COURT FILE NO.: 14-61894R

DATE: 18/09/2015

SUPERIOR COURT OF JUSTICE – ONTARIO

BETWEEN:

FLORENCE JUSTICE

Plaintiff

and

STEPHEN MASSEY

Defendant

BEFORE: MASTER MACLEOD

HEARD: February 10th, 20th, March 2nd, April 7th, 2015 and written submissions

COUNSEL: Alyssa Tompkins for the Plaintiff

Louis Pierre Gregoire for the Defendant

REASONS FOR JUDGMENT

[1] This matter was tried by me under Rule 54.02 of the Rules of Civil Procedure. The reference was directed to the master at the request of the parties under a judgment granted by Justice Kershman on November 19th, 2014.

[2] A copy of the judgment is contained in the reference file or procedure book. The parties had originally launched competing motions and applications but rather than continuing to argue about Certificates of Pending Litigation, injunctive relief and the enforceability of an arbitration clause, the parties agreed to proceed directly to determination of the merits by means of a streamlined reference procedure.

[3] The main issue for adjudication was the amount necessary to adjust the purchase price for a semi-detached home in Westboro, in the City of Ottawa. The parties had agreed to share the cost of constructing the two units on land owned by the plaintiff and to adjust the purchase price accordingly. The defendant is to acquire ownership of his unit for the agreed upon amount plus or minus the amount necessary to equalize the construction costs. Other issues have arisen because of the delay in closing and of course I must deal with the costs of the reference as well as costs of the original motion and application.

[4] The issues addressed by these reasons are as follows:

a. What is the amount owing to equalize the construction costs and adjust the purchase price?

b. Is there a further adjustment required to compensate for expenses incurred between the date when closing should have occurred and the actual closing date?

c. Who should pay costs of the motion and application that were rolled into the reference and in what amount?

d. Who should pay costs of the reference and in what amount?

Procedure

[5] Pursuant to Rule 55.01 (1) the referee has wide discretion to "devise and adopt the simplest, least expensive and most expeditious procedure". In this case the trial procedure was something of an experiment. Counsel had agreed to conduct a "paperless trial".

[6] To accomplish this, the parties first exchanged electronic "Scott Schedules" in the form of Excel spreadsheets. It was agreed that the final versions of the spreadsheets were to be treated as part of the evidence of each party in the same manner as affidavit evidence tendered at trial. The affidavits in the previous motion and application records were also put before the court. Each party provided electronic copies of the documents to be used at trial and it was agreed all such documents were authentic. Rather than filing the documents or marking them as exhibits, all documents were deposited electronically as "read only" in a shared Dropbox[^1].

[7] Because counsel had agreed upon the procedure and discussed it with my office in advance only one hearing for directions was required. That occurred in December of 2014. There was a brief pre-trial meeting in the court room to demonstrate the technology and then the trial began on February 10th, 2015. At the trial, each of the parties gave limited evidence in chief and was then cross examined. One other witness was called. Documents put to the witnesses were retrieved from the Dropbox folder and displayed in the court room but were not printed or marked as exhibits. For purposes of the record, a print out of the Dropbox contents showing the file names of the documents in each folder has been marked as an exhibit. That aspect of the trial worked extremely well and all of those documents remain readily accessible by the court and by both parties.

[8] Originally it was hoped that the evidence could be completed in a day and a half but this proved optimistic. An additional two to three days were required and the evidence concluded on April 7th, 2015. Written submissions were subsequently filed via the Dropbox.

[9] The evidentiary record thus consists of the following:

a. The affidavit material filed on the motion and application;

b. The Scott Schedules which are to be treated as affidavits;

c. The documents filed in the Dropbox all of which are admitted; and

d. The evidence given orally at the trial.

[10] The original idea was sound. It was anticipated that I would hear enough evidence to make certain factual findings and credibility rulings and with the assistance of the written closing submissions I would review the Excel spreadsheets item by item, making rulings on each one. The result would be a mathematical exercise and closing could then be arranged.

[11] While that was expected to lead to an efficient and effective adjudication it has proved less workable in practice. Firstly the oral evidence became side tracked by minutiae concerning allocation of fault rather than what was actually paid. This case is not about damages but about allocation of construction costs.

[12] Secondly the Excel spreadsheets are so detailed and extensive that it would literally take weeks for the court to work through the spreadsheets without the further assistance of counsel. Each spreadsheet runs to more than 50 pages. For various reasons that counsel are aware of and that I have discussed with them, I have not had weeks available for this purpose and in any event that is not an efficient use of judicial resources.

[13] As I said at the outset, this was a bit of an experiment. I have reached the conclusion that the decision will be unreasonably delayed if we continue with the original plan. This is not a criticism directed at counsel. They have done everything in their power to reduce the items to manageable form and to provide the documents electronically. Nonetheless I have decided on a different and more iterative approach.

