Court File and Parties

Newmarket Court File No.: CV-14-119264-00 Date: 2017-02-10 Corrected Date: 2017-02-13

Ontario Superior Court of Justice

Between: Otomic Contractors Ltd., Plaintiff – and – Royal 7 Developments Ltd., Respondent

Counsel: Salvatore Mannella, for the Plaintiff David Weisman, for the Respondent

Heard: November 28, 29, 30, December 1 and 5, 2016

Corrected Decision: The text of the original Decision was corrected on February 13, 2017 and the description of the correction is appended.

Reasons for Decision

MULLIGAN J.:

[1] The plaintiff, Otomic Contractors Ltd. (Otomic) is an excavating contractor. The defendant, Royal 7 Developments Ltd. (Royal 7) is the owner and developer of property on Highway 7 in Vaughan, Ontario. In order to build and develop a multi-phased condominium development, Royal 7 hired Otomic to conduct excavation work on Phase One of this project. The parties entered into a written contract with respect to Phase One. Otomic conducted excavation work and submitted periodic invoices. The contract contemplated that the parties might enter a further contract to continue excavation on Phase Two. Although no formal contract was entered into, Otomic did continue with excavation on Phase Two and payments were made on some invoices.

[2] After a number of months the relationship between the parties broke down and Otomic commenced this Construction Lien Action and registered a lien against the subject property. In this action, Otomic claims that it is owed $217,945.74 for work done by it on Royal 7’s site. Otomic also seeks a declaration that it is entitled to a construction lien on the project.

[3] Royal 7 disputes that it is indebted to Otomic and also pleads that Otomic failed to properly preserve and perfect its lien pursuant to the provisions of the Construction Lien Act, R.S.O. 1990, c. C.30. Royal 7 also counterclaims against Otomic in the amount of $273,700.31 on the basis that Royal 7 was required to retain another excavating contractor to complete the excavating work that Otomic was required to perform.

Otomic’s Witnesses

[4] In support of its claim, Otomic called a number of witnesses. Otavio Cutillo is the secretary treasurer of Otomic. He has 40 years of experience in the excavation business. His son, Salvatore Cutillo, is the president of Otomic. He was the on-site supervisor on this project with 16 years’ experience in the business. Otavio Cutillo’s daughter, Natasha Cutillo, also gave evidence. She is the office manager of the company with ten years’ experience. In response to the counterclaim, Otomic called as a witness, Bernard Moore P. Eng. Mr. Moore was qualified as an expert to give evidence with respect to certain excavation measurements. In addition, Otomic called as a witness Sam DiPasquale, who was the original project manager for Royal 7 when the excavation contract was first entered into by the parties.

[5] The Defence witnesses were Mario Cortellucci, who was the director and secretary of Royal 7. He has 47 years’ of experience building high and low-rise structures. Anthony Cortellucci, was the contract manager for the Royal 7 project. He is the nephew of Mario Cortellucci. Gabriele Cortellucci is the president of Toocor Limited, the company which was hired by Royal 7 to complete the excavation work. He is the brother of Mario Cortellucci and uncle of Anthony Cortellucci. Panfilo Benedetti was the on-site foreman for Toocor when Toocor began working on the site. Robert Wiegenbroker is an Ontario Land Surveyor who did survey work and volume calculations regarding excavated materials on the site. Peter Zourntos is a professional engineer who was also qualified as an expert. He was employed by Valdor Engineering Inc., a company that was retained to do design work on this site. Ashraf Makary was an on-site supervisor for Royal 7 at the material time.

[6] The parties entered into an excavation contract in 2012. The document itself appears to have been prepared by Royal 7’s project manager at the time, YYZ Project Management, once the essential monetary terms were negotiated between the parties. The contract itself covered Phase One of the project but provided:

Although the contract herein only relates to Phase One of the master plan (i.e. Expo One) the owner has agreed in principle that it would like to engage the trade contractor [Otomic] to provide excavation services for the remaining phases. Any agreements for such phases shall be entered into separately in due course as the overall development evolves.

[7] The work contemplated by the contract is set out in paragraph four. It is not necessary to list all of the items set out therein, but they can be summarized as follows:

Site clearing, excavation and removal of excavated materials, creating site-access roads, grading of the entire site, backfilling, installation of granular base and pumping of water and maintaining a dry site.

Price

[8] The contract price was broken down into three components:

(a) $18 per cubic meter of excavated material; (b) $3 per cubic meter of backfilled material; and (c) HST.

