CITATION: 2395446 Ontario Inc. v. King’s & Queen’s Custom Homes Inc., 2016 ONSC 6537

COURT FILE NO.: CV-15-540783

DATE: 20161020

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2395446 Ontario Inc. and Nikolay Chsherbinin, Plaintiffs/Moving Parties

AND:

King’s & Queen’s Custom Homes Inc. and Sula Kogan, Defendants/Responding Parties

BEFORE: Sean F. Dunphy J.

COUNSEL: Gregory Sidlofsky, for the Plaintiffs/Moving Parties

Benjamin Salsberg, for the Defendants/Responding Parties

HEARD: October 14, 2016

ENDORSEMENT

[1] The plaintiffs have brought this motion for summary judgment. The plaintiffs claim the return of amounts allegedly overpaid as well as the benefit of a penalty clause applicable in the event of delay in completion of the construction project supervised by the defendant.

[2] For the reasons that follow, the motion and action are dismissed. The only proper parties to this claim were the parties to the underlying contract giving rise to it: Mr. Chsherbinin and Kings & Queen’s Custom Homes Inc. (“K&Q”). There was never any proper basis for having added any other parties whether as plaintiff or defendant. The plaintiff’s claim for penalties arising from alleged delays in completion of three aspects of the renovation project fails because the plaintiff has failed to establish that any were the sole fault of the K&Q and none of them is a matter for which a delay claim can be advanced under the Construction Management Contract (the “CMC”). The claims to return of funds allegedly paid in excess of contractual requirements similarly fails because the plaintiff has failed to establish that any amount was paid by inadvertence or was paid by reason of a mistake.

Overview of Facts

[3] On January 29, 2015 Mr. Chsherbinin and K&Q entered into the CMC pursuant to which K&Q agreed to manage the new commercial office build out of the law office of Mr. Chsherbinin.

[4] Pursuant to the CMC, K&Q was to receive a project management fee of $19,134 plus HST. The CMC provided that “All trades will be picked and supervised” by K&Q and “[a]ll major work and supplies will be supervised by [K&Q] and billed accordingly to clients for payment as work is done, based on the pricing in Schedule “B” attached to this contract. Only items marked “allowance” are subject to price changes and are in the control of the client”. It further provided that “any work performed by a trade not of [K&Q] will not be covered in warranty coverage” and “any delays that a trade that is not of [K&Q] will not be the fault of [K&Q] nor will the client penalize [K&Q] in any way”

[5] Among the items as listed as being subject to an “Allowance” in Schedule B were a “feature wall” and “reception desk”, both described as being pursuant to January 20, 2015 drawings. The feature wall and reception desk were manufactured and installed by Woodview Innovations Inc. (“Woodview”). Woodview was not picked by K&Q. The plaintiff selected Woodview as the supplier for these items and procured a quotation from them. The plaintiff made revisions to the design of the reception desk directly with Woodview and was directly involved in discussions and negotiations with them. Payments were only made to Woodview when authorized by the plaintiff. However, Woodview sent its invoices to (and was paid by) K&Q.

[6] The paragraph of the CMC entitled “Construction Time” provided for an estimated start date of February 3, 2015[^1] and a “completion date of project based on responsibilities of [K&Q] in schedule “B” (which will be drywall ready for painter – a non-trade of [K&Q)][^2] will be between March 23, 2014 and April 2, 2015. The Painter and/or client will be advised a minimum of 7 days in advance of his/her start date at the commercial office space”.

[7] The last section of the CMC is entitled “Delays by Contractor” and provides “Any delays that are the sole fault of [K&Q] only will be subject to a penalty of $200.00 per day to be paid by [K&Q]”.

[8] It is not disputed that K&Q turned the property over to the plaintiff’s painter as scheduled on April 2, 2015. It is also not disputed that the feature wall was not installed until May 26, 2015 (subject to the plaintiff’s issues regarding cosmetic defects discussed below)[^3].

[9] The statement of claim was issued November 18, 2015. The plaintiff’s claims included:

a. Payment of $14,053 alleged to have been overpaid by the plaintiff to K&Q under the CMC; and

b. $36,160 in respect of alleged delay in completion of the project arising from (i) failure to install the feature wall and reception desk; (ii) failure to remove when requested a master switch that turned off all power instead of merely lights; and (iii) failure to install a small door on a kitchen cabinet that was ordered from Ikea and installed by the plaintiff instead.