[14] What I have decided is the most efficient way to proceed is to rule on the major issues of disagreement. For example if I give my reasons for disallowing property taxes as construction costs, counsel should be able to adjust the spreadsheets to take that into account and presumably can deal with other issues by analogy. Similarly the "Manotick Concrete" matter is a central concern and a "big ticket item" which I will rule on. If I accept Mr. Faucher's evidence about amounts paid in cash, this disposes of many of the items in dispute. What I envisage is that counsel will then either be able to negotiate a resolution of the remaining items or reduce them to a workable number so that final more focused adjudication may be completed efficiently.

[15] I am conscious that time is moving on and the parties are living in the property without having transferred the ownership of the defendant's unit to him and without the plaintiff having received the purchase price. The longer that goes on, the more messy it will be to sort it out and the more likely it is that more issues will arise. Thus there is an imperative not only to render a legal decision but to resolve the problem.

[16] Accordingly these reasons do not deal with every item in dispute but only with the major issues. I will be making an interim report as permitted by Rule 55.02 (18).

The project and the plan

[17] Before turning to the disputed expenses, it is necessary to describe the background and the contractual documents in greater detail. The agreement of purchase and sale and the accompanying agreement central to this case were signed half way through the construction project and not at the beginning. The narrative must begin earlier.

[18] In 2008 Florence Justice purchased a small house at 536 Tweedsmuir Avenue in Ottawa. This is in Westboro, a former police village which was annexed by the old City of Ottawa in the mid 20th century prior to municipal amalgamation. It is currently an area of active development with a vibrant shopping area along Richmond Road, several new condominium developments and numerous conversions of older homes. Tweedsmuir Avenue was a quiet street with numerous small pre-war homes but in recent years many of these houses have been torn down and replaced with new construction.

[19] This was also the plaintiff's plan. She hoped to tear down the old residence and to replace it with a modern home. Mr. Massey described it as her "dream home". She wanted an up to date residence with modern high quality finishes. It was apparent to her that this would only be affordable if she could subdivide the lot and build two semi-detached units. The idea was to sell the second unit to cover the cost of demolition and construction.

[20] Ms. Justice had a vision but she did not have much construction experience and she did not have an unlimited budget. She had a modest income from her full time job as a civil servant. Ms. Justice met Stephen Massey at the sailing club they both belonged to in late 2010. They became friends and in the course of their conversations Ms. Justice shared her plan to redevelop her property.

[21] Mr. Massey had construction experience. In fact he was a registered builder with a Tarion number under the Ontario New Home Warranties Plan Act. According to his evidence, Mr. Massey made various suggestions to Ms. Justice and he introduced her to several builders. As a result the plaintiff obtained cost estimates from at least three builders and she was able to obtain a suitable design. She could not find a builder who was prepared to build the home with the quality of finish she was seeking for a price she could afford. She did however obtain a detailed estimate of costs which she subsequently used to create a "cost sheet" used to estimate and track the actual cost of construction.

[22] By 2012 there was some urgency to this plan because of pending revisions to the planning regulations. Her lot was 48 feet wide and a pending by-law revision would have made it impossible to include garages in semi detached houses built on lots narrower than 50'. In early 2012 Ms. Justice had plans drawn up for two semi-detached housing units and was able to obtain a building permit under the existing zoning provisions.

[23] Rather than hiring a builder, Ms. Justice decided to act as her own general contractor. She agreed to hire Mr. Massey as her construction manager and to pay him $3,000.00 per month.

[24] The parties differ in their evidence about how this came about. Mr. Massey testified that he took on the responsibility reluctantly whereas Ms. Justice testified that he approached her and was eager to take on the task. Nothing really turns on this question. It is clear that the parties came to an agreement in June of 2012 prior to work commencing.

[25] Ms. Justice began paying the management fee in July of 2012. It was apparently the intention of the parties even at that time that Mr. Massey would ultimately purchase one of the units. In fact it was Mr. Massey's evidence that he was given a draft of what ultimately became the construction agreement and had it reviewed by a lawyer. He believed he was not in a position to sign the agreement at the time and the arrangement to supervise the construction for a monthly fee was an alternative.

[26] Mr. Massey was apparently going through a separation and divorce. He expected to be selling his home in Barrhaven and to receive funds with which he could purchase another home. The plan was that when the units were completed he would buy one of them and Ms. Justice would retain the other. All that had to happen was to successfully complete the construction and to obtain the necessary severance from the Committee of Adjustment.

[27] The building permits had been obtained in April of 2012 and the existing house was demolished in July. The site was then cleared and excavated preparatory to pouring the new foundations. The foundation was poured on September 14th, 2012. It was at that time a minor disaster struck.

