ONTARIO SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-13-042 DATE: 2016-04-21

B E T W E E N:

Kenora Flooring Centre Inc., Plaintiff, Defendant by Counterclaim Bernd M. Richardt, for the Plaintiff, Defendant by Counterclaim

- and -

Wayne Nicholas Degagne, Degagne Multi-Electric and Lea Macalino Degagne and 222517 Ontario Corporation, Defendants, Plaintiffs by Counterclaim Cheryl C.M. Siran, for the Defendants, Plaintiffs by Counterclaim

HEARD: April 11, 12, 13 and 14, 2016, at Thunder Bay, Ontario

Mr. Justice W.D. Newton

Reasons For Judgment

Overview

[1] Wayne and Lea Degagne formed a corporation, 2225171 Ontario Corporation (“222”) to renovate an old school into an office building for a new long-term tenant, Northwestern Ontario Health Unit (“Health Unit”). The Degagnes had never undertaken a project like this before. They hired a project manager, Stephen Campbell, to assist. Some of the work was performed by Mr. Degagne’s sole proprietorship, Degagne Multi-Electric (“DME”). Some of the work was performed by others. Campbell, as agent for 222, approached Kenora Flooring Center for (“KF”) for a flooring quote for the new office space. KF entered into a contract with DME to supply base flooring at a cost of about $95,000. The Health Unit sought upgrades totaling about $31,500. These upgrades were incorporated into the contract with DME for a total contract price of $137,206.86. The project work was completed and the Health Unit occupied the premises in 2012.

[2] Some deficiencies were noted with the KF work. Ten percent of the contract price remained unpaid and, in 2013, KF commenced an action in small claims court for the balance owing of $13,720.29. DME counterclaimed for, in essence, the replacement of all vinyl flooring on the corridors on all five floors of the office building at an estimated cost of about $80,000 and sought general damages of $20,000 for inconvenience to be incurred during remedial work. It is admitted by counsel for the defendants that although named as a party, the building owner, 222, is not a party to the counterclaim.

[3] What makes this case difficult is the fact that the outstanding deficiencies have not been specifically identified by DME and that neither party has identified the cost to remedy these deficiencies. The defendant’s position is that it is entitled to have the flooring on all five corridors replaced.

[4] Apart from some very minor issues with respect to adhesion of the coving (a vinyl covering that covers approximately the bottom 6 inches of the wall where it meets the flooring) the complaints relate to the fact that some of the vinyl flooring does not match other vinyl flooring in rooms adjoining the corridors (dye lot variations) and that some seams in the vinyl flooring in the corridors are not properly sealed. No work with respect to any of the alleged deficiencies has been undertaken by DME, 222 or the Health Unit.

[5] The president of KF, Scott Yeoman, testified as did one of his installers. Surprisingly, KF called the project manager, Stephen Campbell, and the CEO of the Health Unit, Mark Perrault, as witnesses. KF also called an architect, Peter Hargraves, who testified that, apart from a few minor deficiencies, the flooring was installed to an acceptable industry standard.

[6] Both Mr. and Mrs. Degagne testified in their roles as proprietor and employee of DME and as principals of 222. DME also called a flooring inspector and another local flooring installer who gave a quote to replace the vinyl on the corridors of all five floors at about $44,000.

The Evidence

[7] Scott Yeomans has been the president of KF since he bought the business from his father in 1997. He has 11 staff. Business is equally divided between commercial and residential flooring. He has supplied and installed flooring for the Health Unit at other offices prior to this job.

[8] He described the two types of “welds” used to join vinyl flooring. A heat weld uses heat to join the two sheets of vinyl. There is a visible – 3/16 of an inch – seam using a heat weld. A chemical weld results in a tighter – 1/16 of an inch at most – seam. The chemical reaction between the sealant and vinyl sheets makes the weld. He testified that the heat weld process is about 10% more expensive than the chemical weld process.

[9] The vinyl flooring selected by the Health Unit came in 13 foot widths. The vinyl flooring used throughout was of the same type and colour. It was to be used in corridors and in some offices. Other areas were carpeted. There were five floors to the building. Each floor had a corridor about 80 to 90 feet long. He testified that Stephen Campbell instructed him to lay the vinyl in the corridors width ways; that is, so that there would be a seam every 13 feet. The initial work plan was for KF to start at the fifth floor and work their way down as the other trades had finished their work. The flooring would be the last trade in on each floor. He ordered eight rolls of vinyl flooring which was, he testified, almost enough to do the entire project.