Issues

[10] Who are the proper parties to this litigation?

[11] Is the plaintiff entitled to $200 per day in late penalties as claimed?

[12] If so, is the defendant K&Q entitled to relief from forfeiture pursuant to s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43?

[13] Has the plaintiff established that it inadvertently overpaid K&Q by the amount of $6,414 or that it is entitled to a further credit of $2,260 and $5,379 in respect of amounts paid directly to two suppliers?

Analysis and Discussion

(i) Who are the proper parties to this litigation?

[14] The statement of claim names 2395446 Ontario Inc. and Nikolay Chsherbinin as plaintiffs. The defendants named are both K&Q and its principal and sole director Ms. Sula Kogan. The CMC however is between K&Q and Mr. Chsherbinin alone.

[15] 239 has no privity of contract with K&Q or Ms. Kogan. There is no basis for it to have been added as a party plaintiff. The statement of claim pleads that 239 is the registered owner of the condominium property where the renovation work was to take place and is the “management arm” of yet another corporation (Chsherbinin Litigation Professional Corporation). Bafflingly, the statement of claim seeks a declaration pursuant to s. 8 of the Construction Lien Act, R.S.O. 1990, c. C-30 but pleads not a single fact that might bring the CLA into play. The plaintiff was unable to explain the relevance of the CLA and none could be discerned from the statement of claim. 239 made no payments to either defendant and had no dealings with either of them. There is no suggestion that any subcontractors have not been paid. No liens have been sought or filed.

[16] In my view, 230 should never have been added as a plaintiff although nothing in particular appears to turn on its presence or absence as a party.

[17] Of somewhat more substance was the questionable decision to add Ms. Kogan as a party defendant. The statement of claim pleads that K&Q became the “general contractor” under the CMC while Ms. Kogan, a director of K&Q, acted as its project manager and “personally” charged a project management fee of $19,134.00.

[18] The pleading is a complete mischaracterization of the CMC and also stands in stark contrast to what the plaintiff actually did (the fee was invoiced by and paid to K&Q).

[19] The only parties to the CMC are K&Q and Mr. Chsherbinin. Ms. Kogan clearly signed it on behalf of the corporation and not in her personal capacity. The project management fee described was clearly payable (and paid) to K&Q corporately and not Ms. Kogan personally. The late penalty – by far the largest part of this claim – if payable, would be payable only by K&Q by the terms of the CMC.

[20] In argument, the plaintiff suggested that Ms. Kogan somehow became a guarantor of the CMC. The sole basis alleged for this was a sentence in the CMC under the heading “Emergencies and Contact” that says “if the matter is an emergency at the job site and you can not get in touch with Sula (project manager) always call the proper authorities”.

[21] On the basis of this incidental reference to a contact person, the plaintiff submits that Ms. Kogan must therefore be construed as the “Project Manager” described later in the same paragraph as taking “full responsibility to ensure that we build, install and complete all items” and the party to whom the $19,134 project management fee was payable. As noted, that fee was invoiced by and paid to K&Q without objection by the plaintiff. Further, the “Project Management Fee” was subject to escalation by the terms of the CMC “if [K&Q] should have to oversee and coordinate the completion of the painting work” and the vast bulk of the payments made under the CMC was to reimburse K&Q for payments made to trades and suppliers.

[22] There is simply no basis to lay any of the specific claims made in the statement of claim at the feet of Ms. Kogan personally. This is not a “piercing the corporate veil” case. The claim was doomed to fail as against her.

[23] The plaintiff’s position was a strained and tenuous one at best; a transparent attempt to seek tactical leverage at worst. I cannot credit it with having been advanced in good faith. The growing trend of plaintiffs to add directors, officers or employees on thin or non-existent pretexts for tactical reasons is to be deplored. In my view, this is an instance of that deplorable trend.

[24] This claim ought never to have been advanced as against Ms. Kogan personally. It must be dismissed.

(ii) Is the plaintiff entitled to late penalties?

[25] The plaintiff submits that the doctrine of contra proferentem ought to be applied to the CMC in general and the delay clause in particular. His affidavit claimed that the delay clause was actually drafted by the defendant.

