CITATION: Snelgrove v. Jensen, 2015 ONSC 583

COURT FILE NO.: CV-08-101-00

DATE: 20150127

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

P.M. SNELGROVE GENERAL CONTRACTORS & ENGINEERS LTD.

John R. Crouchman and David Adams, for the Plaintiff and Defendants by Counterclaim

Plaintiff

• and -

JENSEN BUILDING LIMITED and MADAJAMA HOLDINGS LTD.

Steven Baldwin for the Defendants and Plaintiff by Counterclaim

Defendants

AND BETWEEN:

JENSEN BUILDING LIMITED

Plaintiff by Counterclaim

• and -

P.M. SNELGROVE GENERAL CONTRACTORS & ENGINEERS LTD. and PAUL SNELGROVE

Defendants by Counterclaim

HEARD: May 12, 13, 14, 15, 16, 21, 22, 26, 27, 28, 29, 30, September 22, 23, 24, 25, 29 and 30, 2014 (Kingston)

mCnamara R.S.J.

REASONS FOR JUDGMENT

Overview

[1] This is an action by the plaintiff for monies alleged to be owing by the defendants and representing fees for services rendered on several construction projects. The defendants deny, after allowing for set-off, that there are any monies owing, and counterclaim for damages they say were sustained as a result of the same failed commercial relationship.

General Factual Background

[2] The corporate plaintiff and defendant by counterclaim, P.M. Snelgrove General Contractors & Engineers Ltd. has its head office in Kingston, Ontario, and has provided various services in the construction industry since its inception in 1996. Its principal is Paul Snelgrove and in these Reasons, unless otherwise indicated, a reference to the plaintiff is a reference to Mr. Snelgrove.

[3] The defendant and plaintiff by counterclaim, Jensen Building Limited (JBL), also a Kingston-based company, has carried on business as a general contractor in that city since 1984. Its principal is Jorgen Jensen. Again a reference in these Reasons to the defendant is a reference to Mr. Jensen, unless indicated otherwise.

[4] The plaintiff and defendant met each other in the mid-1990s and became friends. Both they and their wives socialized and on several occasions took vacations together.

[5] JBL had over the years grown in size and by 2006 had considerable experience building large commercial projects. Specifically, in the summer and fall of that year, JBL was working on the construction of a new Shoppers Drug Mart that was to become part of an existing plaza on Taylor Kid Boulevard in Kingston.

[6] In the fall of 2006 JBL’s construction superintendent on the Shoppers Drug Mart project left, and between that occurring and other projects the company had underway, Mr. Jensen found his resources stretched to the limit. In consequence he approached his friend, the plaintiff, to take over the site supervision of the Shoppers Drug Mart project for an agreed fee of $60,000. It was anticipated it would take about four months to see the job through to substantial completion.

[7] The project went very well, and in early 2007 there were discussions between the plaintiff and the defendant about continuing their relationship. JBL was about to begin working on the construction of a 40,000 square foot commercial/industrial building and needed assistance. The evidence is that both the plaintiff and the defendant were interested in continuing with their business arrangement, and it was agreed that in return for the plaintiff and his company providing project management and site supervision services, the plaintiff company would be paid 30% of net profit determined according to a formula, the terms of which are not seriously in dispute. It was also agreed that the new formula would apply retroactively to the Shoppers Drug Mart project, as well as going forward on new matters.

[8] Again in 2007 JBL agreed to become involved in two other projects: Wolfe Springs, a resort planned for Westport, Ontario, and a five-storey condominium project in Picton, Ontario, to be called The Edward.

[9] It was expected the plaintiff would provide the same services on the same basis on both of these projects.

[10] Initially, the relationship appeared to be going along well. In November of 2007, however, the defendant discovered that the plaintiff was having an affair with his wife. On December 7, 2007, the defendant terminated the oral contract between the two companies. The reasons for termination are, factually, in dispute. The plaintiff alleges it was solely because of the affair, while the defendant takes the position that it occurred because of irregularities that were discovered.

Issues

[11] Before moving on to a more comprehensive review of the evidence on an issue-by-issue basis, I wish to provide a brief overview of the issues. Taking into account both the claim and counterclaim, they can be stated as follows:

(a) Has the plaintiff been overpaid on the Shoppers Drug Mart project and did he sell a piece of surplus equipment without accounting for the sale proceeds?

(b) What amount is owing to the plaintiff for services rendered on the Gardiners Road project, prior to considering whether there are set-off issues?

(c) Is the plaintiff owed any fees on the Wolfe Springs project or is the plaintiff indebted to the defendant on that project?

(d) Is the plaintiff owed any fees on The Edward project, or is the plaintiff indebted to the defendant for losses on that same project?

Shoppers Drug Mart

[12] As indicated, the plaintiff was brought on to this project as project superintendent when it was well underway. The project went well and according to the plaintiff, in approximately January of 2007, he spoke to the defendant about a different financial arrangement. In due course they struck a bargain to the effect that, on this project and others going forward, the plaintiff’s company would be paid a fee representing 30% of net profit. That net profit was to be calculated by taking total revenue less total cost less another 4% of total cost to reflect overhead. The 30% factor would be applied to that differential.

[13] Entered in evidence was an invoice submitted by the plaintiff’s company for the project in the amount of $225,000. That initial invoice was dated March 22, 2007, and was paid in full.

[14] There is an issue as to whether this invoice correctly represents the amount to which the plaintiff was entitled. The plaintiff in his evidence conceded that the figure of $225,000 was somewhat more than the amount one would arrive at by strictly applying the agreed-to formula. According to his evidence the agreed-to fee amount was increased to $225,000 to reflect significant savings he achieved when he suggested an innovative change having to do with raising the height of the building to align it with the roof structure on the adjoining building.

[15] A second issue arose involving a heater. In short it was the plaintiff’s testimony that during construction Shoppers determined that one of the heater units supplied did not meet their criteria. It was undersized. That heater was replaced to meet their specifications and the defendant company was left with the surplus heater. The plaintiff says that when he discussed the issue with Mr. Jensen, Mr. Jensen instructed him to sell it for the best price he could get, and to remit the funds to him. The plaintiff testified that he did just that and turned $500 over to Mr. Jensen.

[16] The defendant also testified about the Shoppers project.

[17] He confirmed that in the fall of 2006 his forces were stretched to the limit and he approached his friend, the plaintiff, to take on site supervisor responsibilities. He also confirmed things went very well.

[18] The defendant testified that in January or February of 2007 the plaintiff approached him, commented that it appeared JBL was very busy, and offered that he could be of assistance. According to the defendant that led to further discussions and an agreement that going forward the plaintiff would provide project management as well as site supervision services in return for 30% of net profit calculated in a manner consistent with the plaintiff’s evidence. The defendant says he also informed the plaintiff at that time that as a kind of bonus, he was going to apply the same arrangement to the Shoppers project even though the plaintiff had agreed to do that project for a much lesser fee. The defendant confirmed receipt of the $225,000 invoice and went on to testify that when the plaintiff produced it to him it was on the basis that that was the plaintiff’s best estimate of what was owing to him as of that time. The difficulty for both sides was that in March of 2007, with the project just very recently completed, not all invoices were in. As such, for example, the total cost figure was not finalized and the additional 4% overhead to be applied to that number could not be calculated in accordance with the formula. The defendant testified that he was happy to pay the invoice and did, but it was on the clear understanding that it was subject to adjustment one way or the other once the final cost numbers were in. The defendant categorically denied that he had agreed to pay a bonus based on the plaintiff’s alleged innovative idea in dealing with the raising of the building and stated, in essence, that having already agreed to substantially increase the plaintiff’s compensation on the Shoppers project, he was not about to give him another bonus.

[19] According to the defendants’ calculations entered into evidence, using the proper cost figures the plaintiff’s 30% share of net profits amounted to $210,514.41, not the $225,000.00 billed and paid.

[20] On cross-examination the defendant conceded that in calculating the costs prior to applying the 4% overhead figure, he had included the invoices of the plaintiff. The defendant acknowledged that if the plaintiff’s invoices were backed out that increased net profit from $701,714.69 to $710,628.66. Thirty percent of that number would be $213,188.59.

[21] The defendant was also questioned and cross-examined on the surplus heater issue.

[22] He testified that he was aware that there was a heater that was undersized and had to be changed, but he categorically denied that he ever instructed the plaintiff to sell that heater and he certainly denied that the plaintiff ever gave him $500 representing the sale proceeds. It was the defendant’s evidence that it was his understanding that the heater was going to go back to their shop to be placed in inventory.

[23] Stephen St. Denis testified for the plaintiff and gave evidence relevant to the heater issue.

[24] Mr. St. Denis is a carpenter and was working for JBL during the Shoppers Drug Mart construction. He confirmed he has also known the plaintiff for a number of years. In any event, he testified that he was involved in removing the undersized heater from the roof of the new Shoppers, and he witnessed the transaction during which the plaintiff sold the heater to another individual working on the site and received $500 in return. He also gave evidence that later that Friday afternoon, while they were back at the office, he saw the plaintiff give the $500 to the defendant. He also volunteered that on other occasions he had seen the plaintiff pay the defendant other sums of money representing, as he understood it, funds realized from the cash sale of scrap metal on the construction site.

