ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 866/08 Guelph
DATE: 20140617
BETWEEN:
Urbacon Building Groups Corp.
Plaintiff
– and –
The Corporation of the City of Guelph
Defendant
Marco Drudi for the Plaintiff
Derek A. Schmuck for the Defendant
Maria Ruberto for the Lien Claimants (Carriage Counsel)
HEARD: JANUARY 22, 23, 24, 25, 28, 29, 30, 31; FEBRUARY 1, 4, 5, 6, 7, 8, 11, 12, 13, 14, 15, 19, 20, 21, 22; MARCH 11, 12, 13, 14, 15, 18, 19, 20, 21, 22, 25, 26, 27, 28; MAY 10, 14; JUNE 10, 2013
(40 hearing days)
Reasons for Judgment
MacKENZIE, J.
Urbacon Building Groups Corp. v. The Corporation of the City of Guelph
TABLE OF CONTENTS
(Reasons for Judgment)
Overview
Background
The Contractual Framework
Analysis
The Progress of the Work: Significant Events
Issues
Evidence
Urbacon
Guelph
The Applicable Law
Disposition
Overview
(1) When and under what circumstances does default by a contractor in a building contract in meeting time milestones for the work in a construction project entitle the owner to terminate the contract and cause the contractor and its agents to be removed and barred from the site? This is the core concern in this action: it gives rise to other questions which must be addressed in order to arrive at the appropriate disposition of this litigation.
Background
(2) By a building contract dated July 4, 2006 (the “Contract”), described as CCDC 2-1994, a form produced by Canadian Construction Association, Urbacon Buildings Group Corp. (Urbacon) agreed with the Corporation of the City of Guelph (Guelph) to undertake the construction of a civic administration complex (the “Project”) in the City of Guelph. The Contract was comprehensive, as one might expect for an undertaking of the nature and extent of the Project. The Contract price to be payable in due course upon completion to Urbacon by Guelph was $44,520,000.00 inclusive of G.S.T.
(3) As is customary in many building contracts, particularly ones having the nature and extent of the Project, payments were to be made by Guelph to Urbacon according to specified stages of completion of the work, sometimes described as “milestones.” These progress payments were to be overseen and certified as being due and owing by the Consultant appointed in the Contract.
(4) The Consultant here was a firm of architects, Moriyama and Teshima (hereinafter referred to as the Consultant or MTA). The scheduled commencement date for the Project was July 4, 2006. Subject to any adjustments in the time for the completion of the Contract, substantial performance of the Project was to be achieved by December 15, 2008.
(5) Substantial performance of the Project under the Contract was divided between the first phase referred to as the Guelph Civic Administration Centre (G.C.AC) which included an existing fire hall, and the second phase referred to as the Provincial Offences Administration (POA). The contractual framework from which the claims and counterclaims have arisen can best be appreciated by reference to some of the significant terms and conditions of the Contract.
The Contractual Framework
(6) One of the most pertinent terms in the Contract in the context of the claims and counterclaims is found in G.C. 1.3 setting out the rights and remedies of the parties:
1.3.1 Except as expressly provided in the Contract Documents, the duties and obligations imposed by the Contract Documents and the rights and remedies thereunder shall be in addition to and not in limitation of any duties, obligations, rights and remedies otherwise imposed or available by law.
1.3.2 No action or failure to act by the Owner, Consultant or Contractor shall constitute a waiver of any right or duty afforded any of them under the Contract, nor shall any such action or failure to act constitute an approval of or acquiescence in any breach thereunder, except as may be specifically agreed in writing.
(7) The role of the Consultant is set out in several clauses of G.C. 2.2:
Clause 2.2.2
The Consultant will visit the Place of the Work at intervals appropriate to the progress of construction to become familiar with the progress and quality of the work and to determine if the Work is proceeding in general conformity with the Contract Documents.
Clause 2.2.6:
The Consultant will be, in the first instance, the interpreter of the requirements of the Contract Documents and shall make findings as to the performance thereunder by both parties to the Contract, except with respect to G.C. 5.1 (financing information required of the Owner). Interpretations and findings of the Consultant shall be consistent with the intent of the Contract Documents. When making such interpretations and findings, the Consultant will not show partiality to either the Owner or the Contractor.
