CITATION: Jessco Structural Limited v. Gottardo Construction Ltd., 2015 ONSC 3637

COURT FILE NO.: CV-09-4822-00

DATE: 2015-06-05

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

JESSCO STRUCTURAL LIMITED

Adam Wainstock, for the Plaintiff

Plaintiff

• and -

GOTTARDO CONSTRUCTION LTD.

Kate Findlay, for the Defendant (moving party)

Defendant (moving party)

HEARD: April 22, 2015 at Brampton

ENDORSEMENT

André J.

[1] Gottardo Construction Limited (“Gottardo”), the defendant moving party, brings a motion under Rule 21 of the Rules of Civil Procedure for an order that it is not responsible to pay Jessco Structural Limited (“Jessco”) for work the latter performed on projects that were not negotiated or confirmed in writing prior to the work being done. In its counterclaim Jessco seeks a court order declaring that Gottardo varied the terms of the contract between the parties, and is therefore obliged to pay Jessco for extra work it performed on Gottardo’s two construction projects. The motion and cross-motion brought by the parties therefore raise the following issues:

(1) Should the extra charges claimed by Jessco be denied given its failure to negotiate and obtain advance approval from Gottardo as required by the contract that both parties executed?

(2) Did Gottardo, by its conduct vary the terms of its contract with Jessco and thereby responsible for compensating Jessco for extra work done on Gottardo’s two construction projects?

BACKGROUND FACTS

[2] Jessco was contracted by Gottardo to perform work on two of its construction projects. One of these was the Brampton Business Centre (“BBC”), while the other was known as the Maxum Building. Jessco was hired as the forming subcontractor on these two projects.

[3] Article 9.3 of the contract indicates that:

No changes shall be made without a written order from the contractor.

[4] Appendix B of the contract stipulates that:

EXTRAS

No extras will be considered for any reason whatsoever unless negotiated with Gottardo Construction Limited before the work is done. Tickets for labour, equipment, and materials signed by the Contractor’s Site Superintendent are to confirm that the work was done and/or materials were supplied, and is not an agreement that the items signed for are additional to the contract or acceptance of labour rates or material costs.

[5] Romeo D’Angelo, the principal of Jessco, indicated on November 17, 2014, that Article 9.3 of the contract was “a standard specification” and that he understood that one of the terms of the contracts was that no extras would be considered for any reason whatsoever unless negotiated with Gottardo before the work was done: Transcript of cross-examination, November 17, 2014, page 9.

[6] Jessco performed extra work on Gottardo’s two projects on the instructions of the latter’s site superintendent. Jessco then sought payment for the extra work performed. Gottardo relied on Article 9.3 and Appendix B of the contract in its refusal to pay for the extra work requested by its site superintendent.

[7] Thereupon Jessco commenced a lien and trust action against Gottardo for payment of the extra work it performed. Gottardo then initiated a counterclaim against Jessco for back charges on account of “deficient” work performed by Jessco.

[8] On July 21, 2014, Price J. ordered Gottardo to bring a motion on the narrow issue of whether Gottardo can rely on the contractual provisions to avoid compensating Jessco for the extra work it had done on Gottardo’s projects.

POSITION OF GOTTARDO

[9] Counsel for Gottardo submits that:

(1) No verbal agreement that Jessco’s representative may have had with Gottardo’s site superintendent supersedes the agreement signed by both parties.

(2) There is no pattern of conduct between Gottardo and Jessco that reflects a common intention to alter the terms of the contract.

(3) Jessco is not entitled to be compensated for any “extras”, given its patent failure to abide by the terms of the contract.

POSITION OF JESSCO

[10] Counsel for Jessco submits that:

(1) There was a pattern of conduct between the two parties that revealed a clear intention to waive the terms of the written contract.

(2) Every extra or change in work was negotiated with a representative of Gottardo and therefore authorized by the company.

(3) The contract does not specifically state that written authorization was required before additional work could be done by Jessco.

(4) The conduct of the parties altered the terms of the contract.

ANALYSIS

[11] Gottardo relies on a number of authorities for the proposition that compliance with a contractual provision such as Article 9.3 in its contract with Jessco is a condition precedent for any “extra” work performed by a subcontractor on a project.

[12] For example, in Dunhill Construction Ltd. v. Ledcor Industries Ltd., 1993 CarswellBC 1187, [1993] B.C.W.L.D. 1816, [1993] B.C.J. No. 1443, 9 C.L.R. (2d) 134, the court noted that:

60 Clauses in fixed price construction contracts requiring change orders for extras are critical to the integrity of such contracts. The owner or prime contractor has contracted to have the work done for a specified amount of money. If the contractor believes that an item is an extra, the owner or prime contractor should be given an opportunity to consider the situation before the work is done. It may be that if the owner or prime contractor agrees that the item is outside the scope of the work under the contract, they may not wish to spend the additional money to have the extra done. An owner or prime contractor would have no ability to control its costs if the contractor were allowed to do the work without a change order or purchase order and to make a claim for an extra after the work is completed.

