ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF the Construction Lien Act, R.S.O. 1990, c.C.30
BETWEEN:
SUB-TERRAIN DIRECTIONAL DRILLING LTD.
Frederick J. Matthews, for the plaintiff,
Tel.: 416-367-0680,
Fax: 416-367-0429.
Plaintiff
- and -
CARNELLO CIVIL CONSTRUCTION LIMITED, YORK UNIVERSITY, YORK UNIVERSITY DEVELOPMENT CORPORATION and FOUR SEASONS SITE DEVELOPMENT LTD.
Julian Binavince, for the defendant, Carnello Civil Construction Limited,
Tel.: 905-850-5087,
Fax: 905-850-3397.
Defendants
HEARD: June 11 and 12, 2014.
Master C. Wiebe
REASONS FOR JUDGMENT
I. INTRODUCTION
[1] In this action, a directional drilling sub-contractor, Sub-Terrain Directional Drilling Ltd. (“Sub-Terrain”) seeks a lien and breach of contract judgment for $43,403.30 as against its contracting party, Carnello Civil Construction Limited (“Carnello”), for the installation of 90 meters of underground pipe on property owned by York University. Carnello asserts a set-off against the Sub-Terrain accounts on account of damage to the pipe, and is prepared to pay only a fraction of the claim as a result.
[2] For the reasons stated below, I have found primarily in favour of Carnello.
II. BACKGROUND
[3] I begin with a summary of the facts of this case that I understand to be undisputed.
i. Case history
[4] On or about June 6, 2012 Sub-Terrain was retained by Carnello to directionally drill a sub-surface, horizontal pipeline hole and pull the pipe through the hole on property owned by York University. The “quote & contract” for the work dated June 6, 2012 described the installation as being for 105 meters of 150 millimeter “lockable PVC watermain” piping. It was between a tennis court and a building. The contract was a unit price contract and will be called the “Sub-Terrain Subcontract.” The contract price (based on an assumed quantity of 105 meters of pipe charged at $210/meter) was stated as being $24,916.50 (inclusive of tax).
[5] Carnello itself was a subcontractor to Four Seasons Site Development Ltd. (“Four Seasons”) which had a general contract with York University for a project named, “York University, Pan Am Stadium Early Works” (the “Project”). Carnello and Four Seasons had entered into a subcontract whereby Carnello was to install storm sewers, sanitary sewers, watermains and limited portions of the earthworks and removals for the Project. It will be called the “Carnello Contract.”
[6] It was to perform a part of the scope in the Carnello Contract that the Sub-Terrain Contract had been entered into. It should be noted as well that the pipe Sub-Terrain was to install was to eventually connect to a 35 meter pipe that Carnello itself intended to install by open pit method.
[7] On August 8, 2012 Sub-Terrain submitted a drilling plan (“the Drilling Plan”) to Carnello. The Drilling Plan was custom-made for the Sub-Terrain Contract, and outlined the work Sub-Terrain intended to do under that contract. It is undisputed that the Drilling Plan is a contract document.
[8] Sub-Terrain performed its work from August 15, 2012 to August 22, 2012. It installed 90 meters of pipe, not 105 meters.
[9] Sub-Terrain encountered difficulty in drilling the hole. When it hit a rock on August 17, 2012, it decided to replace the drilling machine with a larger one, and to use a different crew. Between August 20 and 22, 2012 Sub-Terrain’s new crew completed the initial 4” pilot hole and then “reamed” out the hole three times using three increasingly larger reaming drills. Sub-Terrain then pulled the pipe back through the hole using the largest reaming drill, a 14” one. Carnello fed the pipe that was being pulled.
[10] There were difficulties with these reams and the pull. Sub-Terrain continued. Usually only two reams using 8” and 12” reaming heads are done for a pipe of the size in question, but Sub-Terrain decided on a third ream at 14” because of the difficulties. When the work was done, Sub-Terrain rendered an invoice for the contract price of $24,916.50 on September 9, 2012.
[11] A problem with the pipe came to light later in early September, 2012 when Carnello performed water tests on the installed pipe. The pipe leaked. An investigation was done by Carnello including an excavation and a camera run through the pipe. It was found that a sub-surface, rectangular rock had scored over half of the length of the pipe when it was being pulled. The length of the scored pipe was 54 meters.
[12] Four Seasons raised the prospect of liquidated damages if Carnello was not finished its work by September 28, 2012. Carnello informed Sub-Terrain of this issue by email dated September 15, 2012 and required immediate repair of the pipe.