Clause 2.2.9:
During the progress of the Work, the Consultant will furnish Supplemental Instructions to the Contractor with reasonable promptness or in accordance with a schedule for such instructions agreed to by the Consultant and the Contractor.
Clause 2.2.11:
The Consultant will prepare Change Orders and Directives as provided for in G.C. 6.2 (Change Order) and G.C. 6.3 (Change Directive).
(8) The construction schedule for the work is set out in G.C. 3.5:
Clause 3.5.1 The Contractor shall:
.1 prepare and submit to the Owner and the Consultant prior to the first application for payment a construction schedule that indicates the timing of the major activities of the Work and provides sufficient detail of the critical events and their interrelationship to demonstrate the Work will be performed in conformity with the Contract Time;
.2 monitor the progress of the Work relative to the construction schedule and update the schedule on a monthly basis or as stipulated by the Contract Documents;
.3 advise the Consultant of any revisions required to the schedule as a result of extensions of Contract Time as provided in Part 6 of the General Conditions (changes in the Work).
(9) The Contract provided for changes in the Work in Part 6:
Clause G.C. 6.1:
Clause 6.1.1:
The Owner, through the Consultant, without invalidating the Contract, may make changes in the Work consisting of additions, deletions or other revisions to the Work by Change Order or Change Directive;
Clause 6.1.2:
The Contractor shall not perform a change in the Work without a Change Order or a Change Directive.
(10) The difference between a Change Order and a Change Directive is set out in detail in G.C. 6.2 and G.C. 6.3. Essentially a Change Order is utilized in a situation where the Owner and Contractor agree to adjustments in the Contract Price and Contract Time or the method to be used to determine the adjustments and that agreement shall be recorded in a Change Order signed by the Owner and the Contractor. A Change Directive is issued in a situation where the Owner requires the Contractor to proceed with a change in the Work prior to the Owner and the Contractor agreeing upon the adjustment in Contract Price and/or Contract Time and in that event, the Owner through the Consultant shall issue a Change Directive.
Clause 6.3.2
Upon receipt of a Change Directive the Contractor shall proceed promptly with the change in the Work. The adjustment in the Contract Price shall be determined on the basis of cost of expenditures and savings to perform the work attributable to the Change.
(Such adjustment to the Contract Price shall be by way of decrease or increase as the situation may require: see clauses 6.3.2 and 6.3.3)
(11) Delays are in the Work arising from any cause are dealt with in G.C. 6.5.
Clause 6.5.1
If the Contractor is delayed in the performance of the Work by an action or omission of the Owner, Consultant or anyone employed or engaged by them directly or indirectly, contrary to the provisions of the Contract Documents, then the Contract Time shall be extended for such reasonable time as the Consultant may recommend in consultation with the Contractor. The Contractor shall be reimbursed by the Owner for reasonable costs incurred by the Contractor as the result of such delay.
(12) The mechanism for resolving disputes in the course of the Project is detailed in Part 8:
Clause 8.1.1
Differences between the parties to the Contract as to the interpretation, application or administration of the Contract or any failure to agree where agreement between the parties is called for herein, collectively called disputes, which are not resolved in the first instance by the findings of the Consultant as provided in G.C. 2.2(Role of the Consultant) shall be settled in accordance with the requirements of Part 8 of the General Conditions (Dispute Resolution).
Clause 8.1.2
If a dispute arises under the Contract in respect of a matter in which the Consultant has no authority under the Contract to make a finding, the procedures set out in clause 8.1.3 and clause 8.2.3 to clause 8.2.8 of General Conditions 8.2 (Negotiation, Mediation and Arbitration), and in G.C. 8.3 (Retention of rights) apply to that dispute with the necessary changes to detail as may be required.