[9] According to a Cut-Fill Plan prepared by Valdor Engineering Inc., the contract price as estimated was:

• 85,154 cubic meters x $18 per cubic meter = $1,532,772
• Backfill materials – 5,011 cubic meters [at $3 per cubic meter] = $15,033
• Total: $1,547,805

[10] The contract noted that this figure, $1,547,805 was the total guaranteed maximum for the work on Phase One.

[11] Paragraph 6(b) sets out the basis upon which these calculations were derived:

The contract price shall be determined based on the quantities of excavated material and backfill material, as set forth in the Cut-Fill Plan attached hereto as Schedule ‘A’.

The Cut-Fill Plan

[12] The contract contained a number of schedules to assist the parties in their understanding of the contract. One such document was a Cut-Fill Plan prepared by Valdor Engineering Inc., the owner’s consulting engineers. The Cut-Fill Plan contained a chart as to the quantities of material to be removed from the various phases as well as a chart of the necessary backfill quantities needed for each phase. This was the source of the figures referred to above; 85,154 cubic meters for excavation and 5,011 cubic meters for backfill for Phase One.

The Disposal of Excavated Material

[13] The contract provided that excavated material would be taken to two disposal locations operated by Toocor Ltd. Otomic agreed to pay $50 per dump truckload for each load disposed of at a Toocor site. Later in these Reasons I will discuss the close relationship between Toocor and Royal 7.

The Phase Two Excavation

[14] Otomic proceeded to carry on excavation work on Phase One in 2012 and by 2013 had transitioned to excavating for Phase Two. Although contemplated in the initial contract, no formal contract was entered into with respect to the Phase Two work. According to the Cut-Fill Plan attached to the original contract, the Phase Two site was smaller in area. The Cut-Fill Plan contemplated that 60,271 cubic meters would be excavated and 4,137 cubic meters would be required for backfill.

The Invoices

[15] In order to support its claim for $217,945.74, Otomic filed as exhibits invoices for work on Phase One and Phase Two, together with work done as extras to the contract. It was not disputed that Otomic entered into separate contracts for stripping topsoil and building a ramp. Further, it provided credits to Royal 7 for the amounts that Otomic was required to pay on a $50 per load basis for disposing of the excavated material. These credits totalled $456,620.97 for both phases.

[16] It is not necessary to review each invoice in detail. The first invoice, dated June 27, 2012, illustrates how Otomic billed Royal 7 for work done in June 2012. The invoice price was $342,000 and stipulated that it was calculated as follows: Approximately 19,000 square meters at $18 per square meter.

[17] The invoice allowed for a holdback of ten percent. This invoice was paid in due course and Royal 7 later paid the ten percent holdback as well.

Otomic’s Method of Calculation

[18] In arriving at the figure of 19,000 cubic meters on this invoice, Otomic relied on its count of trucks leaving the site on a daily basis. The evidence from Otomic indicated that from 10 to 30 trucks were leaving the site each day during the excavation period. Each truck was loaded by machinery which levelled and compacted the soil to a certain extent. I accept the unchallenged evidence from the plaintiff’s witnesses that ten cubic meters is the average dump truck capacity as accepted in the industry.

[19] Salvatore Cutillo, Otomic’s president, worked as the site supervisor and equipment operator. I accept his evidence that a daily sheet was kept at the gate of the site to track the number of trucks exiting the site. Otomic kept a copy and provided another copy to Royal 7’s superintendent on a daily basis. For a period of time, Royal 7 had a person at the gate checking the count but this did not continue. Royal 7’s former employee, Ashraf Makary, gave evidence that when he was working on the site he received records of the loads on a daily basis. As I will explain later in these Reasons, the truck count was important to Royal 7 as well.

Phase One Excavation

[20] As it appears from Otomic’s summary of the Phase One invoices, it removed a total of 83,767 cubic meters of soil calculated on a truck count basis.

[21] Based on the same method, its invoices for Phase Two indicated that it removed 45,643 cubic meters of soil.

[22] In addition, Otomic performed extra services for Royal 7 and submitted invoices, which, to a large extent, were paid. One invoice in dispute was an invoice dated March 27, 2013, for a partial backfilling of Phase One. Backfilling involves replacing soil around the building once construction is completed. Otomic returned to do this backfilling in March 2013. Otomic’s position is that this contract work was for $25,000, that they had done 90 percent of the work so they billed for $22,500. Royal 7 has not paid this bill. Their evidence was that only 50 percent of this backfill work had been conducted.