[13] On September 17, 2012 Sub-Terrain offered to assist in the repair, but wanted to be paid extra for this work. On September 18, 2012 it prepared a “quote & contract” by which Carnello would agree to pay Sub-Terrain an extra of $13,288.80 to replace 56 meters of damaged pipe. Carnello signed the “quote & contract” on September 19, 2012. It will be called “the Replacement Extra.”
[14] Sub-Terrain installed the replacement pipe on September 19, 2012 and on September 20, 2012 rendered two invoices for extra work, the aforesaid $13,288.80 pursuant to the Replacement Extra plus a further invoice for an extra of $5,198 for the work of a hydrovac truck, a truck that assisted with the cleanup of the excavations during the investigation work.
[15] Carnello asserted a claim against Four Seasons for all of the costs of replacing the damaged pipe, including the Sub-Terrain extra claim of $13,288. I was advised by Mr. Binavance that Four Seasons rejected this claim, a statement that was not dispute by SubTerrain. The Sub-Terrain claim was then pursued by Carnello as a part of its own separate claim against Four Seasons, but Carnella eventually abandoned that claim in October, 2013. More on this below.
[16] At the same time, Carnello asserted a back-charge against Sub-Terrain for the costs Carnello incurred in correcting the pipe damage in the event Four Seasons did not agree to the extra, claiming that Sub-Terrain was at fault for the damage to the pipe. Carnello did not pay the Sub-Terrain invoices. Initially, Carnello’s set-off claim was in the amount of $29,494.36, being the aforesaid extra from Sub-Terrain for $13,288 plus $16,206.37 (tax incl.) for Carnello’s own costs in investigating and correcting the damage. Carnello also did not accept the $5,198 extra invoice, claiming that this was not agreed upon and in any event was a part of the repair cost for which Sub-Terrain was responsible.
ii. Lien history
[17] On November 2, 2012 Sub-Terrain registered a claim for lien in the amount of $43,403, being the three unpaid invoices dated September 9 and 20, 2012. On December 7, 2012 Sub-Terrain perfected its lien by commencing a lien action naming Carnello, Four Seasons and the two York University entities as defendants.
[18] On December 17, 2012 Four Seasons obtained an order from Master Albert vacating the Sub-Terrain claim for lien upon the posting by Four Seasons of a lien bond in the amount of $54,253.75 (being $43,403 for the claim for lien and $10,850 for costs).
[19] On January 8, 2013 Carnello delivered a Statement of Defence. The action as against the two York University entities was discontinued on January 29, 2013.
[20] The Trial Record did not contain a pleading from Four Seasons. The court file does. On or about January 14, 2013, Four Seasons delivered a Statement of Defence and Crossclaim. The essential Four Seasons defence is that it held back an appropriate amount of $55,606.04 on the Carnello Contract. The Crossclaim was by Four Seasons against Carnello for contribution and indemnity and costs.
[21] Sub-Terrain obtained a judgment of reference from Justice Penny on April 5, 2013.
[22] The first trial management conference was held by me on June 17, 2013. At this time I learned that Carnello had also registered a claim for lien in excess of $300,000 in relation to the Project. I was told that there was no connection between the Carnello and Sub-Terrain claims and that the two could and should proceed as separate streams. I made such an order and inter alia gave directions to prepare the Sub-Terrain action for trial.
[23] A second trial management conference was held before me in the Sub-Terrain stream on October 7, 2013. At this time, the issue came up as to whether Four Seasons was in fact subject to the Sub-Terrain claim on account of evidence given at discoveries by the representative of Carnello. I ordered that Carnello take a definitive position on this issue.
[24] Carnello subsequently did take a position as to Four Seasons by confirming in writing on October 17, 2013 that Carnello was not asserting the Sub-Terrain claim as against Four Seasons. Therefore, the Carnello claim remained as a separate stream and is not a part of this trial. Also, and despite the fact that its security remains in court for the Sub-Terrain claim for lien, Four Seasons did not participate in the trial of the Sub-Terrain claim.
[25] At the third trial management conference in this stream on October 21, 2013, I ordered that the Sub-Terrain action proceed to a summary trial on June 11 and 12, 2014. I ordered the exchange and filings of affidavits for evidence in chief.
[26] Sub-Terrain filed affidavits for the evidence in chief of three witnesses, namely the affidavit of Geoff Thorne, a Sub-Terrain manager, sworn April 8, 2014, the affidavit of Dan Kerby, a Sub-Terrain construction manager and site supervisor, sworn May 28, 2014, and the affidavit of Luke Symes, a directional driller with Sub-Terrain, sworn May 28, 2014.