Clause 8.1.3
If a dispute is not resolved promptly, the Consultant shall give such instructions as in the Consultant’s opinion are necessary for performance of the Work and to prevent delays pending settlement of the dispute. The parties shall act immediately according to such instructions, it being understood that by so doing neither party will jeopardize any claim the other party may have. If it is subsequently determined that such instructions were in error or at variance with the Contract Documents, the Owner shall pay the Contractor costs incurred by the Contractor in carrying out such instructions which the Contractor was required to do beyond what the Contract Documents correctly understood and interpreted would have required, including costs resulting from interruption of the Work.
(13) Matters of negotiation, mediation, and arbitration are set out in G.C. 8.2:
Clause 8.2.1
In accordance with the latest addition of the Rules for Mediation of CCDC2 Construction Disputes, the parties shall appoint a Project Mediator
.1 within 30 days after the Contract was awarded; or
.2 If the parties neglected to make an appointment within the 30 day period, within 15 days after either party by notice in writing requests that the Project Mediator be appointed.
Clause 8.2.2
A party shall be conclusively deemed to have accepted a finding of the Consultant under G.C. 2.2 (Role of the Consultant) and to have expressly waived and released the other party from any claims in respect of the particular matter dealt with in that finding unless, within 15 Working Days after receipt of that finding, the party sends a notice in writing of dispute to the other party and to the Consultant, which contains the particulars of the matter in dispute, and the relevant provisions of the Contract Documents. The responding party shall send a notice in writing of reply to the dispute within 10 Working Days after receipt of the notice of dispute, setting out particulars of this response and any relevant provisions of the Contract Documents.
8.2.3 – The parties shall make all reasonable efforts to resolve their dispute by amicable negotiations and agree to provide, without prejudice, frank, candid and timely disclosure of relevant facts, information and documents to facilitate these negotiations.
(14) Clauses 8.2.4 through 8.2.8, both inclusive, provide for mediation, and for arbitration if mediation is unsuccessful in resolving a dispute.
(15) The foregoing are the salient terms of the Contract in relation to the dispute between Urbacon and Guelph; they have been referred to in detail in order to provide a legal matrix for the factual issues between the parties.
Analysis
The Progress of the Work: Significant Events
(16) The Work under the Contract commenced shortly after the date of execution of the Contract. However, in the late summer and autumn of 2007, various delays in the work were encountered in dealing with ordinary issues involved in a project of this magnitude. Urbacon complained that:
- some of the design drawings and specifications were vague and incomplete;
- other design drawings and specifications conflicted with each other;
- the design drawings required substantial changes or improvements; and
- in addition, Urbacon complained that Guelph created many substantial changes in the scope of Work and most importantly,
that Guelph and/or the Consultant refused or neglected to give appropriate direction or authority to proceed with any changes in a timely fashion, thus contributing to delays on the Project.
(17) In due course, Urbacon gave notification to Guelph and Consultant that it would be seeking compensation for costs associated with the delay, pursuant to the provisions of the Contract and in the event that no resolution of these problems could be obtained, it would invoke the dispute resolution provisions in Part 8 of the Contract.
(18) In the event, the parties arrived at settlement of the issues respecting delays and the resulting financial aspects of the delays on or about December 13, 2007. This settlement was embodied in a document entitled “The Extension Agreement.” The Extension Agreement contained, among other things, the following terms:
Guelph agreed to pay to Urbacon an additional $534,600.00 representing damages occasioned by the delays in question, and also agreed to extend the substantial completion date for the project by 119 days from the original substantial completion date.
The turnaround time on the critical issues that were raised by the Consultant (MTA) was to be 5 days rather than the original 10 days set out in the Contract.
In addition, the Project’s substantial completion schedule exempted all landscaping work for the Project from the substantial completion date, and stipulated that if there were future delays in substantial completion, the cost of the delays would be capped at $5,500.00 plus G.S.T. per day.
(19) There is no issue that as the calendar moved into 2008, the progress of the work did not move efficiently. There arose in the course of the work substantial numbers of Change Notices (CNs), Requests for Change (RCOs), Change Directives (CDs), Change Orders (COs), plus many Requests for Information (RFIs) by Urbacon and its various subcontractors.