Analysis

[25] I turn firstly to the issue of whether or not it has been established by the plaintiff, on balance, that there was an agreement by the defendant to round up the plaintiff’s fee to $225,000.

[26] The plaintiff is categorical that there was an agreement to round up, and the defendant is equally certain there was not. There is not a lot of evidence to corroborate one version over the other, but of interest is the fact that the plaintiff’s expert, Richard Ryde, testified at the trial that he had never heard of this arrangement at any time during his retainer. It would seem unlikely that if indeed there was an agreement between the parties for an increased flat fee, that that would not have been mentioned to Mr. Ryde by the plaintiff, as one of Mr. Ryde’s functions was to do sets of calculations in relation to the projects. Further I find it difficult to accept that the defendant, having already agreed to increase compensation from $60,000 to in excess of $200,000, would be prepared to further increase that fee.

[27] Next I turn to the issue of whether or not the plaintiff’s invoices for services form part of the job costs for the purpose of applying the 4% factor. I am satisfied they do not.

[28] The agreement the parties had, which unfortunately is only verbal and severely lacking in detail, was essentially that the plaintiff was to be paid 30% of net profit after costs and 4% overhead. That 30% figure could not be calculated until costs were ascertained. How could that calculation be done if the resulting figure was itself was a job cost? Furthermore the agreement was that the parties were to share net profits according to their respective percentages. Mr. Snelgrove’s compensation is not a job cost but rather, like Mr. Jensen’s compensation, a share of profit.

[29] There was also evidence at the trial that a back-charge of $38,000 to a supplier, Canam, was later partially reversed to $8,000 after negotiations with the supplier. I find as a fact that the $8,000 is the proper figure to be plugged into the formula.

[30] Finally on the heater issue, if it indeed has any effect on the numbers, I find as a fact, on balance, that the heater was sold with the defendant’s knowledge and that the defendant was given the $500 representing the sale proceeds. In coming to this conclusion I rely almost exclusively on the evidence of Stephen St. Denis. I found him a credible witness and there is no reason to ignore his testimony.

[31] I am of the view that the parties should now be able to do a proper net calculation based on the above findings. Once that number is ascertained it can be applied against what was billed and paid by the defendant, likely resulting in a credit to the defendant.

1234 Gardiners Road

[32] The next project the plaintiff worked on was a contract the defendant had secured from the Clermont group to construct a 43,000 square foot commercial building on Gardiners Road in Kingston. The plaintiff testified that on this project he was to provide project management and site supervision services for JBL. The project began right after Shoppers Drug Mart was completed.

[33] The plaintiff confirmed that his responsibilities were increased. The defendant, Mr. Jensen, had done all the estimating and the fixed-price contract was already in place, but the plaintiff prepared a budget from that estimate and began to hire subcontractors within the budget. It was his evidence that once he had a subcontractor lined up he would then recommend that subcontractor to the defendant, who would approve or not. The plaintiff also testified that his father, Jack Snelgrove, was hired on as the construction superintendent. That individual has responsibility for being on the site day in and day out and making sure that the work is being done on schedule. It was the plaintiff’s evidence that his father has 50 years of construction experience, was known to the defendant, and was hired by the defendant. Ordinarily on a project of this nature the construction superintendent would report to the project manager, but in this case his father reported directly to Mr. Jensen, because he did not want to report to his own son.

[34] The plaintiff testified that like all large projects there were some approved extras to the contract that increased the gross revenue figure. During his examination-in-chief the plaintiff gave evidence as to some of those extras that are controversial.

[35] The accounting records disclose that there was an extra charged to the client of $1,625 to “supply and install pilon conduit.” The plaintiff was asked about this item.

[36] Mr. Snelgrove indicated that during the course of the project the owners decided they would like some conduit laid under the parking lot in anticipation of the future installation of an illuminated sign. Having the conduit in place would allow for wiring to be put through the conduit to the sign should that project proceed at some point in the future.

[37] According to the plaintiff two-inch conduit was required and that type of flexible conduit only comes in spools 500 feet long. They used what they needed for the job and then the balance of the spool was taken back to the defendant’s shop. Again, according to the plaintiff, his father approached Mr. Jensen, and asked if he could have some of the conduit for a project he had at his home; Mr. Jensen agreed, so the plaintiff’s father used what he needed and returned the rest to the shop.

[38] There is also an issue relating to certain personal items that the plaintiff charged to the company. The total of $3,905.55 included plant materials purchased from Canadian Tire, a survey of his home, LCBO and pizza charges, life jackets purchased at Canadian Tire, and electrical switches.

[39] It was the plaintiff’s evidence that it was not unusual for someone working for the company to do this as long as accounting was advised so that a notation to file could be made and the amount deducted from their next pay advance. The plaintiff pointed out that for two of the items, the plant materials and the life jackets, Mr. Jensen was actually with him when he paid for these items with his company card. Typically when accounting would get a personal invoice they would mark it, in his case with the letter “P,” to designate that it was the plaintiff’s personal responsibility. Filed in evidence were certain invoices on which that lettering does in fact appear. In terms of the charges at the LCBO and for pizza, the plaintiff testified that those were placed on his card by mistake while he was on a hunting trip. He did not concern himself about it too much, however, because he was confident accounting would pick it up, know it was not business related, and deduct it from his fee payment.

[40] The plaintiff confirmed that he never did, in fact, pay for these personal items. That was so because he was never paid on the Gardiners Road project so there was no fee advance to deduct the sum from.

[41] The plaintiff testified that he separated from his first wife during the Gardiners Road project. He says he went to Mr. Jensen, explained the situation, and requested that he be put on payroll at an annual salary of $60,000 in order to assist him with his matrimonial issues. He says Mr. Jensen agreed and that three cheques were actually paid to him totalling $7,500.

[42] On November 15, 2007, the plaintiff delivered a covering letter to the defendant attaching his invoice for services rendered on the Gardiners Road project. He conceded that it was based on his best estimate of the numbers. According to his calculations, which he acknowledges were not based on the company’s accounting records, his gross fee should be $324,000, which, after crediting the defendant with the $7,500 received through payroll, leaves a net amount of $316,500 plus GST owing. That fee account was never paid.

[43] On cross-examination it was suggested to the plaintiff that, for the amount he was being paid, his responsibilities were far greater than he was suggesting and that, contrary to his assertion, he did not have to consult with the defendant as often and in relation to as many things as he suggested in chief. The plaintiff denied that he was expected to operate independently, and instead asserted that virtually every step he took on the projects was to be approved by the defendant.

[44] Counsel for the defendant next took the plaintiff to an extra he charged to the client on the Gardiners Road project. The charge is in the amount of $7,790 and is described in the accounting records as “steel modifications to accommodate racking.”

[45] The plaintiff conceded that this extra related to some work that had to be done by one of the subcontractors in order to better meet the owner’s needs. The purpose of this large warehouse complex was, in the main, to provide storage for one of the owner’s other businesses, a large Canadian Tire store in Kingston. To that end the interior of the building had to accommodate inventory delivered on large pallets. In the summer of 2007 it was determined that some modest structural steel modifications to the interior of the building had to be done to accommodate this purpose.

[46] Counsel for the defendant took the plaintiff to a series of e-mails dated July 17, 2007. The emails disclosed that at 12:58 p.m. the plaintiff suggested to the relevant subcontractor that this problem arose as a result of the subcontractor’s error and as such there should be no cost for the modifications. That e-mail is copied to the accounting department of the defendant. It is followed by an e-mail at 1:40 p.m. from the subcontractor reluctantly agreeing to make the changes at no charge. It would appear that that e-mail was also copied to the accounting department of the defendant. Finally, that email is followed by correspondence to the client that same day at 3:17 p.m., copied to accounting and the defendant, and showing the figure of $7,790 as a charged extra.

[47] The plaintiff admitted that sequence of events and also confirmed that it was charged as an extra to the client. According to the plaintiff the modification was necessary and approved by the owner, and as such it became billable. The fact that he on behalf of the general contractor convinced the subcontractor to do it for no charge is of no matter. It is still properly charged as an extra and the owner is getting exactly what he agreed to pay for as an extra. Further it was the plaintiff’s evidence that he specifically discussed the matter with the defendant, told the defendant what he was doing, and pointed out that an invoice was issued by accounting showing the sum as a chargeable extra. It was his evidence that this was standard practice in the industry, particularly on a fixed-price contract.

[48] The plaintiff was also cross-examined about the pilon conduit.

[49] Dealing firstly with the conduit, the plaintiff agreed that they only used 60 or 70 feet for the job, and the client was charged for the whole amount. He reiterated that that is the way that product comes and there is nothing unusual about such a charge. He denied that the electrical contractor ever queried why he was using expensive two-inch conduit when one-inch would do and that the electrical contractor had plenty of that one-inch back at his shop. He also disagreed with the proposition that one-inch was the appropriate width, because the owners did not yet know the type of sign they were going to install, and hence did not know how big a conduit would be required. In his view it was better to err on the side of a bigger conduit sufficient to accommodate whatever size wiring might be required. The plaintiff suggested that was a far better plan than tearing up a section of paved parking lot after the fact because the conduit was too narrow. The plaintiff specifically denied that his real motivation in insisting on this particular type of conduit was so his father could install a sprinkler system.