[10] However, he testified that his workmen were “yanked” around the building. They were instructed to install flooring once a room was available and as a consequence there was some difference in colour in abutting vinyl. This was due, he said, to dye lot variations in the vinyl. He said that this was very common and well known in the industry. There will always be some variation even within a single roll of product and between rolls. If the dye lot variation is extreme, then that is a warranty issue for the manufacturer and the vinyl is replaced. The differences in colour or shading only occurred at door thresholds and not within rooms or corridors.

[11] Mr. Yeomans testified that there was never any complaint about variation during installation and that the only complaint was at the very end of the project. It was his impression that Stephen Campbell was of the opinion that the variation was “commercially acceptable”. There was a complaint about the workmanship on the second floor corridor and KF replaced the flooring at its cost. As a result, extra flooring had to be ordered. Consequently, the variation could be more significant.

[12] According to Mr. Yeomans, some minor deficiencies were noted with adhesion of some of the covings and also with some small gaps on some of the seams in the corridors and KF was working on the deficiencies when they were advised by Stephen Campbell that the Degagnes wanted KF off site. In addition to the outstanding deficiencies, KF had not installed the flooring for the area called the dental office.

[13] Stephen Campbell is the president of Channel Technical Services. He is a certified engineering technologist and has worked as a project manager on many projects in Northwestern Ontario. He was hired by the Degagnes when they acquired the old school. Initially, the Degagnes thought that they might develop the property as condominiums but that changed to office space once the Health Unit expressed interest in the premises.

[14] With respect to flooring, the only “specification” from the Health Unit was they wanted something that was “easily maintained” and that would “inhibit bacterial growth”. Initially, the Degagnes had an architect on the project but the architect left when the Degagnes were unable to secure initial financing to pay bills, including the architect’s account. Consequently, there are no formal specifications for the project and no supervision other than by Mr. Campbell, who also acted as certifier for progress payments.

[15] Mr. Campbell testified that shading variation was discussed with the owners. The shading variation was at the thresholds between the corridors and the rooms and, if the variation was significant, he said that aluminum thresholds could be used to hide the seams. He also testified that shading variations on the project were within “acceptable standards”.

[16] Mr. Campbell said that the deficiencies at the end of the project consisted of three problems. There were some gaps between the coving and the flooring caused by the unevenness of the subfloor. This was being addressed through caulking. There were also some seams that needed to be resealed by the addition of more sealer. He described these small gaps as between ½ inch and ¾ inch in length and about 1/64 of an inch in width. He said that there were a “couple” of these gaps and that, again, application of additional sealant was all that was required. Finally, there was one outstanding shading issue which required replacement of some vinyl in one area.

[17] Generally speaking, Mr. Campbell felt that the work of KF was “incredible” given the state of the old floors that they had to work with.

[18] KF was in the process of working through the deficiency list prepared by Mr. Campbell when Lea Degagne requested that Mr. Campbell ask KF to leave the site. Mr. Campbell said that Mrs. Degagne did not wish to have KF continue because, in her opinion, since KF had not completed the job correctly the first time she was not going to have KF continue with the deficiencies. Mr. Campbell said that he was “upset” about the owners’ decision since he “knew that what Kenora Flooring had done was satisfactory except for the deficiencies”.

[19] Clint Anderson, one of the installers, testified. In cross-examination he testified that a properly chemically sealed seam would still be visible but should not collect dirt.

[20] Mark Perrault is the CEO of the Health Unit. He testified that the employee who worked on the deficiencies with the owner was no longer with the Health Unit. He said that the “big issue” was “black lines” in the hallways. He said that the seams were visible and it looked like there was dirt building up in the seams. He testified that everything else was “okay” and that the vinyl was not lifting.

[21] He confirmed that neither the Health Unit nor the owner has done any work to remedy any flooring issues since KF left the project. He also confirmed that no rent has been withheld by the Health Unit on account of flooring issues.

[22] In cross-examination he confirmed that cleanliness is a priority and that other facilities that the Health Unit occupies do not have a “black line” on their vinyl floors. He advised that if he had been told that there would be “black lines” or dark seams that he would not have ordered that material. He observed that the second floor corridor which KF replaced did not have visible seams, unlike the corridors on the third, fourth, and fifth floors.