[23] Otomic’s claim for $217,945.74 detailed at Exhibit 4 can be summarized as follows:

• Phase One invoices: $1,530,306
• Phase Two invoices: $821,574
• Underground services contract: $138,000
• Extras to the contract: $176,933
• Total amount of invoice: $3,013,498.67
• Credits towards invoices: $456,020.97
• Payments made to date: $2,338,931.98
• Total amount due: $217,945.74

The Dump Sites

[24] The contract between the parties indicated that Otomic would take the excavated fill material to locations operated by Toocor Ltd. Toocor accepted these materials on the basis that they would receive $50 per load, therefore it stands to reason that Toocor would require an accurate count of trucks leaving the site to locations controlled by it. As previously noted, Toocor is the contractor that completed excavation work for the defendant. The defendant seeks reimbursement for costs paid to Toocor to complete the excavation work by way of its counterclaim. I will deal with the counterclaim in more detail later, but I pause to note that Toocor is a company which is closely related to Royal 7. The relationship may be considered to be non-arm’s length. The following factors should be noted:

• Mario Cortellucci is the director and secretary of Royal 7. His son, Peter Cortellucci, is President.
• Toocor is owned by Peter Cortellucci and Gabriele Cortellucci, who is his uncle and Mario Cortellucci’s brother.
• Both companies share the same address.
• Both companies have the same financial comptroller.
• Payments owing to Toocor became credits for Royal 7.

[25] Later in these Reasons I will deal with the invoices from Toocor as part of the discussion about Royal 7’s counterclaim.

[26] The interconnection of these companies is made apparent by a review of the credits that Otomic gave to Royal 7. These credits totalled $456,620.97. The redirection of these funds was documented in agreements between Otomic and Royal 7. Peter Cortellucci signed as president of Royal 7 and Salvatore Cutillo signed as president of Otomic. But these substantial benefits no longer continued to flow to Toocor during the course of excavation. The first site was exhausted; no more could be received there. The second site became subject to a Stop Work Order by the Municipality. I accept the evidence of Otavio Cutillo that these Toocor sites were no longer available to Otomic. This Stop Work Order was filed as an exhibit. Otomic was offered another location owned or controlled by Toocor but it was a considerable distance away and Otomic decided it was not financially viable. Instead Otomic found an alternate location and continued to remove soil to that location. No agreement or change order was entered into between the parties. Thereafter, no further $50 per truckload credits were available to Royal 7.

The Pace of Payments

[27] Initially Royal 7 paid invoices sent to it within a month or so of the invoice date. For example, invoice 1070 dated July 26, 2012, for $732,240 was paid by way of a cheque dated August 20, 2012, subject to a ten percent holdback. But by later 2012 and into 2013 payments from Royal 7 became slower. For example, an invoice dated September 28, 2012, for $126,000 was not fully paid for until April 2013 when Royal 7 paid the balance of $61,251. That cheque also paid the outstanding balance for other invoices.

[28] During this period there was no dispute about quantities of fill removed but late or slow payments were a cause for concern for Otomic. Otomic’s office manager, Natasha Cutillo, gave evidence and provided a copy of an email which she sent on April 22, 2013. The purpose of the email was to seek payment on outstanding invoices which were overdue. That email stated:

[April 22, 2013]

Hi Anthony,

We are starting to receive letters from trucks, fuel supply, rental supply and Canada Revenue. Here is an example of the first letter that we have received this morning. This money that is owed to this people [sic] is from your job site at Expo-Vaughan Metropolitan Centre 2900 HWY 7. Please let me know what you intentions our [sic], so I can guide all these people in the right direction. We have been trying for months to set up a meeting with you and others to resolve outstanding monies that is owed to Otomic Contracts. Feel Free to contact me when we can resolve these issues before this escalates out of control. We will be sending all letters and forwarding phone calls to you.

Regards

Natasha Cutillo

[29] A further exchange of emails proceeded as follows:

[September 10, 2013]

Hi Anthony,

I know there was a glitch but I was wondering when I can received [sic] payment. So I can tell the rest of the trucks when to expect it, cause I have been receiving a high volume of calls. Please let me know.

Regards

[September 13, 2013]

Anthony,

The last time this happened the surveyor didn’t get back to you for 6 weeks. I hope we don’t have the same problem as last winter. I can only hold off the trucks for so long, as we saw last week when Judge Haulage put a lien on the site and I paid for money that is owed on this draw coming. Let’s hope this gets resolved quickly.