The Manotick Concrete Fiasco

[28] Manotick Concrete was placing the concrete for the foundations when its pump truck tipped over. This not only damaged the forms but it also resulted in a delay in the pour. There is a limited period of time in which concrete can remain in a concrete mixer before it begins to harden and becomes unworkable. It appears that additional water may have been added to the concrete to try to remedy this problem because after the foundation was poured, it was determined the concrete was deficient.

[29] The problem with the foundation was detected by Mr. Massey as soon as the forms were removed but it ultimately required an engineering assessment. There was a preliminary evaluation by Paterson Consulting Engineers in September but it was not until October 16th, 2012 after core samples were taken that Stantec determined the foundations would have to be replaced.

[30] The precise financial impact of this situation and how it was handled by the plaintiff ultimately became a source of disagreement between the parties and is one of the issues the court must assess in determining the construction costs. I will discuss the evidence in more detail shortly. For the present purpose it is sufficient to say that another contractor was hired and after some delay the foundations were properly re-installed.

[31] There was an immediate increase in cost because the contractor who had to be hired to remove the defective work and replace it charged more than the original Manotick price. The need to test the foundations, involve engineers and then to replace the foundations delayed the project by months. Construction was pushed into the winter months and both labour and material costs were affected.

[32] By February of 2013 the plaintiff had spent close to $300,000.00 and was nearing the end of her ability to finance the project. Apparently she had not obtained the approval of her mortgagee, the Royal Bank to demolish the residence nor advised the bank that she was using the line of credit to finance new home construction. Just how much of this was disclosed to Mr. Massey is a matter of some dispute but the plaintiff's acute need for additional funding to complete the project was certainly apparent.

[33] The parties ultimately agreed that Mr. Massey would purchase the second unit for 50% of the appraised land value and the parties would share the cost of construction. This is the draft agreement Mr. Massey says he could not commit to the previous year when Ms. Justice hired him as construction manager. Both parties had legal advice. On April 16th, 2013 they executed the formal written agreement which is the framework for this proceeding. At that time Mr. Massey ceased being a paid project manager and became an investor.

The agreement of purchase and sale

[34] The contract is a two part document. There is an agreement of purchase on a standard Ontario Real Estate Association (OREA) form attached as an appendix to a construction agreement or as the defendant describes it, a joint venture agreement. The two documents must be read together. It is worth noting that the recitals do not make any reference to the fact that the construction was well underway or to the fact that there was a prior (oral) construction management contract. The recitals are as follows:

[35] The reason for this according to Mr. Massey is that the agreement was actually drafted in 2012 but at that time he was not prepared to sign it. The construction management contract was an alternative. In April of 2013 however both parties executed the agreement as it had originally been drafted. As I will discuss below I consider this significant. The new written agreement replaced the prior oral contract and instead of Mr. Massey continuing as a paid manager, he became an investor and co-venturer.

[36] Assuming the plaintiff was successful in obtaining the necessary severance, the agreement provided that the defendant was to pay $262,500.00 to the plaintiff "subject to usual adjustments" plus the "amount necessary to equalize the costs incurred" for the construction of both premises to the date of sale. The purchase was to close within 180 days from the granting of the severance and the expiry of any appeal period.

[37] The agreement also specified that the costs to be shared were the construction costs for the building up to the point of "partial occupancy". Thereafter each party would be responsible for the cost of finishing his or her unit. It was agreed that the first "approximately $300,000.00" would be funded by the plaintiff and all additional funds would be provided by the defendant.

[38] The idea was that the construction costs incurred by each party would be "equalized at the time of closing". It was anticipated that both units would be ready for occupancy at the same time.

[39] The purchase price of $262,500.00 was to be paid to the plaintiff by way of a two year vendor take back mortgage. At the end of the two years the defendant was either to pay off the mortgage and replace it with an institutional mortgage or he was to sell his unit and pay off the mortgage. In effect the contract provided that Mr. Massey would pay his share of the equalized construction costs on closing but he could defer payment of the actual purchase price for two years. Obviously for this to occur in the manner anticipated by the agreement, the plaintiff would have to transfer title and the defendant would then mortgage it back.

[40] Things did not go quite as planned.

The dispute and the failure to close

[41] The construction agreement contemplated that the sharing of construction costs would continue until partial occupancy certificates could be obtained for each unit. Each party would then be responsible for the cost of finishing his or her respective unit to their individual tastes.

[42] Though not specifically enumerated in the agreement, the requirement to give clear title and to accept part of the price by way of mortgage gave rise to certain necessary preconditions. Amongst other things the vendor would have to give title free and clear of the current first mortgage. This would require that the Royal Bank discharge the mortgage on the unit to be sold. In effect Ms. Justice would either have to persuade the bank that the security of her unit alone was sufficient and obtain a release of interest in the new adjoining unit or she would have to arrange new financing on the security of her unit alone and discharge the Royal Bank mortgage.