[26] In my view the contra proferentem doctrine has no place in this case. The CMC was a negotiated contract having nothing in common with a contract of adhesion. There was no disparity of bargaining power and both parties were reasonably sophisticated with the plaintiff clearly being the more sophisticated of the two. The plaintiff was a lawyer negotiating a contract for his own legal business, not a babe in the woods. The plaintiff’s evidence that the clause had been drafted by the defendant was contradicted by his own cross-examination testimony where he admitted the clause had been the subject of direct negotiation in his own office and amended on his own computer after discussions. The plaintiff now admits that clause was drafted and inserted by both sides.

[27] This was but one glaring example of over-reaching by the plaintiff in his affidavit that has left me with no confidence that I can accept any of his evidence unless specifically noted otherwise. His tendency to exaggerate or overstate if not deliberately misstate is simply too evident to allow me safely to credit his evidence with any weight unless corroborated.

[28] What does “any delays that are the sole fault of kings and queens homes inc.” in the penalty clause mean? The plaintiff conceded in argument that this cannot mean that the penalty clause continues to apply until each every warranty claim, no matter how trivial, is resolved to the plaintiff’s full satisfaction. Such a conclusion would be both absurd and commercially unreasonable.

[29] In the present case, the word “delays” is used relative to a date – April 2, 2015. The delay being referenced ought logically to be a delay relative to whatever was required to be completed by that same date. The context for that date is supplied by the previous paragraph titled “Construction Time” which reads in part:

“completion date of project based on responsibilities of Kings & Queens Homes Inc. in schedule “B” (which will be drywall complete ready for painter – a non-trade of kings and queens homes inc. will be between March 23, 2015 and April 2, 2015. The Painter and/or client will be advised a minimum of 7 days in advance of his/her start date at the commercial office space”.

The final line of the contract ties in to this same idea by providing that the final 10% of the contract price ($2,162.14) was to be “paid upon 45th day of last day kings and queens homes inc. gives the space completed to the client’s painter to complete the office space”.

[30] Viewing the penalty clause in context, I conclude that the delay to which the penalty clause refers is delay in turning the space over to the client for painting and moving in (being the thing that was required to be done by April 2) and did not apply to the inevitable warranty claims or similar items. This does not mean that the other work did not have to be performed; it does mean that this work was not subject to an automatic penalty of $200 per day.

[31] The intent of the penalty clause was clearly to compensate the plaintiff for any delay in being able to get his painter on to the premises and, thereafter to move in. The plaintiff’s interest in this was self-evident given the plaintiff was planning on moving from other leased premises to carry on his law practice in these to-be-renovated premises (that he had caused an affiliate to purchase). The primary concern of the plaintiff was thus avoiding delay would require him to cover the costs of two premises any longer than necessary.

[32] It is uncontroverted that the defendant did in fact turn the property over to the plaintiff on April 2, 2015. The plaintiff was able to move in and co-ordinate moving out from rented premises on the time-line contemplated. Painting was finished later in April and furniture appears to have been moved in by April 24, 2015. There was in fact no delay that kept the plaintiff from moving his law practice in on the agreed timetable.

[33] The statement of claim pleads three particulars as instances of the failure of K&Q to complete the project on time: (i) failure to complete “leasehold improvements to the kitchen”; (ii) failure to “correct electrical problems with the master switch”; and (iii) failure “to ensure that its sub-contractor, Woodview Innovations Inc., would manufacture and install a defect-free feature wall…and that Woodview would correct the defects on the reception unit it manufactured”.

[34] I dismiss out of hand any suggestion that a delay penalty claim can be built out of either the first two pleaded “delays” (alleged kitchen defects or the electrical master switch).

[35] The electric master switch was not in fact referred to the CMC at all. There was no requirement to have it installed in the CMC; there was no requirement to remove it either. The plaintiff asked for a single switch to turn off all the lights. Such a switch was installed but appears to have turned off all power outlets as well. This was an “extra” requested by the plaintiff and for which he was never charged given his complaints about it. The plaintiff chose to have an electrician come in to remove the master switch at a cost of $282.50. Neither the switch nor its removal were required to be completed by April 2, 2015 under the CMC.