[50] Jonathan Bark, the electrical contractor, testified in relation to this issue. In short it was his evidence that Mr. Snelgrove did indeed instruct him to order two-inch core line and that he had queried whether or not the much cheaper one-inch rigid might be the way to go. He was told to order the much more expensive two-inch, which, again, is only available on a 500-foot spool. It was his testimony that Mr. Snelgrove simply reiterated he wanted two-inch flexible. On cross-examination he conceded that Mr. Snelgrove told him the core line had to be flexible and that he did not recall Mr. Snelgrove asking whether one-inch flexible was available in less than the 500-foot length.

[51] The plaintiff was also cross-examined on the issue of the cost of his father’s services. In short he disagreed completely with the proposition that the cost of the construction supervisor was at his expense and fell within the purview of the site supervision services he had undertaken to provide together with project management for his fee of 30%.

[52] The plaintiff was asked, in relation to the personal items he charged using a company credit card, why, if they were to be deducted from his fees, they do not show up as a deduction on his statement of account rendered November 15, 2007. The plaintiff explained that as he understood it, he was to submit his account in full, accounting would cross-reference that with any outstanding personal charges, and the cheque would be for the net difference.

[53] The plaintiff was also cross-examined about two four-way electrical switches that had been ordered by the electrical contractor at a total cost of $52.68. Mr. Snelgrove agreed with the proposition that those were for his personal use and that he did ask the electrical contractor to order the switches at the same time he was ordering the electrical conduit. He testified that he asked Mr. Jensen if this were all right and Mr. Jensen said it was.

[54] Mr. Bark testified that Mr. Snelgrove did indeed ask him to order the four-way switches, but he went on to suggest that Mr. Snelgrove also asked that Mr. Bark “bury” the invoice in his extra for core line. While that was his evidence in chief, he also conceded that when he submitted his work reports in September/October of 2007, there were two separate reports, one directed to Mr. Jensen with the cost of the core line specified, and the other for the switches directed to Mr. Jensen but “per P. Snelgrove.” No numbers appear on that document.

[55] Stephen St. Denis, referred to earlier in these Reasons, also gave some evidence relevant to this issue. He testified that while working on the Shoppers Drug Mart project, his truck would not start. He had to go to another job site, and so he was supplied with a battery paid for by the company. He advised accounting on his statement of hours that this was done, and the cost of the battery was deducted from his cheque.

[56] Jack Snelgrove, the plaintiff’s father, gave evidence relating to the Gardiners Road project.

[57] He testified he was brought on to that project to be the construction superintendent by both his son and Mr. Jensen. It was his understanding that he was working for the defendant JBL. During the project he maintained a log book generally describing what the forces on site did each day, and also kept a separate page in the book where he recorded any personal purchases he made, which he understood would then be deducted from his pay.

[58] Mr. Snelgrove Sr. was involved in the installation of the conduit. He testified he was told it was for a future sign and that there was some urgency to its installation as it had to be done prior to the parking lot being paved. He felt a one-inch conduit would have been sufficient but it was his information that two-inch had been determined to be more appropriate and, moreover, no one-inch flexible was available. In any event the conduit arrived on a large roll and they used 80 or 90 feet of it. Subsequent to the installation of the conduit it was taken back to the shop and at that time he says he asked both his son and Mr. Jensen if he could use some of it at his property in order to install a sprinkler system. He says Mr. Jensen told him to take what he needed and even lent him one of Mr. Jensen’s small backhoes to dig the trench for the sprinkler system. He used what he needed, and brought the rest back to the shop.

[59] Mr. Snelgrove Sr. also testified that, while he was on the job one day, Mr. Jensen showed up with a new Kubota all-terrain vehicle and told Mr. Snelgrove Sr. he could use it to help him get around. Mr. Snelgrove Sr. is in his late seventies and has some mobility issues. He thought this a very nice gesture on the part of Mr. Jensen; he used the vehicle throughout the project, liked it, and at the end of the project he says he traded the value of the vehicle in lieu of some of his wages. He made those arrangements with Mr. Jensen personally.

[60] The defendant testified at length about the Gardiners Road project. He told the court that as project manager and site supervisor the plaintiff had agreed to be completely responsible for those two components of the project. He also confirmed that on a job of this size the Ministry of Labour requires that there be a full-time site superintendent. Where a project manager is unable to provide that service because he is working on other projects, it is his responsibility to hire someone to act as site superintendent at his costs. In this case the plaintiff did just that; he hired his father and that expense is the plaintiff’s responsibility.

[61] Mr. Jensen was asked about the extra charge to the owner on Gardiners Road relating to the steel modifications to accommodate racking. According to the defendant, while he received copies of many e-mails on this project, the details were the responsibility of the plaintiff and he was not aware the plaintiff had done this. He only discovered it had occurred some years later when the expert he had hired for purposes of the litigation pointed out to him that the client had been charged as an extra for something that had not cost JBL anything. He indicated he was surprised, thought it was completely wrong, and issued a cheque to the client in reimbursement.

[62] In terms of the conduit issue, which was also charged as an extra, Mr. Jensen testified that he knew nothing about this, did not discuss it at any time with Jack or Paul Snelgrove, and certainly did not provide permission for Mr. Snelgrove Sr. to use what was left. He refunded that charge as well.

[63] In terms of the personal charges Mr. Snelgrove put through the company while on this job, the only one Mr. Jensen was aware of was for the life jackets. What he is sure of is that the plaintiff never paid for any of these personal expenditures.

[64] After being taken through the calculations he filed in evidence, Mr. Jensen testified that the proper fee for the plaintiff’s services is $259,278.91. It was never paid because of the significant set-off issue. The difference between his calculation and that of the plaintiff relates to deleting from gross revenue the racking charge, as well as charging Mr. Snelgrove for the costs of Jack Snelgrove, and for the personal items Mr. Snelgrove charged to the company.

[65] On cross-examination the defendant conceded that the modifications to accommodate racking did change the scope of the work, that it was legitimate, and that the client approved of the extra. He also agreed that under fixed-price contracts the contractor can make deals with their subcontractors. He also acknowledged that from the e-mail chain it appeared the accounting department at JBL (which is run by his wife) knew there was no charge associated with the change, and that it would be accounting that had issued the invoice. The plaintiff had no ability to generate that paperwork. He also agreed the charge is clearly shown on the bill.

[66] In terms of Jack Snelgrove, the defendant agreed on cross-examination that: the cheque in payment of Mr. Snelgrove’s services was issued by his company; he did not question by e-mail or otherwise why there was no deduction shown for Mr. Snelgrove Sr.’s services when the plaintiff delivered his invoice; and, he was the one who came to an agreement with Mr. Snelgrove to trade the Kubota vehicle for wages. He also worked out the price for the Kubota.

[67] Turning to the conduit issue, the defendant agreed with the proposition that if indeed material ordered for a customer is only available in one size, and once used there is surplus left, the contractor will often keep the excess material. He also volunteered, however, that in some cases the amount left over will be offered back to the client.

[68] In terms of the personal items he reiterated that, of all the items on the list, the only one for which he was asked permission related to the life jackets. However, he also agreed that on certain of the invoices the letter “P” appears, and seems to be in the handwriting of one of the people working in the accounting department. He confirmed that the client was never billed for any of these personal items.

[69] Unlike other aspects of this claim, for this project there is no issue that there are monies owing; the issue is quantification.

[70] The first matter I will address is whether or not the costs associated with Jack Snelgrove are chargeable to the project or are the responsibility of the plaintiff. I am satisfied on the evidence as a whole that they are properly chargeable to the project and thus were the responsibility of the defendant.

[71] Both the plaintiff and the defendant agreed during the course of their evidence that there was no specific discussion on this topic when they reached their arrangement. Despite that they also both testified that it was clearly understood, without the necessity of a specific discussion, whose responsibility Jack’s compensation was. Mr. Snelgrove was categorical it was the defendants’ responsibility, and Mr. Jensen was equally adamant it was Mr. Snelgrove’s. Frankly I found neither of their opposing versions particularly persuasive and so, as is often the case, it was necessary to look to other evidence that supported one proposition or the other.

[72] Jack Snelgrove, a gentleman in his late 70s whom I found to be a matter-of-fact and credible witness, was clearly of the view that he was working for the defendant. When an agreement was reached to trade the Kubota vehicle in lieu of some of Jack Snelgrove’s wages, that deal was made with Mr. Jensen. The cheque for the balance of the wages was issued by the defendant company, not the plaintiff’s company. It would seem odd, in my view, if Mr. Snelgrove were responsible for those wages, that the arrangement vis-a-vis the Kubota would have been handled in the manner it was.

[73] There was also evidence that the cost of the site superintendent was included as an estimate item in the calculation of this fixed-price contract. There is no evidence that satisfies me that that allowance was ever deleted as a job cost at any point in time. It was estimated as part of the project and was paid as part of the project.