[27] Carnello filed two affidavits for evidence in chief, namely the affidavit of Adam Palleschi, the general manager of Carnello, sworn May 22, 2014, and the affidavit of Frank Palleschi, an excavator with Carnello, sworn May 22, 2014. Carnello also produced the undated “will say statement” for one Paul Lima, Carnello’s former employee who worked as Carnello’s lead hand on the Project. At trial, the parties agreed to use the Lima will say statement as an affidavit.
[28] Finally, Sub-Terrain produced two reply affidavits, one sworn by Geoff Thorne on May 29, 2014 and the other by Dan Kerby on May 28, 2014. No expert evidence was called.
III. ISSUES
[29] This case raises the following issues:
a) Was Sub-Terrain in breach of the Sub-Terrain Contract due to the pipe damage?
b) If the answer to (a) is yes, did Carnello waive its back-charge for overpayment and correction costs by signing the Replacement Extra?
c) If the answer to (a) is yes and if Carnello did not waive its back-charge, what is owed to Sub-Terrain?
d) If the answer to (a) is yes, has the Sub-Terrain lien expired for being registered too late?
e) If the answer to (a) is no, what is the amount that is owed to Sub-Terrain in that event?
IV. WITNESSES
[30] The witnesses called by Sub-Terrain (Messrs. Thorne, Kerby and Symes) lacked credibility. Firstly, they are all employed by Sub-Terrain and, therefore, had an interest in seeing Sub-Terrain succeed in this case.
[31] Secondly, their evidence concerning one of the central issues, the alleged breach of the Sub-Terrain Contract by Sub-Terrain, was inconsistent. On the one hand, they all admitted that there were significant problems with the boring and the pulling of the pipe due to rocks, hard soil and interferences. Indeed, Sub-Terrain replaced the equipment and crew when they encountered a heavy rock on the first day of boring, and then later employed a third 14” reamer head to make sure there were no obstructions, a step they had not anticipated. This was all done without charging an extra. On the other hand, they insisted that the eventual damage to the pipe, namely the scoring of the pipe by a 20”x 10” x 18” rectangular rock (“the Rock”), was entirely unforeseeable.
[32] Thirdly, I found the absence of details in Mr. Symes’ affidavit concerning the events on site telling. It undermined the credibility of Sub-Terrain’s assertion that there was no stoppage in the pipe pull. The drilling machine shows the tensile load of the pipe pull during the operation. Mr. Symes admitted in his affidavit to encountering “multiple obstructions” and “increases in tension,” and insisted that the spikes in pull tension never came close to maximum pipe tensile loads and never became “problematic.” However, there was no reference to the specific tensile load readings he encountered. Furthermore, and most telling, was his oblique statement about a pull stoppage. This is all that he said in his affidavit: “I am not at all certain there was any incident where an obstruction was encountered at the particular point where the pipe was ultimately alleged to have been damaged.” He neither confirmed nor denied the “incident.” He did not respond to Mr. Lima.
[33] Fourthly, Messrs. Thorne and Kerby strayed into opinion evidence. They stated that “intuitively” the cause of the scoring was the dislodgment of the Rock by the reaming heads causing the Rock to fall onto the line behind the reaming heads. Mr. Kerby then asserted that he had never encountered such an event in the 20 years of his experience. Both confirmed that they were not on site at the relevant time, but then asserted that it was impossible for the drilling machine to jump a meter, as Mr. Lima asserted. No expert evidence was called by Sub-Terrain. Without expert evidence to substantiate these assertions, they came across as entirely self-serving, over-reaching and disingenuous.
[34] Finally, Mr. Thorne’s assertions that he was surprised by the Carnello conditional back-charge and would not have done the repair work had he known about it in advance, also seemed self-serving and disingenuous in the circumstances. In its very first email after the problem came to light (dated September 4, 2012) Carnello blamed Sub-Terrain for the problem. That email refers to “reefing” (ie. applying excessive force to) the pipe by Sub-Terrain personnel. When Adam Palleschi raised the conditional back-charge in writing for the first time in an email dated September 20, 2012, Mr. Thorne responded by not addressing the allegation of “reefing.” Instead he relied on the expressed contractual exclusion of “rock drilling” to justify the extra. At trial he admitted in cross-examination that “rock drilling” did not include going around rocks, which is what happened here. This suggests that Sub-Terrain was insecure about its liability position from the outset, and was trying to stretch the meaning of the signed extra invoice to protect itself from the back-charge.