61 If a contractor signs a contract that requires a change order or purchase order as a precondition to an extra, the contractor should know not to do the work unless it has a change order or purchase order. This is particularly so in the present case where the principal of Dunhill, Mr. Constantini, was formerly a lawyer who specialized in construction law. The Court heard evidence that authority to do extra work is often given orally and that there is not always time on a construction project to have the necessary paperwork done. That may be so, but the contractor must be taken to know that it is taking a risk if it accepts oral authorization and it must accept the consequences if it chooses to deviate from the requirements of the contract.

[13] In Clarence Daigle & Son Ltd. v. Lackie Brothers Ltd. 1981 CanLII 3572 (NB CA), 1981 CarswellNB 153, 34 N.B.R. (2d) 430, 85 A.P.R. 430, the New Brunswick Court of Appeal observed at paragraphs 18 and 19 with respect to a similar contractual provision:

Subcontract Condition 16.2 provides that no claim for an addition to the Subcontract price shall be valid without a written order from the contractor which must be valued or agreed to be valued as provided in Condition 17. There is a consistent line of authority to the effect that compliance with such contract provisions is a condition precedent to payment and that a contractor or subcontractor who carries out extra work without the required written order cannot recover payment therefor, unless the requirement is waived by the contractor's conduct or by his acquiescence: see Small v. McCullough (1857), 1857 CanLII 28 (NB SC), 8 N.B.R. 484; Flood v. Morrisey (1880), 1880 CanLII 61 (NB SC), 20 N.B.R. 5; Toronto v. Metallic Roofing Company (1906), 1906 CanLII 8 (SCC), 37 S.C.R. 692; and Goldsmith, supra, pages 93-94 and cases cited therein. Moreover, the decision of the Supreme Court of Canada in Peter Kiewit Sons' Co. v. Eakins Construction Limited, 1960 CanLII 37 (SCC), [1960] S.C.R. 361 appears to favour a strict interpretation of the contract and to require strict adherence to contractual obligations in cases such as this present one.

It was not contended by Daigle that Lackie Bros., by its conduct, waived the requirement for a written change order from the contractor or acquiesced in any failure to obtain one. It therefore follows that the provisions of the Subcontract with respect to extra work not having been complied with or waived, Daigle's claim for additional compensation for the added excavation work cannot succeed.

[14] However, there is a line of authorities that indicates that parties to an agreement may vary the terms of a contract by their conduct, such that they cannot rely on the terms of the contract that require written authorization before any additional work is undertaken.

[15] In Colautti Construction Ltd. v. Ottawa (City of) (1984), 1984 CanLII 1969 (ON CA), 46 O.R. (2d) 236 O.A.C. 74 [Colautti], the court found that the conduct of the parties to the contract was such that it vitiated the contractual provision that required written authorization before additional work is done on the project.

[16] What was the pattern of conduct that had the effect of varying the terms of the contract? In Colautti, the plaintiff contractor entered into a contract with the defendant city for the construction of a sanitary sewer. The contract stipulated that written authorization was required for additional work. Despite this provision, the contractor billed the city at various times during the course of the project for extra charges. Significantly, the city paid these extra charges despite the contract requiring written authorization for the additional work.

[17] Similarly, in Triple R Contracting Ltd. v. 384848 Alberta Ltd., 2001 ABQB 52 [282 A.R. 1] (Alta. Q.B.), the court noted at paragraph 21 that:

I appreciate that written contracts must be treated with respect. However, when, as here, the subsequent conduct of the contracting parties points to the conclusion that they do not consider themselves to be governed by the contract’s terms and instead, developed an alternative arrangement established on clear evidence, it is unreasonable to impose the written contract on the relationship.

[18] Furthermore, in Michele's Landscaping Inc. v. Nicon Developments Alberta Ltd., 2005 ABPC 243, the court found that two parties to an agreement had developed a general practice of verbally agreeing to have additional work done, and, on receipt of an invoice therefore, to issue a Purchase Order for the work for its records, if it decided to pay for the work. The court concluded at paragraph 21 that in those circumstances:

I am satisfied therefore that the parties did not consider themselves to be governed by Article 9 of the contract having developed an alternative arrangement and it would be unreasonable to impose Article 9 on the relationship.

[19] In addition to a pattern of conduct or the development of an alternative arrangement that may relieve a party from its obligation to comply with a contract, parties to a written agreement that contains a clause similar to Article 9.3 in this case may amend a written agreement by a subsequent oral agreement and prove the amendment by parol evidence: Naegeli v. Marche Homes Ltd., 1999 ABPC 131, 1999 CarswellAlta 1257 at para. 14.

APPLICATION OF THE LAW TO THE FACTS

[20] Applying the law to the facts of this case, the following is not disputed:

(1) The “extras” performed by Jessco constituted work that was over and beyond the work they were contractually obligated to do.