Regards,

Natasha Cutillo

[September 13, 2013]

Hi Natasha,

I apologize for not getting back to you earlier, it’s been a hectic week. We have been instructed to have the elevations checked to verify volumes, once verified we will receive the funds & distribute accordingly. The surveyor was in yesterday so I anticipate to receive the data/approvals late next week, early the following. Please ensure [sic] the truckers that funds are on their way and that their patience is appreciated.

Thank you,

Anthony

[September 18, 2013]

Hi Anthony,

We are getting threatening calls from truckers saying they will lien the project. Remember what happened 3 weeks ago with Judge Haulage, we endured that cost to remove the lien even though did not receive the money. We have not received payment that was due September 10, 2013 we cannot pay these truckers and other costs out of our pocket. Let me know when we can receive payment for the work that has been done, so I can try and pass it along to the truckers and other suppliers.

Regards,

Natasha Cutillo

[30] Ms. Cutillo also testified that she was receiving phone calls from Salvatore Cutillo requesting these invoices be changed to reflect that work that was being done on was Phase One instead of Phase Two. The purpose was to assist them with financing, according to her evidence. In his examination, Mr. Cutillo did not dispute that these calls were made.

[31] As noted in these emails there was reference to survey work to be done by way of verification. In his testimony, Mr. Anthony Cortellucci acknowledged receiving correspondence from Valdor Engineering Inc., dated March 22, 2013. That letter provided as follows:

Further to your request, we have reviewed the excavation volumes that were prepared by Krcmar as per the attached plan dated March 7, 2013. Our volume calculations were based on using the same parameters as Krcmar and we confirm that the volume of 115,110 cubic meters is acceptable. The volume we calculated was 114,937 cubic meters.

[32] Mr. Cortellucci had no issue with the volumes shown on the Otomic invoices and authorized further payments to Otomic. Although the Valdor figure of 115,110 cubic meters was higher than the Cut-Fill Plan requiring removal of 85,669 cubic meters, it is clear by the time Krcmar Surveying Ltd. did their survey work a substantial amount of material had already been taken from Phase Two as well.

[33] Ms. Cutillo’s evidence was that the last invoice sent was July 26, 2013, for $210,519. This amount was paid by a cheque dated September 4, 2013. Her evidence was that this cheque was received on a much later date after numerous attempts by her to collect this account.

[34] On each account from Otomic a holdback was allowed in the amount of ten percent, for example on the first invoice #1069, dated June 27, 2012, the holdback was $34,200. On the second invoice #1070, dated July 26, 2012, the holdback was $72,000. Notations on these invoices indicated that these were subsequently paid.

[35] However, thereafter it appears that Royal 7 did not make subsequent payments of the holdback amounts on invoices submitted to it. These holdbacks can be itemized as follows:

• Invoice #1071 (August 27, 2012): $27,000
• Invoice #1074 (September 28, 2012): $11,520
• Invoice #1075 (September 28, 2012): $3,800
• Invoice #1082 (October 27, 2012): $5,000
• Invoice #1081 (October 27, 2012): $4,860
• Invoice #1088 (November 25, 2012): $1,200
• Invoice #1089 (November 25, 2012): $5,000
• Invoice #1097 (December 24, 2012): $19,764
• Invoice #1105 (January 25, 2013): $9,315
• Invoice #1111 (March 27, 2013): $2,250
• Invoice #1115 (April 25, 2013): $5,378.40
• Invoice #1117 (May 27, 2013): $5,400
• Invoice #1119 (June 25, 2013): $21,600
• Invoice #1121 (July 26, 2013): $20,700

[36] As previously noted, Royal 7 did not pay the invoice for $22,500 for backfilling on Phase One. Otomic maintains this invoice was for backfilling on Phase One. Otomic submitted a bill for 90 percent of $25,000 or $22,500 on the basis that ten percent of the backfilling had not been completed. None of the $22,500 was paid. Royal 7 submits that 50 percent of the work was done and acknowledges this amount is owing to Otomic and has used it as a credit in connection with calculations on the counterclaim. With respect to this invoice, I prefer the evidence of the plaintiff that backfilling was completed to the extent of 90 percent. I therefore find that there is owing to the plaintiff the sum of $22,500. I will address this in more detail with respect to the counterclaim.

[37] It is clear that the plaintiff’s claim for $217,945.74 is set out in its summary filed as Exhibit 4. The summary shows all invoices for Phase One and Two excavation work, as well as all other extras. It credits Royal 7 with all payments made and credits Royal 7 with the substantial amount that Otomic was required to pay per truckload to dump fill at the Toocor controlled sites.