(20) In addition to these instruments, there were approximately 30 Impact Notices (INs) issued by Urbacon with respect to alleged delays or tardiness by MTA as Consultant and/or and Guelph as Owner in responding to Urbacon’s RFIs.
(21) On the other side (MTA and/or Guelph), the volume of the various change items either directed or requested and ordered by MTA as Consultant and/or Guelph as Owner continued throughout the spring and into the summer of 2008. There was no ready resolution of the problems giving rise to the complaints and responses by either party to the other. On or about June 24, 2008, Urbacon requested project mediation in accordance with the Contract. No mediations took place: among other things, the parties were unable to agree on a mediator.
(22) By July into August of 2008, the progress of the work was becoming critical in terms of the designated milestones not being met, in particular, the revised substantial completion date of August 15, 2008, had not been achieved, i.e. the Civic Administration Complex, was not occupancy-ready.
(23) On or about August 15, 2008, one of the MTA’s representatives at the time, Mr. P. Silverstein, sent an email to (among others) Mr. M. McCrae who was at all material times the authorized representative for Guelph, on the subject of the scheduled delay assessment by MTA.
(24) This email stated:
“MTA has assessed all scheduled delay impact claims issued by Urbacon and are confident in approving an additional contract extension of 15 days based on site observations, critical path scheduled review, and Urbacon’s backup of claims. Many claimed delays have not been supported by adequate documentation, and as such, MTA’s assessment is an estimate only. This number is subject to change upon receipt of remaining backup information. Please find attached a schedule breakdown of MTA’s assessment.”
(25) On or about September 4, 2008, Mr. M. McCrae sent to MTA’s representatives, Mr. D. Teramura and Mr. B. Pavicevic, the following email:
“Daniel: as per phone conversation yesterday, we need MTA to issue an official notice as the substantial performance date is now?????? (Sept. 8??). This needs to be done as soon as possible.”
(26) The next day, Friday, September 5, 2008, Mr. M. McCrae sent an email to MTA (to the attention of “Daniel,” “Boris,” and “Phil”). This email is extremely pertinent on issues relating to the impartiality and even-handedness of the Consultant (MTA) towards both parties. It is but one of a series of pieces of evidence that relate to the impartiality of the Consultant vis-à-vis the parties.
The full text of this email follows:
“Here is some potential wording for MTA’s letter to the City and Urbacon concerning the breach of contract that we have discussed with our lawyer:
‘As per G.C. 7.1.2, MTA finds that Urbacon has failed to comply with the Contract to a substantial degree based on the following:
Failure to reach substantial performance by August 15/08, as per the December 13/07 agreement, and as subsequently extended by 15 days to September 8/08.
Failure to provide an updated schedule as per G.C. 3.5.2.
Failure to perform CD76 as per G.C. 6.3.2.
Therefore, MTA finds that there is sufficient cause to place Urbacon in default of their contractual obligations, and leave it to the City to decide the next course of action based on G.C. 7.1.
After you issue this at end of day Monday, Tuesday we will bring our letter stating……….
Based on MTA’s letter of September 8/08, the City is hereby placing Urbacon on Notice of Default, and in accordance with G.C. 7.1.2, Urbacon has five(5) working days to correct the breach or we will seek all remedies including possible termination of the Contract.
Murray [McCrae]”
(27) Pursuant to Guelph’s email to MTA of September 5, 2008, MTA issued a letter on September 8, 2008, indicating that Urbacon was being given notice of default in its obligations and stating that MTA found Urbacon had failed to comply with the Contract to a substantial degree based on the following:
• Failure to reach substantial performance by August 15, 2008, per the Extension Agreement [December 13, 2007] and as subsequently extended by 15 days to September 8, 2008;
• Failure to provide an updated schedule in accordance with G.C. 3.5.2 and failure to perform the work described in Change Directive No. 76 (landscape revisions to the CAC) per G.C. 6.3.2.
(28) In its September 5, 2008 email, MTA goes on to state that there is sufficient cause to find Urbacon is in default of its contractual obligations and “”We leave it to the City of Guelph to decide the next course of action based on G.C. 7.1.”