[35] Given the Project schedule exigencies and the potential for liquidated damages back-charges if the repair was delayed, Carnello’s explanation for what happened seems more plausible. This explanation was that the parties agreed that Sub-Terrain would do the repair expeditiously and that Carnello would submit an extra for the repair to Four Seasons as a flier, a speculative venture, to see whether the loss could be avoided, with the parties reserving their rights as between themselves in event the contractor denied the extra. Either for ulterior motives or due to a change of heart, Sub-Terrain then tried to avoid the back-charge altogether when the quote was signed.
[36] Carnello’s principle witness, Adam Palleschi, also suffered in credibility from being a principal of Carnello. He, therefore, had an interest in seeing Carnello succeed in the case. However, I found both his affidavit and his viva voce evidence to be focused on what he experienced. There was one instance where he introduced hearsay evidence, namely his reference to the owner’s consultant, Mr. Kyr, and I discounted that evidence as a result. In cross-examination, he admitted frankly that he had his brother Matthew sign the Sub-Terrain invoice for the extra in order to get Sub-Terrain working since time was of the essence. He also admitted frankly not knowing about implied terms in the Sub-Terrain quotes and drilling plan. These admissions were not favourable to Carnello and enhanced his general credibility.
[37] Frank Palleschi, Adam’s father, is also a principal of Carnello. He gave evidence about the investigation and repair of the pipe. Much of this was uncontentious. He did opine that the Rock had not fallen into the pipe, an opinion he based on his observation that most of the Rock was in undisturbed, compacted earth. He also gave estimates for his work time. He evidence was not seriously challenged in cross-examination. I also did not rely on it heavily.
[38] The most credible witness, in my view, was Paul Lima. He stated that he worked for Carnello in August and September, 2012 on the Project, and that he has since worked for other employers. He was the only witness who was not associated with the parties. I gave his evidence more credence as a result.
[39] Furthermore, Mr. Lima also impressed me with the detail and clarity of his recollection of events on site, particularly concerning the stoppage in the pipe pull. He stated that the stoppage was between 12 and 13 minutes. He stated that he remembered this because it got to the point where he, originally stationed at the feeder end of the hole feeding the pipe, started to walk towards the drill machine to get information about the problem. He also stated that he recalled hearing the box man and Mr. Symes communicate and that Mr. Symes said at one point, “I am stuck.” He stated that he then saw the drilling machine move about a meter and continue the pull. He admitted not telling Sub-Terrain anything, but that he later informed Adam Palleschi. Mr. Lima’s credibility in these details was not seriously undermined in cross-examination. Mr. Matthews argued later that Mr. Lima could not credibly recall such detail after 2 years. I disagree. An incident such as the stoppage would have left a lasting impression. And, again, Mr. Symes did not expressly deny that the incident occurred. I gave Mr. Lima’s evidence consider weight.
[40] Therefore, on balance, I found the Sub-Terrain witnesses less credible than the Carnello witnesses. Where the evidence of the two conflict, I gave more credence to the Carnello witnesses.
V. ANALYSIS
i. Was Sub-Terrain in breach of the Sub-Terrain Contract due to the pipe damage?
[41] The following is undisputed. Firstly, the Rock caused the scoring of the pipe. Secondly, the standard by which the court should determine whether Sub-Terrain should be found in breach of the Sub-Terrain Contract due to the pipe damage is whether the scoring of the pipe by the Rock was reasonably foreseeable by Sub-Terrain. In other words, it is a negligence standard. That is the standard which I now apply.
[42] There was some discussion about onus of proof on this point. Mr. Matthews argued that Carnello had the onus because it raised the point. Mr. Binavince argued, on the other hand, that a subcontractor always has the onus of excluding faulty workmanship as a probable cause of a defect in its supply. He relied on the case of Schreiber Brothers Ltd. v. Currie Products Ltd. 1980 CarswellOnt 653 (S.C.C.) which concerned a defect in the asphalt on a roof installed by a roofing contractor. The roofing contractor sued the asphalt supplier for breach of the implied warranty of merchantability quality. The Court held that the roofing contractor had the onus of proving that its workmanship was not at fault for the defect. The case turned on the issue of the degree to which the roofer had to go to meet its onus.
[43] Consistent with Schreiber, Carnello had the onus of showing that it was not at fault for the alleged defect, as it raised that issue. To meet this onus, all Carnello had to do was show that it supplied proper pipe and that the damage occurred during the pipe installation, over which Sub-Terrain had complete control. That onus Carnello met through the evidence of Messrs. Adam Pallaschi and Paul Lima. The onus then rested on Sub-Terrain to show that it was not at fault for the defect on a balance of probabilities. Having complete control of an installation places the onus on the installer to disprove its liability for a defect in the installation; see Dirm Inc. v. Bennington Construction Ltd. 2010 CarswellOnt 4171 (Ont. S.C.J.), at paragraph 97.