A Breakdown in the Relationship

[38] By 2013 Otomic had completed most of the work for Phase One and was progressing with work on Phase Two, but it is clear the payments from Royal 7 were slow to come. Otomic was pressing for payments. The evidence of Otavio Cutillo was that a meeting was arranged at Royal 7’s office to discuss issues with respect to the ongoing work at the Phase Two site. It should be borne in mind that there was no written contract for the Phase Two work. Otomic simply continued to excavate and bill using its truck account method. There is a disagreement as to what happened at the meeting or if the meeting even took place. Otavio Cutillo’s evidence was that Mario Cortellucci got quite mad at the meeting because he was no longer collecting the tipping fee credits. Otomic was no longer sending material to the Toocor dumpsites. In addition, Otavio Cutillo testified that Mario Cortellucci wanted certain further excavation work for footings, to be done on Phase Two for free on the understanding that Otomic would get the contract work for other phases to follow. Otavio Cutillo said that Mario Cortellucci walked out of the meeting and no agreement was reached. This was in November 2013.

[39] Salvatore Cutillo gave evidence that he was at the same meeting with his father. In addition, Mario Cortellucci, Peter Cortellucci and Anthony Cortellucci were also at the meeting. His evidence was that the purpose of the meeting was to discuss the footing for Phase Two. He also testified that Mario wanted this work to be done for free in exchange for further excavation contracts for Phases Three and Four.

[40] Mario Cortellucci’s evidence was that no meeting took place. His view was that Otomic abandoned the job and Royal 7 was forced to hire Toocor to complete the work.

[41] Anthony Cortellucci was also asked about this meeting. His evidence was that he did not remember such a meeting and did not know why the plaintiff left the job site. I accept Otavio Cutillo’s evidence that Peter Cortellucci was at this meeting. Peter Cortellucci was president of Royal 7 and a part owner of Toocor with his uncle, yet he was not called to testify about this issue.

[42] Otomic’s bookkeeper noted in her April email that Otomic had been trying to set up a meeting for months about money issues.

[43] Under the circumstances, I accept the evidence of the plaintiff’s witnesses that such a meeting took place and that Otomic was pressed to do further work on Phase Two for free in exchange for further work on Phases Three and Four. Otomic refused to proceed on that basis and no further excavation work was done on the site.

[44] By the end of 2013 Otomic had removed some of its heavy equipment from the site but left some smaller equipment there. Salvatore Cutillo’s evidence was that Otomic continued to monitor and maintain the pumping equipment and dry wells which it was required to maintain pursuant to the contract. It continued to do so until May 15, 2014, when it was specifically asked to remove the remaining equipment from the site. In addition to the pumps he removed a ride-on packer, some pipes and related material. The plaintiff’s lien was then registered on June 4, 2014.

[45] I accept the plaintiff’s evidence that it removed its equipment, including pumps, on May 15, 2014 when requested to do so. Up to that point there was no formal termination of the contract by Royal 7. Previously, payments to Otomic had been slow and holdbacks remained unpaid. Nevertheless, Otomic remained responsible pursuant to the written contract. As paragraph 4(i) provided, “The contractor was required to perform the following activities (i) pumping of water and maintaining a dry site and footings and to include temporary well points for construction purposes.”

[46] I accept the evidence of Salvatore Cutillo that he came back to the site from time to time to check the operational aspects of these pumps and he did so as recently as May 2014.

Changes to the Contract

[47] The original contract contained a provision as to approval for changes to the work. Paragraph 45 provided as follows:

Any proposed changes to the work must be approved in advance by the Owner, in writing, through the Owner’s issuance of a signed change-order which change-order shall be in a form approved by the Construction Manager (“change-order”).

[48] It is clear that Otomic did additional work as requested by Royal 7. This work was invoiced and paid for from time to time. Invoice #1075 dated September 28, 2012, was an invoice for an underground services contract for $138,000. Subject to holdbacks this amount was paid in full by way of subsequent invoices as that work progressed. In a similar fashion, Otomic began excavating material from Phase Two and invoicing for this work. Otomic’s claim for $217,945.74 is based on work done on both sites.

[49] As detailed in Exhibit 4, the plaintiff’s summary of invoices and credits provides as follows:

• Total invoiced: $3,013,498.69
• Less payments: $2,338,931.98
• Less credits: $456,620.97
• Total: $217,945.74

Statement of Defence and Counterclaim

[50] Royal 7 opposes the plaintiff’s claim on the basis that the contract was not completed by the plaintiff. By way of counterclaim it seeks to recover the sum of $273,700.31, being the net cost to it of completing work that it submits the plaintiff was obligated to complete.