[74] I turn now to what was described as the “racking” issue during the trial. That was the situation described earlier in which the owner of the Gardiners Road project was charged $7,790 for an approved extra that wound up, after some negotiation with the subcontractor, not costing anything.

[75] It is my view that this is not an extra and the client should not have been charged. Simply put there was no charge associated with the change, and in consequence it should not have been passed on to the owner. I do not accept, however, the submission of the defence that this was a deliberate act of dishonesty on the part of the plaintiff. I accept the plaintiff’s evidence that he believed that since the modification was necessary and was approved by the owner, it became billable. While that may be the practice of some in the industry, in my view it is wrong. I accept the evidence of the plaintiff’s expert, Richard Ryde, that while theoretically it could be passed on as an extra, ordinarily it would not be.

[76] It is also worth noting on this issue that on the evidence it would appear that the defendant, in the person of his accounting department, was aware there was no charge for this item prior to issuing the invoice.

[77] The long and short of it all is that it should not have been charged as an extra and the defendant was right to refund the money to the client after the fact. As such, it should not form part of the calculation figure.

[78] Next I turn to the 500-foot spool of conduit that was ordered.

[79] I start by indicating that I accept as reasonable the plaintiff’s explanation as to why he ordered the two-inch flexible conduit. The owners did not yet know the type of sign they were going to install on the other side of the parking lot, and in consequence he testified that he thought it prudent to err on the side of a bigger conduit sufficient to accommodate whatever size might eventually be required. The cost of the spool of conduit was just over $900. There seems to be no dispute on the evidence that this type and size of conduit only comes in 500-foot lengths. While only a portion of that length was required for the job, the $900 expenditure is nonetheless far less than what it would have cost had it been determined that one-inch rigid conduit was not satisfactory in the future, and the parking lot had to be torn up and repaved so the proper conduit could be installed. It may very well be that Mr. Bark thought one-inch rigid was sufficient, but he was not the project supervisor.

[80] I reject the defendant’s suggestion that the product was in reality ordered so Mr. Snelgrove Sr. could use a big portion of it for a sprinkler system. As I have already indicated, I found Mr. Snelgrove Sr. to be a very credible witness and I accept his testimony that: he spoke to both Mr. Jensen and the plaintiff; Mr. Jensen approved the use of it at his property; and, Mr. Jensen even lent him a small backhoe to dig the trench for the sprinkler system. It is worth noting that on this subject matter, during cross-examination, the defendant agreed with the proposition that where material is ordered for a customer that is only available in one size and not all the material is used, the contractor often keeps the surplus.

[81] I will not spend much time on the $52 four-way switch issue. I accept the plaintiff’s evidence on this point that this was approved by Mr. Jensen; the plaintiff no doubt expected it would be added to the other personal items he had charged through the company to be deducted from his net cheque. I reject the evidence of the witness Mr. Bark that the plaintiff asked him to “bury” the invoice because the invoice was not, in the end, buried. Mr. Bark sent in two invoices, one for the conduit and one for the switches, and indicated on the work order relating to the switches that it was “per P. Snelgrove.”

[82] Finally, the personal items that the plaintiff charged to the company in the amount of $3,955 need to be deducted from any payment owing to the plaintiff. The evidence is overwhelming that there was a longstanding practice at JBL of allowing individuals like the plaintiff to charge personal items and to indicate those charges to accounting staff, who would mark the invoice appropriately, such that the amount would ultimately be deducted from any monies owing to the individual.

[83] In like fashion the plaintiff acknowledges that the monies paid to him in the amount of $7,500 during the time of his matrimonial issues, as described in the evidence, are to be deducted.

[84] As was the case on the first issue, the parties should now be able to do a proper calculation based on the findings above, but if there are any matters that have been overlooked I can be spoken to.

Wolfe Springs Project

[85] The plaintiff testified that in the summer of 2007 JBL was approached by the Clermont group about the construction of a residential fractional ownership project in the area of Westport, Ontario. The Clermont group, in the persons of Elwin and Mathew Derbyshire, was the same client who contracted for the construction of the Gardiners Road project and many other projects over the years.

[86] According to the plaintiff he was involved in certain of the discussions leading to an agreement being struck, but again Mr. Jensen took the lead and did the estimating. His arrangements in terms of providing site supervision and project management were to be the same as at Gardiners Road.

[87] As part of the estimating process the plaintiff testified that Mr. Jensen asked him to explore what it would cost to use an insulated concrete form system (ICF). The advantage of using that system is that a good portion of the structures are prepared off site by a specialty builder, and then simply erected by the general contractor’s forces on site. The plaintiff undertook that task and in due course, according to his evidence, he and Mr. Jensen agreed they could do the project for between $3.9 to $4 million dollars plus GST. This figure was confirmed in a letter to the client dated August 27, 2007. That letter, on JBL letterhead and signed by the plaintiff, provides in part:

Our proposal does not include the welcome centre, main cottage, boat house or any site work. The budget agreed upon was between $3.9 to $4 million plus goods and services tax, based on an ICF structure. Jensen Building Ltd. will strive to reduce the cost of construction wherever feasible.

[88] The plaintiff says he then prepared a handwritten budget, which was entered in evidence at Tab 15 of Exhibit 1. It breaks down the various costs and suggests that if things go according to plan, the company could make in the range of $1 million dollars profit from the project.

[89] Construction got underway in the fall of 2007 and once again the plaintiff’s father, Jack Snelgrove, was the construction superintendent. The planned completion date was June of 2008 for summer occupancy.

[90] In November of 2007 the serious personal issue arose between the plaintiff and the defendant. The plaintiff admitted in his evidence that at that time he became involved in an intimate relationship with the defendant’s wife. The defendant found out about it, there was a non-physical confrontation, and after some discussion the plaintiff says he and the defendant agreed that their business relationship was doing so well that they ought to try to salvage it. It was agreed that the plaintiff would carry on in his present capacity, but he would no longer come to the office where the defendant worked. He would operate instead from site offices using his laptop.

[91] On November 15, 2007, subsequent to the plaintiff and the defendant agreeing to continue their professional relationship, the plaintiff delivered to the defendant an account for services rendered up to date on the various projects. That correspondence was filed in evidence and appears at Tab 39 of Exhibit 1.

[92] The plaintiff carried on with his duties, but then on December 7, 2007, while he was working at the site of the new condominium project in Picton, the defendant hand delivered a strongly-worded termination letter to the plaintiff. It is found at Tab 97 of Exhibit 2. The plaintiff testified that as the defendant was delivering the letter, the defendant indicated to him that he was “done” because he had been stealing from the defendant. The plaintiff says he responded to the defendant that he would never steal from him. The plaintiff says the defendant then told him that he was to be shown off the premises and that the defendant would hire lawyers to ruin the plaintiff.

[93] According to the plaintiff, prior to December 7, 2007, there had never been a single complaint about his performance.

[94] The plaintiff also testified that the defendant made a complaint to the Association of Professional Engineers of Ontario alleging misconduct on the part of the plaintiff, but that that complaint was dismissed.

[95] It was the plaintiff’s evidence that he has never been paid any of the amounts set out in the account of November 15, 2007.

[96] On cross-examination it was suggested to the plaintiff that the Wolfe Springs project was not a fixed-price contract as the plaintiff was suggesting, but rather a cost-plus contract. The evidence discloses that a cost-plus contract is one where the owner essentially pays time and material for services rendered, plus a margin for overseeing the construction of the project. The plaintiff testified that it may have started out that way, but it was his impression that the Derbyshires and the defendant had agreed by the late fall that it was a fixed-price arrangement.

[97] The plaintiff was referred back to his letter of August 23, 2007, quoted from earlier, and specifically the indication that JBL would strive to reduce the cost of construction. The plaintiff acknowledged that that is an unusual statement in a fixed-price contract, but again repeated it was his view that the arrangement became fixed-price as time went by.

[98] He was next referred to the first and only invoice on this project from the defendant to the Clermont group, which is dated December 3, 2007, four days before the plaintiff’s dismissal. It is in the amount of $250,128.54 plus taxes and clearly states on its face that a 10% margin on the base contract is included in the invoice. It was suggested to the plaintiff that, typically, fixed-price contracts do not set forth a specified margin rate and the plaintiff agreed that that was so. He reiterated, again, that to his knowledge, no matter how the accounting department set out the numbers, it was a fixed-price contract by December of 2007, and the invoice was based on a straight percentage of project completed, which is consistent with the way billing is done on a fixed-price contract.

[99] Counsel for the defendant next moved to the job cost report for this project and the plaintiff agreed that as of the date of the invoice in early December, the actual job costs were more in the range of $193,000. The plaintiff agreed that in a cost-plus arrangement 10% would then be calculated on top of that figure to produce the interim billing, and he also agreed that if that were done here it would produce a number in the range of $35,000 less than the invoice actually rendered. He also agreed that when a building project is on a cost-plus basis, the client is entitled to come to the contractor’s office at any time and be shown the books and invoices to confirm the actual monies expended to date. In this case if that had occurred and if indeed the client made such a demand, the invoicing plus margin would not match what was billed. He reiterated once again, however, that he was told this was a fixed-price contract, and when he instructed the accounting department to issue the invoice based on a straight percentage, no one corrected him that that was not the proper procedure in this matter.