[43] For his part, Mr. Massey would have to have sufficient funds to pay any amount due on closing to Ms. Justice and under the agreement he also had to give a vendor take back mortgage. At the end of two years he was required to pay off that mortgage.

[44] As it turned out, Mr. Massey also had to borrow funds to complete his own unit. He alleges that he had a separate agreement with Ms. Justice that notwithstanding the term in the agreement requiring a vendor take back mortgage in first priority, she had agreed to postpone that mortgage so that he could obtain institutional financing. He also claims she had agreed he could defer payment of the equalization costs. She denies that there was any such agreement although she concurs that Mr. Massey asked her to agree to this on several occasions after the written contract had been signed.

[45] Mr. Massey himself was in a financial squeeze because his dispute with his wife was continuing in Family Court and the anticipated release of funds from the matrimonial home in Barrhaven was delayed. In fact that home did not sell until January of 2014.

[46] Of course the entire agreement was contingent on successfully obtaining a severance so that the half lot could be sold in compliance with the Planning Act. Without a severance the second unit could not be sold by Ms. Justice. She applied to the Committee of Adjustment in March of 2013 and obtained a provisional consent on March 28th, 2013. The agreement provided that the closing would take place 180 days after the expiry of the appeal period. The appeal period is 20 days but some ambiguity was created in practice by the fact that the consent was conditional. Apparently the conditions had to be fulfilled before the consent could become final. The final consent to severance was given by the Committee on March 18th, 2014 and Ms. Justice did not finally register the severance until September 12th, 2014. Mr. Massey believes that was simply delay to put off having to honour the agreement.

[47] In the meantime the working relationship between the parties had deteriorated. Occupancy certificates were obtained at different times. The plaintiff's unit was sufficiently complete for her to obtain a Partial Occupancy permit in July of 2013 and at that time she moved into the unit. In February of 2014 a permit was obtained for the second unit and Mr. Massey (and his mother) went into occupation.

[48] It appears the parties then began to take steps towards closing. Both retained counsel. In May of 2014 the plaintiff provided a calculation of her construction costs for equalization. Mr. Massey responded, asking for a different presentation and organization of the amounts. Eventually he provided his own calculation, disputing many of her charges and making claims of his own. In his response he proposed to charge his own labour and "cost savings" as construction costs. He also demanded that title be transferred in accordance with the agreement.

[49] In June of 2014 the plaintiff's counsel wrote to counsel for Mr. Massey seeking to invoke the arbitration clause. By July it was clear there was to be a significant dispute about the costs. At this point matters went seriously off the rails and various legal proceedings were initiated.

[50] What appears to have occurred at some point is that Ms. Justice had to rush to complete her unit to the point where the bank would agree to release the security on the other unit. At the same time she was aggrieved because she says Mr. Massey refused to invest any more money in the project even after he moved into his unit and sold his home in Barrhaven. Mr. Massey denies that this is the case, but whatever the cause, the plaintiff began to take steps to have work such as roofing and siding completed, in some cases only on her unit, and without consulting the defendant. The defendant has a number of grievances related to these steps including deficiencies in the construction, adverse impact on his unit and lack of any input into pricing or quality. He also claims that the plaintiff improperly represented herself as associated with his construction company and dishonestly obtained the benefit of certain contractor discounts available to him or negotiated by him.

[51] Though both parties ultimately occupied their units, no purchase price was paid and there was no transfer of title. The transaction has yet to close.

The legal proceedings

[52] On July 23rd, 2014 the plaintiff commenced a proceeding under the Residential Tenancies Act for a declaration that the defendant was not a tenant. On August 19th, 2014 the Landlord Tenant Board heard the matter and the following day issued a ruling that he was not. The plaintiff then purported to issue a notice under the Trespass to Property Act prohibiting the defendant or his mother from remaining in the premises or entering the premises. According to the defendant, the plaintiff unsuccessfully attempted to enforce the notice by calling the police.

[53] On September 5th, 2014 the plaintiff started an application[^2] (14-61894) seeking an order appointing an arbitrator under the Arbitration Act. On September 15th, 2014 the defendant launched a motion for a certificate of pending litigation and for injunctive relief. Besides asserting an interest in the land under the agreement of purchase and sale and seeking an order preventing the plaintiff from evicting him, the defendant also sought orders prohibiting further unilateral work that might affect his unit, prohibiting any work on either unit, preventing alienation of the property and otherwise enforcing the agreements.

[54] On September 18th, 2014 the defendant's motion came before Justice McLean. He adjourned the motions on terms including preservation of the status quo. On November 19th, 2014 the adjourned motion and the arbitration application came before Justice Kershman. The result of that hearing was the consent judgment giving rise to this reference.

[55] I should note that during the period between the initial exchange of construction costs and the hearing on November 19th, both parties had changed lawyers at least once. There were numerous exchanges of lawyers' letters and e-mails.