[44] Having reviewed the evidence and heard the submissions of counsel, I have concluded that Sub-Terrain has failed to meet its onus in this regard, for the following reasons:
a) The August 8, 2012 Drilling Plan references “active and passive interference” in the pulling process. It references the risk of pressure spikes to dangerous levels during the pull. Most importantly, the Drilling Plan states that “in case of stuck pipe,” specified measures would be taken by the operator, namely pulling out the pipe and filling the pipe with water. Mr. Thorne admitted that another option for the operator was to excavate the area where the pipe pull had stopped. What was clear was that, when stuck, the operator should not continue pulling. Therefore, Sub-Terrain contemplated the risk of significant interferences and even pull stoppages from the outset.
b) These risks became more concrete once the work began. On the first day, August 17, 2012, Sub-Terrain encountered a rock that caused it to stop and get another crew and a new drilling machine. The second crew encountered repeated interferences and increases in tension in the pipe pull. They decided to use three reamers instead of the usual two in order to get rid of interferences. Therefore, the site conditions were such that there was a real and present risk that the pipe would encounter rocks, such as the Rock.
c) Mr. Symes asserted in his affidavit that the tension in the pull was never “problematic” and never exceeded the tensile strength of the conduit. He did not explain what this meant in concrete terms. In cross-examination, Mr. Kerby, an experienced supervisor in directional drilling, stated that an operator should not to exceed 75% – 80% of maximum tensile strength, and that the best practice was to go no further than 25%. He stated that he personally would stop at only 50% - 60% of tensile strength. Based on this evidence, I have concluded that Mr. Symes’ evidence does not exclude the probably that he exceeded 25% and even 60% of the tensile strength of the pipe, both of which were below the tensile strength of the conduit but above the level of acceptable risk.
d) The evidence indicates that there was a stoppage in the pipe pull at the location of the Rock, namely about 32’ into the pull. Mr. Lima’s evidence was clear on this. Mr. Symes told his box man that he was “stuck.” Mr. Symes did not deny this. I so find.
e) The evidence shows that, despite the stoppage, Mr. Symes resumed pulling the pipe causing the drill machine to move. He did so without informing Carnello. This was Mr. Lima’s evidence. There was other evidence that the drilling machine was anchored in earth for the pull, not in concrete. Drill movement would seem more feasible in earth than in concrete. As a result, I find that, instead of stopping to investigate the source of the stoppage and remove it, the operator assumed the foreseeable risk that the pipe would encounter the object that caused the stoppage and continued the pull. As stated earlier, evidence to the contrary I find lacking in credibility.
f) Whether the Rock fell onto the pipe after being moved by the reamer head, as conjectured by Messrs. Thorne and Kerby, I find to be immaterial. Such an event would, in my view, be reasonably foreseeable in any event since it would have been the reamer head that caused the damage.
g) Sub-Terrain also argued that by asserting a claim against Four Seasons for the Sub-Terrain extra for the pipe repair, Carnello admitted that the pipe scoring was unforeseeable. I do not agree. The evidence is clear that Carnello never resiled from its position, articulated in its September 4, 2012 email to Sub-Terrain when the problem first came to light, that Sub-Terrain was responsible on account of the “reefing” of the pipe by its employees. In its claim document to Four Seasons dated September 19, 2012, Carnello did not state that what was encountered by Sub-Terrain was unforeseeable. All that was stated was that a large rock was encountered.
[45] I, therefore, find that in light of the terms of the Sub-Terrain Contract and the site conditions, the scoring of the pipe by the Rock was reasonably foreseeable by Sub-Terrain, and that Sub-Terrain was and is in breach of the Sub-Terrain Contract as a result.
ii. Did Carnello waive its back-charge by signing the Replacement Extra?
[46] Sub-Terrain argued that, by signing the Replacement Extra, Carnello waived its right to claim a back-charge for its overpayment and costs of repairing the pipe. Mr. Matthews argued that the document contains a note that expressly excludes back-charges. The note states the following: “Back charges will not be accepted unless agreed to in writing by an authorized Sub-Terrain representative.” It is undisputed that Sub-Terrain never agreed to the back-charge in writing.
[47] Carnello argued that this note must be read narrowly, and, thus read, does not expressly create a waiver. It simply states that Sub-Terrain will not accept a back-charge it has not authorized in writing.