[100] The defendant testified in his evidence that when approached by the Derbyshires on this project he was initially reluctant. The company was very busy, the project was a fair distance from Kingston, and he just did not think that he ought to take it on. According to the defendant, however, the plaintiff was quite keen to do it; the defendant suspected this was, in part, because the plaintiff wanted somewhere to keep his father working.

[101] The defendant confirmed he did some of the estimating, but the plaintiff did the bulk of it. It was his impression that the agreement ultimately reached with the client was on a cost-plus basis, which was necessary because the drawings were not complete, and so a hard number for the entire project could not be arrived at.

[102] The defendant agreed that the project got underway in the fall of 2007 at the same time as The Edward project in Picton. He also confirmed that in early to mid-November he discovered that his wife and the plaintiff were having an affair. He says he confronted the plaintiff about the affair, which the plaintiff initially denied. The plaintiff did eventually admit that the allegation was true. The defendant also confirmed that he and the plaintiff had a discussion about going forward. They agreed it was in their mutual interest to keep working, mainly to protect the company.

[103] Over the next few days, the defendant and the plaintiff steered clear of each other while continuing to work, although it was the defendant’s evidence that he was so emotionally distraught he was not really accomplishing anything.

[104] The defendant testified that he did not receive the plaintiff’s letter of November 15, 2007, referred to earlier, until several days after the 15th. Apparently it had been put on his desk when he was out of the office because of his emotional upset, and he did not see it until days later. In any event on reading the letter he says the hair on the back of his neck went up, and he felt the plaintiff was attempting to set him up. He did not respond to the letter, but rather began to take a closer look at things, in a business sense, between himself and the plaintiff. A complicating factor in all of this was that the defendant’s wife Lisa was continuing to work at the company heading the accounting department.

[105] Sometime during this timeframe the defendant also met with the principals of the Clermont group, the two Derbyshires, whom he viewed as not only long-time customers but friends. He says they were shocked by his appearance, offered their support, but he could tell they also had concerns about the Wolfe Springs project.

[106] The defendant testified that following the meeting with the Derbyshires he invited Mathew Derbyshire to come to the office and have a look at some of their files. According to the defendant it was during that process that Mr. Derbyshire expressed concerns about certain invoices he had located in the file for the Gardiners Road project that did not appear to be related to that project. All of this culminated in the letter of December 7, 2007, in which the defendant terminated his relationship with the plaintiff.

[107] The defendant confirmed that shortly after his meetings with the Derbyshires, they terminated their verbal contract with JBL. He also conceded that despite the fact that services had been rendered at the Wolfe Springs project, no funds were ever paid in satisfaction of that account by the client. The defendant testified that when he discussed the matter with the Derbyshires, they told him that in view of his emotional state they did not feel JBL could get the job done in time, and they did not want Mr. Snelgrove to have anything to do with the project. They also advised him that they had no intentions of paying the account rendered as it cost them more than that to “re-tool” and get the matter into the hands of someone else to complete the project on time.

[108] On cross-examination Mr. Jensen confirmed that, at the time of the discoveries in this matter, he testified that he terminated the plaintiff before he met with the Derbyshires and hence before they wound up JBL’s involvement in Wolfe Springs and discovered the alleged irregularities. It was his evidence that on reflection he realized that the meeting with the Derbyshires was before termination, and that the evidence he gave in chief was the correct version. He also agreed during cross-examination that the Derbyshires were obviously concerned about his condition, and that this undoubtedly played the major role in their bringing in new forces to complete the project.

[109] Elwin Derbyshire and his son Mathew Derbyshire testified.

[110] Elwin Derbyshire is the founder of a number of companies in and around the Kingston area known as the Clermont group. The property division of that group acquires and develops mostly commercial real estate, and within that context Mr. Derbyshire Sr. confirmed they had done a number of projects with the defendant JBL beginning in the mid-1990s. According to Mr. Derbyshire Sr., the day-to-day operations of this branch of the Clermont group are now handled almost exclusively by his son Mathew.

[111] For the Gardiners Road and Wolfe Springs Resort projects, consistent with their past practice with JBL, their agreements were oral. The negotiations were always done primarily with Mr. Jensen, whom this witness described as his “go to guy.” Mr. Derbyshire Sr. confirmed that the Gardiners Road project was a fixed-price contract, but Wolfe Springs was cost-plus. To the best of his recollection, the reason for doing Wolfe Springs on that basis was because some of the drawings were not final.

[112] Mr. Derbyshire Sr. testified that the work at the resort project was underway in November of 2007 when he received a call from Mr. Jensen. Mr. Derbyshire Sr. and his son met with Mr. Jensen. They had not seen Mr. Jensen in several weeks and were surprised at his appearance. He looked tired, haggard, and had lost a great deal of weight. He explained to them the situation involving his wife and the plaintiff.

[113] Both Derbyshires offered Mr. Jensen their support as friends, but as soon as they got back in the car they had a conversation about Wolfe Springs and decided they better start making other plans. As the witness pointed out, this fractional resort had been pre-sold with people expecting occupancy come the summer of 2008. They did not think the defendant had the ability required to focus on the project, and they did not feel in all the circumstances they could work with the plaintiff.

[114] Mr. Derbyshire Sr. also confirmed that he discovered sometime later that the invoice they received from JBL in December 2007 was in an amount greater than cost-plus margin. He indicated he was disturbed by that as he considered it a violation of their verbal cost-plus agreement. The invoice was never paid as they felt, looking at all the circumstances, it cost them more to have someone else take over the project than the amount stated in the invoice.

[115] Mathew Derbyshire also testified. He has an MBA and is a member of the Ontario Bar. Within the Clermont group of companies he is the president of the property development branch.

[116] Not surprisingly, Mr. Derbyshire confirmed much of his father’s evidence, particularly as to the close relationship between their company and JBL. This witness told us that in November of 2007 he received a call from Mr. Jensen saying he wanted to meet. As stated by his father, when they met with Mr. Jensen they were disturbed by his appearance and what he told them about his personal problems. He says they spoke as friends, not in a business context, and they offered their full support. He also confirmed, however, that very shortly after their meeting with the defendant it became obvious that they were going to have to make other arrangements for Wolfe Springs.

[117] Shortly after this initial meeting, in late November or early December by Mr. Derbyshire’s estimation, Mr. Jensen called Mr. Derbyshire and invited him over to the JBL offices to help Mr. Jensen sort through some material related to their projects. As part of that review, Mr. Derbyshire went through the file for the Gardiners Road project and came across some documentation that caused him concern. In the file, for no reason he could comprehend, was a copy of a survey account addressed to Mr. Snelgrove, bills for plants purchased at Canadian Tire, and expenditures at the LCBO and for pizza. His first reaction was that they were being taken. He says he asked the defendant about these materials, but the defendant indicated he had no idea what they were doing there.

[118] This witness was also asked about the racking issue. In a nutshell, he confirmed that he became aware at some point in time that they had approved and paid for an extra to the contract on Gardiners Road but that, in fact, JBL had not been charged for that modification. His reaction to that was that it was fraudulent to do such a thing. He confirmed that after the fact his company was reimbursed and he said he was impressed by that because they never asked for reimbursement.

[119] Finally, in relation to the Wolfe Springs project, this witness, like his father, was clearly under the impression it was a cost-plus agreement and not a fixed-price contract.

[120] On cross-examination this witness confirmed that he was aware that all billings on behalf of JBL came from the accounting department, and would not have been prepared by the plaintiff. He also confirmed that on checking, the items he found in the Gardiners Road file that were unrelated to the project were never in fact charged to his company. He also confirmed during his evidence that the next project their company had after Wolfe Springs was a Tim Horton’s franchise that they opened in 2011/12, and JBL did the construction.

Analysis

[121] Unlike the first two projects, not just quantification is in issue but also entitlement. In a nutshell the plaintiff suggests he is entitled to a fee in the amount of $14,555.54, while the defendant counterclaims for the sum of $250,128.54 plus GST, which represents the JBL invoice that the client refused to pay.

[122] The position of the plaintiff is straightforward. Firstly and most importantly he submits that the work was done, an account was rendered with full knowledge of the defendant and his accounting department, it was not paid, and the client was not pursued for payment. He submits that it was the defendant’s choice not to sue his long-standing client, and the plaintiff should not pay a penalty because of that purely business decision that he had no part in.

[123] The defendant’s position is equally straightforward. The client terminated the contract, which was beyond the defendant’s control, and completely within the client’s rights. Subsequently the client also became aware of what the client perceived to be certain irregularities, including that the account that was tendered was higher than it should have been. The client was approached about paying the bill but refused, and in all the circumstances it was reasonable of the defendant not to pursue the client keeping in mind their past relationship and the hope for future business.