The current situation

[56] The current situation as reflected in the judgment is that both parties are in occupation of their respective units. The plaintiff is to sell her unit to the defendant. I am to determine the final adjusted price.

[57] The task is simplified because there is no dispute about the basic purchase price. Moreover each party recognizes many of the items claimed by the other as construction costs. This leaves me with numerous items to decide upon. I do not intend to touch on each individual item in these reasons. As stated above, my approach has been to deal with the significant issues of principal and then to require counsel to apply my reasons to the individual items in the Scott Schedules.

Analysis & Findings

[58] An analysis of the obligations undertaken by each party has to begin with the written contract. Physically the agreement is in two parts but of course they must be read together. The OREA agreement of purchase and sale is a schedule to the construction agreement. In assessing the evidence I must of course apply the principles of contractual interpretation required by the law of Ontario.

[59] There are two primary issues of contractual interpretation raised by this dispute. The first question is whether there are oral agreements which modify or supplement the written contract? It will be recalled that Mr. Massey alleges that there were. He claims that notwithstanding the terms of the agreement, Ms. Justice had agreed to defer payment of the equalized construction costs and had agreed to postpone the priority of the vendor take back mortgage. This is of significance primarily to the question of which party was in breach of contract, for justifying the delay in closing and awarding the costs of the legal proceedings.

[60] The second question of interpretation is what is encompassed in the agreement to equalize the "costs of construction"? For example, the plaintiff seeks to include the property taxes and legal costs associated with drafting the agreement. The defendant seeks to include his labour and "cost savings". The answer to this question will deal with certain categories of costs by including or excluding them in the calculation.

[61] Eventually, of course, I must determine whether certain of the costs in dispute were actually incurred or not. That is a question of sufficiency of evidence rather than contractual interpretation. I will come to it in due course.

Oral and Written Contracts

[62] The law of contract in Ontario recognizes the enforceability of oral contracts but it affords a certain primacy to written agreements. Firstly certain contracts, such as an agreement for the sale of land, must be in writing pursuant to the Statute of Frauds.[^3] Secondly, there are principles of contractual interpretation that prohibit a party from seeking to assert an oral agreement different from the terms of the written agreement. There is a presumption that parties signing a written agreement intend to be bound by it and would not execute a document that is contrary to the terms of their actual agreement.

[63] This principle is generally referred to as the "Parole Evidence Rule". It is debatable whether it is a really rule of evidence or simply a principle of contractual interpretation because it is subject to many exceptions and evidence of intent may be admitted by the trial judge in various circumstances. For example a contract may be partially oral and partially in writing. Or a party may have relied upon a representation or misrepresentation about the circumstances in which a contract would be enforced. There may be independent oral agreements that run alongside a written agreement. In any event the Parole Evidence Rule is generally understood to mean that if the written agreement is unambiguous then oral evidence of the intention of the parties is not admissible. In particular evidence that the parties intended something which is contrary to the written document is excluded.[^4]

[64] It is not necessary to exclude evidence and rule it inadmissible to arrive at the same conclusion. Common sense will generally lead there as well. In the case at bar, for example, Mr. Massey was well aware of the terms of the written agreement. He testified that he had a draft, that he had legal advice, that he wanted it changed, but Ms. Justice refused to do so. He signed it anyway. His explanation that he did so on the understanding that the provisions about payment on closing and the primacy of the vendor take back mortgage would not be enforced, make no sense.

[65] Mr. Massey testified that he agreed to take on the role of construction supervisor for a fee because he was not in a position to enter into the agreement proposed by Ms. Justice. He knew the draft agreement contained her terms for entering into the joint venture and agreement of purchase and sale. In 2013 he asked her to change the terms of the written agreement but she refused. He knew precisely what he was signing when he did so. Mr. Massey testified that he was a very careful person who understood the importance of written agreements. This is inconsistent with his evidence that he signed the agreement expecting that it would not be enforced.

[66] In his version of events, Mr. Massey was under no compulsion to enter into an agreement since at that point (April of 2013) he had invested no funds in the project and had been paid up to date. In Mr. Massey's evidence Ms. Justice was facing financial ruin and the collapse of the project. It was she who was under pressure. Ms. Justice on the other hand testified that she had alternate funding available but Mr. Massey wanted to purchase one of the units and agreed to the terms. Her evidence makes more sense. There is a heavy onus on a person who seeks to argue that a term of a formal lawyer drafted and reviewed written agreement does not mean what it says. Mr. Massey's evidence on this point is nothing more than an assertion and it cannot be accepted in the face of the document.