[36] For reasons that are not at all clear in the evidence, the Ikea kitchen cabinets installed in the office kitchen were missing a single door on one-half of a cabinet and some knobs. However, I do not conclude that the missing cabinet door was the “sole fault” of the defendant. This was an item involving optional selections by the plaintiff. I can only find that one side of one cabinet door was in fact missing. After relations between the parties had soured, the plaintiff sought to require the defendant drive to Ikea to pick up the cabinet door, a task that the defendant appears to have been unwilling to undertake given disputes about what was then owing. The plaintiff soon tired of waiting and simply ordered the missing cabinet door on-line on October 8 at the princely cost of $63.28 (delivered) and it was delivered by October 10, 2015 according to the invoice. The order could have been placed at any time and there is no reason to expect delivery would have entailed more than one or two days. The missing cabinet door in no way interfered with the use of the premises.

[37] These two items can only fairly be described as trivial and cannot form the basis of a serious delay claim. By way of comparison, neither item alone or in combination would have been sufficiently material to preclude the project from being described as “complete” within the meaning of s. 2(3) of the Construction Lien Act. I should certainly have granted relief from forfeiture under s. 98 of the Courts of Justice Act for either or both of these items were a contractual delay claim properly founded upon them.

[38] I turn now to the one delay item that the plaintiff did rely upon strongly in argument. The feature wall was alleged to have been re-manufactured and re-installed 131 days past the deadline of April 2, 2015.

[39] The CMC provided a global price allowance in Schedule B for the reception desk, the feature wall and a number of other items of $6,000. The specific allocation to the feature wall and reception desk is not broken out in the CMC.

[40] The initial date of the order for these two items was not in evidence. The actual invoice price of these two items in April 2015 was $10,300 plus HST (for a total of $11,639). A deposit of $2,950 was paid on April 6, 2015 by K&Q. I have not been pointed to any evidence indicating why this material price change was made. The plaintiff does not allege that he was unaware of it or failed to approve it. The evidence confirms that he gave specific approval to design changes in the reception desk (on April 12-14) and was directly involved in giving approval to release the balance of the purchase price after the requested cosmetic repairs were made.

[41] The feature wall and reception desk were installed by May 26, 2015. The day before installation, the supplier (Woodview) warned that there were small cosmetic blemishes.

[42] There followed a period of several weeks where the parties (Woodview, K&Q and Mr. Chsherbinin) negotiated what work if any needed to be done to deal with the plaintiff’s complaints. At length, Woodview agreed to re-work several panels. The re-worked panels were finally installed on September 21, 2015. The plaintiff would not authorize K&Q to pay the balance due to Woodview until after this was done.

[43] Did the CMC require the feature wall and reception desk to be installed by April 2, 2015? If it did not, no penalty can be claimed.

[44] I cannot conclude that the parties expected or intended for the feature wall or reception desk to be installed for April 2. The April 2 date in the contract was premised on the time when the space would be ready for painters prepatory to the plaintiff moving in and it is not at all clear that the parties expected or even wanted the feature wall to have been installed before the painters were done. Furniture was only moved into the premises on April 24, 2015 after the painting was complete and cleaned up.

[45] In an email from Ms. Kogan to Woodview (Mr. Persaud) of June 29, 2015, Ms. Kogan noted that “the desk and panel install all happened over one month from the date we should have had install”. Since install occurred on May 26, 2015, this suggests an expected install date of late April 2015 – a date quite consistent with the correspondence on the subject in March and April that has been produced by the parties.

[46] There is no suggestion in any of the correspondence from the plaintiff in April that the feature wall was expected to have been installed by April 2:

• A lengthy list of complaints/issues sent by the plaintiff to the defendant on April 6. 2015 makes no mention of the reception desk and feature wall. It does mention a number of other delay problems none of which were raised in the statement of claim as items for which a delay claim was being made.
• On April 13, 2015 the plaintiff wrote Ms. Kogan a text message “Hey how would you like to renovate 3000 offices (which are on my floor). I just spoke to the owner and “sold” you to him…I am working for you, Sula!”
• On April 30, 2015, he wrote to a colleague “I think Sula is one of the most decent people I’ve met in the construction industry” and later “Enclosed are a few pic of my new digs. The office is almost complete, but the [feature] wall, which will be installed next week. Sula rocks!”
• On May 26, 2015 (the day of installation of the feature wall), Mr. Chsherbinin wrote “[Sula], let me be clear. I “love” you! I don’t want you to worry about being paid. I do not rip people off either. But with Prem, you need to bring him to the realistic level so that he is under no misunderstanding of any kind that there is no way he is getting paid until I am happy with his job”.
• On May 27, 2015 (the day after the feature wall was installed with blemishes to the consternation of the plaintiff), the plaintiff texted Ms. Kogan “Listen, I hope you know that I appreciate you very much and truly think that you are a very good GC. I am very “anal”. It is a curse; O) I like your guys a lot and thus far treated them with nothing but kindness, respect and admiration. I won’t let them down re: funds”.

[47] I do not accept evidence contained in emails or text messages from Ms. Kogan to Mr. Persaud at Woodview as admissions that the delay claim in respect of the feature wall was admitted by the defendant. Ms. Kogan was advocating on behalf of her client (the plaintiff) in trying to cajole or persuade Woodview to accept responsibility for the cosmetic blemishes complained of, to offer discounts or to hurry things up. That she should have referenced the threat of the penalty clause to Woodview in that context is probative of nothing. Mr. Chsherbinin was also sending posturing emails to Woodview in September 2015 that were copied to Ms. Kogan with a covering note suggesting that the note was not aimed at her.

[48] I find that the CMC did not require the installation of the feature wall or reception desk by April 2, 2015. Accordingly a delay claim for installing these beyond that date cannot be made. I do find that the parties expected these two items some time later in April or early in May and delay past that expected date was clearly a source of some consternation. However, this was not delay for which the $200/day penalty clause applied. To the contrary, Mr. Chsherbinin sought to use Woodview’s delay as leverage to negotiate discounts that would be passed on to him. This is not consistent with delay being the sole fault and financial responsibility of the defendant as claimed.

[49] I also find that what delay there was in installing the feature wall and reception desk was not the sole fault of the defendant and cannot form the basis of a delay claim for that reason as well.

[50] The plaintiff attempted to argue at the hearing that delay between April 2 and May 26, 2015 arose through the sole fault of the defendant because the defendant delayed in placing the order with Woodview. No such evidence was given by him in his affidavit nor did the statement of claim plead this. I make no such inference from the evidence before me.

[51] I find that the delay in completing this aspect of the project was due to a combination of Woodview delays and (smaller) delays attributable to design changes requested and approved by the plaintiff. I cannot find that the defendant bore sole or indeed any responsibility for the delay. Delays attributable to a subcontractor selected by the plaintiff in respect of an item priced as an “allowance” rather than a firm price are not the sole fault of the defendant under the CMC.

[52] I have therefore concluded that the plaintiff is not entitled to any amount in respect of the alleged delay in completion of the contract.

(iii) Relief from forfeiture

[53] The defendant amended its statement of defence to include a claim for relief from forfeiture pursuant to s. 98 of the Courts of Justice Act in the event the penalty provision of the delay clause was found to be applicable. I have concluded that the penalty provision is not applicable to the three instances of alleged delay that the plaintiff has raised in this claim. However, if I were wrong in my conclusion, I should have granted relief from forfeiture in this case in any event.

[54] The $200 per day penalty clause may well have been a reasonable pre-estimate of damages having regard to items that precluded the defendant from moving in and conducting his law practice from the new office. The evidence is clear that none of the alleged deficiencies had any impact on that central business imperative. Two of the pleaded delay items were trivial items of no substance neither of which had any impact on use or enjoyment of the premises and both of which were easily fixed at nominal expense relative to the penalty clause.

[55] As regards the third element of pleaded delay: the feature wall was an item the plaintiff had himself selected and obtained quotes for. It was clearly modified to some degree from the original quote and the plaintiff was very directly involved with the supplier. The total allowance in the contract for these decorative items was less than $6,000. They were both installed by late May[^4] with only minor cosmetic blemishes. I cannot conclude from the evidence before me that the defendant was required by its contract to remove and replace the panels even if it persuaded Woodview in fact to do so. The claimed penalty is out of all proportion to the harm attributable to the delay in installing this accent feature and then repairing minor cosmetic issues later.