[124] It would seem clear to me on the evidence, particularly that of the Derbyshires, that the Derbyshires terminated the services of the defendant based on their observations of his condition when they met with him shortly after the personal issues arose between the plaintiff and the defendant. Both testified that as soon as they got back in their vehicle after their meeting they had a conversation about Wolfe Springs and decided they better start making other plans. This fractional resort had been pre-sold, it was November of 2007, and occupancy had to be ready for the summer of 2008. They did not think the defendant had the ability required to focus on the project to the extent called for, and they did not feel in all the circumstances they could work with the plaintiff.

[125] In my view that was an entirely reasonable approach for the Derbyshires to take. While indeed work on the project had been done, I accept the evidence of the two Derbyshires, and particularly Elwin Derbyshire who has enormous experience in the area, that having made their decision, it cost them more to have someone else take over the project than the amount of the invoice. It is important to note that that evidence was not seriously challenged.

[126] It goes without saying that all of this arose because of the personal issue between the plaintiff and the defendant and both had a role in that situation. On balance, based on the totality of the evidence, neither the plaintiff nor the defendant has satisfied me that either is entitled to compensation on this abortive project.

The Edward

[127] The plaintiff confirmed that The Edward was a project for the construction of a five-storey building on the main street of downtown Picton that, as originally planned, was to contain a mix of retail, commercial space and 20 condominium units. The individual behind this project was named Michael Bake.

[128] The plaintiff testified that he and the defendant became involved in discussions with Mr. Bake in approximately April of 2007. The anticipated completion date for the project was December of 2008. The plaintiff was once again to be the project manager, and there was to be a construction superintendent hired by Mr. Jensen who would report to the plaintiff.

[129] In the early stages the plaintiff and defendant were working from conceptual drawings prepared by the owner’s architect, Brian Clark. Working from those drawings the defendant costed different methods of construction, with the plaintiff and the defendant eventually agreeing to use a hollow core and structural steel system. The owner, according to the plaintiff, was closely involved in all these discussions.

[130] Over the course of the next couple of months, the plaintiff says he and the defendant put together a proposal that was submitted to the owner by way of correspondence dated June 20, 2007. The price was $5,934,000 plus GST. That included anticipated profit of approximately $1,200,000.

[131] Negotiations continued over the summer months, and at some point in time the plaintiff says the owner asked about increasing the building from 20 to 24 condominium units. This was to be accomplished by, in effect, “squaring off” the building. As originally designed the south side of the building had a staggered appearance and the owner felt by squaring the building off he could decrease overall costs on a per square foot basis.

[132] Further negotiations ensued and in due course an agreement was struck to build the project for $6,765,800 exclusive of GST. According to the plaintiff this number was based on estimates prepared by the defendant. He conceded it was then his job to negotiate contracts with subcontractors within the confines of the estimate. Once he had a price from a subcontractor, again as was the case on other jobs, he would recommend that price to Mr. Jensen and if Mr. Jensen agreed, a purchase order would issue.

[133] In late September the project got underway.

[134] The plaintiff was referred to a report put in evidence from McNeely Engineering, which indicated that in and around December 5, 2007, foundation construction was underway. On December 7, 2007, the plaintiff was terminated in circumstances earlier described in these Reasons.

[135] The plaintiff was very extensively cross-examined.

[136] The thrust of that lengthy cross-examination was to suggest that while the plaintiff was only on this project for a relatively short period of time, his careless conduct during that time cost the defendant a significant amount of money.

[137] It was suggested to the plaintiff, and he agreed, that initially he and the defendant Mr. Jensen worked together on the preliminary costing of the project for presentation to the owner. The plaintiff was quite emphatic, however, that while he had input into the figures, the presentation to the client was based, as always, on the defendant’s estimate. The plaintiff denied any suggestion that he had been asked to prepare a detailed budget for this project.

[138] Counsel for the defendants referred the plaintiff to the original estimate for the project, including profit. The plaintiff agreed that that figure was $5,943,000 for a building of 43,228 square feet. The plaintiff agreed that dividing the square footage into the total project costs produced a cost per square foot of roughly $137. Next it was suggested to the plaintiff that when four additional units were added to the project as part of the squaring off exercise, an extra cost of $410,325 was factored in. The plaintiff agreed. It was then suggested that that increased the building size by approximately 6,500 square feet. The plaintiff testified he was not sure that that was the correct square footage but if it was, he agreed that doing simple mathematics translated into a cost per square foot for the additional space of approximately $63 per square foot or less than half what had originally been costed. It was then suggested to the plaintiff that he had clearly grossly under-estimated the cost of the expansion of the project.

[139] The plaintiff vehemently denied this suggestion.

[140] First and foremost he pointed out that the exercise performed by the defendant’s counsel was of little value. It was his evidence that in adding these four units and squaring off the building, many of the fixed costs did not change. He pointed to, for example, the general conditions, site services, foundation cost, and things like elevators, etc. These were all costed and paid for in the original higher cost per square foot. The plaintiff was even more emphatic, however, that counsel was absolutely wrong in his suggestion that this figure was his figure. It was his evidence that all estimating on this job was done by Mr. Jensen, and while he was aware of the numbers, the figures were Mr. Jensen’s.

[141] The plaintiff was referred to certain purchase orders that he agreed he had negotiated before he left the project. Again it was suggested to him that he had committed the company to purchase orders for which he had grossly under-estimated the cost of work to be done.

[142] Again the plaintiff vehemently disagreed.

[143] First and foremost in the case of drywall expense, which was the most dramatic example in this area, it was the plaintiff’s evidence that the type of structure as built was very different from the structure the initial purchase order was based on. It included far more cost for drywall for things like exterior walls, which were included in the type of structure that was initially to be erected. Furthermore, he testified that: each of the purchase orders that he negotiated was based completely on what Mr. Jensen had estimated for a particular component; the purchase orders were within or very close to the estimate figure; and, Mr. Jensen saw and approved each of the purchase orders before any binding agreements were entered into.

[144] The defendant gave evidence in relation to The Edward project, and his version of events was very different.

[145] He confirmed that during the early stages of the project and up until in and around June 20, 2007, he did indeed work with the plaintiff in terms of putting together this project. After that, however, it was his evidence that he stepped away from day-to-day involvement leaving all of that up to Mr. Snelgrove.

[146] He conceded that he was copied on many e-mails between June and late September and was aware, for example, that the building was being squared off to add four additional units. He also was aware that an additional allowance of $410,325 had been built into the contract amount to reflect increased costs. He denied, however, that he did any of the estimating in relation to this part of the project and said he relied totally on the plaintiff to be satisfied that his costing was correct. He was quite firm that any scope changes and the costs associated with those changes were within the purview of the plaintiff’s responsibilities.

[147] After the plaintiff was discharged in late 2007, Mr. Jensen brought on Guy Foley as the project manager. Mr. Foley had been with his company since 1993 and as of 2008 had been made a partner. He advised Mr. Jensen there were serious problems with the project because of cost overruns brought about by many changes in the scope of the work that had been significantly under-estimated. It was the defendant’s evidence that the changes in scope went far beyond the simple squaring of the building.

[148] According to Mr. Jensen there were all manner of examples. The foundation extended out four feet two inches further across the back than shown on the conceptual plans. That alone added 357 square feet per floor. The squaring off added another 1400 square feet. A stairwell had been removed, and the common area by the elevators had been reduced. There had been massive changes on the penthouse floor. The original plans called for two penthouse units and there were now three. This was accomplished by capturing and turning into interior space what had previously been terraces. All of this, according to this witness, had a dramatic effect on increasing the amount of living space, which is the most expensive to construct. According to the defendants’ calculation, as a result of scope changes the increased living space was not 6,500 square feet but 11,300.

[149] According to the defendant all of this occurred during the plaintiff’s watch as project manager, and as project manager the plaintiff had to be alive to the fact that these sorts of changes were increasing costs dramatically, and he needed to negotiate further price increases with the owner. In other words, the plaintiff had to pick up on the fact that there was a problem just as Mr. Foley had done. In the defendant’s words, looking back, he simply cannot figure out how the plaintiff came up with his number of $410,325 to reflect all the changes made.

[150] The defendant has done his own mathematical calculations. He suggests that the amended contract price should have been slightly more than $8,000,000 with the anticipated profit built in. It was the defendants evidence that as a result of the plaintiff’s negligence, it effectively cost the full contract price to build the project, and that was only because they were able to mitigate their loss when a commercial tenant came on board and decided to rent the entire second floor of the building for their purposes, thus obviating the necessity of building a number of units. At the end of the day, according to the defendant, the project was built for the amount of the fixed-price contract with no profit whatsoever to the defendant.

[151] This witness was also extensively cross-examined. The cross-examination demonstrated a number of things.

[152] The defendant was aware, as he indicated in his examination-in-chief, that changes were being made to the project, including the addition of the four units, in the fall of 2007. At no time, however, did he use his computer program to calculate quantities, etc., as he had done when costing the project initially. He insisted that the numbers were calculated by the plaintiff, that he never reviewed those numbers with him, and in consequence he had no idea how the plaintiff came up with the figure he did.