[51] Otomic opposes the counterclaim and submits it did not over bill Royal 7 for material excavated. Otomic also advances a limitation period argument because Royal 7’s claim for overcharging by Otomic was not raised until its Amended Statement of Defence and Counterclaim dated August 14, 2014. This was more than two years after the plaintiff’s last invoice dated July 26, 2013. The contract provided for a payment on the basis of $18 per cubic meter for excavated material removed from the site. Given that $3 per cubic meter for backfill was factored in together with the HST, it was contemplated that the maximum amount of the contract was $1,547,805. As part of the contract Otomic was required to install granular base, perform backfilling and maintain pumping and wells to keep the site dry. The contract itself was only directed to Phase One. Otomic kept a careful and accurate count of trucks that exited the site. By way of its calculations at ten cubic meters per truck removed, they removed 83,767 cubic meters from Phase One. This closely approximates the amount required to be removed according to the Cut-Fill Plan, which stipulated 85,669 cubic meters.

[52] With respect to Phase Two, the Cut-Fill Plan indicated that 60,271 cubic meters would need to be removed. The invoices submitted by Otomic indicated that 45,643 cubic meters were removed from Phase Two. The contract itself did not provide any mechanism for monitoring the amount of material taken from the site. Otomic kept track of the quantities removed by way of the daily truck counts provided to Royal 7. These formed the basis for its periodic invoicing that was paid from time to time by Royal 7. No issues were raised during the currency of the excavation period about quantities removed other than the Valdor approval letter of March 22, 2013.

Non-Arm's Length Transaction

[53] There is nothing improper about Royal 7 contracting with Toocor to continue with work on its site. Toocor had the ability to conduct the excavation work but their invoices bear close scrutiny because of the close connection between the two companies. In McLarty v. R., 2008 SCC 26, [2008] 2 S.C.R. 79, at para. 43, Rothstein J. explained the general concern about non arms-length transactions by stating:

It has long been established that when parties are not dealing at arm’s length, there is no assurance that the transaction “will reflect ordinary commercial dealing between parties acting in their separate interests”. [Citations omitted.]

[54] In my view, Royal 7 cannot hold Otomic responsible for the costs of continuing the excavation work. There was no written contract with Otomic with respect to the Phase Two work or any extras that may have been required. Further, payments to Otomic had slowed down and then stopped entirely. Holdbacks had not been released and Otomic was not asked to return to the site to carry on further excavation work.

[55] After the verbal contract about the continuation of work on Phase Two broke down, Otomic brought a claim and filed a construction lien on the site. Royal 7 then questioned the quantities removed from the site by way of defence and counterclaim. Much evidence was called by both sides on this issue. As well as the evidence from the parties, the court heard evidence from two expert witnesses and an Ontario Land Surveyor.

The Evidence of Bernard Moore

[56] Bernard Moore is a professional engineer who was qualified as an expert to give evidence for the plaintiff. He is a specialist in earth sciences and project management. He reviewed Valdor Engineering Inc.’s Cut-Fill Plan and the survey prepared by Krcmar Surveying Ltd. Robert Wiegenbroker, an Ontario Land Surveyor, gave evidence on behalf of the defendants. I will discuss Krcmar’s updated calculations later in these Reasons, but Mr. Moore noted that calculations by Krcmar may have underestimated the amount of soil actually removed because of a swell factor. As he explained, when soil is excavated from a site, pressure is released and the volume of soil increases when it is moved to a truck. I take that to mean that if ten cubic meters of soil is removed from the ground it will swell to a larger quantity when moved to a truck, unless it is heavily compacted within the truck. He has considerable experience in managing contracts of this type and most contracts with which he was familiar with are based on a load count not a Cut-Fill Plan. He also gave evidence that ten cubic meters as the capacity of a dump truck is a standard measurement used in the industry.

Robert Wiegenbroker

[57] Mr. Wiegenbroker is an Ontario Land Surveyor who works for Krcmar Surveying. Mr. Wiegenbroker and his staff did a considerable amount of survey work on the site leading to the Cut-Fill Plan that was attached to the contract. In addition, he did subsequent survey work to assist Royal 7 in determining how much soil was removed from the site.