[67] For greater certainty, many written contracts contain specific "entire agreement provisions". These are clauses in a written contract which state that it is the entire agreement and that there are no representations or warranties upon which the parties are relying not set out in the agreement. Paragraph 26 of the Agreement of Purchase and Sale is such a clause. Of course paragraph 26 is not absolute. It provides for schedules to the agreement setting out provisions that will if present override the pre-printed OREA form. There are such schedules modifying the provision that the purchase price will be paid on closing. In addition of course, the agreement of purchase and sale is itself a schedule to the joint venture agreement. While the two documents must be read together and any conflicts resolved in favour of the more specific document and not the pre-printed form, the fact remains that there is a written contract with an "entire agreement" clause. It would have been a simple matter to reduce any "side agreements" to writing. I do not accept Mr. Massey's evidence that there was an oral agreement contrary to the terms of the written agreement.

[68] The contract is comprised of the construction contract with the OREA standard form agreement as a schedule. They must be read together and of course the interpretation of the agreement must be informed by the surrounding circumstances. As I will discuss in the next section, the surrounding circumstances and the knowledge of the parties informs the meaning of "construction costs".[^5] It is my finding however that there was no oral agreement to modify or postpone enforcement of the written terms.

The meaning of construction costs

[69] It is significant that when the agreement was signed in April of 2013 there was no attempt by either party to define what was meant by construction costs. By that I mean there is no evidence to suggest either party saw a need to exclude or include particular items in this term. This is significant because by that time both parties had a pretty good idea what those costs would be. Firstly they had both been involved in obtaining quotes from builders and in preparing an estimate of the costs of construction. Secondly, whether he had paid detailed attention to it or not, Mr. Massey was privy to the "cost sheet" prepared by Ms. Justice. That cost sheet contained both incurred and estimated costs. He had frequently looked over her shoulder as she updated the spread sheet, he had been given an electronic copy on a "stick" and he was e-mailed a copy in February of 2013.

[70] Both parties knew that there were additional costs resulting from the Manotick Concrete incident that had not yet been resolved. Mr. Massey was well aware that Ms. Justice had already spent almost $300,000.00 by the time the agreement was signed and that financing of the balance of the costs would therefore fall primarily to him.

[71] To discover what the agreement means by "construction costs" therefore involves consideration of the ordinary meaning of the term, what was and was not included in the "cost sheet", what the parties knew had been spent and would have to be spent, and the other provisions of the agreement. Some of the proposed cost items are easily disposed of.

Taxes, Insurance & Utilities

[72] The attempt by Ms. Justice to include the property taxes in the construction costs is clearly contrary to the contract. It serves as a useful template for analysing other costs. Property taxes would in my view not be generally considered to be a cost of construction as they are carrying costs of the underlying land. There is no evidence the parties intended the taxes to be counted in this case. They were not included in the cost sheet. To the contrary, the agreement of purchase and sale contains the usual clause regarding adjustments on closing. This provides that the vendor is responsible for taxes, utilities and insurance to the date of closing. There is nothing in any of the other agreements nor in the ordinary meaning of "construction costs" to suggest that the defendant would have expected to be bearing a share of the property taxes prior to the date of closing. I conclude that property taxes do not form part of the construction costs. For similar reasons, the carrying cost of the existing mortgage would not be part of the construction costs.

[73] Construction insurance is a legitimate cost of construction. The parties specifically provided for joint responsibility for the insurance in paragraph 10 of the construction agreement. Thus, notwithstanding paragraph 14 of the agreement of purchase and sale, the insurance was a cost of construction as it is specifically dealt with in the construction contract. The fact that the parties considered insurance and agreed to share the cost and did not make a similar provision for property taxes is an additional reason to conclude that the taxes are not a legitimate construction cost.

[74] Utilities are in a different category. Because the original house was demolished, the only use of electricity or other utilities was for the purpose of construction. The cost of electricity during the construction period would be a legitimate cost of construction and it was included in the cost sheet. This would be a shared cost until the plaintiff went into occupation of her unit and the units were separately metered. I agree with Mr. Massey however that the utilities used to complete his unit after that point up until it was approved for occupancy should also continue to be a shared cost.

[75] Though the agreement never specifically contemplated occupancy occurring at different times, it is clear that pre-occupancy construction costs are to be shared and post-occupancy costs are to be individual. I therefore find that the construction costs are all of the costs necessary to complete the basic structure of each unit to the point of obtaining an occupancy permit. The costs to finish each unit thereafter are the individual costs. Thus joint construction costs for Mr. Massey's unit continued after Ms. Justice had occupancy of her unit.

[76] I would note that it may not be possible to divide every cost precisely by the date of occupancy. There may have been costs incurred by one of the parties for the benefit of both units that should also be shared costs. Similarly there may be finishing costs that one or other party incurred prior to occupancy, for example the purchase of individualized fixtures, which ought to be treated as individual costs. I leave that degree of precision for another day.