[56] For all of these reasons, I should have granted relief from the penalty prescribed by the contract.

(iv) Alleged overpayment under CMC

[57] The plaintiff claims to have “inadvertently” paid $6,414 in excess of the contract price (amended statement of claim, paragraph 14(a)). However, his affidavit evidence provides no support for any such payment having been made inadvertently. He did not swear to have made an inadvertent payment nor did he explain how such a payment came to have been made inadvertently.

[58] What is before me is a series of eight cheques or bank drafts dated between January 28 2015 and June 12, 2015 for a total amount of $166,440. In addition, the plaintiff claims to have paid $5,000 cash. Each of the cheques references a specific invoice number (1 through 5) or deposit requirement. The plaintiff has failed to produce all of the invoices referenced in his own cheques.

[59] There is nothing from this that would enable me to conclude that the plaintiff paid any amount under a mistake of fact or law (neither of which was specifically pleaded) nor has the plaintiff explained his mistake or how he came to make it.

[60] The parties spent a great deal of time parsing the invoices that were produced and various extras. The plaintiff has admitted at least one extra. There is ample evidence before me of numerous others, not least of which is the fact that the amount paid for the feature wall and reception desk exceeded by almost $6,000 the allowance prescribed by the CMC for an entire category of items of which these were only two.

[61] The plaintiff placed great store in a clause at the end of Schedule B to the CMC that stipulates “any increase in cost will be specifically requested or authorized by Nikolay Chsherbinin in writing”. He referred to invoice 3 that included $1,310 for a hot water tank install that was marked as “Additional to Contract”. While this was agreed by the plaintiff as a valid “extra”, the plaintiff did not produce any written agreement on his part to pay for it although there is no disputing the obvious fact that the written invoice claiming the payment was followed by his own cheque paying that very invoice and referencing it in the “memo” line.

[62] I can see no reason to delve into the invoices with a view to mapping invoice amounts to the original contract. It is clear from the evidence that there were numerous modifications made to the original plan as the project unfolded. These changes, large and small, were invoiced and paid without complaint by the plaintiff. Among the most obvious changes:

• The parties disputed at length whether the door frames were upgraded. It is plain and obvious that they were. The contract called for a composite wood to be stained; the defendant installed higher-grade stained cherry wood to match the doors.
• There are kitchen fixtures invoiced from Lowes when the contract provided for a fixed allowance for different kitchen items to be sourced from Ikea.
• There were modifications to the feature wall and reception desk and clearly a very material increase in price of these items of approximately $6,000.

[63] The simple fact of the matter is that the plaintiff was sent a series of invoices containing details of work and amounts. The plaintiff has produced only some of the invoices that he paid and has failed to provide me with exact particulars of what charges contained in all five invoices that he now takes issue with. He has paid all of the invoices and did so before commencing this action. He did not reserve his rights in making the payments and has not satisfied me that any of the payments made were the result of mistake of fact or law. Indeed, the plaintiff remains unable to pinpoint what the mistake alleged is.

[64] This was not a fixed price contract where any payment in excess was necessarily a mistake of law or fact. The defendant contractor sourced some trades and goods and followed the plaintiff’s instructions on others. Payments to contractors were released in consultation with the plaintiff. I cannot find on the evidence before me that the plaintiff has discharged his burden of establishing that any amount was paid under mistake of fact or law.

Disposition

[65] In the result, I am dismissing this motion and claim.

[66] The plaintiff has made a mountain out of a molehill with this claim. The defendants are entitled to their costs.

[67] If the parties are unable to agree on the amount or scale of costs, I shall receive written submissions from the defendants within 21 days and the plaintiff shall have 14 days thereafter to respond to them. All submissions in writing not to exceed 5 pages, excluding any outlines of costs or Rule 49 offers that need to be attached. Cases should not be attached unless not readily available on-line. Both submissions should be delivered to my assistant when ready, electronically if possible.

Sean F. Dunphy J.

Date: October 20, 2016

[^1]: The CMC says February 3, 2014, an obvious typographical error [^2]: By a further typographical error, the parentheses were not closed but clearly should have been at this point. [^3]: The reception desk was installed in late April shortly after the plaintiff’s other furniture was delivered. [^4]: The reception desk having been installed in late April