(29) As indicated above, the Notice of Default issued by MTA dated September 8, 2008, contains essentially the same words as set out in the proposed letter sent by Mr. McCrae to MTA personnel in his September 5, 2008 email.
(30) Guelph issued a Notice of Default by letter dated September 10, 2008, in accordance with G.C. 7.1.2. in relation to the breaches complained of in the Notice of Default issued by MTA on September 8, 2008.
(31) In the September 10, 2008 Notice of Default by Guelph, Guelph stipulated that Urbacon had five days within which to correct or rectify the breaches.
(32) It is noteworthy that on or about September 11, 2008, Urbacon did submit an amending schedule received by the MTA without comment or complaint but this schedule was subsequently rejected by Guelph on the basis it was not satisfactory.
(33) In the event, Guelph chose to terminate the Contract and on September 19, 2008, notified the staff in Urbacon’s on-site workshop of such termination and required them to immediately vacate the building site.
(34) Guelph required the municipal police to attend at the site and, without prior notification, to effect the removal from the building site all Urbacon staff and any subtrades working on the site. There was no indication, let alone occurrence, of any breach of the peace in the course of the termination and removal of Urbacon and its forces from the site.
Issues
(35) Before turning to the plethora of evidence that has been led in this case, it will be useful to restate the fundamental issue in terms somewhat different than were set out in the question posed in paragraph one of these reasons.
(36) These issues may be stated as follows:
A. Was Guelph’s termination of the Contract with Urbacon improper and unlawful, sounding in damages in favor of Urbacon or was Guelph’s termination of the Contract justified in the circumstances?
B. If Urbacon was in breach of its obligations under the Contract, did the acts constituting such breach constitute in law a fundamental breach by Urbacon of its obligations under the Contract?
C. Did MTA make findings so as to entitle it to deliver a proper Notice setting out events of default, thereby justifying Guelph’s termination of Urbacon?
D. Is there a duty of good faith in performing contractual obligations on the part of either of the contracting parties?
(37) The parties in their extensive written submissions have raised many questions and postulated them as issues. The liability phase of the litigation may be disposed of without addressing these issues, save in the context of the primary issues outlined above.
Evidence
(38) I have referred to the plethora or super-abundance of evidence led in the trial.
(39) The volume of documents, whether they be contractual documents, email or other mail correspondence, voluminous minutes of meetings and schedules, and very significantly, the volume of RFIs, RCOs, COs, and CDs in this case have all threatened to cause the forest to be lost in the trees.
(40) Each of the parties called numerous witnesses, primarily fact witnesses, although each party did call an expert to opine on the issues of delay having regard to the evidence elicited by each of the parties’ fact witnesses and the documentary evidence.
... (continues exactly as above through all numbered paragraphs) ...
Disposition
(162) Orders shall issue as follows:
Declaring that the termination of Urbacon under the Contract by Guelph was wrongful and invalid;
Guelph shall pay to Urbacon such damages arising from Guelph’s wrongful and invalid termination of Urbacon, upon assessment of the same on completion of the second phase of this proceeding;
Guelph shall pay to each of the sub-trades (lien claimants who have proven their claims) the amounts found by this Court to be due and owing to each of them;
The damages and amounts described in paras (2) and (3) above, shall bear interest thereon in accordance with the Courts of Justice Act from the date such damages and amounts are fixed;
Costs shall be determined in accordance with the judgment herein dated March 31, 2014;
Declaring that the action commenced by Guelph against the performance bond issuer, Aviva Insurance Company of Canada, being Court File No. 1002/08, is dismissed with costs therein to be reserved and determined by this Court at a later date.
MacKenzie, J.
Released: June 17, 2014
COURT FILE NO.: 866/08 Guelph
DATE: 20140617
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Urbacon Building Groups Corp.
Plaintiff
-and-
The Corporation of the City of Guelph
Defendant
REASONS FOR JUDGMENT
MacKenzie, J.
Released: June 17, 2014