned by 1597181 Ontario Inc. (“159”) at 419 - 421 Markham Road, Toronto. Towards the end of the project, on July 11, 2012, Galrich damaged an underground hydro cable while chipping concrete, causing an emergency situation. Power to the building, including elevator service, was disrupted for approximately twelve hours (the “accident”). 159 withheld payment from Galrich of $363,415.14 for almost a year, until it quantified its damages arising from the accident. On September 28, 2012 Galrich registered a construction lien for $363,415.14 as instrument AT3138178.
[2] Ultimately 159 quantified its damages and by October 23, 2013 paid Galrich the balance owing under the contract, less $43,806.61 on account of damages arising from the accident.
[3] The issues are:
a) Is Galrich liable for the backcharges incurred by 159 to deal with the emergency situation and repair the damage?
b) Is Galrich entitled to interest on payments withheld by 159 and if so should interest be calculated at the contract rate, the Courts of Justice Act rate or some other rate?
[4] For the reasons that follow I find Galrich liable to 159 for backcharges to repair the damage arising from the accident and 159 liable to Galrich for interest at the contract rate for unpaid invoices.
I. Background
[5] 159 and Galrich entered into a CCDC2 form of contract on June 3, 2011 for underground garage repairs to the 12 storey apartment complex for the fixed price of $2,573,829.25 including HST (the “contract”). Under the contract the engineering firm of Norman Lee & Associates Ltd. (“Lee”) is named as the project consultant. The apartment complex was built in the 1970’s. This type of garage restoration and repair work is typical of buildings of this vintage.
[6] Work commenced and continued for approximately a year. The certificate of completion was published on August 15, 2012 in the Daily Commercial News.
[7] Throughout the project Galrich issued invoices for progress payments and Lee, as project consultant, certified completion of the work for which payment was sought by Galrich. The invoices certified by Lee but not paid at the time Galrich registered its construction lien, inclusive of HST, are:
a) Invoice 2024, May 31, 2012: $53,818.62;
b) Invoice 2046, July 31, 2012: $52,778.59 ;
c) Invoice 2047, August 15, 2012: $256,817.93.
[8] 159 paid these accounts almost a year later on the dates and in the amounts shown, withholding $43,806.61 on account of its claim for backcharges:
a) July 3, 2013: $200,000.00
b) August 9, 2013: $110,636.55
c) October 23, 2013: $8,971.98
[9] Galrich’s contract work included concrete repairs to the trench drain at the entrance to the underground garage. The repairs required Galrich to use drilling equipment to chip away and remove damaged concrete from the trench drain.
[10] According to the evidence of Domenic Santaguida, president of Galrich and an engineer himself, The Ontario Electrical Safety Code requires a minimum depth to of a conduit for electric cables of 24 inches. The conduit at the trench did not meet this Code standard. The top of the conduit was 12 inches below grade and only one and a half inches below the underside of the trench drain. It is not in dispute that a building constructed in the 1970’s would have been built to the standards in place at the time, which were different from current Code standards. The issue is whether Galrich ought to have known the risk and whether Galrich took reasonable steps to avoid the accident.
[11] Mr. Santaguida testified that throughout the contract, for work to the exterior of the building, he contacted Toronto Hydro with requests for Toronto Hydro to locate underground hydro cables in the areas under restoration. This is referred to as requesting “a locate”. He explained that for the interior of the building he relied on the existing construction design drawings and Lee’s project specifications. He did not call Toronto Hydro for a locate for the interior of the garage, including the trench at the entrance to the garage where the accident occurred. He admitted that had he done so the accident could have been avoided.
[12] The costs that 159 incurred arising from the accident and for which it claims backcharges add up to $43,806.61, made up of the following charges, inclusive of HST:
a) July 16, 2012 True Canadian Elevator Maint.Co.Ltd.[^2] $409.63
b) August 8, 2012 C.M. Lighting Maintenance Ltd.[^3] $3,004.39
c) January 14, 2013 Toronto Hydro[^4] $35,539.24
d) September 28, 2012 Norman Lee & Associates Ltd.[^5] $1,915.35
e) September 30, 2013 Century Building Restoration Inc.[^6] $2,260.00
f) June 18, 2013 R.M. Electric & Lighting Limited $678.00
[13] All of these amounts have been paid by 159 and none were successfully contested or discredited by Galrich at trial.