[48] Mr. Binanvince relied on the case of Swagger Construction Ltd. v. University of British Columbia 2000 CarswellBC 2640 (B.C.S.C.). In this case, the contractor sought partial judgment on a signed payment certificate. The owner raised rights of set-off against the payment certificate. The contractor argued that no such right of set-off against a payment certificate was provided for in the contract, and that therefore it should be denied. Justice Hood agreed with the owner, holding that the right of set-off arose at common law and in equity and could be curtailed only by clearly expressed wording in a contract. The judge stated the following in paragraph 25: “The question is not whether there is provision in the Contract granting the Owner a right of set-off. The Owner has that right, in law and in equity, unless and until it is taken away by Contract. Rather, the question is whether there is provision in the Contract clearly expressing the parties’ intention that the Owner would not have a right of set-off, in particular, a right of set-off against any sum certified for payment by the Consultant, other than those specifically set out in the Contract.”
[49] I agree with Carnello. For a contract to remove a right of set-off for costs arising from defective supply and installation, the contract wording must clearly abrogate that right. The note in question does not. The note states only what Sub-Terrain will accept as a back-charge. It does not abrogate Carnello’s right to assert a back-charge that Sub-Terrain does not accept.
[50] Mr. Matthews argued that there is ambiguity in the Replacement Extra, that this ambiguity should be resolved in favour of Sub-Terrain in light of the commercial realities of the situation, and that I should find that, by signing the Replacement Extra, Carnello agreed to pay the extra unconditionally and without set-off. He argued that, according to Mr. Thorne, Sub-Terrain relied on this document and refused to commence working on the repair until it was signed. He also noted that Mr. Thorne stated that he would not have authorized the repair work had he known there would be the Carnello back-charge, stating that he would rather have taken his chances in defending a lawsuit than spending the money on the repair.
[51] I reiterate that I am not prepared to find an ambiguity here. However, if I did, I would still not find in Sub-Terrain’s favour. Firstly, the document was drafted by Sub-Terrain and therefore pursuant to the doctrine of contra proferentem, an ambiguity should be interpreted against the interests of the drafter of the document. Secondly, as stated earlier, Carnello blamed Sub-Terrain for this problem from the outset, and it makes no commercial sense for Carnello to agree to pay a subcontractor unconditionally to repair its own work. Thirdly, as stated earlier, I find Mr. Thorne’s assertions of confidence in Sub-Terrain’s case self-serving and lacking in credibility. Fourthly, there is no evidence that Adam Palleschi verbally or by conduct waived the set-off. Even Mr. Thorne, in his own affidavit, stated that when he informed Mr. Palleschi verbally on September 17, 2012 that Sub-Terrain would not accept responsibility for the repair, Mr. Thorne stated simply that Mr. Palleschi “did not voice any objection.”
[52] Suffice it to say that, if I had to interpret the contract as a whole, I would agree with Carnello that there were implied terms about payment being conditional on Four Seasons paying for the extra. As stated by the Supreme Court in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd. 1999 677 (SCC), [1999] 1 S.C.R. 619 (S.C.C.), one of the bases for finding implied terms in contracts is the presumed intentions of the parties to give business efficacy to a contract. Given the risk of liability and the need to complete the repair expeditiously to avoid liquidated damages, it makes most business sense to me that the parties would have agreed to get the work done and try to recoup the costs from Four Seasons, reserving their rights as against each other. This is what makes most commercial sense to me in light of the circumstances that existed on the Project in mid-September, 2012, as I have previously discussed.
[53] There are other reasons I would have difficulty enforcing the contract as urged by Mr. Matthews. There are real issues as to whether the alleged contract was enforceable due to lack of consideration on account of my finding that the work was a repair to Sub-Terrain’s installation. Also, there would be an issue as to whether there was a meeting of the minds between Carnello and Sub-Terrain as to the “price” for this alleged extra, thereby rendering the alleged contract unenforceable for that reason.
[54] However, I make no findings on these issues or on the implied terms point, as such are not necessary in light of my ruling on the narrow set-off waiver issue.
[55] As a result, I find that Carnello did not waive its set-off and back-charge rights by signing the Replacement Extra.
iii. In light of the Carnello set-off, what is owed to Sub-Terrain?
[56] The accounting of what is owed to Sub-Terrain starts with a review of the Sub-Terrain claim itself. It is undisputed that the quantity of what Sub-Terrain supplied to the Project in the end totaled 90 meters of pipe, not the 105 meters specified in the Sub-Terrain Contract. At the unit price of $210/meter, this amounts to $18,900 plus HST, namely $21,357 (tax included).