(2) The “extras” Jessco performed were all requested by Gottardo’s site superintendent at both projects.

(3) On the Maxum project, Jessco performed the following additional work at the request of an agent of Gottardo:

a. Extra forming work necessitated by POOR soil conditions which was completed in April 2008.

b. Providing labour to assist a different framework subtrade of Gottardo on a different building at the Maxum project. After the work was done, Jessco provided Gottardo’s site superintendent with a purchase order, which he signed. The “extra” work was then invoiced but never paid.

c. Providing labour to assist Gottardo with general site conditions at the Maxum project. Gottardo’s site superintendent requested Jessco to keep the site clear of snow or meet winter conditions to allow work to proceed in a timely fashion. Jessco provided this type of assistance to Gottardo from December 17, 2007, to February 8, 2008. Jessco provided Gottardo’s site superintendent with a purchase order setting out the dates and hours spent on this “extra” work. The order was signed by Gottardo’s site superintendent.

d. Gottardo’s site superintendent requested additional work to be done by Jessco on the BBC project. Upon completion of the work, Jessco presented Gottardo’s site superintendent with purchase orders that gave a description of the work done and the number of hours spent. The site superintendent signed the purchase orders. Gottardo never provided any written change orders for any of the extras prior to the site superintendent requesting the work done.

[21] Did Jessco abide with the provisions of the contract regarding the extra work that it performed?

[22] First, Article 9.3 provides that no changes to the contract shall be made without a written order from the contractor. To the extent that the site superintendent did not give Jessco a written order, then Jessco did not have the contractual obligation to do the “extra” work requested by Gottardo’s site superintendent.

[23] Second, Appendix B indicates that no extras will be considered for any reason whatsoever unless negotiated with Gottardo before the work is done. This condition does not suggest that any negotiation between Jessco and Gottardo had to be in writing. However, the extras were not on account of any negotiations between Jessco and Gottardo; rather, they were merely requests by Gottardo’s site superintendent to Jessco. Arguably, therefore, it cannot be stated that the “extras” done by Jessco was on account of negotiations with Gottardo before the work was done.

[24] Furthermore, Appendix B specifically indicates that tickets signed by Gottardo’s site superintendent merely confirm that the work was done and/or materials supplied; they do not constitute an agreement that the items signed for are additional to the contract or acceptable of the labour rates or material costs.

[25] Did the conduct of the parties alter the provisions of Article 9.3 and Appendix B of the agreement? Jessco submits that it does, while Gottardo demurs.

[26] In Colautti, the conduct that was held to have vitiated the terms of the agreement was a) the contractor billing the city at various times during the project, and, more importantly, the city’s decision to pay these extra charges despite the contract which required written authorization for the written work.

[27] Did Gottardo’s conduct constitute a waiver of the contract or its acquiescence to Jessco’s non-compliance with it? The conduct which Jessco relies upon for its contention that Gottardo waived the provisions of the contract is as follows:

(1) Gottardo’s site superintendent specifically requested Jessco to perform the work in question.

(2) Gottardo’s site superintendent signed Jessco’s purchase orders, which confirm that the work had been done and the hours required to do the work.

[28] Unlike the facts in Colautti, Gottardo never paid Jessco for any of the extras done on its projects. This failure, in my view, distinguishes the facts of this case from that in Colautti, and does not support a conclusion that Gottardo’s conduct changed the terms of the contract or acquiesced in Jessco’s alteration of the contract.

[29] Furthermore, it cannot be said that Gottardo’s site superintendent changed the provisions of the contract or developed an alternative arrangement, given that the contract expressly states that tickets signed by the site superintendent are not an agreement that the items are additional to the contract constitute acceptance of labour rates or material costs. Gottardo therefore cannot be held to have acquiesced to Jessco’s alteration of the contract by doing work without a written order.

[30] This decision may appear to be patently unfair to Jessco, given that there is no dispute that it did the “extras” that are the source of this dispute. However, Jessco’s principal was aware of Article 9.3 and Appendix B of the contract. One would have thought that, given the applicable provisions, he would have sought, before the work was done, assurances from Gottardo that the latter would pay for the “extras” that it did.

COSTS

[31] Jessco seeks costs in the amount of $20,884.24 on a partial indemnity basis, while Gottardo is seeking costs in the amount of $19,776.81 on a similar basis.

[32] Both parties concede that the costs sought by the other is reasonable in the circumstances in this case and that the winning party is entitled to his or her costs.

DISPOSITION

[33] Based on the above, I order that:

(1) Gottardo Construction Ltd. is not liable for extra charges for work performed by Jessco Structural Limited where such work was not performed in accordance with the contract signed by both parties.

(2) Jessco Structural Limited will pay costs in the amount of $19,776.81 inclusive, to Gottardo Construction Ltd. within sixty (60) days of today’s date.

André J.

Released: June 5, 2015