[14] Ms Neuberger, one of the owners of 159 and the acting property manager at the time of the accident, testified that she tried repeatedly to obtain the cost of repairs from Toronto Hydro but was unsuccessful in doing so. Ultimately she received the invoice from Toronto Hydro on January 16, 2013. She testified that she did not pay Galrich the amounts owing under the final three invoices because 159 did not know how much it would owe to Toronto Hydro, to other contractors repairing the damage and to tenants who could potentially sue 159 for the loss of electricity for the 12 hour period that the building was without power on July 11, 2012.
II. Position of the Parties
[15] Galrich’s position is that it acted reasonably in its efforts to locate the underground hydro cable that it ultimately severed and it is not responsible for severing the cable because it was in a location that is contrary to Code standards.
[16] 159’s position is that Galrich ought to have located the underground hydro cable and is responsible for the accident, and that 159 acted reasonably in withholding payment from Galrich until it knew the cost of repairing the damage arising from the accident and the quantum of tenant claims, if any.
III. Analysis
a. Is Galrich liable for the backcharges to repair the damage from the accident?
[17] Galrich as contractor was required to locate all underground utilities. Article 9.1.2 of the contract provides:
“Before commencing any work, the Contractor shall determine the location of all underground utilities and structures indicated in the Contract Documents or that are reasonably apparent in an inspection of the Place of Work.”
[18] Mr. Santaguida testified that for all areas to the exterior of the building Galrich contacted Toronto Hydro with locate requests to ascertain the location of underground hydro cables. He did not do so for the interior of the building, relying instead on the drawings and specifications provided by 159 and Lee. He admitted that had he requested a locate from Toronto Hydro the accident could have been avoided.
[19] The trench where the accident happened is at the threshold between the exterior and interior of the building. There are no contractual provisions or safety standards that differentiate between locating exterior underground hydro cables as differentiated from locating interior underground hydro cables.
[20] As between Lee, 159 and Galrich I find that Galrich is the party responsible for locating underground hydro cables, including those at the threshold of the building.
[21] The trench is located at the entrance to the underground parking garage and out of an abundance of caution Mr. Santaguida ought not to have relied on old building drawings to satisfy himself as to the location of underground hydro cables. As an engineer himself and an experienced contractor he ought to have known that a 50 year old building would have been built to different standards and that underground hydro cables could be closer to the surface than they would be in new construction. In undertaking garage restoration that included chipping away damaged concrete using drilling equipment Galrich was contractually required by article 9.1.2 to locate all underground hydro cables.
[22] I find that Galrich was responsible for locating underground hydro cables before chipping concrete from the bottom of the trench. I find that Galrich is liable for the backcharges incurred by 159 to repair the damage arising from the accident.
[23] Based on the evidence filed at trial I find that the proven backcharges add up to $43,806.61, including HST.
b. Interest
[24] Article 5.1.9 of the contract requires 159 as owner to make progress payments as they are certified by the project consultant. The three invoices rendered by Galrich and unpaid had all been certified by Lee as complete and were payable by 159.
[25] The purpose of interest is to compensate the party who was entitled to receive the money for use of the money by the person who failed to pay. The issue in this case is whether the contractual rate of interest is appropriate in the circumstances of this case or whether another rate is more appropriate and, if so, how that rate should be determined.
[26] The contract rate of interest is 2% above the TD prime rate for the 60 days that begins 30 days after the invoice is issued, and 4% above the TD prime rate after the 90th day that moneys owing remain unpaid. The TD prime rate was 3% throughout the relevant time period. This translates to 5% for days 31 to 90 and 7% after day 90 until payment is received. That is significantly higher than the prejudgment interest rate of 1.3% under the Courts of Justice Act applicable to causes of action that arose in 2012 when Galrich issued its unpaid invoices.
[27] The parties specifically put their minds to the rate of interest to be applied to moneys owing and not paid. They contractually agreed to a rate above the rate for prejudgment interest prescribed by the Courts of Justice Act.
[28] 159 relies on the decision of the Supreme Court of Canada in Bank of America Canada v Mutual Trust Co., 2002 SCC 43 at paragraph 62 for the proposition that the court retains ultimate discretion to fix the rate of interest regardless of a contractually agreed upon rate of interest for unpaid amounts. I accept that proposition. In the present case I find that the agreement as to the appropriate interest rate was made by two sophisticated contracting parties. In such circumstances the agreed upon contractual rate is reasonable.
[29] When 159 made the decision to withhold payment out of concern for potential lawsuits from tenants over the loss of electricity in the building 159 engaged in a self-help remedy. 159 decided that, despite having Galrich’s insurance particulars[^8], rather than waiting to see if any tenants sued for damages arising from the power outage, and rather than waiting for judgment against Galrich on such lawsuits, if any, and rather than waiting to see whether Galrich’s insurance would indemnify 159 for any tenant or other claims, 159 instead decided to retain more than $250,000.00 to secure itself against potential lawsuits. 159 was not entitled to withhold payment from Galrich for this purpose. Even if tenants had initiated lawsuits 159 would not have been entitled to help itself to what it estimated as a potential award. The court cannot condone such a self-help remedy.