[57] Sub-Terrain claims two extras. One is an invoice dated September 20, 2012 for the installation of the replacement pipe pursuant to the Replacement Extra. It is in the amount of $11,760 plus HST. However, it needs to be reduced to $11,340 plus HST as the quote referred to 56 meters of pipe when only 54 meters was replaced. The second invoice dated September 20, 2012 concerns the use of the hydrovac truck to investigate the pipe problem on September 13, 2012 and September 14, 2012. In light of my ruling that the pipe problem was the result of Sub-Terrain’s breach of contract and that Carnello retained its right of set-off, these charges cancel themselves and are not collectable.
[58] I also note that there was no signed quote for the hydrovac truck as there was for the additional pipe. Therefore, there is also a real issue as to whether Carnello approved of this claim in any event. This is a further reason to deny the second extra invoice.
[59] What then can Carnello set off from the $21,357 Sub-Terrain claim?
[60] Initially, on September 19, 2012, Adam Palleschi presented Sub-Terrain with Carnello’s “force account” concerning the pipe repair. The force account showed a total of $13,165.21 plus HST for non-Sub-Terrain costs. At trial, Mr. Binavince submitted a schedule showing, what he described as, the final Carnello set-off claim, which was entered as a trial aid. The new total is $15,158.20 plus HST. The difference is $1,992.99 plus HST.
[61] Carnello claims a set-off for three items of cost as follows: labour, owned equipment, and material. I will discuss these items in that order:
a) Concerning labour, Carnello claims for the cost it incurred for the work that Messrs. Paul Lima and Frank Palleschi performed in carrying out the initial pressure test of the pipe, the excavation of the area where the two sections of pipe (the 90 meters installed by Sub-Terrain and the 35 meters installed by Carnello) joined, a further pressure test to isolate the problem, a CCTV scan of the pipe to locate the damage, another excavation of the area of the Rock, a removal of the damaged pipe, assistance with the installation of the replacement pipe, and backfilling the excavations. On two occasions a third person was on site. The labour rates were not challenged by Sub-Terrain.
Mr. Matthews challenged the cost claimed for Frank Palleschi, who is Adam Palleschi’s father, who did not keep time records, and who Adam Palleschi admitted was “the other principal of Carnello.” The argument was that, given Frank Palleschi’s postion in Carnello, he did not represent a cost. I do not agree with this argument. Mr. Palleschi’s work represented a cost to Carnello if nothing else than in lost opportunity cost for the time Mr. Palleschi spent on the Project.
However, I am concerned about the lack of proof for the claimed labour costs. No time sheets were presented. Frank Palleschi in fact maintained no time records for his work. The labour hours claimed by Carnello at trial did not accord with the labour hours contained in the Carnello force account for the period prior to September 19, 2012. The evidence, therefore, came down to what was recalled by Messrs. Palleschi and Lima almost two years after the work was done.
I am certain that the claimed work was done. I am not, however, certain that the claimed quantum of labour cost is accurate, given the evidence. I have decided, therefore, to reduce the claimed labour cost by 25% to account for this evidentiary uncertainty. The calculation of the deduction is as follows: $6,355.02 (total labour cost) x 25% = $1,588.75 plus HST.
I have also deducted the time spent on September 4, 2012 for the pressure test, as that was not related to the pipe repair. The calculation of this deduction is as follows: $280.92 (labour cost for this item) x 25% = $210.69 plus HST.
b) Concerning the owned equipment, Carnello claims for the cost of using its own backhoe and excavator at hourly rates approved by the owner, York University. It also claims for the cost of using its service truck which transported the Carnello equipment to the site to perform the work. Neither the rates nor the quantum of hours claimed for this equipment were challenged by Sub-Terrain.
Because the backhoe and excavator times are tied to the labour hours, I have to reduce those claims by 25% as well. The calculation of this deduction is as follows: $2,846.28 (total equipment cost) x 25% = $711.57 plus HST.
I make no deduction for the service truck cost, which in any event accords with the amount shown for that item in the Carnello force account.
c) Concerning material, Carnello claims for the cost of renting the CCTV inspection equipment, renting testing equipment, hiring Corex to do the final pressure testing, and the replacement pipe. Carnello provided proof for these charges. None of this was challenged by Sub-Terrain. I make no deduction on this portion of the set-off claim.
[62] Applying the above noted labour and equipment cost deductions to the set-off claim produces a total Carnello set-off of $12,647.19 plus HST, or a total of $14,291.32 (tax included). I find that Carnello is entitled to apply this set-off to the Sub-Terrain claim of $21,357. The result is an entitlement for Sub-Terrain of $7,065.68. (tax included).