[153] Mr. Jensen also agreed that some of his square footage calculations given during his evidence did not jive with calculations done by the architect Brian Clark. He agreed that the plaintiff, and for that matter the subcontractors, would be working from the architect’s plans.

[154] Certain documentation was put to the defendant following which he agreed that he was aware of the change on the top floor of the building from two penthouse units to three. That change occurred prior to the contract being signed. Once again he did not do any computer calculations even though he acknowledged he was the only one who knew how to use the estimation software.

[155] Mr. Jensen was quite candid in admitting that subsequent to the dismissal of the plaintiff, like all construction projects, there were issues. These included problems with the strength of concrete, architectural delays, serious issues with the original stucco contractor, etc. All of these problems translated into delays and he agreed that delays cost money.

[156] The defendant also admitted during his cross-examination that shown as an expense to this project were two unique and very expensive pieces of equipment that were used for the construction. Although the full cost was charged to this job, that equipment remains available as an asset of the defendant company for future use.

[157] Michael Bake was called as a witness by the defence. Mr. Bake is by profession an airline pilot, but he also has an interest and experience in developing properties. The Edward condominium development was his project.

[158] After acquiring the land and retaining Brian Clark, the architect, to prepare concept plans, he began looking for a competent contractor. In due course he was referred to the defendant JBL as a general contractor in the area capable of handling this project.

[159] He met with the plaintiff Mr. Snelgrove and the defendant Mr. Jensen. After a round of discussions and negotiations the defendant company was in fact hired to build the project.

[160] Mr. Bake was quite clear in his evidence that he emphasized to both individuals that as a single developer, he had a limit on what he could spend and in consequence the project had to be on the basis of a fixed-price contract. Both Mr. Jensen and Mr. Snelgrove expressed the view that the matter could be dealt with on that basis. This witness also advised that from quite early on he was clear that Mr. Snelgrove would be running the project on a day-to-day basis, and that he would be dealing with Mr. Snelgrove.

[161] Mr. Bake confirmed earlier evidence to the effect that subsequent to the initial agreement being struck it was decided to, in his words, “economize the building” by squaring it off. It was his impression that this was a more efficient way to build the structure and also provided him with more units to sell, thus assisting the financial picture.

[162] In due course Mr. Bake agreed that a deal was struck to add the four additional units at a cost of $410,325. Interestingly, in an e-mail dated September 14, 2007, filed in evidence, Mr Bake wrote to both Mr. Snelgrove and Mr. Jensen and there is a discussion of the additional cost of the redesign, with Mr. Bake’s suggestion being that he felt it should be in the $400,000 to $500,000 range, while Mr. Snelgrove and Mr. Jensen’s numbers came in at “$800,000 over [the] original proposal.”

[163] Construction began in the late fall of 2007, a couple of months behind schedule. Mr. Bake travelled back and forth from his job every week or second week to see how things were going. It was his testimony that as the project developed he began to have issues with Mr. Snelgrove. He said he found him aggressive and condescending, not so much to Mr. Bake as to others working on the project, and Mr. Bake had concerns about that in terms of the project going forward. He was also critical of some of Mr. Snelgrove’s decisions. He pointed to a situation where Mr. Snelgrove insisted upon bringing in JBL’s usual architect, because of problems they were having getting plans out of Mr. Clark, and in Mr. Bake’s view this individual did not help the situation; he made it worse.

[164] In any event he had other disagreements with Mr. Snelgrove and then discovered in early December of 2007 that Mr. Snelgrove had fired the site superintendent. Mr. Bake was keen on this individual, so Mr. Snelgrove’s decision to fire him made Mr. Bake angry, and he says in early December he called Mr. Jensen and told him he wanted the plaintiff off the job. His rationale was that they were behind, and his relationship with the plaintiff would not last, which would cause more issues going forward. He subsequently heard that Mr. Snelgrove had been discharged.

[165] After Mr. Snelgrove’s termination, Mr. Bake says Mr. Jensen was quick to assure him the building would get done. Mr. Jensen appointed Guy Foley as the project manager, and things went much better from there. He was very impressed with Mr. Foley from the outset. He did, however, concede that several months later Mr. Foley advised him the costs were running much higher than anticipated.

[166] On cross-examination Mr. Bake confirmed that virtually all e-mails he sent to Mr. Snelgrove were either jointly addressed to Mr. Snelgrove and Mr. Jensen, or Mr. Jensen was copied. He also conceded that Mr. Snelgrove was very concerned in October of 2007 about the delay in architectural drawings being supplied by Mr. Clark, as it was his view the delays were getting serious, and of course delays have an effect on final costs. There was also put before the witness an e-mail from Mr. Jensen dated October 31, 2007, wherein he asks Mr. Bake to have the architects e-mail him the most current elevations and states, “I will get to work on it as soon as I receive them.” This evidence was led in support of the suggestion that the defendant was still involved in the project at some level.

[167] Mr. Bake was referred to correspondence from the architect dated December 7, 2007, which, of course, was in and around the time that Mr. Snelgrove was discharged. That correspondence suggests that as of that date the project was approximately 6% complete. The witness agreed that if that is what the certificate said, that was probably accurate.

[168] The architect Brian Clark testified.

[169] He confirmed that he prepared the conceptual drawings for the project in March of 2007, and was the lead architect until June of that year. At that time his client, Mr. Bake, informed him that the general contractor, JBL, wanted to use their regular architect with whom they had a lengthy relationship. That was fine with Mr. Clark as he was very busy and furthermore Mr. Bake was keeping him on as a consultant. The new architect would prepare drawings, they would be submitted to the owner and he would forward them on to Mr. Clark for comment.

[170] Mr. Clark confirmed that in June of 2007 he received a set of plans that changed the design of the building. Amongst those changes were squaring off the building, increasing the number of penthouses from two to three, increasing the number of condominium units, etc. By his calculation, in rounded figures, the changes increased the square footage of the building from just over 43,000 square feet to just over 49,000 square feet.

[171] In September of 2007 Mr. Bake approached Mr. Clark and asked him to resume the lead role on the project. He was unhappy with the other architects and wanted his own man back on the job. Mr. Clark agreed and brought on another architect to assist him with the day-to-day detail drawings.

[172] Mr. Clark confirmed that towards the end of September, Mr. Bake sent him the draft contract document for his input. That draft had attached to it the contract breakdown. Mr. Bake asked him to have a look at the plans and the price, and provide his comments as to whether or not there was any detail lacking, or whether he had any concerns about prices being inflated. He saw no great issues and so advised Mr. Bake. Mr. Clark remained on the project as lead architect from that point to project completion.

[173] The witness also testified that at the point when he reviewed the contract for Mr. Bake, he was of the view that the building could be built for the price specified in the contract.

[174] On cross-examination Mr. Clark admitted that from the time he resumed control to completion of the project there were some expensive problems encountered. These included the exterior wall system having to be done twice because the original stucco contractor was incompetent. That led to additional cost and delay. There were also delays caused because of the change in architects, as it took several months for Mr. Clark to catch up. He also confirmed that in January of 2008 he became aware there were problems with the drywall ceilings specifically that the ceiling plans were more complex than originally anticipated.

[175] Richard Kuipers testified.

[176] At times relevant to this litigation Mr. Kuipers was Chief Estimator for Larochelle Drywall in Kingston. He had been an estimator for over 20 years and was familiar with all aspects of the drywall business.

[177] He confirmed that on June 1, 2007, he prepared an estimate for The Edward based on the conceptual drawings prepared by Mr. Clark. Those plans, at that time, were somewhat vague, but he felt comfortable in quoting them. His estimate was for $289,000 plus GST. He was not awarded the contract.

[178] In February of 2008 he was asked to re-tender. He got new plans at that time and in his words it called for a totally different building. It was a much bigger job involving a larger building, providing for exterior walls, parapets on the roof, vapour barriers, different sized studs, more demising walls, four layers in some of the areas that previously called for three layers, etc. His quote based on the new material was for $1,258,600 plus GST. His company was not awarded the contract.

[179] On cross-examination the witness conceded that he had no idea as to the specific dates on which the drawings reached the state in which they were presented to him. He conceded that the ones he worked from were dated in January of 2008, but again he had no idea as to when the detail reached the point depicted in the plans provided to him.

[180] The next witness of importance was Guy Foley.

[181] Mr. Foley has worked with JBL for over 30 years. He and Jorgen Jensen started with the company more or less together, at a time when Mr. Jensen’s father was still involved in the business. Mr. Foley became a shareholder and officer of the company in 1993. It was Mr. Foley’s evidence that he started as a general carpenter, became a construction supervisor, and, contrary to the evidence of Mr. Jensen, had been a project manager on a number of projects, both large and small, prior to becoming involved in The Edward.

[182] When The Edward condominium was getting underway, Mr. Foley was project managing another project and had nothing whatsoever to do with The Edward. He was brought in after Mr. Snelgrove was let go.

[183] According to this witness when he took over the project Mr. Jensen was absolutely of no assistance to him. He was pre-occupied with his personal issues and essentially left Mr. Foley to figure things out on his own. It was Mr. Foley’s evidence that it took until mid-January before he began to get a handle on things. The matter was complicated by the fact that the paper work was confusing, binders were not indexed, there were several versions of the contract, and he was not 100% clear at the outset on what had been agreed to.