[30] 159 argues that Galrich should not be entitled to interest on amounts withheld on the basis that it has not come into this lawsuit with clean hands. 159 relies on the decision of the Divisional Court in Royal Bank of Canada v Boussoulas[^9] at paragraph 51 wherein the court discusses the doctrine of clean hands:
“…the metaphor that a claimant for equitable relief must have clean hands must be put into context. Judges of the courts of equity do not deny relief because the claimant is a villain or wrongdoer; rather, the judges deny relief when the claimant’s wrongdoing taints the appropriateness of the remedy being sought from the court.”
[31] The clean hands doctrine does not apply. Galrich is not seeking equitable relief. It is seeking its contractual remedy of interest on unpaid accounts. I reject 159’s assertion that Galrich’s failure to avoid the underground hydro cable at the trench was an act of wrongdoing. It was an unfortunate error in judgment in its reliance on drawings supplied by 159 and specifications prepared by 159’s project consultant, Lee. Galrich’s error in judgment resulted in the accident. The contract contemplates that accidents happen and requires Galrich to produce proof of insurance to the project consultant, which it did at the outset of the contract. Article 11.1.1.6 provides that in the event of loss or damage the claim is adjusted and it shall not affect the rights and obligations of either party under the contract. 159’s argument that by reason of the accident Galrich breached the contract fails.
[32] I find that 159 is liable to Galrich for interest at the contractual rate for funds due and owing by 159 to Galrich as certified payable by the project consultant.
[33] 159 performed two interest calculations based on the contractual interest rates. I accept as applicable the calculation of interest owing to October 23, 2013, since the amount withheld by 159 beyond that date is equal to the amount that Galrich owes for backcharegs and the interest back and forth would cancel it out altogether. I find that interest owed by 159 to Galrich for payments withheld is $22,904.82[^10].
IV. Conclusion
[34] For the reasons given I find that 159 owes Galrich $43,806.61 for services and materials supplied and not yet paid for by 159. I further find that Galrich’s owes 159 $43,806.61 for proven backcharges arising from the accident. These amounts cancel each other out.
[35] I also find that 159 owes Galrich $22,904.82 for unpaid interest on the three unpaid invoices for the period beginning 30 days after each invoice was issued to the date each invoice was paid.
[36] In the result this court orders that 159 pay the sum of $22,904.82 to Galrich. This amount may be paid to Galrich out of the funds held in court or out of other funds. The Galrich lien claim registered as instrument AT3138178 and vacacted by order of Master Muir is ordered discharged. Unless the parties agree to a final order that includes payment out of court of the funds posted to vacate the lien, an attendance to settle the reference report shall be convened on April 8, 2014 at 10:00 a.m.
V. Costs
[37] The parties filed costs outlines. Galrich served an offer to settle for $19,573.09 plus unquantified costs. I find that the offer does not warrant the cost consequences of rule 49. Success was largely divided.
[38] Taking into account section 86 of the Construction Lien Act and the factors prescribed by rule 57.01 including the amount in issue, the outcome, proportionality and reasonable expectations of the parties, I find that an appropriate award of costs in favour of Galrich is $8,000.00 inclusive of disbursements and HST and I so order.
Master C. Albert .
Released: March 26, 2014
COURT FILE NO.: CV-12-467297
DATE: March 26, 2014
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Galrich Restoration Inc.
Plaintiff
- and -
1597181 Ontario Inc. and Sun Life Assurance Company of Canada
Defendants
REASONS FOR JUDGMENT
Master C. Albert
Released: March 26, 2014
[^1]: Sun Life did not participate in this construction lien reference; plaintiff counsel advises the court that Sun Life was not served with the statement of claim
[^2]: For services rendered on July 11, 2012
[^3]: For services rendered on July 11, 2012
[^4]: For services rendered on July 11 and 12, 2012
[^5]: Lee prepared a report dated July 23, 2012 reporting on the accident
[^6]: Repairs to concrete casing for hydro cable at the trench drain
[^8]: The Galrich insurance policy particulars had been provided to the project consultant, Lee, at the beginning of the project, as required by the contract.
[^9]: [2012] O.J. No. 2335; 2012 ONSC 2070
[^10]: 159 does not take issue with Galrich’s calculation of interest.