[23] Peter Hargraves is an architect. His work includes contract administration in order to ensure conformance with the contract documents. He has supervised construction of over 40 commercial projects involving similar flooring. He was retained by the plaintiff to provide an opinion on whether the flooring was installed in a good and workmanlike manner. He inspected the flooring in September 2014. Mrs. Degagne was present and had an opportunity to point out her issues with the flooring to him. Mr. Hargraves prepared a report which was filed as an exhibit. Mr. Hargraves was cross-examined.

[24] In his report, Mr. Hargraves noted that the site review included “reviews of all the spaces identified by the owners of the building as locations where the installation was not at an acceptable standard”. Specifically relevant to this action, he noticed:

i. joints between sheets are noticeable due to discolouring and in a few cases there are gaps in the seam seal; ii. the rubber base (coving) has delaminated from the wall in a few locations; iii. the colour runs do not match at a few locations; and iv. the rubber base (coving) does not sit flush with the flooring at locations where floor levels change slightly.

[25] He concluded that the “flooring has been installed within normal standards of acceptance.” In his view, heat weld seams would have been more appropriate and he would have specified heat welding rather than chemical welding for this project.

[26] With respect to seams, he concluded that, for the most part, “the cuts are well executed, resulting in an even, tight joint”. In locations there are “small gaps in the joint with no filler.” He observed very small gaps – 1/16 of an inch – in some of the seams and that not all seams required work. He testified that the seam should be “nearly invisible” and should not collect dirt. He recommended that those gaps should be filled with seam adhesive. In his opinion, “some of the issue related to the colour of the joints is related to cleaning and maintenance.”

[27] If necessary, one method to address the seam issue is to replace all seams with heat welded seams if the owner felt it was necessary. A small section of the flooring would be removed from either side of the seam and a new heat welded seam applied. The matching or shading issue would be addressed by changing these seams to something that would neutralize colour differences through accents etc. No information about this cost was elicited.

[28] In his opinion, the dye lot variation issue “should not be considered worthy of requesting wholesale replacement of all flooring”. The variation occurred at doorways and slight variation was satisfactory in his opinion.

[29] Where the coving has not adhered he concluded that this was a warranty issue which simply required the reapplication of the adhesive.

[30] Mr. and Mrs. Degagne testified. Both gave similar evidence. Mr. Degagne runs an electrical construction and maintenance business. His wife is his bookkeeper. After purchasing the old school they gutted the building. Asbestos insulation had to be removed. Eventually they decided to secure the Health Unit as a long-term tenant and the Health Unit signed a 20 year, triple net lease. They acknowledged that Mr. Campbell was their liaison with the Health Unit. He did not make financial decisions but did function as project coordinator. They did not give instructions or directions to KF. They understood that a “good product” would be supplied. Both testified that dye lot variations or shading issues were never raised with either of them prior to installation.

[31] Six photographs taken by the Degagnes were filed as exhibits. These photographs show apparent shading differences at three thresholds, two places where the coving does not exactly meet the floor, and one seam with a dark line. The dimensions of the seam cannot be determined from the photograph.

[32] Both say that there are seam issues on the third, fourth and fifth floor and that the seams on the second floor, where the entire corridor was replaced at KF’s cost, are almost invisible. Both deny that they gave any direction to have KF removed from the job site. Both say that after writing to KF on November 13, 2012, advising that there would be a holdback pending completion of deficiencies, Mr. Yeoman then wrote to them demanding payment and refused to work with them again. They said that they had not done any work to remedy the flooring issues because they did not have the funds to do so.

[33] DME retained John Williams, a flooring consultant, to provide an opinion. He has been in the floor covering business as an installer, then sales rep and now claims analyst for many decades. He was qualified to provide an opinion as to whether the installation was done in a good and workmanlike manner. He inspected the property in March 2013. He concluded that the seams were not properly chemically welded. He observed gaps. He inspected some seams with a 10 power magnifier and found soil and dirt in some seams. He does not recall the number of seams that were sealed improperly other than to say that it was “in excess of five seams”. He disagreed with the opinion of the architect that any gaps could be filled with an adhesive but did not offer any solution to fix the observed deficiencies. In his opinion, the shading variation on the second floor was unacceptable. He did not offer any solution to address these issues which was in keeping with the DME position that all the flooring needed to be replaced.

[34] Finally, DME called Ross MacArthur, a local flooring supplier and installer to give an estimate for cost to remove and replace the coving and the flooring material in the corridors on all five floors using a heat weld method. The cost for labour and materials was approximately $44,000. It was not known whether the material cost was comparable to the flooring selected by the Health Unit. No satisfactory explanation was given for the need to replace the flooring in the corridors on all five floors.