[63] I need to make a further comment about the disparity between what Carnello showed on its force account of September 19, 2012 and what it claimed at trial, as noted above. The explanation given was that the September 19, 2012 force account was incomplete and did not take into account the September 20, 2012 costs that Carnello incurred for backfilling the excavations. Adam Palleschi stated as much in his covering email concerning the September 19, 2012 force account. I accept that explanation and used the force account only as noted above.
[64] I, therefore, find that Carnello is to pay Sub-Terrain $7,065.68 on account of its claim.
iv. Has Sub-Terrain’s lien expired?
[65] It is now established law that repair work does not extend lien rights; see Nortown Electrical Contractor Associates v. 161975 Ontario Ltd., 2010 CarswellOnt 3928 (Ont. S.C.J.). Given my ruling, the work that Sub-Terrain performed in September, 2012, being repair work, did not extend its lien rights. Sub-Terrain’s last date of supply was, therefore, August 22, 2012. It registered its claim for lien on November 2, 2012, namely 74 days later. This is much too late.
[66] I, therefore, have no choice but to declare the Sub-Terrain lien expired under Construction Lien Act, section 45, and I do so.
[67] This means that Sub-Terrain has a claim against neither the Carnello holdback nor the Four Seasons security. The action against Four Seasons will be dismissed and the security posted by Four Seasons for the Sub-Terrain claim for lien will be ordered returned to Four Seasons.
VI. CONCLUSION
[68] I, therefore, find that Carnello must pay Sub-Terrain $7,065.78 (tax included).
[69] I declare the Sub-Terrain lien expired, and order that the lien bond security posted by Four Seasons for the Sub-Terrain claim for lien pursuant to the order of Master Albert dated December 17, 2012 be returned to Four Seasons for cancellation.
[70] I also dismiss the Sub-Terrain action again Four Seasons.
[71] The issue of prejudgment interest was not addressed in argument. I note that in the Statement of Claim Sub-Terrain claimed both prejudgment interest under the Courts of Justice Act or as agreed between the parties. I note as well that the invoice on which the Sub-Terrain entitlement is based, Invoice #4950 dated September 7, 2012, expressly states the following: “Terms: 30 days. 2% per month will be charged on all invoices over 30 days.” This indicates that prejudgment interest should run on the above judgment from October 7, 2012. I will, however, require submissions as to the rate to be applied.
[72] As to costs, at the close of trial on June 12, 2014, Mr. Matthews filed Sub-Terrain’s Costs Outline sworn June 10, 2014, showing a partial indemnity costs claim of $20,785.28. I gave the parties until June 17, 2014 to file their final costs outlines. Mr. Matthews did not revise his client’s claim.
[73] Mr. Binavince did not file a Bill of Costs for Carnello until August 21, 2014, and then only in response to my inquiries while I was preparing these Reasons. The Bill of Costs shows a partial indemnity claim of $15,965.45.
[74] Generally costs follow the event. In this case, Carnello was successful on most of the issues that were in dispute. Its Bill of Costs was less than the Sub-Terrain Costs Outline. Therefore, the amount of its claim is not in excess of what Sub-Terrain could reasonably have expected. The issues in dispute were not overly complex. I am, however, not impressed by the confusion Carnello created prior to trial as to whether the Sub-Terrain claim was being asserted against Four Seasons and whether Four Seasons should join this trial. Also, I am not impressed by Carnello’s breach of my order, given on the last day of trial, to submit its costs outline in three days. I am not prepared, however, to issue my ruling on costs at this time, as neither of these two cost documents makes reference to offers to settle that may have been exchanged, which, if so, may compel a certain costs award.
[75] If the parties are unable to agree on costs, counsel may file written submissions on costs. Submissions may not exceed two pages (typed, 8 ½” x 11” pages, double spaced, minimum font size 12). The submissions of Carnello must be served and filed by August 29, 2014. The Sub-Terrain submissions must be served and filed by September 8, 2014. The Carnello reply submissions, if any, must be served and filed by September 11, 2014.
[76] These submissions must address not only the issue of costs, but also the issue of what prejudgment and post-judgment interest must be included in my report.
[77] If the parties are unable to agree on the form of my final report, an attendance may be required to settle the report.
MASTER C. WIEBE
Released: August 22, 2014
COURT FILE NO.: CV-12-469562
DATE: August 22, 2014
ONTARIO
SUPERIOR COURT OF JUSTICE
In the matter of the Construction Lien Act, R.S.O. 1990, c. C.30
BETWEEN:
Sub-Terrain Directional Drilling Ltd.
Plaintiff
- and -
Carnello Civil Construction Limited, York University, York University Development Corporation and Four Seasons Site Development Ltd.
Defendants
REASONS FOR JUDGMENT
Master C. Wiebe
Released: August 22, 2014