Labour

[77] Mr. Massey asserts that it was a part of the agreement that he would not be required to perform physical labour. He asserts that when he did perform such labour he was entitled to value it and include it as part of his contribution to construction costs. He denies that Ms. Justice is entitled to value any labour she performed because he asserts that her labour was unnecessary and of no value. This of course illustrates the difficulty with attempting to value "in kind" contributions.

[78] There is no persuasive evidence that there was a specific agreement permitting Mr. Massey to charge for labour and to include it in the construction costs. To the contrary, up until the agreement of April 2013 Mr. Massey was being paid a monthly fee to act as construction supervisor. In April of 2013 that agreement ceased because he became a partner in the joint venture. From that time on, his contributions as construction supervisor were simply part of the joint venture and it is clear that he no longer expected to be paid for his time. Contributing labour benefited both parties by reducing the costs of construction but it clearly benefited Mr. Massey because at that time he would have had to fund 100% of the cost of construction (over the initial contribution of $300,000 by the plaintiff). The evidence does not support there being an agreement to compensate either of the parties for their labour and I have disallowed it.

[79] Similarly there is nothing to justify converting "savings" or discounts into shared costs. The fact that Mr. Massey may have been able to qualify for a contractor discount or that he was able to negotiate supplier discounts does not justify grossing up those costs. The construction costs were what was actually incurred and actually spent and not what might have been under different circumstances. Mr. Massey was outraged that Ms. Justice was using "his" supplier discounts but the notion that any party can own a discount or that a discount can be converted into a cost and charged to the other party is one that I completely reject. No doubt the negotiated discounts were benefits to one or other of the parties or to both but they are not costs of construction.

Manotick Concrete

[80] The parties knew all about the extra costs necessitated by the Manotick Concrete accident when they signed the agreement in April of 2013. There was no provision written into the agreement to exclude extra costs resulting from that situation from the definition of construction costs. What they did not know was whether or not any of those extra costs could be recovered. There was no specific requirement written into the agreement that the plaintiff was obliged to seek cost recovery from Manotick.

[81] There is no doubt that the cost of putting in the new foundation is a construction cost. Manotick Concrete itself was only paid a $2,000.00 deposit so it is not a question of paying twice for the same work. The increased costs were occasioned by the need to have engineering reports, to pay a second contractor more than the original Manotick quote and by the delay as outlined above. Mr. Massey knew about those costs and they are actual and necessary costs of completing the construction.

[82] The more difficult question is how to assess the net recovery. Was the plaintiff obligated to aggressively seek full recovery of these increased costs from Manotick and was she obliged to obtain Mr. Massey's approval about how to litigate ? Should the construction costs be reduced if she failed in these obligations?

[83] It is clear from the evidence that Ms. Justice made reasonable attempts to quantify the increased costs and seek recovery. Firstly, she put in a claim to Aviva Insurance who wrote the policy of construction insurance. That claim was rejected. She hired a lawyer, Ronald Price, to write a demand letter and to advise her concerning legal remedies. Mr. Massey was privy to that advice.

[84] Though damages could have been asserted in the range of $50,000.00, Ms. Justice ultimately sued Manotick in Small Claims Court for $25,000.00 and did so just before the expiry of the limitation period. As it transpired, Manotick then made a claim against its own insurance and the insurer promptly settled with Ms. Justice. She received a payment of $32,000.00. Of that amount however she only credited $18,000.00 to the construction costs.

[85] All of this was unilateral. Mr. Massey was not given any real opportunity to review the costs which Ms. Justice sought to recover. He was not consulted concerning the decision to sue in small claims court and abandon any claim in excess of $25,000.00. He was not consulted regarding the allocation of $18,000.00 to the construction costs.

[86] I cannot find any basis to conclude that Ms. Justice had a legal obligation to pursue Manotick Concrete in Superior Court. She had been advised by Mr. Price that the cost of litigating in Superior Court would likely exceed the benefit of doing so. With hindsight it now appears that Manotick's insurer might have paid a larger claim but that could not be known at the time. To the contrary Manotick Concrete had ignored the demand letters. Furthermore some of the damages which factor into a $50,000 claim are more speculative than those which were included in the claim pursued in Small Claims Court. Ms. Justice had acted reasonably by seeking coverage under her insurance, by sending a demand letter, and then electing to sue in Small Claims Court. I cannot find that this is unreasonable and I cannot find she had any obligation to incur the costs and the risk of proceeding in Superior Court.

[87] It is quite another thing for her to have arbitrarily decided how much of the recovery she should allocate to the construction costs. In the draft claim, Ms. Justice had totalled the costs chargeable to Manotick to be $31,962.00 which included $2,000 for "alternative accommodation, hardship and inconvenience and damages for mental distress" but nothing for costs. There were also some other minor personal claims such as half a day off work. The balance of the claim is made up primarily of items that are included in the construction costs and by reason of the payment have now been wholly or partially reimbursed. She accepted $32,000.00 in full and final settlement. But she only allocated $18,000.00 as a credit against the construction costs. This was unreasonable.