Peter Zourntos

[58] Mr. Zourntos is a professional engineer who has worked for Valdor Engineering Inc. since 1995. He has worked on this Royal 7 project since 2011. His firm prepared the Cut-Fill Plan in July 2011. Mr. Zourntos was qualified as an expert to give evidence to assist the court. Although he was not truly independent, I am satisfied that his evidence as an expert can be received under the Supreme Court of Canada’s guidance in White Burgess Languille Inman v. Abbott and Haliburton Co., 2015 SCC 23, [2015] 2 S.C.R. 182. Mr. Zourntos prepared a report and gave evidence with respect to that report. In preparation for the report, he authorized further survey work to be done in order to calculate the quantity of fill removed from the sites. This involved reviewing the calculation surveys done by Krcmar for Phases One and Two. Because these sites were adjacent to each other there was some overlap created when excavations for site one, by necessity, included removing some material from site two. Using acceptable industry calculation programs, Mr. Zourntos calculated that 123,788 square cubic meters was removed from Phases One and Two. An additional 30,323 cubic meters was excavated but left for backfill following construction.

[59] But previously in March 2013, Valdor Engineering Inc. was asked to review the excavation volumes by Royal 7. Mr. Zourntos’s letter indicated:

Our volume calculation was based on using the same parameters as Krcmar and we confirm that the volume of 115,110 cubic meters is acceptable. The volume that we calculated was 114,937 cubic meters.

[60] This letter was accepted by Royal 7 at the time and a further payment to Otomic was authorized.

The Counterclaim

[61] Royal 7’s counterclaim alleges that Otomic breached its contract with respect to some work on Phases One and Two. It therefore seeks reimbursement for the costs it incurred to complete the work. By way of submissions, its net claim is $273,700.31. Royal 7 arrives at this by way of the following figures:

(i) Total claimed by Otomic - $217,945.74 (ii) Less one half of backfill invoice #1111 - $14,441.25 (iii) Overcharge on volume - $301,479.48 (iv) Net amount paid to Toocor to complete work - $178,725.32 (v) Total owing to Royal 7 - $273,700.31

[62] The components of this summary can be broken down as follows:

One Half of Backfill Invoice #1111

[63] Royal 7’s evidence was that only 50 percent of this backfilling work was done and suggests that Otomic’s claim should be reduced by $14,441.25. Otomic’s evidence was that 90 percent of this backfilling was done and its claim for this invoice is incorporated in the $217,945.74 claim. I am satisfied on a balance of probabilities that Otomic completed 90 percent of this work and this invoice as incorporated in its claim is due and payable.

Overcharge on Volume

[64] Royal 7 maintains that, according to the measurements by its engineers, 123,788 cubic meters of material was removed and this figure is 14,833 cubic meters lower than the 138,610 cubic meters billed by Otomic. When multiplied by $18 per cubic meter plus HST, Royal 7 claims that an overcharge of $301,479.48 results.

[65] On the evidence before me I am satisfied that the parties used the Cut-Fill Plan as a guide only. A more accurate method of calculating what was removed was the truck count, using an accepted industry average of ten cubic meters per truckload. An accurate count was kept on a daily basis. There was some monitoring of this by Royal 7 in the early days of the contract. The daily calculations were given to Royal 7 and this truck count was the basis upon which each invoice was submitted. There were never any questions about the truck count or any further verifications of quantity removed by Otomic during the occurrence of the contract. There were a number of other variables in play as well, including the substantial amount of material required to be removed for the side slopes, the overlap of material from Phase One and adjacent Phase Two, the swell factor, as well as minor variables with respect to computer calculations in combining the bulk fill extraction from the two sites.

[66] Royal 7 received a benefit from each truckload that was removed from the site and transferred to a Toocor site at the rate of $50 per truckload. Royal 7 took the benefit of this reduction based on every truckload that was removed, regardless of the “swell factor” contained within each truck.

[67] I am satisfied on the evidence before me that Otomic did not overcharge Royal 7 with respect to the volume of materials removed.

Toocor’s Cost to Complete

[68] Royal 7 then hired Toocor to complete certain work on Phases One and Two. A letter of intent was signed on November 30, 2013, for $17,460 plus HST. A further letter of intent was signed on the same day for $238,600 plus HST to complete the remainder of the bulk fill excavation and other work on Phase Two. Royal 7 submits that it paid $325,620.80 in total to Toocor but acknowledges that if the work had been done by Otomic it would have paid $136,895.48 to Otomic, therefore its net claim in this category is $178,725.32.