[184] In any event, in due course he determined what was the governing contractual document, that being the one executed by the client and dated September 28, 2007. He felt the contract was quite detailed in terms of the scope of the work and that there was not much missing.

[185] He was shown the contract breakdown that appears at Tab 73 of Exhibit 2 and confirmed that that was the document he was working from. That breakdown caused him some concern because, already by this point in time, a couple of items were slightly over the amount allowed for in the breakdown.

[186] When he really became concerned is when he received the re-worked drywall proposals. They were in excess of $1,000,000, and the contract breakdown had an allowance, including profit, of $600,000. In his words, he knew at that point they were in trouble.

[187] He brought his concerns to both the owner and Mr. Jensen. After some discussion they convinced the owner to make some changes vis-a-vis drywall requirements, and ultimately they were able to do the drywall and the exterior stucco for something in the $900,000 range, give or take, whereas the contract breakdown had allowed for a combined amount of $680,000, inclusive of overhead and profit.

[188] This witness gave evidence as to other overruns between the breakdown and actual cost, and his evidence was, in essence, that they built the building for the contract amount, but there was nothing left over for profit.

[189] On cross-examination Mr. Foley confirmed that prior to The Edward he had been a project manager and that Mr. Jensen was wrong if he said he had not been. Mr. Foley confirmed that their company used the MC² program to do estimates, and had for some time. He had no ability to use that program, but Mr. Jensen was familiar with it and did the estimates for the company. As Mr. Foley put it in his evidence, at this point in Mr. Jensen’s career he was a “professional estimator.”

[190] Mr. Foley told us that because he was not involved in the early stages of negotiating this fixed-price contract, he had no idea what the hoped for profit was. In his experience the usual target is for a 4% overhead factor and a 10% profit.

[191] Mr. Foley was asked why, when it became apparent the project was over budget, he did not approach Mr. Bake in terms of increasing the amount of the contract using the last clause of the agreement, which provides, “It is our intention to formulate a standard contract as soon as we are in receipt of complete architectural, site service, structural, mechanical, and electrical drawings.” He answered quite simply that there was not any basis to go back to the owner, because in his view there was no real change in the scope of the project from that shown on the plans available when the contract was signed.

Analysis

[192] On The Edward project it is the position of the plaintiff that: he rendered services on the project until he was discharged in December of 2007; there was no complaint about those services until the personal issues arose between himself and Mr. Jensen; and he is entitled to be paid for his services. He acknowledges there were changes to the project during his tenure, but any under-estimating of the cost of those changes was the responsibility of the defendant who was in charge of estimating throughout their relationship. In a nutshell, he argues that if the project made little or no profit, it was not as a result of his actions but the actions of the defendant and unexpected events that occurred after he had nothing more to do with the project. In his submissions his counsel, Mr. Crouchman, said that a fair way to compensate the plaintiff would be to look at the allowance made under general requirements for a superintendent’s salary and pro rate that over the number of months Mr. Snelgrove was on the project. According to his arithmetic that results in a figure of $60,676.

[193] Conversely it is the position of the defendant that the project made no profit and in fact cost the company money. It took the full amount of the fixed contract price to erect the building, leaving nothing for overhead or profit on this major project. The defendant further argues that the primary reason this occurred was negligence on the part of the plaintiff, particularly at the time the building was squared off and the number of condominium units was increased. The defendants submit that, according to the most basic calculations, the changes captured by the plans prepared over the summer of 2007 prior to the execution of the fixed-price contract could not possibly be built for anywhere near $410,325. The defendants submit that there was no fault on the part of the defendant, Mr. Jensen, and in particular there is no evidence that he was involved in estimating the cost of the project at any point after the original estimates were prepared. As a result of the negligence of the plaintiff, they submit the company sustained a loss, and while they concede that it is hard to calculate that loss with precision, it has to be somewhere in the range of $600,000 to $1,000,000.

[194] I am satisfied on the evidence as a whole that this project did indeed lose money. I accept the testimony of a number of the witnesses to the effect that, in essence, all or most of the fixed-contract price was required to erect the building with no allowance for a profit. I am equally satisfied, however, that negligence on the part of both Mr. Snelgrove and Mr. Jensen led to this result.

[195] I start with the plaintiff, Mr. Snelgrove. The evidence establishes to my satisfaction that he was far more involved than he suggests in finalizing the numbers for the fixed-price contract. That comes through very clearly from a careful reading of the various e-mails being exchanged in the weeks leading up to the finalization of the contract price. Having said that, however, I do not accept Mr. Jensen’s evidence that he was not also involved in the process. He was privy to the various e-mails, and like Mr. Snelgrove had access to the revised plans that were prepared over the summer of 2007. Mr. Snelgrove went so far in his evidence as to indicate that, in fact, he has seen an estimate prepared by Mr. Jensen using the MC² software, which has now mysteriously disappeared. Mr. Jensen denies that that ever occurred, and says he relied totally on Mr. Snelgrove to estimate the increased cost factor. Simply put I do not find that part of Mr. Jensen’s evidence credible.

[196] By all accounts, the squaring off of the building and the increase in units and living space was a significant change. Throughout the plaintiff and defendant’s relationship, Mr. Jensen had always done the estimating. The evidence of Mr. Foley, who I might add was an impressive witness, was critical on this point. He testified that while project managers in many environments do estimate, that was not the case at JBL. Mr. Jensen did the estimating and, in Mr. Foley’s words, at this point in his career Mr. Jensen was a “professional estimator.”

[197] Even if I were to accept Mr. Jensen’s evidence that he did not have anything to do with costing the changes, that in and of itself would have been negligent. He had no idea if Mr. Snelgrove was up to the task as throughout the tenure of their relationship Mr. Snelgrove had not done any significant estimating. Furthermore this was a very complicated project and to leave the estimating to the plaintiff alone would have been a very serious error in judgment. Finally, and significantly, he was the only one in the company qualified to use the estimating software. In my view it was incumbent on him to run the numbers.

[198] It was equally incumbent on Mr. Snelgrove to make sure in his role as project manager that, in fact, Mr. Jensen was running the numbers. I do not accept that he ever saw an estimate specific to the project changes, and it is not clear from the e-mail traffic just how carefully he went over the figures with Mr. Jensen. In his role as project manager he had a separate duty to the client. Additionally, again in his capacity as a project manager on this significant project, and with the substantial nature in the change of the plans, it was incumbent on him, in my view, to have the new plans re-quoted. It seems clear that, had he done so, as demonstrated by the evidence given at trial by the representative of Larochell Drywall, he would have discovered that the earlier quotes he had secured were considerably off the mark. That in turn would, in my view, have resulted in him and Mr. Jensen having a collective hard look at what had to be added to the contract price to ensure some form of decent profit. It is important to remember in this regard that there is significant evidence that the plans as they appeared in August of 2007, before the contract price was finalized, were substantially similar to what was built.

[199] The evidence satisfies me that by the time Mr. Jensen and Mr. Snelgrove got to The Edward, they had had such great success on the initial two projects they worked on that they were taking on too much work and not paying proper attention. All of that became even more complicated after the personal issues arose between the two of them.

[200] I am also satisfied on the evidence that there were other issues that arose after Mr. Snelgrove left the project that increased costs in a significant way. Some of those are highlighted earlier on in these reasons.

[201] I am completely satisfied on the evidence that the plaintiff Mr. Snelgrove was an independent contractor. Independent contractors often work with a party on the understanding that there will be a sharing of risk in return for the opportunity to share profit. The project made no profit, and there is nothing to share.

[202] In my view this project made no profit, and both the plaintiff and the defendant were responsible. The onus is on the plaintiff and the defendant to establish, on balance, that they are entitled to the compensation they seek from the other. Both have failed to meet that onus. Both the claim and counterclaim advanced in relation to The Edward are dismissed.

Conclusion

[203] In summary, for the Shoppers Drug Mart and Gardiners Road projects the calculations are to be redone using the findings made and the agreed-to formula. For the Wolfe Springs and The Edward projects, for the reasons given both the claim and counterclaim are dismissed.

Costs

[204] If the parties are unable to agree on costs, they may make brief written submissions.

Mr. Justice James E. McNamara

Released: January 27, 2015

CITATION: Snelgrove v. Jensen, 2015 ONSC 583

COURT FILE NO.: CV-08-101-00

DATE: 20150127

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

P.M. SNELGROVE GENERAL CONTRACTORS & ENGINEERS LTD.

Plaintiff

• and -

JENSEN BUILDING LIMITED and MADAJAMA HOLDINGS LTD.

Defendants

AND BETWEEN:

JENSEN BUILDING LIMITED

Plaintiff by Counterclaim

• and -

P.M. SNELGROVE GENERAL CONTRACTORS & ENGINEERS LTD. and PAUL SNELGROVE

Defendants by Counterclaim

REASONS FOR JUDGMENT

MCNAMARA R.S.J.

Released: January 27, 2015