[88] It would not be unreasonable for her to deduct from the recovery the reasonable cost of suing in Small Claims Court. The most she could have been awarded on a $25,000 claim would have been $3,750.00 plus her disbursements (s. 29, Courts of Justice Act). Given the settlement at $32,000 I would allow her a $4,000.00 deduction. Thus $28,000.00 rather than $18,000.00 is to be credited against the construction costs. This seems fair.

[89] As I pointed out earlier, Mr. Massey knew there were increased construction costs because the foundation had been completed for the second time when he ultimately signed the agreement. In fact he knew that the increased costs had put the entire project in peril because of Ms. Justice's limited capacity to finance the construction. He was not consulted about the conduct of the litigation but neither was he asked to assume the risk of litigating or potential liability in costs. By allowing a $28,000 credit against the costs, he benefits equally from the net recovery.

Cash payments

[90] Another source of dispute relates to certain discounts apparently worked out for cash payments to certain contractors. Apparently some of these people were paid less than their original quotes because they agreed to payments in cash. In some cases they produced lower quotes and in some cases they gave receipts but not in all.

[91] There is considerable dispute about who authorized the cash discounts and who knew about them. Ms. Justice testified that Mr. Massey negotiated the discounts and knew about them whereas Mr. Massey alleges that he neither approved of this practice nor was aware of what was actually paid. He suspects that Ms. Justice may have paid less than she says she did.

[92] There is an evidentiary problem because in some cases there is a lack of paperwork to prove the amount actually paid. The court of course cannot condone making and receiving discounted cash payments in order to avoid paying taxes which is the natural inference from such a practice. On the other hand the issue before the court is how much the construction actually cost. While Ms. Justice has difficulty showing precisely how much she paid in some instances, the work was obviously done and the cost was not zero. Had there not been a discount, the contractor or supplier would have been paid the full amount of the quote.

[93] Each of these payments must be examined on a case-by-case basis of course but it would not be reasonable to assume that nothing was paid simply because there is not a receipt. Ms. Justice has attempted to prove the amount of each payment by producing bank records, by giving her own evidence, and she called Luc Faucher as a witness. Mr. Faucher was the framer. He gave evidence about the work he did and the amounts he received. He would have no reason to exaggerate those amounts since it is against his interest to do so. I accept his evidence.

Construction Deficiencies & fixture issues

[94] Mr. Massey alleges that work organized unilaterally by Ms. Justice to obtain the occupancy permit for her unit but which affects both units was substandard and deficient. He argues that those costs should not be recognized as construction costs or at least that they should be reduced by the cost of rectifying the deficiencies.

[95] By the time this occurred, it is clear that the communication between the parties had largely broken down. Mr. Massey was no longer functioning as the project manager either because he was being excluded by Ms. Justice or because he had withdrawn his assistance. I am not in a position to make a finding of fact about which party if either was in breach of contract or to apportion fault at present.

[96] As a general principle if the work was a legitimate cost of getting the units completed to the stage of occupancy then it would be a construction cost. If the work was deficient then recourse or reimbursement or repair under warranty should be requested from the responsible trade. If necessary I will consider the evidence on this point further but for present purposes I am not ruling on each of the disputed items.

[97] Similarly there are various quarrels about finishes and fixtures and who has them. These are minor adjustments compared with the proper valuation of the construction costs to be shared and I will leave them for the time being.

Next Steps

[98] As I advised counsel in a conference call earlier today, the next step is for counsel to review these reasons and determine the extent to which the issues are narrowed. They are to jointly consider how the matter should proceed and what further steps are required to reach a final price so that the property can be transferred.

[99] I will consider what further steps are required to determine the precise amount of the shared construction costs and to adjudicate the remaining issues and I will give further direction in due course.

[100] An interim report may issue containing the findings set out in these reasons.

[101] There will be a further conference with both counsel on October 14th, 2015 at 9:00 a.m.

Master MacLeod

September 18th, 2015

Schedule A – Dropbox Main Menu

[^1]: Dropbox is a cloud based electronic storage and file sharing service provided by Dropbox Inc. Similar services are provided by Google (Google Docs) and Microsoft (Microsoft Docs) as well as other service providers. [^2]: I refer throughout these reasons to the plaintiff and the defendant because that is how they are named in the judgment of Justice Kershman but so far as I can determine there was never a statement of claim. The underlying proceeding in which all of these motions were brought was an application for arbitration. [^3]: R.S.O 1990, c. S19, s. 4, originally enacted in England in 1677. [^4]: See Sattva Capital Corporation v. Creston Moly Corp. 2014 SCC 53 and cases cited therein [^5]: See Sattva, supra. Evidence of surrounding circumstances should be used to deepen the trier of fact’s understanding of the meaning of the contract.