The Positions of the Parties

[35] KF argues that it completed the contract and that the failure to remedy the deficiencies rests with DME since DME prevented KF from completing the work. KF denies that it breached its contract and denies that DME has suffered any damage. If damages have been suffered, KF argues that the damages have been suffered by 222 or the tenant who has effectively bought the property for 20 years. KF further argues that the onus is on DME to prove its damages and that it has failed to do so. Finally, KF argues that the claim to replace all five floorings is, in the circumstances, unnecessary and excessive.

[36] DME argues that the corridor flooring needs to be replaced to address the seam and coving issues and that the flooring for all five corridors should be replaced so that the corridors are consistent throughout the building. DME argues that the difficulty in assessing damages is not a bar to awarding substantial damages for breach of contract and relies upon the following passages from Hollowcore Inc. v. Visocchi, 2014 ONSC 6802:

Fixing Damages

132 Halsbury's provides a helpful summary of the current state of the case law on fixing damages:

HDA-40 Difficulty in assessment not a bar to awarding substantial damages for breach of contract. Where the plaintiff has suffered a loss as a result of the defendant's breach of contract but it is difficult to estimate the value of that loss -- that is, to award damages for the loss -- the assessor, whether judge or jury, must do their best to estimate the plaintiff's damages. It does not automatically follow that where it is difficult to assess the plaintiff's damages the plaintiff is entitled to nominal damages only for the defendant's breach of contract. Situations where the assessment is difficult because of the nature of the damages proved must be distinguished from situations where the assessment is difficult due to the absence of evidence of loss. Where the first situation exists, the plaintiff is potentially entitled to substantial damages for his or her loss, even if the assessment of those damages is imprecise or involves guess work. However, where the second situation exists, the plaintiff, having failed to prove his or her loss, is, at most, entitled to nominal damages for the defendant's breach of contract.

136 The overriding principle was stated in Goldfarb, and recently applied by the Court of Appeal in TMS Lighting Inc. v. KJS Transport Inc., 2014 ONCA 1, 314 O.A.C. 133:

I have concluded that it is a well established principle that where damages in a particular case are by their inherent nature difficult to assess, the court must do the best it can in the circumstances. That is not to say, however, that a litigant is relieved of his or her duty to prove the facts upon which the damages are estimated. The distinction drawn in the various authorities, as I see it, is that where the assessment is difficult because of the nature of the damage proved, the difficulty of assessment is no ground for refusing substantial damages even to the point of resorting to guess work. However, where the absence of evidence makes it impossible to assess damages, the litigant is entitled to nominal damages at best.

Analysis and Conclusions

[37] On the evidence, I am satisfied that some coving needs to be re-adhered to the walls. I also conclude that some seams are unsatisfactory. However, I do not have satisfactory evidence to determine the extent of either problem, the preferred methods to remedy and the costs to do so.

[38] This is not a situation of difficulty of assessment. Rather, it is a situation of absence of evidence. The onus was on DME to prove its damages. Rather than specifically focusing on the cost to address the deficiencies, DME sought replacement of the flooring on the corridors of five floors. I agree with the submission of KF that, in the circumstances, it is excessive to seek the replacement of the flooring on all corridors given the evidence of the project manager that the shading variations were within “acceptable standards” and opinion of the architect that the shading variation “should not be considered worthy of requesting wholesale replacement of all flooring”.

[39] I accept the evidence of the project manager that it was Mrs. Degagne who requested that KF be removed from the site before the deficiency work was completed. As such, I am sympathetic to the submission that this action relieves KF from its obligation to complete its work under the contract. Nevertheless, the flooring in the dental office has not been installed, some coving needs to be re-glued and caulked and some seams need repair or replacement. I find that the contract has not been fulfilled. KF could have led evidence as to these costs but also failed to do so.

[40] Following the principle enunciated by the Court of Appeal in TMS Lighting Inc. v. KJS Transport Inc., in the circumstances, the best that the court can do is to dismiss both the claim and counterclaim.

[41] If the parties are unable to agree on costs within 30 days, then each party must, within 45 days from the release of these reasons, submit costs submissions in writing limited to five pages plus costs outline. If costs submissions are not received within 45 days, then costs will be deemed settled.

The Hon. Mr. Justice W.D. Newton Released: April 21, 2016