[69] There are substantial differences between the contract that Otomic had and the letters of intent entered into by Toocor. There was no breakdown as to how the Toocor agreement was arrived at, no indication that it was based on $18 per cubic meter or whether a Cut-Fill Plan was attached. The evidence of Toocor was that material was removed but retained elsewhere on-site. There was no trucking off site. By comparison, Otomic was not given the opportunity to retain most of the excavated material on-site. It was required to truck it to sites under the control of Toocor at a cost of $50 per load.

[70] I am satisfied that Toocor and Royal 7 were closely related companies. Royal 7 did not request a competitive bid or break down the letter of intent in a comparable fashion to the Otomic contract. The following points should be noted:

(1) Royal 7 and Toocor shared the same address. (2) Royal 7 and Toocor employed the same comptroller. (3) Peter Cortellucci was an officer and director of both companies. He signed the letters of intent for Royal 7 as president. The signing officer for Toocor Ltd. was Joseph DeRocchis, as comptroller. Mr. DeRocchis was also comptroller for Royal 7. (4) Royal 7 retained Toocor at a time when relationships with Otomic broke down. Representatives of Otomic said there was a meeting in November and it was requested to do certain work for free. It refused. Toocor then started work. (5) Toocor started work in November 2013 but its major invoices were not sent until 2015 and no holdback was noted on these invoices. There was no progress billing. (6) Toocor was not requested to remove or excavate material from the site.

[71] I am satisfied that Toocor did do further excavation and related work on Phases One and Two. But I am satisfied that Otomic is not responsible for the additional costs that Royal 7 claims for invoices from Toocor.

[72] There is no evidence before the court that Royal 7 ever demanded that Otomic return to the site to complete the work. It should be noted that there was no written contract for the Phase Two work. The parties proceeded by way of a verbal extension of the contracted work for Phase One to be continued on Phase Two. No written agreement was entered into to complete Phase Two, pursuant to the Cut-Fill Plan, nor were any change orders entered into like the change orders for Phase One that required Otomic to do certain additional work. No upper limit was established for work on Phase Two.

[73] I conclude by saying that Otomic was never given an opportunity to, or requested to return to the site to complete the work. Such a request could have mitigated any possible claim against Otomic for damages. Payments to it had slowed down in the previous months and holdbacks had not been released. Royal 7 entered into an agreement with a related company, Toocor. In these circumstances, I am satisfied that Otomic is not liable for the costs of continuation of excavation and related work by Toocor.

[74] In conclusion, the counterclaim by Royal 7 is dismissed. The counterclaim having been dismissed, judgment is therefore granted to the plaintiff for $217,945.74 as particularized in para. 49 of this Judgment. Having dismissed the counterclaim, it is not necessary for me to review the applicability of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B claim by Otomic as a defence to this counterclaim.

The Construction Lien

[75] The plaintiff submits that the construction lien was appropriately registered on the basis that they removed their pumps and related equipment on May 15, 2014 and registered the lien on June 4, 2014.

[76] The defence submits that Otomic had long abandoned the site and had not been seen or observed maintaining any pumps after they removed their major equipment in December 2013.

[77] I am satisfied that based on my assessment of the evidence of Salvatore Cutillo, Otomic continued to monitor their pumps on the site until they removed their pumps and final equipment on May 15, 2014. They were required to maintain these pumps pursuant to the contract. There was never any demand by Royal 7 for earlier removal. Further, Royal 7 took no steps to terminate the contract in any formal way.

[78] I am satisfied that the plaintiff has a valid construction lien on the subject premises, more particularly described as YR2136231 for York Region.

Interest

[79] I am satisfied that the plaintiff is entitled to pre-judgment interest from the date of its claim to the date of judgment and post-judgment interest thereafter, pursuant to the provisions of the Courts of Justice Act, R.S.O. 1990, c. C.43.

Costs

[80] The parties are encouraged to settle the issue of costs. If no settlement is reached, I will receive written submissions from the plaintiff within 20 days of the release of this endorsement. The defendant will then have a further 10 days to reply. Cost Submissions are not to exceed five pages together with a Bill of Costs.

MULLIGAN J.

Released: February 13, 2017

February 13, 2017 – Correction: Para. 74 now reads:

[74] In conclusion, the counterclaim by Royal 7 is dismissed. The counterclaim having been dismissed, judgment is therefore granted to the plaintiff for $217,945.74 as particularized in para. 49 of this Judgment. Having dismissed the counterclaim, it is not necessary for me to review the applicability of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B claim by Otomic as a defence to this counterclaim.